Advanced Diploma of Financial Planning (ADFP) 2025 – 400 Free Practice Questions to Pass the Exam

The rationale behind the choice of particularly frugal clients requiring significantly less than the typical 70-80% income replacement ratio for retirement lies in their spending habits and lifestyle choices. These individuals tend to live below their means and prioritize savings or investments over immediate consumption. As a result, their necessary living expenses in retirement may be considerably lower than those of average retirees.

Frugal clients often have a lifestyle that allows them to stretch their dollars further, which can reduce their reliance on a high replacement income. Their ability to manage expenses effectively may mean they can enjoy a comfortable retirement with a smaller proportion of their pre-retirement income. In contrast, the other groups mentioned may not exhibit the same level of control over expenditures or might have more substantial financial obligations that necessitate a higher income replacement ratio. For example, clients who overspend tend to have financial habits that would require them to maintain a more considerable income level in retirement to sustain their lifestyle.

By recognizing the unique situation of particularly frugal clients, it becomes clear why they may not need the typical income replacement ratio that most financial planning frameworks suggest for retirement readiness.