Stochastic method
A method that simulates thousands of possible futures with varying returns and inflation, measuring failure risk explicitly and producing a probability-based safe withdrawal rate rather than a single corpus figure.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Accumulation stageThe working years, in which saving and investment build the retirement corpus — the stage where the ability to take risk is highest and where time, not contribution size, does most of the work.
- Debt to income ratioMonthly debt servicing commitment divided by monthly income — the ratio that says whether a household's income can carry the loans it already has, let alone another one.
- Distribution stageThe retired years, in which the corpus built during working life is converted into periodic income — the stage where protecting capital matters more than growing it, because it can no longer be topped up.
- Pre-retirement stageThe middle of the three phases of retirement planning — the years just before and around retiring, when physical and psychological changes arrive and the rules and procedures must be learned.
- Real rate of returnThe return on an investment after the effect of inflation has been removed — what the money actually buys more of, as against the nominal percentage the product advertises.
- Reverse mortgageA loan that pays a senior citizen a periodic income against a pledge of the residential property they live in, repayable from the sale of that property after death or permanent departure.
Where this is taught
Free preparation for NISM Series XVII← All terms