Healthcare costs in retirement: be prepared by saving now

NMG Benefits
22 August 2022
min read

One of the most expensive costs we face in retirement is healthcare. The rising cost of healthcare is often overlooked in retirement planning, and it could quite easily derail your retirement objectives, especially if you suffer a major health event that requires ongoing treatment.

Just SA recently published its retirement survey for 2022. Some of the findings around retirement are nothing less than sobering. The respondents were asked how they plan on funding their retirement:

  • 57% plan to rely on their children and grandchildren
  • 42% expect to rely on siblings or other family members
  • 27% plan to rely on the government
  • 14% plan to rely on friends
  • 10% don’t have a plan
  • 9% think their retirement funds will be enough

Chances are, these respondents have not included healthcare in their considerations. Gary Feldman, Head of Healthcare at NMG said, “These statistics prove without a doubt that not only are the majority of South Africans leaving retirement planning until it is too late – if they even plan at all – the rising cost of healthcare is not included in their considerations.”

Fact: Medical aid premiums in retirement are an essential expense

Many people don’t realise that assistive devices and other aids are not always covered by medical aids. Not only that, statistics SA estimated that approximately:

  • 38% of South Africans over the age of 60 use chronic medication
  • 20% use assistive devices such as spectacles
  • 10% wear hearing aids
  • 5% use wheelchairs

Feldman explains, “Retirement is supposed to be your time of rest after years of working. If you can’t afford assistive devices or chronic medication, you may face debilitating pain and even depression due to your physical and financial circumstances.”

Fact: The household saving rate has decreased

According to Stats SA, “The Household Saving Rate in South Africa decreased to 0.3% in the first quarter of 2022 from 0.7% in the fourth quarter of 2021.” This statistic tells us that households are struggling more than they were in 2021. When a family struggles to save in general, chances are that preparing for healthcare costs in retirement is not even a thought. Feldman continues, “This is proof once again that South Africans are falling short of preparing for healthcare costs in retirement.”

Fact: It’s never too late to start planning for retirement

On average, healthcare costs tend to sit 3 to 4% above inflation every year, with very few employers offering medical aid subsidies for their retirees. As a result, retirees are under increasing pressure to afford their medical aid premiums. Feldman advises, “Regardless of where you are in life, you can start planning for your retirement and future healthcare costs today. The earlier you start, the easier it will be to reach your goals. It is important to get a needs analysis done by an accredited financial adviser so that you know how much you will need, and what you need to save to get there.”

Your health care costs in retirement depend on three factors

You do have some control over most of your healthcare costs. Here are three important factors that you can control now to help your future, retired self:

1. Your health status

Your current health and your family's medical history can tell you how much you can expect to spend on medical cost as you age. Other important factors include: Are you a smoker? Do you visit the doctor often? Do you have chronic health conditions? Feldman adds, “Many medical professionals encourage a healthy lifestyle while you are younger to avoid the burden of mounting medical costs in retirement. Take control of your health. Simple things like making time in your busy schedule for your annual check-ups can make a difference down the line.”

2. Your medical scheme plan option

The best way to deal with increasing medical scheme costs is to review your plan options regularly.

Some medical schemes will allow a plan downgrade during the year, but most will not allow you to upgrade until the end of the year. Feldman points out, “There could be other medical aid options that are more suited to you and your family. You may be on a plan that could be reduced, and the difference that you save could be used to save for your health needs in retirement.

  • When you start saving

Your medical costs will increase as you age. As a result, it's a good idea to plan early and start saving for these costs while you are younger. The sooner you start saving, the less you will need to save each month to reach your savings goal because you will be saving for a longer period. Feldman explains further, “There are several tax efficient ways to invest your savings to ensure that these can grow and boost the savings that you have available at retirement to help you cover your medical needs at that time. You can consider using a tax-free savings account or a retirement annuity fund. If the rules of your fund allow it, it may be a good idea to put extra voluntary contributions into your company retirement fund.” If you save extra money for retirement while you are younger and still working, your contributions have time to earn compound interest to help you get a higher monthly income when you retire. You could also pay less tax on your salary or income every month.

NMG SmartAid can help

NMG, as a team of accredited financial advisors and healthcare consultants have seen increasing numbers of clients coming through their doors who are unprepared for rising healthcare costs. As a result, the company will be launching NMG SmartAid in the next coming months.

NMG SmartAid is a retirement annuity that is dedicated to covering medical costs in retirement. The product includes an assessment of each member’s circumstances to determine if the member is on track to meet their specific needs. It also includes an annual personalised statement that reflects the member’s on- or off-track status. Feldman adds, “Members don’t need to make investment choices. This product focuses on the member’s needs based on their unique circumstances rather than on the investment return.”

With NMG SmartAid, members who are not on track are given advice on the actions they need to take using a projection tool. Feldman concludes, “NMG SmartAid looks at the member’s full retirement picture and provides a simple solution that offers peace of mind in retirement. That time of your life when all you want is to feel financially protected and secure.”



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