So you got your annual increase letter from your medical aid and it brought home a stark reality: medical inflation is 9.8%, far steeper than general inflation at 6.3%. This means that medical contributions and expenses could present a formidable challeng
“Increased longevity rates mean that many pensioners will be supporting family members and themselves for longer after they retire. Many of these people will have to drastically reduce their living standards and more still will have no provision at all for medical costs at a time when they’re more likely to incur them ,“ explains Iain Williamson, Managing Director of Old Mutual’s Retail Affluent division.
It’s equally worrying that many people working in the defined benefit retirement environment mistakenly believe that their retirement funds will cover their post-retirement medical costs.
“The problem is exacerbated by the fact that many people opt to downgrade to a hospital plan to reduce their premiums. This is the last thing they should do,” cautions Williamson. “The older you are, the greater the chances that you will get ill, and the greater your need for a comprehensive medical aid plan to tap into.”
It’s worth noting the impact of this ignorance on health care: in the US, a Fidelity Health and Welfare study found that the steeply increased cost of medical care has meant that many simply cannot afford their medication. One in seven of those surveyed had taken a smaller dose of medication than that prescribed, and a fifth had skipped at least one prescription in the last year.
Cutting costs this way can of course have grave consequences for those needing chronic medication, and could end up costing them even more and endangering their health further.
Wishful thinking won’t protect you
Despite the need to save for retirement, the fact is that many working South Africans are not saving. According to the findings of the recent Old Mutual Savings and Investment Monitor, they feel stretched to the limit by the basic necessities of everyday life and do not believe they have any money to set aside for saving.
Williamson says that while this feeling is understandable, especially when times are tough, it means that many South Africans who’ve worked hard all their lives will retire without adequate savings, and many will outlive their money.
“Some South Africans think that their children will look after them in old age. But relying on children for support is risky. There is no guarantee that your grown-up children will be able to afford to cover the costs of your chronic medication, frail care and so on.”
Being sensible is the best option
“Speak to your financial adviser and make sure that you know exactly what you are covered for and how much you will need to invest for health care when you retire. Remember, the more cost-efficient your cover is while you’re working, the more you can afford to invest for later years,” Williamson concludes.