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This is how much you need just for medical aid in retirement

Are you prepared for the impact of this recurring cost?

The generally accepted wisdom is that when you reach retirement you need to be able to secure an income equal to 75% of your final salary. This is because there are many expenses that you can trim once you stop working.

Most obviously, you no longer need to save for your retirement. So the contributions that you were making to your pension fund and retirement annuities can be cut.

You also won’t be travelling into work every day, which hopefully means that you won’t need to spend so much on petrol. If you and your spouse were using two cars before, it might even be possible to downsize to one and cut the insurance and maintenance costs associated with the second vehicle. There is also always Uber if the two of you need to be in different places at the same time.

Since you no longer need to dress for the office, you might also save on clothing. There will probably be less need for formal wear and shoes.

Up and up

There is however one expense that is not going to decrease. In fact, if recent history is anything to go by, it is probably going to increase ahead of any other cost.

“Over the last few years, the average increase in medical aid contributions has exceeded inflation by 3% to 5% per year,” says Karen Wentzel, head of annuities at Sanlam Employee Benefits.

According to Sanlam, the average contribution for an adult member is now between R3 000 and R5 000 per month. In many cases, individuals who are still working will have part of that paid by their employer. In retirement, however, you’re likely to be on your own.

As your medical requirements are almost certain to increase as you get older, it’s also realistic to expect that if you are not on the most comprehensive medical aid plan when you retire, you will have to move onto it sooner or later. This may further increase the cost.

Taking inflation into account, Wentzel suggests that retirees should even allow for contributions to increase between 10% and 15% per annum to ensure that their needs are met.

“With an increase of 15% in contributions, your medical aid contributions will double after every five years,” she notes.

“Unfortunately no pension fund will pay increases of 15%, thus your medical aid contributions will be a bigger portion of your income every year.”

The numbers

This is a reality that retirees need to plan for. Your health is, after all, something that you never want to compromise. However, few people appreciate exactly how much capital is required just to meet their medical aid expenses.

The following table puts this into perspective:

Source: Sanlam Employee Benefits

What this shows is that a woman who retired today at age 55, and whose medical aid costs increased by 3% above inflation for the rest of her life, would need retirement capital of R1.77 million just to cover that expense.

“A couple consisting of a male aged 60 and a female aged 55 will need between R3.5 million and R4.5 million to cover their life-long medical aid premiums, assuming a monthly medical contribution of R5 000,” says Wentzel.

This illustrates how important it is to understand what a lump sum at retirement is actually worth. While R4.5 million sounds like a lot of money, it may only be enough to meet a couple’s medical aid needs, never mind their other living expenses.

This is certainly one area where you can’t afford to be caught short. When saving for retirement, it’s important to appreciate what you are working towards, and to understand just how much you need to set aside just to make sure your health is taken care of.

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COMMENTS   34

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Here’s a medical aid issue for Patrick Cairns to REALLY investigate:- What is going to happen to all those medical aid members contributions and benefits in this country once the ANC, via minister Mhkize gets the National Health Insurance scheme activated here in South Africa?
See what you can come up with Patrick as this matter is deserving of a big, big article.
How about some input from Discovery or Momentum as well, what do they know? What have they picked up?

Excellent point, because if govt gets its way, we won’t need to pay for medical aid, or medical care, because it will all be for FREE… or at least that’s what their voting base believes.

Fairy tails do come true; like winning the Lotto. The people reading these articles are, in my opinion, intelligent to give some insight into funding and implementation of NHI. With shortfall in funding SOEs, ballooning grant disbursement, illegal immigrants…. I don’t see a freebie NHI being implemented anytime soon.

The medical aid industry (like so many others) in South Africa should be put out of business. They are a total ripoff. The quicker NHI is implemented the better.

Mmmmm indeed: In you think state run Hospitals will cater for the whole population : Dream on !!
Even in the UK , without Private Medical cover , you are stuffed.
This Govt cant run a single thing properly .

No I don’t think so. It will be much like Eskom. Everybody will get the same service some will just pay more and some will pay nothing. Often you will have no service at all and that will affect the whole country.

It’s Africa after all.

I’ll pay my medical aid premiums, thank you. It’s a grudge premium every month, but we pay it.

I know plenty of doctors who work in state hospitals. They gladly pay their medical aid premiums for private healthcare. And they tell their friends and family to do the same.

I’m also still waiting for both the Tooth fairy and the Easter Bunny to turn up, Mmmm.Do you realize that the State funds its projects through collected tax? Collected from the Private sector. The NHI will put thousands of private companies and privately employed people out of work and lose billions in VAT, PAYE,COMPANIES tax and other taxes. Many other businesses rely on the private medical industry as clients: computer industry, medical devices, consumables, pharmacies, brokers, cleaners,security, catering,the list is endless. So what are they going to use for money if they lose all that tax revenue? And your retirement investment in Private hospital groups will be gone, most likely. The average age of a specialist in SA is over 60. They can/will retire if the NHI is implemented and they are relegated to slave labour. Young doctors have exportable skills and most likely will emigrate. The NHI will solve medical costs for the patient easily: no service, no costs. Just check up on your funeral cover.

