Mr. and Mrs. Lee, both 70, require $60,000 annually from their investment portfolio to cover living expenses, in addition to their CPP and OAS benefits. Their portfolio is valued at $1,200,000. They anticipate needing to draw these funds for at least 25 years. What is the most critical liquidity constraint for their portfolio?

Question: Mr. and Mrs. Lee, both 70, require $60,000 annually from their investment portfolio to cover living expenses, in addition to their CPP and OAS benefits. Their portfolio is valued at $1,200,000. They anticipate needing to draw these funds for at least 25 years. What is the most critical liquidity constraint for their portfolio?

Answer options: ✅ The need for monthly income distributions

• Their desire to avoid capital gains taxes
• The requirement to maintain a high capital base
• Their preference for Canadian equities

Correct answer: The need for monthly income distributions

Explanation: The primary liquidity constraint for the Lees is their need for a consistent annual income stream of $60,000, which translates to monthly distributions. This dictates how their portfolio should be structured to provide regular cash flow.