Kitces & Carl Ep 16: Helping Clients Understand What It Really Means To Retire

***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.

Show Notes

• The Problem With FIREing At 4% And The Need For Flexible Spending Rules
• Segmenting Retirement Expenses Into Core Vs. Adaptive To Create Retirement Buckets
• Reboot, Rewire or Retire? Personal Experiences With Phased Retirement and Managing A Life Portfolio
• The Complex Motivations Of Money And Retirement As The Freedom To Pursue Non-Monetary Work Rewards

Kitces & Carl Video Transcript

Michael: Greetings, Carl.

Carl: Hello, Michael. How are you?

Michael: I’m doing well. How are you?

Carl: Good. Yeah, things are super-good.

Michael: Things are super-good. Well, I get it. So you sent out this tweet recently and this whole theme of making life more super-good. I feel like it’s a good theme for today’s podcast. I’m just going to read this because I can’t paraphrase your words better than what you just said, or wrote. So here is the comment: “The concept...the very idea...of retirement is dumb. Waiting until some arbitrary age to enjoy life PLUS stopping all meaningful work all at once...DUMB. I will never retire. I will just do more of the stuff I like, and less and less of the stuff I don’t.” Like, mic drop, exit stage left. And you have a bazillion likes and retweets and replies and comments to this.

The concept...the very idea...of retirement is dumb.

Waiting until some arbitrary age to enjoy life PLUS stopping all meaningful work all at once...DUMB.

I will never retire.

I will just do more of that stuff I like, and less and less of the stuff I don't.

— Carl Richards (@behaviorgap) July 31, 2019

Why We Need To Rethink What It Means To Retire [02:04]

I’ll admit, this is even something that resonated with me, and really for kind of two different reasons. One, I’ll admit, I see a lot of myself in this. I like what I do. I really cannot wrap my head around retiring and not doing the kind of stuff that I do. Now, at some point, I would like to rejigger the balance a little. I would probably travel a little bit less and do a little bit more fun travel. And there’s a balance thing that will change at some point when I’m not in ‘builder’ mode of my career. But I literally don’t know what I would do with myself if I wasn’t doing some version of the stuff that I do in the business I love, serving the profession that I love, that I’ve immersed myself into.

This resonated with me as well because I see this sitting across from a lot of our retired clients, the people who were so engaged in their work and retired because you’re “supposed” to retire at some age or some dollar amount or some threshold. Early in my career, I was all excited about that because I’m like, “We got you to your number. I did the projection, I can prove to you the number will work. You’re good, you’re there!” And then we see them six months later and either they’re miserable or they’re off doing their next thing, starting their next business, doing their next whatever. And on the one hand, I’m like, “Awesome, more power to you,” and then on the other hand, “You know, I could have made the math work for you five years ago if you had told me you were actually still willing or interested to keep doing something that turns out to be gainful employment and generate some dollars after ‘retirement’ if you had just told me in the past.”

And that, I think, is the point where it really started to grate on me. Because even the nerd in me is like, “If you just told me this, I could have put in the projection and I totally would have given you a different plan.” So it throws my retirement brain. I’m all of a sudden less and less convinced about this retirement thing. And it even throws my nerdy math projection brain, which I think is why the whole retirement label is really starting to bother me.

I don’t know if that’s quite where it came from for you to lob this tweet and comment out there. But I’m increasingly struck by how often our retirement projections end out being wrong simply because they don’t actually retire. And even just from the math of the projection, I would have given you a completely different plan if you told me that dollars were still on the table.

Carl: If you had to put a number, I know you’d just be guessing at this point, but in the decades of work that you’ve done with clients… Okay, so here’s the scenario. Traditional retirement...I used the word “dumb” there. Maybe that wasn’t the right choice of words. Maybe it wasn’t as articulate as I should have been.

Michael: You literally put it in all caps. Just...

Carl: It’s broke. It’s broken. It’s broken.

Michael: ...D-U-M-B.

Carl: It’s broken. It’s a pipe dream. And here’s the original model, work as hard as you can... Now, gosh, we have to have all sorts of disclaimers. Like, what an awesome thing that you have the option, and yes, you guys are all lucky, and fine, fine, fine, but we’re talking to that subset of people that have the option or are trying to build a plan based on the option of retiring. That’s the subset of people we’re talking to. And, more specifically, the people who help them do that. Real financial planners and advisors, right?

So, I have a question for you. This model that’s been handed down from our fathers and mothers, right? This generational model of “work till I’m 65.” It used to be like “work till I’m 65, retire, and die when I’m 67.” Right? That’s almost what I think it was built off of. Now we’ve got more life going on, and people are questioning that model.

How Many People End Out With A "Traditional" Retirement [06:29]

So the question I have for you is how many people...because I put a number on it in one of those tweets, I guessed what percentage. How many people out of 10 clients, right, when they come in and you say, “What does retirement look like?” How many of them describe the traditional one or end up doing the traditional one versus this new model?

Michael: So here’s about how I’d break it down. Obviously, I’m kind of guessing a little off the cuff. I haven’t actually gone back to run the numbers in our practice.

Carl: You can just guess – I do this all the time. You just need to let go of your need for the little calculator. Just guess.

