A new report by Just Retirement finds that pensioners can expect to pay almost twice as much for private home care compared to renting in a middle-market retirement village.
“Based on our calculations, pensioners require R20,500 per month for essential expenses, including frail care, to rent in a middle-market retirement village compared to R37,000 per month to stay in their home with 24-hour private home care,” said Twané Wessels, product actuary at Just.
“Pensioners who require 24-hour home care may however qualify for an enhanced annuity and this might reduce the capital needed to secure the same income.
“To cover R37,000 per month for life to stay in their home with 24-hour private home care, pensioners aged 75 with a life expectancy that is 25% shorter than the average life will need approximately R3.5 million as a male and R4.4 million as a female,” she said.
Monthly essential expenses
“With a large lump sum in retirement you can obtain life rights (from R1.3 million), a 99-year lease (from R2.8 million), or sectional or full titles from R2.3 to R3.2 million in a retirement village, according to the 2017 Alexander Forbes Benefits Barometer,” said Wessels.
“Life rights terminate on the death of the holder. Some retirement villages also offer rental schemes, and according to Just research a 75-year-old may require between R2.2 and R2.8 million – depending on their gender – to cover essential expenses for life in a middle-market retirement village”.
For a middle-market retirement village Wessels estimated the following total monthly expenses:
- Rent – R9,000
- Levies – R2,000
- Three meals per day – R4,480
- Hospital plan – R1,500
- Frail care that includes 24-hour nursing – R3,520
For home based care Wessels estimated the following total monthly expenses:
- Maintenance, rates and taxes – R3,500
- A grocery bill of – R3,500
- Hospital plan – R1,500
- 24-hour home based care – R28,500 (based on an average rate of R800 per day excluding VAT)
“The cost of home based care varies widely per provider and depends on the number of hours of care required per day. It is more expensive on Sundays and public holidays. For 24-hour care the cost varies between R200 and a R,1400 per day,” Wessels said.
“To determine the required capital we have used competitive with-profit annuity rates, which target increases above inflation.”
Basic vs more expensive retirement homes
According to a separate Just Retirement report released in December 2017, there is also a clear cost difference in the affordability of basic vs high-end retirement homes in South Africa.
Monthly expenses are shown below for a basic old age home, a middle-market and an upmarket retirement village.
These expenses typically increase annually by approximately 3% more than inflation.
Frail care includes 24-hour nursing and may be needed for dementia sufferers, for example. Dementia results in memory loss, impaired communication skills and an inability to make simple decisions. The increase in dementia highlights the need to make the right provisions in retirement.
For one retiree, monthly expenditure in an upmarket retirement village with frail care can be approximately R59,250 per month.
*Medical aid included in the upmarket retirement village analysis is assumed to be a comprehensive plan. For the others a hospital plan instead of a comprehensive plan has been assumed.