How to plan for medical expenses during retirement

It’s impossible to predict what your golden years will be like. Perhaps you’ll be in good health, sipping pina coladas on a beach, or maybe you’ll be bedridden and struggle to make ends meet.

The only way to ensure you’re not caught by surprise is to plan ahead. We got in touch with a financial expert to find out what you can do to ensure your medical expenses don’t drain your retirement fund.

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Medical expenses can drain retirement savings

According to Johannes Burger, certified financial planner at OBIN Wealth Management, most South African retirees face the risk of outliving their retirement savings, and many retirees consequently battle to fund their increasing medical expenses.

“Ironically, retirees often practice the act of budgeting more effectively than most pre-retirees. This might be because they’re actually living the consequential reality of failing to properly plan for a comfortable retirement,” says Burger.

He adds that older people often plead with youngsters to not only take care of their health and spend enough time with their families, but also to start saving from an early age.

READ MORE: What happens to your medical aid when you move overseas?

Get ahead of your future medical expenses

Burger explains that medical expenses often escalate at a much higher rate than the reported inflation rate. He suggests coming to terms with this reality, pulling your head out of the sand, and planning accordingly.

He believes that it all starts with budgeting, and recommends the following:

1. Record your monthly expenditure.
2. Carefully scrutinize every expense.
3. Remove the “nice-to-haves” and see how you can optimize the “must-haves” to bring about savings.
4. Review your progress both monthly and annually.
5. Review your medical aid plan, to ensure you’re adequately covered for your needs.

Get gap cover before 65

Having a decent medical aid plan will ensure your medical expenses are covered. However, certain procedures will only be covered to a degree and you will have to settle the rest of the bill yourself. If you have gap cover, you won’t have to pay this additional bill.

“Supplement your medical aid with a solid gap cover policy, try to do this before you turn 65. After 65, most products will be more expensive, unnecessarily adding to your expense column for the remainder of your life,” says Burger.

“Without gap cover, you’re very likely to run into a situation where your hospital, specialist, or anesthetist account is not covered in full by your medical aid. These shortfalls, and co-payments, can hurt your pocket if you don’t have gap cover,” he adds.

Besides this, he also recommends studying your immediate family’s medical history – as well as your own – and try to anticipate the likelihood of specific illnesses or injuries you might be prone to.

What else can you do to prepare?

Burger has the following advice regarding medical expenses during retirement:

• Never cancel your medical aid membership. Even if you have to swallow your pride, and ask your children to help you to maintain the contributions. Medical aid, like any other form of insurance, is a grudge purchase. No one likes paying for it. But when trouble comes, it will be your greatest help.
• You need to have a bulky emergency fund. At least 6 to 12 months of your monthly expenses. These funds should be kept in an easily accessible investment account, invested in lower risk instruments like a Money Market or interest-bearing fund.

He points out that the list of possible health complications is endless, and the degree to which it affects a particular individual can’t be forecasted with great accuracy.

He recommends keeping in mind that medical aid contributions can increase between 9% and 12% each year, and that you should plan with this in mind.

“Start saving, yesterday, and take care of your physical and mental health. Eat, train, work, and live in a way that enhances your chances of a healthier future,” says Burger.

He adds that you should plan for the worst, but live your life in pursuance of the best. 

If you don’t have medical aid yet, click here to find out more and get a quote.