Retirement freedom isn't free

Most workers want the freedom in retirement to do what they want, and they've demonstrated that they're willing to pay for that freedom -- up to a point. Still, they could do much more to gain their freedom. That's one of many conclusions reached by the recent 16th Annual Transamerica Retirement Survey.

When asked which activities best describe how workers dream of spending their time in retirement, the most frequent answers were:

  • traveling (42 percent),
  • spending more time with family and friends (21 percent), and
  • pursuing hobbies (15 percent).

Only about 16 percent reported wanting to participate in any of the nonleisure activities often advocated on behalf of retirees, such as continuing to work in their current field, volunteering, starting a business or pursuing an encore career.

So, how can you "pay" for this desired retirement freedom? You can start by saving and investing for retirement. The good news from the Transamerica study is that more workers are participating in their savings plan at work -- 80 percent of workers reported doing so this year, up from 78 percent just four years ago.

They're also saving more: The median contribution among those who are saving was 8 percent of salary in 2015, up from 6 percent in 2011. And they're starting to save at an early age. Workers in 2015 reported they began to save at a median age of 27, down from age 28 in 2011.

Working in your retirement years is another way to pay for your retirement freedom, and 51 percent of workers said that's their plan, working either part time (39 percent) or full time (12 percent). Only 25 percent don't plan to work in retirement. The majority (58 percent) said they plan to retire after age 65, or not at all.

All these answers, especially from those who expressed a willingness to work in some way to make ends meet in retirement, represent a significant change from prior generations.

You can also pay for your retirement freedom by reducing your standard of living during retirement. In 2015, 57 percent of workers expect their standard of living will stay the same or increase in retirement, and only one-third think they'll see it decline. Yet plenty of evidence shows that retirees actually spend less as they age and that they're still quite happy. So, it's realistic to be prepared to reduce your spending when you retire.

Another important finding from the survey concerns how much you should save and plan for retirement. And it found an opportunity for improvement because when workers were asked how they determined their retirement savings contribution rates, the most common answers were:

  • What I could afford (45 percent)
  • The maximum contribution matched by my company (29 percent)
  • The maximum allowed by my plan (18 percent)

The first two answers mean you're likely to fall short of accumulating sufficient savings to maintain your standard of living in retirement. Better answers were less common:

  • Calculated based on my age/risk tolerance (10 percent)
  • Recommended by my employer or plan provider (10 percent)
  • Recommended by my financial advisor (9 percent)
  • Using a calculator or worksheet (8 percent)

Only 14 percent of workers surveyed have a written retirement strategy, while 44 percent have an unwritten strategy. Forty two percent of workers don't have any strategy, written or unwritten. Only 35 percent of workers said they have a professional advisor.

So, workers could improve the chances of a successful retirement by spending the time needed to develop a strategy that includes calculating how much you really need to save. Or you could work with a professional financial planner if you need help.

Save. Work. Reduce spending. Plan. Because retirement freedom won't be handed to you on a silver platter. And while that freedom may not come for free, many workers and retirees will say it's well worth the price.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.