Advanced Diploma of Financial Planning (ADFP) Practice Test

In terms of retirement expenses, which of the following statements is true?

1. All expenses will remain constant

2. Some expenses will decrease, and others will increase

3. All expenses will increase

4. Only leisure expenses will decrease

The correct answer is: Some expenses will decrease, and others will increase

When considering retirement expenses, it is accurate to state that some expenses will decrease while others may increase. This reflects the complex nature of an individual's financial situation as they transition into retirement. For many retirees, certain expenses, such as work-related costs (commuting, professional attire, and daily lunches), may decrease significantly since they are no longer working. Similarly, housing costs could decrease if retirement involves downsizing to a smaller residence or moving to a less expensive area. Conversely, some expenses can rise in retirement. For instance, healthcare costs often increase with age, as retirees may face more medical needs. Additionally, some individuals may spend more on leisure activities and travel during retirement compared to when they were working, as they have more free time. Understanding this dynamic is crucial for effective financial planning in retirement, as it impacts budgeting and suggests that retirees need to consider the full spectrum of potential financial changes rather than assuming that all expenses will behave uniformly.