People saving for retirement often underestimate the cost of medical care in later years. Thanks to medical advances, healthier lifestyles and improved diets people are living longer, making dread disease amongst the aged the norm these days, not the exception.

During the average adult’s working life, medical aid schemes and the ever-growing basket of health bills not covered by the schemes use up a lot of the average working person’s monthly earnings. If people don’t want to spend their hard-saved for retirement income on medical bills they should consider providing for this need while still working.

An extremely efficient vehicle for this is a tax incentivised retirement annuity fund. Statistically, if one lives into one’s 70s there isn’t a possibility of experiencing dread disease, it’s a probability.

Retirement annuity funds have evolved into extremely flexible, tax efficient and effective retirement planning vehicles, ideal for funding medical aid obligations when one is no longer earning an income.

Contributions to retirement annuities are tax deductible up to 15% of a member’s non-retirement funding income. Retirement annuities growth is tax free. Any interest, dividend and capital gains earned on a number of different portfolios remain tax free.

At age 65 or later all retirement annuity fund income spent on medical care, including medical aid scheme contributions, is fully tax deductible. One can now retire anytime after the age of 55 and is no longer forced to exit at age 70.

The net effect is that all contributions that a person makes to their retirement annuity fund, both while working and after, will either have been tax deductible or tax free thanks to:

• Tax deductible contributions
• Tax free investment growth within the fund
• Tax deductible medical costs from age 65, offsetting the taxable annuity stream.

Gordon warns that given the potential opportunity costs, the price of delay may be very expensive in the long term.

Reference: Jenny Gordon (Money Marketing)