What are the biggest retirement costs to plan for?

Retirement planning in South Africa isn't only about building enough savings. It's about ensuring your retirement savings can keep pace with the costs you'll face throughout retirement.

Even well-funded retirement plans can come under pressure when unexpected expenses or rising costs aren't factored into long-term planning. While many retirement cashflow models focus on income at retirement, they frequently overlook the cost shocks that can emerge decades later, putting long-term financial security at risk.

We’ve rounded up some of the biggest, often-overlooked costs that can erode your retirement savings if they aren't included in your retirement planning.

1. Retiree inflation

The overall rise in prices across all goods and services in an economy rarely reflects the reality of a retiree’s expense basket. In South Africa, medical scheme contributions, municipal rates, electricity, security company and care costs are often higher than published inflation figures.

2. Retirement accommodation costs

Retirement living can become more expensive over time. While retirement estates and villages offer security, lifestyle benefits and convenience, the levies often escalate faster than inflation. Life-right schemes don’t appreciate in the same way as freestanding property. Also, when one partner requires frail care while the other remains independent, it can play havoc with a household budget.

3. Home and vehicle maintenance

Paid off doesn’t mean cost-free. Many retirees aim to have a paid-off house and car. But major roof repairs, damp proofing, replacing a vehicle, upgrading security systems or replacing backup power solutions can be nasty surprises. In the second half of life, these expenses can quickly drain your capital.

4. Financial support for family

Adult dependants can extend into retirement. It’s not uncommon for retirees to support adult children or grandchildren financially. Whether it's education, housing or day-to-day living expenses, ongoing financial assistance can place unexpected pressure on retirement income. These recurring expenses can shorten the lifespan of your retirement savings drastically.

5. Declining health and long-term care

As we age, we may become mentally or physically vulnerable and less able to manage our own financial affairs. Putting the right safeguards in place early can help protect your interests and ensure your wishes are carried out if you're no longer able to make decisions independently.

It's also important to plan for the possibility of needing long-term care. The transition from independent living to home-based care, assisted living or specialised dementia care isn’t factored into retirement planning, yet these costs can spike exponentially over time and place considerable pressure on your retirement savings.

Ensure you have these in place before retirement:

• A comprehensive estate plan
• A power of attorney (while you still have legal capacity)
• Trusted financial, legal and family support to assist when needed

6. Longevity risk

The biggest risk may be outliving the assumptions built into the plan. If a retirement strategy is structured around 20 years, but retirement lasts 30 or 35, the cost of those later years is often the most expensive period. Healthcare and care-related inflation can spin out of control.

7. Medical aid and health expenses

Medical aid contributions often become one of the largest monthly expenses. More comprehensive plans, not simpler ones, are needed as healthcare needs evolve. Out-of-pocket costs for chronic medication, specialist consultations, gap cover and procedures not fully covered by schemes are also stark realities. A contribution that feels manageable at age 60 can throttle you by age 75 or 80.