Advanced Diploma of Financial Planning (ADFP) Practice Test

Rising inflation during retirement can significantly affect various aspects of a retiree's financial situation. One of the most notable outcomes is the increase in healthcare costs. As inflation rises, the prices of goods and services, including healthcare, tend to increase as well. This means that retirees may have to allocate a larger portion of their fixed income to cover medical expenses, which typically rise at rates that can outpace general inflation. Consequently, the burden of paying for necessary healthcare is likely to grow, impacting the retiree’s overall financial stability and possibly requiring adjustments in their spending in other areas.

The other options present scenarios that may not accurately reflect the reality of rising inflation. For instance, a decrease in savings needs contradicts the necessity to preserve capital to keep pace with increasing prices. Similarly, an increase in the wage replacement ratio does not align well, as rising inflation usually necessitates higher income replacement rather than a change in the ratio itself. Lastly, while lower travel budgets might be a personal choice made by some retirees facing tighter budgets, the direct effect of inflation is a more pronounced increase in essential costs like healthcare.