According to the LLQP Segregated Funds and Annuities and Investment & Savings curriculum, identifying a retiree’s primary risk requires analyzing asset concentration, income needs, and access to cash. Lily’s situation clearly points to liquidity risk as her most significant exposure after retirement.
Liquidity risk is defined in the LLQP study materials as the risk that an investor may not be able to access cash quickly or without a significant loss in value when funds are needed. Lily’s wealth is heavily concentrated in real estate, both directly through properties and indirectly through segregated real estate funds held in her RRSP and TFSA. Real estate is inherently an illiquid asset class. Selling property or redeeming real estate–focused funds can take time and may occur at unfavourable prices, especially during market downturns.
This risk is amplified by the fact that Lily has no pension income. Unlike retirees with guaranteed income streams, Lily must rely almost entirely on withdrawals from her registered and non-registered investment assets to meet her living expenses. The LLQP curriculum emphasizes that retirees who depend on their portfolios for income must prioritize liquidity to ensure regular cash flow and financial flexibility.
Additionally, Lily plans to make larger, irregular withdrawals to travel abroad. This further increases her exposure to liquidity risk, as sudden cash needs may force her to redeem investments when market conditions are poor or when real estate values are temporarily depressed.
The other answer choices are less applicable. Credit risk primarily affects bondholders and lenders, which is not central to Lily’s portfolio. Inflation risk is relevant to all retirees, but Lily’s assets include real assets like real estate, which tend to provide some inflation protection. Interest rate risk mainly affects fixed-income investments, which are not a major component of her holdings.
Therefore, based on LLQP-approved risk definitions and retiree planning principles, Lily is most exposed to liquidity risk, making Option C the correct and fully verified answer.