Unfortunately the majority of the people will not be able to afford these amounts, most people going on pension now don’t even have R5000 per month income to live on.

Most people who bought into retirement plans/schemes up to 45 + years ago do not realise the returns and numbers today that were proposed or sold to them on paper 45 years ago and fall way short of what they were told was a good plan at the time…..

Everyone underestimated the effects of above inflationary costs and expenses rising whilst their income attracted below inflationary increases and below inflationary returns like pensions and RA’s today.

Medical insurance and Life insurance companies have ripped the people off, as not everybody will be able to use or receive back what they put in over time.

It is a form of a “legal” pyramid scheme that pays out only to those people who use the medical aid benefits. I am not a financial advisor, but it seems like most of us early adopters have been suckered into paying into a bottomless pit that won’t be able to support you without new recruits. Assuming everyone stopped paying life cover and made it fully paid up today do you think you will still get a payout?

Most life cover nowadays will not pay out any amount once you reach the end of cover term date for life cover, unlike earlier life policies had form of endowment that could pay out.

Read and try to understand those policies better before signing and especially what you might get out or not and if it will be beneficial to you to rather take another path to cover your and your families cost in future. It is too late once you spent all the years paying into these schemes and realise not much will be coming back into your or your families pockets.

So true regarding life policies.I had a policy ‘expire’ when I turned 60. Had paid for at least 40 years.Low premiums but nonetheless 40 years being a loyal client. I should have read the fine print all those years ago….

So true. The premiums are already crippling us right now. Especially when one is self employed. A number of us small business owners, are contemplating giving up the medical aid cover. Perhaps we should embark on building relationships with Chris Hani Bara hospital staff.

Most South Africans cannot afford to make provision for this and for that on and/or after retirement. Articles like this sounds very much like “Baba maak vir gogga bang.” There is no way that ordinary people will ever have the means to cater fully for all eventualities. Fact is: You can only do so much and no more. This is the reality.

Regarding NHI, there are a few simple facts to consider: 1) Good medical care requires long proper training for the carers – doctors, pathologists, anaesthetists, specialists of all kinds. This costs a LOT of money. 2) People who have qualified need to be reimbursed for their expensive training. 3) If they can’t get it here in SA, they will will go elsewhere. 4) South Africa’s birth rate is currently outstripping our growth rate. 5) Because of our dreadful national education (courtesy of SADTU), the majority of South Africans won’t be able to get high-paying jobs (our average national annual income is around R13 000 per month). So they won’t be able to pay for expensive medical care. How then will NHI be paid for? Currently only about 3.5 to 4 million South Africans pay 95% of ALL taxes – N.B: ALL TAXES !! – income tax, VAT, corporate tax and a hundred other stealth taxes. These few are already being taxed to death; no more money can come from here. Thus there is simply NO money to pay for an NHI that can offer good quality care for all South Africans. QED.

And that small tax base will shrink even further with a plethora of private company taxpayers being lost by the NHI. NHI employees are paid through taxes, they do not create wealth like private companies.

Consider this…
If a Medical Aid society has 3 million members paying an average of R3000 per month, that is a turnover of R9billion a month and R108 BILLION a year! I very much doubt the claim reach anything like this amount. It would also explain why some MA CEOs are able to have winefarms, helicopters and homes abroad!
Just my observation.

Re my previous comment…..
This would also explain why Some Medical Aid businesses require their own bank – they need somewhere to stash all our Lolly!

And the government has a history of looking after your money, I suppose? I am not worried about my medical costs after retirement, I am worried about not being able to access quality medical care at all, no matter the price. Which is why my husband and I are building reserves outside of RSA, for that specific need.

Unfortunately, South Africans (particularly the better off ones) believe that medical aid is some sort of saviour that will come to their rescue in their times of need regarding medical treatment.

People forget that behind medical “aid” is an insurer. In other countries, it is called “health insurance”. Insurers are out to make money off you.

A family of 4 in South Africa on medical aid typically costs upward of R5000 per month. This is money that is being paid for something that you most likely wont use. And when you use it, the costs most likely wont be anywhere close to the R5000 that you paid for the month.

I have worked for medical insurers in South Africa. They are capitalist, and the companies supporting their business model (i.e. private hospital groups) are also capitalist.

That means that they want to make as much money off people as possible. In laymens terms they want to charge you as much as possible and pay out as little as possible. They operate as cartels.

The question should then be asked: How much are you really benefiting?

Over the past 20 years, my cumulative medical aid expenses have been in the region of R1 800 000. My medical expenses over that time including the birth of children have come to around R300 000. That is including the amounts that I had to pay out of my own pocket because the medical savings for the year have run out.

The follow on from that is, why should health care be capitalist? When a person gets cancer or has a stroke, do they deserve to be treated better in those conditions because they have more money? Do they feel any less sick? Do they deserve less dignity?

The people who believe they do are in essence fueling the rising costs in the private medical industry because they are resistant to not-for-profit medical care.

