Have you factored in medical expenses into your retirement savings?

People often believe that if you gather significant assets during your lifetime and put enough into your retirement or pension fund during your career, you don’t have to worry about living comfortably in your later years. But in an environment where medical costs are rising and markets are constantly fluctuating, is that really true?

Here’s a figure that might be surprising if you are planning to retire soon and haven’t considered your health care costs. If you are 65 and retiring this year, you will need about R990 000 during retirement to keep up the same cover you currently enjoy. For a couple, that total is about R1 990 000. (assuming you are on the Discovery Health Medical Scheme, on the Classic Delta Comprehensive Plan, a contribution of R4059 to your plan, and that your retirement grows in line with medical inflation- currently CPI +4%)

These numbers are based on the assumption that a man will live to be 85 and a woman 87, however with publications like the scientific research journal Nature reporting that children born in 2000 will live to be 100 years or older we may need even more retirement and medical savings in the future. With our longer life spans, financial planning for retirement has never been more important if we want to maintain your lifestyle over the long term.

So how much is enough?

It’s easy to miscalculate how much you’ll need in retirement. Underestimate what you will need and retire too soon and you could run out of money in your retirement years. Overestimate and you might keep working longer than is necessary or deprive yourself of trips, restaurant meals and other luxuries unnecessarily.

Bottom Line Personal asked retirement-planning professor, Michael Finke, what he sees as the top 3 most common mistakes made by people when planning for retirement. Number one, he says is that people often overestimate the amount medical aid and insurance will cover, number two, that they underestimate health-care inflation and the third mistake that they do not consider or factor in the possibility that they could need long-term care in retirement.

On how to more accurately estimate medical expenses in retirement Finke suggested that you start with what you currently spend on health care annually, or if that figure has fluctuated greatly, take the average you have spent over the past five years.

Then also factor in that the Consumer Price Inflation (CPI) in South Africa has increased by 6.3% a year on average since 2008, and medical scheme contributions are increasing by at least CPI 3-5% annually.

What can we do to plan better for the future?

Take care of yourself

It is important to engage in a healthy lifestyle. 60% of diseases afflicting people worldwide are lifestyle diseases. To help aid in a happy, active retirement, protect your health by embarking on regular exercise, a balanced diet and maintaining a weight that is correct for your body type. The healthier you keep your body; the better the chances are that you would not need to spend as much money on healthcare bills as you age. Of course, there are will always be unforeseen illnesses which will catch you off guard but it is important to make provisions where you can, so that medical bills will be one less thing that you would need to worry about as you enter into retirement.

Invest in yourself and pick the right plan

Government care may be sufficient for many pensioners; however, many may require immediate or specialised levels of care that are not readily available at state facilities. Some medical schemes may also impose substantial late joiner penalties, waiting periods and exclusion if a pensioner joins for the first time. Having adequate retirement funds to cover medical cost will ensure you get the care and treatment you need when you need it.

Covering your medical expenses in retirement requires planning and Discovery Invest has created funds that help you fund your healthcare expenses in retirement. They also give you up to 15% more money for your retirement savings.


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