I teach tax, so I spend a lot of time talking about retirement from the technical side. We discuss 401(k)s, IRAs, Social Security, tax rates, capital gains, basis and the many other rules that affect what people get to keep.
But now that I am on the other side of 65, I think there is something missing from many of those conversations. A good retirement is not something you put together in the last five or 10 years of your career. Mine took about 43 years.
There was no great investment that made it happen. I didn't predict the market correctly or discover some financial secret. Mostly, I saved. For much of my working life, I tried to save around 25% of what I earned. Some years were easier than others. There were houses to buy, tuition to pay, trips to take, and all the normal expenses that come with living a life. But saving was always there. I think that consistency mattered far more than trying to make the perfect investment decision.
I never really stopped investing in my career
I also kept going back to school. Anyone who has done that as an adult knows that education isn't free simply because you can afford the tuition. It costs weekends, evenings and time you could have spent doing something much more enjoyable. In my case, it was worth it. I started law school at 55 and became an attorney at 58.
My education allowed me to move in different professional directions over the years and eventually helped me build a career that I still enjoy. Today, I teach tax. I get to spend my time with students, stay intellectually engaged and continue earning income without giving up the things I want to do outside of work.
That has changed the way I think about retirement. We often talk about retirement as a finish line. You work until a certain age, stop working and begin withdrawing money from the accounts you spent decades building. I don't necessarily want that.
I want to work if I enjoy what I am doing and if work doesn't prevent me from enjoying the rest of my life. There is also a very practical financial advantage to continuing to work. Every year that earned income covers expenses is another year that retirement savings may not have to do the job. It can also provide more flexibility about when to claim Social Security and when to take money from retirement accounts.
But I wouldn't keep working simply to accumulate more money. At some point, time becomes the more valuable asset. That is a calculation we don't teach often enough.
Sometimes the bigger house makes sense
I also don't subscribe to the idea that every dollar that could have been invested should have been invested.
We bought the bigger house.
At that point in our lives, we wanted it and we enjoyed it. I don't look back and calculate how much more money we would have today if we had lived in a smaller house for all those years. That would miss the point. Money is also supposed to improve the years you are living now.
The important part was recognizing when the bigger house no longer made as much sense. Downsizing can have an enormous impact on retirement finances. It isn't only about taking equity out of a house. A smaller home can mean lower taxes, insurance, utilities, maintenance and repair costs. And the equity that had been sitting in the house can suddenly be put to work somewhere else.
There are tax considerations, of course. As a tax professor, I can't completely ignore those. The Section 121 exclusion on the sale of a principal residence, basis and the tax consequences of a sale all deserve consideration. But there is a larger lesson here.
I don't think buying the bigger house was a mistake. I think keeping it after it no longer fit the life we wanted would have been the mistake. There is a time to accumulate and a time to simplify. Knowing the difference can save a remarkable amount of money.
I don't view Social Security as money I need to grab
Social Security is another area where my thinking is probably influenced by both my tax background and my own financial experience.
People spend their entire careers paying into Social Security, so I understand the desire to start collecting as soon as possible. But if I don't need the money, I don't see a compelling reason to take it before my full retirement age.
For someone with a full retirement age of 67, claiming earlier generally means accepting a permanently reduced monthly retirement benefit. Waiting beyond full retirement age can increase the monthly benefit further, up to age 70. That doesn't mean everyone should wait. There are plenty of legitimate reasons to claim earlier. Health, family circumstances, other income and simply needing the money can change the decision completely.
My point is much narrower. Don't take Social Security early just because you can. If you need it, that is different. If you don't need it, understand exactly what you are giving up before you claim it. But don't deny yourself your benefit if it can improve your life — that is what it is there to do. You earned it.
Taxes matter, but they aren't the whole story
One thing my career in taxation has taught me is that a dollar in one account isn't necessarily the same as a dollar in another. A traditional retirement account comes with a future income tax obligation. A Roth account generally has very different tax consequences. Taxable investments bring basis and capital gains into the picture. Social Security itself can become taxable depending on a taxpayer's other income. Eventually, required minimum distributions enter the equation as well. That is why I think retirement planning needs to focus on more than the total at the bottom of an investment statement.
