Hidden costs of living longer

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Longevity isn’t everything it’s cracked up to be

The plus side of better healthcare is that we are all living longer, often despite ourselves. Cancers are being detected earlier and survival rates increasing dramatically. Heart attacks are being prevented by surgery. Communicable diseases are being eradicated (despite the anti-vax lobby). In the western world, people are living longer and if trends continue people living into their nineties will become the norm.
Living longer, without changes to the normal age of retirement of say 65, comes with a huge risk of running out of money long before you die. At the moment, if you start work at age 25, and retire at age 65 (40 years), the retirement savings from those 40 years will probably fund 15 ( to 80) years of retirement at 100% of your salary, and to 95 at 75% of your salary, which is reasonable as your costs at retirement usually decrease.
Unfortunately very few people will preserve those retirement savings from the age of 25 through to retirement. In South Africa, only 5% of employees that change jobs will preserve their retirement savings. Why? We are eternal optimists. We genuinely believe that we will be able to make it up in later years. Tell ourselves that we will put it in our bond and bring down our bond repayments, only to forget about it when we move house and take a new bond. Suddenly it becomes the ‘profit’ on your house, and is usually chewed up in the substantial costs of moving home (transfer fees, commission, bond registration etc). (Read more about how we sabotage our wealth by frequently moving house HERE).
One of the biggest problems is that the cost of medical care is accelerating way faster than inflation, usually in double digits. What is the impact of this? If your medical aid is 7% of your ‘pension’ when you retire, after 30 years it would be 20% – and this is not considering that you are probably going to need a more comprehensive plan, usually double or more the cost of a hospital plan. When you do your retirement planning, especially here in South Africa, medical aid costs should be handled as a separate line item, with the higher inflation rate used. A hospital plan doesn’t mean what it did 25 years ago. Today you’re likely to spend 1/3 of the time in hospital than you did for the same condition then, but it will cost double (in real terms).

Longevity is great. You can spend time with not just your children, but grandchildren and great grandchildren. You can empty your bucket list, several times over. Longevity without health is not great. Frankly it must be hell on earth. Medicine is keeping us alive for longer, but our lifestyles are fighting back, eroding that quality of life. As much as we fight against it, statistics collected by health loyalty programs like Discovery Vitality have shown that their ‘engaged’ clients claim way less on medical aid and their ‘life’ policies. Whether you like it or not, your investment in your retirement isn’t just in money, it has to be in your health and fitness as well. Want some inspiration? Watch this.

The age at which you retire is likely to move out from 65 to 70, or even beyond. This demographic is the fastest growing new-hires in the USA, as retirees run out of money, or simply get bored. Employers have also cottoned onto the idea that that age-group is unlikely to be ambitious, doesn’t usually demand increases and promotions, doesn’t qualify for retirement fund contributions and bring a wealth of skills, work ethic and emotional intelligence. It’s a win-win. Whether you want to keep on working, or do all that travelling you never got round to, you aren’t going to be able to do it if you’re hampered for medical reasons, and you can’t insure against it. Disability is only recognised up to age 70 (and then only with some providers).

Actions: Apart from the obvious – saving more and preserving what you have – invest in your health to keep your future medical costs down and quality of life up. If you want to know how to fast-track your Discovery Vitality status, contact me and I will send you a plan (Zero to hero).

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Author Dawn Ridler  

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