Advanced Diploma of Financial Planning (ADFP) Practice Test

Which of the following costs typically tend to decrease during retirement?

1. Health care costs

2. Travel expenditures

3. Employment costs

4. Gifts to relatives

The correct answer is: Employment costs

During retirement, employment costs typically decrease because individuals are no longer actively participating in the workforce. This means there are no associated expenses such as commuting costs, work attire, and other job-related expenditures. As people transition into retirement, their income sources often change, primarily relying on savings, pensions, or social security benefits rather than earning a regular paycheck, leading to reduced financial obligations tied to employment. In contrast, other costs could remain constant or even increase, depending on the individual's lifestyle and choices. For example, healthcare costs may rise due to an increase in medical needs as one ages. Travel expenditures may also vary based on how actively a retiree chooses to travel. Gifts to relatives can fluctuate based on personal finance decisions or family dynamics, and are less predictable compared to the clear reduction in employment-related expenses.