The health gap

Johannesburg - For most people their biggest medical expenses start after retirement, and for most retirees this eventually becomes the biggest outlay.

According to Alexander Forbes Health, after retirement a couple require, in addition to their retirement funds, an additional R1m for contributions to a comprehensive medical plan.

The latest BenchmarkTM review of Sanlam Employee Benefits into the state of the pension fund industry shows that 67% of people who are working are unaware that after retirement they too will need money to provide for medical expenses.

Only 5% of those people who are indeed aware of this are saving anything for such post-retirement medical expenses.

Many companies provide for workers remaining members of the medical fund after retirement, but then the company subsidy falls away. The member himself therefore  has to provide for the additional contribution, or the premium to become a member of another medical fund.

Jeffrey Wiseman, head of financial solutions at Momentum, said medical expenses can consume a great deal of retirement funds because retirees’ day-to-day medical expenses keep rising. 

It is also necessary to note that people who do live to retirement age will live much longer than previous generations did, said Dawie de Villiers, chief executive of Sanlam Structured Solutions.

Calculations by Coronation Asset Management indicate that men who retire at 60 could live to 81, and women to 84.

De Villiers said the contribution to a basic hospital plan for a man and woman is R1 350 a month today, and for a comprehensive product with a savings option R3 300.

De Villiers says to make adequate provision for retirement, 15% of one's annual salary should be saved for a period of 30 years. To provide for medical expenses, the savings rate should be increased by between 1% and 5%.

To calculate the amount necessary to provide for medical expenses, those who are working should plan to replace their gross income by retirement age. At the moment the employer's subsidy is taken into account in the total cost of employment, and this is often lost sight of, said De Villiers.

People who are members of an employer's pension fund can increase their contribution to the fund in order to also receive the same tax benefit.

To resolve the problem of medical expenses after retirement, the best advice would be to invest one third of the payout from a retirement fund received in cash.

De Villiers said part of this should be in cash because this is readily available, but the rest should be invested in growth assets (shares and property).

- Sake24.com

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