Many pre-retirees tend to underestimate their post-retirement healthcare costs and use their current health status as a guideline for what their future health will look like. The reality, though, is that many diseases and chronic conditions are a function of ageing, and your fortunate good health in the years leading up to retirement is not guaranteed to continue as you grow older.
While it’s common knowledge that medical inflation outstrips consumer inflation year-on-year by between 3% and 4%, it is absolutely essential that these inflationary assumptions are built into your long-term retirement plan to ensure that you don’t run into financial problems.
But perhaps the biggest expense to factor into one’s long-term healthcare plan is that of assisted living, frail care, or private nursing which are generally not covered by medical aid. The costs of this type of care can be prohibitive for many elderly people, the result being that they end up being cared for by their families. This, in turn, can place an additional emotional and financial strain on the extended family – affecting the entire family who often buckles under the burden.
Every retirement plan should therefore cater for regular and unforeseen medical expenses, and possible full-time care, while considering the effects of medical inflation over time.
Providing for the daily living costs of your elderly parent – whether part or in full – can be enormously expensive. Besides costs such as groceries, toiletries and fuel, there are numerous other costs that need to be considered.
Frail care facilities can cost anywhere between R13 000 and R25 000 a month, while full-time private care can cost up to R60 000 per month.
According to Stats SA, 38% of South Africans over the age of 60 use chronic medication, around 20% use assistive devices such as spectacles, 10% wear hearing aids and 5% use wheelchairs, all of which are not necessarily fully covered if you are on medical aid and would need to be paid for out of pocket.
So what forms of cover should be considered to manage health-care expenses in retirement?
- Retirement Annuity: An RA can be a useful savings tool during retirement, offering tax deductions on contributions. At a certain age, when you need the extra money, the RA can be converted to a living annuity, which can then supplement your income for medical expenses.
- Dread disease cover: This is an important consideration to cover against severe illnesses like dementia or cancer which can have immediate consequences for your lifestyle, with big financial implications. With cover in place, you will receive a lump sum upon diagnosis which will help with expenses and lifestyle adjustments.
- Medical aid and gap cover: With medical aid in place, you are covered for in and out of hospital expenses. By having gap cover as well, you are safeguarding yourself by being able to cover any shortfalls in medical expenses or emergencies that result in additional unforeseen expenses.
A retirement plan should always include a ‘worst-case scenario’ when it comes to budgeting for future healthcare costs to ensure that there are sufficient funds set aside for full-time care should the need arise. If left unfunded, you effectively transfer the financial burden onto your adult children and other family members which, in turn, will only serve to compromise their own retirement funding.
Stay Safe,
Jacques
MOMBERG CONSULTING 