Pieter Albertyn, Head of Investo Product Solutions at Momentum Savings, warns against being an ostrich and hiding in the sand.
I’ve heard a guy joke about being offered a bag of salty biltong in the Sahara Desert. “I’ll eat it now and face the consequences later,” he said. Being crazy about biltong myself, I laughed, and then I thought, the joke won’t last.
We’re clever enough to know what is good or bad for us but getting into the habit of doing something about it, is less attractive. Like for my biltong friend, short-term gains often seem just so much more pleasant.
So, while it is the time of year to consider a new medical aid option for next year, let’s think a bit about facing the consequences. I’m shuddering about medical aid costs now, even though I’m still earning a salary. I’m also trying to work out how long my medical savings account will last this time around – August maybe, or only April, if the kids fall ill again?
Imagine having to worry about this during retirement when there is no bonus or similar windfall to come to the rescue. One thing is for sure, all those visits to the doctor and prescription medicine will add up. Let alone surgery, or the need for full-time care. Just look at the graph to confirm how medical aid claims escalate during retirement. Whether we like it or not, it will be the life stage when the self-payment gap will jump on us earlier and earlier.
The good news is that you can do a couple of things about it now:
- Have a chat with an older person – a reality check can be a lifesaver.
- Consider how healthy your lifestyle is – are you making mistakes now that could be expensive later?
- Do the sums of what your needs may be – medical inflation is generally 3% to 4% higher than normal inflation.
- Start now – with more time on its side, your money can multiply.
- Take out a separate retirement savings vehicle to make special provision – call it your “ambulance” retirement annuity.
I often think of inflation as a monster from a children’s book, hungry to delve into my savings. It’s a bully whose path of destruction we can often appreciate only in hindsight. For instance, who would have believed us by the turn of the century that a loaf of bread would cost R18 or more today? Back then it cost less than R5. Back then, medical aid cost R360 per dependant per month, and today it’s close to R2 700. Will you believe me that it will be R20 700 some 25 years from now?
But in every children’s book, there is also a fairy godmother. In our case, it is growth, and growth on your growth. If we start putting money away as soon as we can, it has time to grow, and when we start earning interest not only on the capital but also on the interest we have earned, the multiplier effect kicks in. It’s the fairy godmother’s kick in the teeth of her inflation adversary. A little every month, as soon as you can, will get you much further than a lot of money invested at a late stage in your life.
So, don’t dig into the biltong too much if you don’t see an oasis yet. Let’s face the consequences of our money actions and inactions now.