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What does your good health mean for your retirement plan?

Being fit, healthy and free from ailments may give one a false sense of security when it comes to planning for the future.

If you’re fortunate enough to enjoy good health as you enter retirement, longevity is a factor that will affect almost every aspect of your retirement planning. Being fit, healthy and free from ailments may also give one a false sense of security when it comes to planning for the future. In this article, we explore the impact that good health has on your future planning.

Past health is no indication of your future health

While you may currently be in excellent health, bear in mind that many illnesses such as heart disease, dementia and cancer are a function of old age, which means that the longer you live, the more likely it is that you will contract or develop some form of age-related illness. As such, it is important to remember that your past medical history and current health status are not necessarily indicators for the future. If you do enjoy good health in retirement, you may be tempted to cut back on your medical aid and/or gap cover premiums, especially if you feel you are not getting any benefit from them. However, keep in mind that medical aids function on the basis of cross-subsidisation where the premiums of the young and healthy are used to cross-subsidise the claims of those who are older and in ill-health. If you do suffer from ill-health later on in retirement, bear in mind that it will be your turn to enjoy the benefits of cross-subsidisation. If you choose to downgrade your medical aid plan option, keep in mind that you will only be able to upgrade to a more comprehensive plan at the start of the next benefit year. Another factor to consider is that medical aid premiums escalate at a rate higher than inflation on an annual basis – normally at around 10% per year – and it is therefore important to factor this increase into your retirement planning.

Take a long-term view of your retirement accommodation

Buying and selling property is expensive and stressful, so it is advisable to think long-term when it comes to your retirement accommodation. If you’re fit and healthy, you may want to remain in the family home for longer. You may also not feel ready to enter into a retirement home or village while you are still enjoying good health, which is understandable. That said, it is not advisable to put off researching suitable retirement accommodation, especially as many retirement villages have extensive waiting lists for admission. If you need to access liquidity in your family home in order to augment your retirement funding, you will want to be meticulous in the timing of the sale of your property. You will naturally want to avoid an urgent sale which could compromise the sale price and, in turn, your retirement funding.

Build flexibility into your retirement plan

Depending on the age at which you retire, your good health could result in a retirement horizon of thirty years or more. Planning for such a time period is always difficult as your personal and financial circumstances can change dramatically during this time. As such, it is important to build flexibility into your retirement plan, both in terms of your retirement objectives and in respect of your funding. Your vision of retirement at age 65 could be dramatically different when you reach age 80, and your retirement plan needs to be fluid enough to adapt. Specifically, be cautious of locking all your retirement capital into compulsory investment vehicles as this will hinder your ability to alter your retirement plan if necessary.

Consider your spouse’s health

Although your health may be good, the same may not be true for your spouse or partner, and this dichotomy can really complicate your retirement planning, especially when it comes to agreeing upon retirement accommodation. For instance, if your spouse is diagnosed with early-stage dementia, you may need to consider moving into a retirement village with assisted living and/or frail care facilities to accommodate them as the illness progresses, albeit this may not be your preference in terms of living arrangements. It may also mean that you need to recalibrate your post-retirement budget to account for the additional healthcare expenditure. 

Don’t invest too conservatively

Planning to live a long life also requires that you give careful consideration to your investment strategy, bearing in mind that a thirty-year period is considered a long-term investment horizon. If you are invested too conservatively by taking on too little risk in your portfolio, you run the risk of your capital not keeping pace with inflation which, over a thirty-year period can dramatically decrease the purchasing power of your investments. That said, it is important to overlay your risk strategy with the goals and objectives you have for your retirement, specifically where large capital outflows may be required, such as overseas travel, home renovation or vehicle upgrades. The result should be an investment strategy that is stress-tested to survive the long-term while at the same time ensuring liquidity over the short- to medium-term.

You still need a retirement plan

If your plan is to continue working without formally retiring, keep in mind that you still need a retirement plan. Ill-health, retrenchment, job loss and other unforeseeable events can disrupt even the best-laid plans, and it is always advisable to develop a retirement plan that covers the various scenarios you may be confronted with. As such, scenario planning in the context of retirement planning can be particularly powerful as it can give the retiree peace-of-mind that all possible eventualities are financially provided for.

Have a long-term cashflow strategy

A lengthy retirement will require a long-term cashflow strategy but, given life’s variables, it is not always easy managing cashflow that far into the future. In the first instance, you will need to find the optimal balance between discretionary and compulsory funding to ensure that you are not confronted with liquidity and tax problems later in retirement. Secondly, you will need to keep reviewing your cashflow as and when your needs change deeper into your retirement years. It’s very much a case of hoping for the best, but planning for the worst, and building a cashflow strategy that works no matter what.

Be cautious of giving away assets while you are still alive

You may be tempted to gift your loved ones, particularly adult children and/or grandchildren, with assets in the form of an ‘early inheritance’ while you are still alive, but this may not always be wise. Besides the tax implications of making donations, there is always the risk that you may need the assets later on in life. If you are intent on parting with certain assets, it is advisable to undertake an estate planning exercise to put structures and mechanisms in place that support your intentions.

Don’t put off your estate planning

When it comes to estate planning, avoid delaying such an exercise in the belief that you still have many years to live. Tragedy can strike at any time and the absence of an estate plan can have devastating consequences for your loved ones. Take the time to develop an estate plan that meets your current needs, and then be sure to update it as and when your circumstances change during the course of your retirement.

Don’t avoid having a long-term care plan

Your good health can give you a false sense of security in terms of your future healthcare needs, so don’t make the error of not putting a long-term healthcare plan in place. Start by asking ‘what if’ questions such as ‘What if I am diagnosed with a terminal illness?’, ‘What if one of us loses our mental capacity?’, ‘What if we require assisted living or private nursing?’, and then do some realistic budgeting around future healthcare costs. Rapid improvements in medicine and technology mean that you may well enjoy a long life albeit with a chronic illness or ailment together with the healthcare costs that come hand-in-hand with living with severe illness.

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