In principle, I agree completely with NHI. I believe that everybody deserves to receive exactly the same treatment in times of illness. I also believe that NHI will drive costs of private healthcare down due to there being an alternative in the market.

I do not believe that it will run perfectly initially and it will take probably a decade to get it to the point of being an almost comprehensive viable alternative, but the private medical treatment prices will be moving down almost from inception. And that is why the medical schemes have embarked on campaigns of fear mongering.

There will always be those that are resistant to change for whatever reason, and who will believe it is their God given right to have exclusive healthcare. And they can carry on paying for their private healthcare once NHI comes in under whatever illusions they believe. I do hope that they will at least have the courtesy to thank NHI for lowering costs.

In the US which has capitalist health care, medical care costs are 3 to 4 times what they are in South Africa. Most people there cannot afford medical care. In many states they give you a tax rebate of R200 000 to R400 000 after child birth.

In countries where NHI exists, medical costs are lower than ours. e.g. New Zealand costs between R150 and R250 for a GP visit and medical care for under 16s is completely free.

I do recall how much resistance there was when Gautrain was announced, and many of who I knew to be the most staunch resistors to Gautrain are now daily users and only have praise for it.

Perhaps those most vocal in resistance are the most fearful.

You are right in only one aspect here: under NHI everybody will get the same medical treatment. Abysmal. You are spouting socialist rhetoric. Has not worked in the history of man and never will. The only proponents of socialism are those who hope to benefit from other people’s money, earned through other people’s hard work.

Why should healthcare not be equal for everyone?

TheSpark, please try to live in the real world, not your socialist dream, where all resources are infinite and bountiful, where all members of society sit around a campfire singing Khumbaya.

Do the New Zealand and UK health systems not work successfully on this principle?

We aren’t talking about the entire economy.

Your concern is around rising medical costs.
How do you suggest rising medical costs get under control given that they far exceed inflation and thus will eat into your retirement savings?

There is a system currently where everyone gets exactly the same health treatment… in government hospitals. NZ and UK is not SA. IF SA moves over to NHI more people would have access to private health care, however the supply side will remain the same or even decline. The existing middle class will pay double and I can see very long waiting lists. Unless off course you’re a minister, which is why they don’t care. The UK health system is crap my friend. woman do not have access to specialists and waiting periods are extremely long. And that’s in a country with a broad tax base.

If a 10 to 15% increase in medical costs is too expensive for pensioners it will also exceed normal salary increases.

Clearly no point in complaining about our capitalist healthcare then.

Let the 15% increases continue.

The solution in bringing down costs lies in the market mechanism. Train more doctors and nurses.

Why should everybody get the same medical service? Not everybody gets the same educational service, security, salary, housing, etc, why would health service be different? Not a single country in the world provides the same medical service to everybody. Do you think the PM of NZ or the UK gets the same medical attention as a homeless bum? Do you think a government minister in the UK has to wait for his GP like the average voter? If you say that a minister deserves faster/better service then where do you draw the line? MPs, provincial premiers, city councillors?

Spark, in an ideal world I agree with you. Your Gautrain example is not that good – ratepayers subsidise that thing to the moon and the “owners” profit handsomely; very South African.

So snag is that selfishness has hijacked almost all options, particularly in SA. The days of public serving politicians and “public servants” are gone. As are altruistic business people and businesses. Unions operate for the good of their “leaders”, not members or the greater public. So each option is doomed to failure as more and more people copy and adopt a “get rich quick”, “screw the public” etc philosophy, in SA maybe seeing an end game, Zim or Venezuela style, coming. Many see better options elsewhere in the world and emigrate, taking skills with them.

I do not see a sustainable solution unless someone (the president) starts setting an example and actually leading..

So would you rather have state medical cover like the dev.world or private medical cover? neither seems to work…

There have been numerous programmes on Carte Blanche about cardiac and cancer patients unable to get prompt medical care in the public hospitals.

At least with the current system if you are willing and able to pay you will get treatment.

Patients are coming from all over Africa to make use of our private healthcare system. This system is supporting the productive people in our society.

Everyone wants the public health system to improve but there are many stories about lazy and incompetent managers running these facilities.

@TheSpark – you don’t seem to understand the Golden Rule: those who have the gold make the rules. Sorry – it’s just the way it is. Communism has ruined and been kicked out of over 50 countries. Tts pink relative, Socialism, only works to a degree where some 60% of the population pay (very high) taxes, as in a couple of Nordic countries. Compare that to SA where only about 3 to 4 million people (out of 58 million) pay almost ALL tax. NHI is a pipe dream and always will be until MOST South Africans pay meaningful tax. (And ‘ALL tax’ includes VAT by the way.)

There is a company with three upside-down pyramids…profitable pyramids in Life Insurance, lifestyle programme and medical aid. They make lots of money confusing the average South African with all their hogwash.

Makes sense why banking is so attractive and profitable.

Keep the hamster running…

Make provision for a good hospital plan. Why spent more on the medical saving account portion? After all, it is your money with no tax benefit at all!

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