Canadian Securities Course (CSC) Level 2 Practice Exam

According to the life-cycle hypothesis, during which phase do consumers focus on retirement savings and minimizing taxes?

1. Early earning years

2. Family commitment years

3. Mature earning years

4. Nearing retirement

The correct answer is: Mature earning years

The life-cycle hypothesis suggests that individuals plan their consumption and savings behavior over their lifetime, adjusting their financial strategies as they enter different phases of life. In the context of the phases outlined, during the near-retirement phase, individuals typically shift a significant portion of their focus towards maximizing retirement savings and minimizing taxes. This is because as individuals approach retirement age, their awareness of the need to secure sufficient income for their retirement years intensifies. They often prioritize contributions to retirement accounts, consider tax-efficient withdrawal strategies, and make decisions regarding asset allocation to ensure that they can sustain their desired lifestyle when they are no longer earning a salary. It's during this period that consumers are particularly motivated to consolidate their assets and take advantage of tax-advantaged accounts, which reinforces their focus on financial security in retirement. Hence, this phase emphasizes retirement planning and tax minimization strategies effectively.