Healthcare Costs: The Retirement Expense Many People Underestimate

Retirement projections often model housing, food, transport and leisure carefully while treating healthcare as a separate issue. That can produce an optimistic picture because medical-scheme contributions and out-of-pocket expenses may rise faster than general household costs.

From an integrated financial-planning perspective, health and financial wellbeing are closely connected. The specialist focus is on affordability, uncovered exposures, cash-flow resilience and how current healthcare decisions affect long-term wealth and retirement sustainability.

Specialist insight

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Healthcare inflation can differ from general inflation

Medical contributions and healthcare costs may rise at a different pace from the consumer price index. Over a long retirement, even a small annual difference compounds significantly.

Use conservative assumptions and test more than one inflation scenario.

Employment subsidies may disappear

Some employees receive employer contributions toward medical benefits. Retirement can remove or reduce that support, increasing the amount funded directly from retirement income.

The transition should be modelled before the retirement date.

Needs often rise with age

Chronic medication, specialists, mobility support, dental and optical care may become more frequent over time.

Not all of these expenses are covered fully by a medical scheme, so the retirement budget should include out-of-pocket provision.

Build healthcare into sustainable withdrawal planning

Healthcare should be treated as part of essential retirement spending. This influences the capital required and the level of portfolio risk that can reasonably be taken.

A healthcare reserve can also reduce pressure on the main investment portfolio during unusually expensive years.

Review medical and investment strategies together

Changing medical options to save premium can increase future out-of-pocket risk.

Conversely, excessive cover can unnecessarily consume retirement income.

The best choice depends on health status, affordability, emergency reserves and the wider income plan.

Specialist review checklist

• What do we currently spend on healthcare each year?

• How much of our medical contribution is subsidised by an employer?

• What healthcare inflation assumption does the retirement model use?

• How much cash is available for unexpected medical costs?

• Could healthcare costs force withdrawals above the sustainable level?

  
  

Specialist perspective

Healthcare is not a side issue in retirement planning. Treating it as a core expenditure category produces a more realistic income target and a more resilient retirement strategy.

Discuss your strategy with a specialist

Speak to Chris Pretorius at New Adventures for a conversation about your financial strategy and the next step that is right for you.

Email: chris@newadventures.co.za | Call: +27 83 281 3949

New Adventures — Financial Strategy for Your Future.

This article is for general information and does not constitute personalised financial, tax, legal or medical advice. Individual circumstances should be reviewed with appropriately qualified professionals.