How to manage your medical expenses after you retire

You are more vulnerable to illness and dread diseases in your senior years. Once you have retired, it can be difficult to manage the medical costs associated with these.

In this article, we consider how to plan for medical expenses when you are no longer earning, and provide tips for keeping costs as low as possible.

Tip: If over-indebtedness is preventing you from saving enough for retirement, debt consolidation may be a good solution.

Why you need to plan ahead

Not all of us will remain strong and healthy well into our senior years, even if we have tried to live mindfully. If you haven’t made provision for medical costs before or during retirement, medical expenses could ruin you financially.

“The truth is that without making timely provision for these medical expenses, there is little you can do once you retire and stop earning an income,” warns Nico van Gijsen, managing director at Finlac Risk & Legal Management.

“The older you are, the more expensive your medical aid premium will be, and the greater your chance of falling prey to a variety of medical conditions. Proper financial planning is key, since prevention is always better than a cure.”

Let your medical scheme work for you

To avoid late-joining penalties, it’s wise to join a medical scheme long before you retire.

“You will be penalised for every year you were not a medical scheme member, after age 35,” says van Gijsen. “This could see you paying between 5% more, if you have not been a member for one to four years, and 75%, for more than 25 years.”

Certain medical schemes limit their entry age to under 60 or 65 years, and some schemes stop coverage for cancer at age 65, so do your homework. While you can’t plan for the cost of a medical scheme in your retirement years with absolute precision, you can choose a fund with good benefits, which may make more sense than choosing the cheapest option.

“Make use of your medical scheme’s preferred service providers, to ensure the fee is fully covered by the scheme,” says van Gijsen.

He recommends that you review your plan regularly, preferably with the assistance of a financial adviser who specialises in medical scheme cover.

You can make changes to your medical plan towards the end of every year, but make sure you have the best benefits for your needs as an older person, even if it means upgrading to a more comprehensive plan. This will be more affordable if you have paid off your home or car, for example.

Tips to ensure you remain covered

If you are struggling financially, stay on a cheaper plan so that you are covered for prescribed minimum benefits, advises Munaf Mukadam, wealth manager at Gradidge-Mahura Investments.

“These are a set of defined benefits that ensure all medical scheme members have access to certain minimum health services,” he says.

The alternative is to take out a health insurance plan that will pay out a certain amount per day, or per health event.

If you cannot cover the premiums, ask a family member if they can help. “If you don’t have cover and you need medical care, your children or family would have to pay the costs in any case,” van Gijsen points out.

If you are a member of a medical aid scheme, Mukadam recommends taking out gap cover, which will help cover shortfalls and elevated fees.

“At private hospitals, doctors charge above medical aid rates. This is permitted, however, you are liable for any extra charges,” he says. “This is where gap cover is useful.

“Having an emergency fund for medical costs later in life can also help with those expenses.”

Strategies to keep costs down

• Keep an eye on your doctors. Van Gijsen says you should make sure that any prescribed medical treatments are clinically approved, and that your medical aid scheme will pay. Doctors sometimes prescribe treatments in experimental stages, and these will not be covered.
  “You should also be wary of doctors that continue to prescribe expensive treatment where there is no hope of healing or recovery,” he says.
• Negotiate with your doctors. Many doctors are willing to negotiate their fees if they are contracted out of medical schemes. It pays to ask!
• Don’t cancel your life insurance. Mukadam says your life insurance can pay out in the case of a terminal disease. “This will keep you from spending your retirement money and becoming a burden on your family,” he says.
• Buy a fit-for-purpose retirement annuity. An annuity can help you to keep up with the monthly payments for your medical scheme after you stop earning, van Gijsen explains. As a bonus, he notes, “Your contributions to a retirement annuity are tax-deductible.”
• Avoid making early withdrawals from your retirement fund. Mukadam says you are allowed a R500,000 tax-free lump sum withdrawal at retirement. Any unnecessary early withdrawals will come out of your tax-free portion, which will disadvantage you.
  “Early withdrawals are extremely difficult to replace,” he says. “Most people never catch up and end up with less money in retirement.”
• Try to maintain a healthy lifestyle. Exercise and healthy eating habits play a large role in helping to avoid medical expenses. “Even if you follow a healthy lifestyle, go for annual check-ups to detect any signs of disease or in an early stage when treatment is cheaper,” says van Gijsen. “A medical scheme is not only useful when you are sick – it also ensures you stay healthy.”
  The advantage of staying healthy is being able to continue working, especially if you haven’t saved enough for your retirement.
• Downsize to a smaller house or flat. Mukadam says you can take the profit you make from the sale of your property and add it to your emergency fund for medical expenses.

Tip: Building up an emergency fund can help you to cover your medical expenses in retirement. Investing in unit trusts can help to grow your money.