The consequences of failing to save enough for retirement are generally life-changing, such as a massive drop in standard of living, which is the reality for most South Africans. Only around 6% of South Africans retire with enough money to live off until they die. The rest become dependant on their families or the state, which pays a monthly pension of only R1,780.

Salie Petersen, a financial adviser with Alexander Forbes, says we tend to put more thought and effort into buying a car than we do into planning for retirement, a season of your life which may last 30 years.

Before buying a car, we typically research makes and models, examine the specs of the car, consider the mileage, fuel consumption and financing options. Yet our approach to retirement is not as analytical.

Petersen says this is probably because retirement is not tangible, like a car, and therefore it’s challenging for us to keep it “front and centre” in the years leading to retirement.

But if you’re five years from retirement, you have only 60 pay days left to make a difference to your retirement income. Once you retire, you will have to cater for at least another 180 pay days (assuming you live only 15 years in retirement), living off what you have saved in the run-up to retirement. Many people who reach retirement age, however, are living much longer.

This is why planning for retirement has to start when you start earning an income, and not five years before retirement. And when you reach retirement day, you need to be prepared to make a host of important decisions.

For example, if you’ve contributed to an employer-sponsored pension fund or a retirement annuity, you can take one-third of your savings as a cash lump sum, the first R500,000 of which is tax-free. Deciding whether to take the lump sum or use your entire retirement nest egg to buy a monthly pension or annuity is a critical decision.

Not only are there tax implications (for any amount over R500,000), but there are financial planning considerations. Once in retirement, you may never again have access to large sums of cash. So, if you need to repair your car or spend money on your home, this will have to come out of your monthly budget, if your only source of income is your monthly pension.

Ideally you should have paid off all your debt before retirement and built up some savings, but if you haven’t, a key question is, do you need to take a lump sum to settle debt, or to create an emergency fund, because you have no savings other than your retirement savings?

“Remember that whatever you take as a lump sum means you have less to buy a pension,” says Petersen, who has the Certified Financial Planner accreditation.

You also need to consider how you’re going to pay your medical scheme contributions. Many people who earn a salary enjoy medical scheme cover as an employee benefit, which means their employer pays a percentage of their medical scheme contributions. For most employees, this falls away when you retire.

“The likelihood of you requiring medical care post-retirement is significantly higher than the likelihood of you needing it in your working life,” Petersen says. It may be the time you will need your medical scheme cover most, but your contributions will be one of your biggest expenses in retirement, he says.

Life insurance is another consideration, Petersen says. If you have any outstanding debt, it may be useful to have life cover. Ideally, you don’t want to go into retirement with debt or life cover. Life cover will be expensive and is also a costly way to create a legacy to leave to your heirs.

Find out if your employer offers a continuation option of your group life benefits, he says. Some group life cover provides a sum equal to three times your annual income. Find out if you can continue that cover post-retirement.

“Think about why you are taking this cover, because you are paying for it from your pension. If you do need it, consider getting your dependants to pay the premium, since they will ultimately enjoy the benefit,” Petersen says.