The question isn't simply, "How much do I have?" It is also, "What can this money actually do for me after taxes?" There is another question that may be even more important: "How much do I actually need?" And one more that should not be denied, "What is it I want after a lifetime of working and saving." Those are very different questions.
Travel has changed the way I think about money
This is the part of retirement planning that probably won't appear in many tax textbooks: travel.
I believe you should see as much of the world as you reasonably can, particularly while you are healthy enough to enjoy it. Travel costs money, and I realize it is a luxury that not everyone can afford. But for those who can, I think it is one of the better uses of money later in life.
Seeing other countries has changed the way I think about people, lifestyle and even investments.
You see how differently people live. You see smaller homes and different transportation systems. You see people who own much less than the typical American household and don't appear to consider themselves deprived.
You also see economies changing in real time. You see where cities are growing, where infrastructure is being built and where younger populations are creating new businesses. It gives economic and investment discussions a perspective that is difficult to get from reading financial news at home. Most of all, travel has made me reconsider what constitutes a reasonable lifestyle.
We spend decades accumulating things. Then, somewhere along the way, many of us discover that what we really want is enough money to have experiences and enough freedom to decide how to spend our time. That is a very different definition of wealth.
The number in the 401(k) isn't everything
I am frequently struck by how retirement discussions revolve around a single number.
How much should you have at 65? $500,000? $1 million? $2 million?
Obviously, the amount matters. But I don't think it tells us nearly as much as people think it does.
Consider two people who each have $1 million saved. One has substantial guaranteed income, relatively low fixed expenses, a paid-down or affordable home and the ability to earn additional income doing work he or she enjoys.
The other needs to withdraw a significant amount from that $1 million every year just to meet normal living expenses. They both have $1 million, but they are not in the same financial position.
I have become much more interested in the relationship between income, assets and expenses than in any one number.
If dependable income covers most or all your normal expenses, your savings serve a very different purpose. They can become reserves for emergencies, travel, helping family, large purchases or simply additional security.
That is a much stronger position than needing your portfolio to produce every dollar required to pay the electric bill and buy groceries. At some point, you have to spend some of it. This may be one of the hardest lessons for lifelong savers.
After 40 years of training yourself to save, it isn't always easy to suddenly start spending. Saving becomes a habit. Watching account balances grow can become reassuring. Spending those balances can feel uncomfortable even when that is exactly what the money was intended for.
I have had to remind myself of that.
There is very little value in spending decades building financial security if you are then too frightened to use any of it. That doesn't mean becoming irresponsible at 65. It means recognizing that the purpose of all that discipline was to eventually create a life with more choices. For me, those choices include travel. They include continuing to teach because I enjoy it, not because I must. They include living in a home that fits this stage of life rather than maintaining more house simply because I once wanted more house. And they include having the financial cushion to handle the unexpected without every surprise becoming a financial crisis.
That is what I was really saving for.
What I would tell my students
After teaching tax for many years and living through more than four decades of my own financial decisions, my advice is pretty simple.
- Start saving early. Save more when you can. If 25% isn't possible today, start somewhere and increase it as your income grows.
- Keep investing in yourself. Education and professional skills can pay dividends for decades, and they may allow you to do interesting and rewarding work much later in life.
- Enjoy some of what you earn along the way. Buy the house if it makes sense and you can afford it. Take the trip. Have experiences with the people who matter to you.
- But periodically ask whether the things you own still fit the life you are living.
- Don't automatically claim Social Security simply because you become eligible. Look at your own circumstances and make an informed decision.
- Pay attention to taxes. A retirement portfolio should be evaluated based on what it can provide after taxes, not simply the number printed on the statement.
- And when you finally have enough, allow yourself to recognize it.
That last one may be the hardest. There will always be another financial milestone. There will always be someone with a larger retirement account, a bigger house or a more impressive investment portfolio. At some point, accumulating more stops being the primary objective.
We spend our careers measuring income, assets and rates of return. They are important. But eventually the return that matters most is what all those years of discipline allow you to do with the years you have left.
Living your best life after 65 takes a long-term commitment. For me, it took about 43 years. And now comes the part I was saving for.
