How to save money in retirement

In its first Private Pension Index, BankservAfrica has revealed that pensioners are struggling financially; battling to meet their basic needs. The information for this index was gathered from private pension payments made to individuals aged 60 and older, in collaboration with economists.co.za, an independent economic research company.
 
According to reports, in December 2014, there were a total of 621 523 pension payments made, which the index reveals that this is slightly fewer payments than were made in November and October of last year.
 
The average take-home pension for December was R5 722, which is 8,7% higher than December 2013. This means that there was a 2,8% income growth for pensioners receiving a private pension.
 
However, the index reveals that more than 85% of pensioners are receiving less than R10 000 per month, which is less than the average disposable salary. In the formal sector, the average pension for 2014 was 45% of the average disposable income, which was R12 542 per month in the formal sector at the end of November 2014.
 
Mike Schüssler, chief economist at economists.co.za said: "On average, formal sector workers are therefore seeing a major decline in income when they retire if they are solely reliant on a private pension. This is a sign that retirement savings are not enough for the majority of pensioners."
 
The research has shown that while pensioners in the higher income bracket are experiencing a pension payment growth of about 2% since last year, the average to median pensioner is not experiencing as much growth.
 
According to the index, "If the median pensioner can get access to government old age grants it would increase their income by 38%, which by any standards is a meaningful amount. Nevertheless, the grim reality is that most pensioners are in a struggle to maintain their lifestyles, and most will struggle to make ends meet unless they access some form of an old age grant."
 
Cutting costs in old age
 
One of the contributing factors to pensioners' financial problems is the cost of medical expenses and other administrative costs. One way for pensioners to alleviate some of their financial burden would be to try and cut costs where possible.
 
One of the ways that a pensioner can look at cutting costs is by looking at their medical expenses. Heidi Kruger, an independent health care consultant said: "I think it's important for pensioners that when they're looking at their medical cover, their private health insurance cover, that they look at what aliments they may have, what health conditions they may have and make sure that whatever option they take is going to cover that adequately because otherwise they are going to have to pay some out of pocket."
 
Kruger points out that there are various medical aid options available that are affordable. However, some of these have certain conditions or limitations that have to be met.
 
"Some [of the medical schemes] dictate that you have to go to a limited range of doctors or a limited range of hospitals. And those limitations are put in place to save you premiums. Some of them also concentrate on hospital cover, but even those that were previously hospital plans have to cover 25 chronic conditions. All medical scheme options must cover a set of proscribed minimum benefits that is 272 mostly hospital and referred based conditions over and above these 25 chronic conditions," she adds.
 
According to Kruger, people must identify what their budget is for health care services, such as medical aid cover, and know what their health conditions are. If they are going to pick an option where they will have to visit a doctor from a preferred service provider, Kruger advises that they have to make sure that there is one of those service providers in their area.
 
Another way to save costs on medical cover is to stick to the formulary that is provided by your medical aid provider. "All medical schemes put out a formulary of what medications they will pay for and if you make sure that what your doctor prescribes is one of the medicines on the formulary, you very seldom have to pay in," explained Kruger.
 
Downsizing
 
According to reports, other ways of saving money on expenses could be to downsize. The upkeep of a large home can be expensive, and take up money that could be of better use elsewhere. When you get older, you also don't have the need for such a large house, something small and compact may be best.
 
If you have more than one vehicle, perhaps selling one of the vehicles and keeping the one that is in a better condition, more fuel efficient, or less costly to run could help with reducing costs. Maintaining and running a vehicle can be costly, even with the recent decreases in the petrol price.
 
Many companies offer special deals for pensioners, including food stores such as Pick n Pay and Spar, which can help keep the cost of living down. For information on specials that are on offer to pensioners click here.
 
Several financial advisers were contacted but were unable to provide comment before publication.