Michael: So I’d guess, so out of the 10, 2 or 3 probably are already somehow questioning traditional retirement. They’ve gotten to a point in their careers, they like what they’re doing, and they’re kind of torn by this whole, “I’m 60-something years old. The world says I’m supposed to retire, but I like what I do. I’m at the top of my game.” And that may be partially an artifact of where we are as well. Our advisory firm is in the Baltimore-Washington area, Maryland has the highest rate of graduate degrees per capita of any state in the Union. We have just a zillion doctors, lawyers, medical researchers, lobbyists, all these very high-income professional services folks, and frankly, a lot of jobs that are very much knowledge worker jobs that tend to just get better as your experience grows and your knowledge set grows. And it’s stuff they really can do into their 60s and even 70s, as long as the brain is still functioning well and the body is willing. So 2 or 3 out of the 10, I think, are already kind of questioning this.

Carl: You don’t get subsets, Michael. You just have to answer the question. You don’t get two or three and then four or five of these …you have to just give me a number!

Michael: For what?

Carl: You know how you said...here’s what I said. Tell me if you agree or disagree, over or under. I said 90% of the people that I worked with, that traditional retirement either didn’t work when they tried it, or they weren’t planning on it. Here’s the better way to think about it. It’s the exception. I cannot think of like 10%.

Michael: Yeah, I don’t think I would peg it that high. I would say two or three are already rejecting it. Four or five of them think that’s what they want because they’ve been told that’s what they want. And then they figure out after they get in like, “Oh, crap, this actually isn’t working for me in some shape or form. But I would still say about a third of our clients probably just, they actually do that and they make it work. They find some life of leisure. They move near the grandkids. They end out maybe getting involved in some social clubs and hangouts. They find some way to engage themselves. But they mostly follow that track.

Carl: Okay. So I think it’s reasonable to say that for the majority of the people that you’ve worked with and I’ve worked with, more than 50% of them find that traditional retirement thing to not be what they actually thought it was going to be, or are not even planning on it in the first place. And I’m careful given who I’m talking to, and I’m generally trying to be more careful about this, but I think there’s more than anecdotal evidence to that. I think there’s data that points out that it’s not good for the mental health to say, “Full gas, done.”

Michael: Well, and again, the ones that throw me off are not the ones that have already come to the table and say, “I’m a successful lobbyist. I’m doing my thing. I’ve got more connections than I ever did before. I’m on top of my game, why on earth would I quit? I’m just going to keep going.” So the few that just want to keep going and have sort of rejected the traditional retirement model, I’m like, “I can handle this. I know how to do the math. You already know what you want to do. We’ll just talk about some choices.”

It’s the 5 out of 10 who think they want to do the traditional thing, and then realize afterwards they don’t. Because those are the ones that get derailed. Those are the ones where I’m sitting across from them and thinking, “If we could have figured this out years ago, you actually could have made this transition years ago. And you didn’t have to spend four more years working at that crappy job you hate trying to get to the point when you can retire from it because you have enough money so that you can end out opening your dream business, which is a hobby that turned into an actual business, and now you’re making decent money. If we’d known you were going to make decent money, we could have done this a long time ago.”

Those are the ones that really grate on me that frankly have even started to change my conversation a little when this comes up with clients, to start challenging them a little bit more. Like, “I want to retire at,” whatever, “65.” “Well, what does that look like for you? What are you actually going to do?” Right? And there’s always the, “Hey, I’m going to play a lot more golf, and all that.” Like, “So, great. After you play the same three courses in the area four times a week for six months and you’re bored out of your mind...”

Carl: “What are you going to do then?” Yeah.

Michael: “Then what are you going to do for the subsequent 29 and a half years?”

Carl: Well, I’ll tell you where this came from. It was from 20 years ago. Early on in my career, I kept sitting down. And it’s funny, people brought some of this up in the conversation on Twitter, which by the way, was so awesome. If you handle yourself right on Twitter, I’m finding Twitter to be really awesome, because it was thoughtful. It wasn’t always agreeing. In fact, I love when people disagree with me, as long as we’re cool. So anyway, it was awesome.

But I kept running into, and some of the early ones were surgeons and ER docs. And they would say to me, “Man, I don’t really want to retire, but I bet around age 50, 55, I can see my older colleagues who are surgeons, some of them still are on their game, but I know it’s going to fade at some point. And at that point, I’d love to reconnect with the thing that got me into medicine in the first place, helping people. I’ll go teach. I’ll go be a mentor. I’ll write a book.” And I kept running into that. And then I would run into the occasional person who tries the traditional retirement thing, or this: the person who strongly dislikes their work. They find nothing meaningful or enjoyable about it at all. And they’re like, “I’d like to get out of this as soon as possible.” And they would say, “But I’d still love to do...I’d like to switch. I’d like to go back to school,” or, “I’d like to go be...”

I’ve got a specific example, my friend, his name is Jeff. Jeff worked at a big company, and he was head of their internal sales team. And he really didn’t like it, but he made plenty of money. He saved, saved, saved, saved, saved, and then the last five years were so miserable. He’s like, “I’ve got to pull the plug.” And he went and became a golf pro at his local golf thing.

And then (last piece!) I kept running into people because I lived in this town, right? I lived in Park City, Utah. And I kept running into people who made more money than they would ever need. Like venture capitalists, private equity, serial entrepreneurs people. And they would have a successful exit. They would move to Park City and think they were going to become ski patrol. That was the classic one. And after one season, they were like, “Dude, there’s no way. I can’t. I can’t.”

How To Envision What A More Meaningful Retirement Might Look Like [14:49]

So I kept putting those pieces together thinking...so here’s my strategy, my thinking on it, is if you’ve developed a plan that includes the optionality of retirement, meaning like the optionality of not working, period, if you’ve developed that plan and you’re on track or you’re in that plan, you may want to just think, “Well, why don’t I take that optionality and use it this way? Number one, figure out ways to do less of the stuff I don’t like. Number two, figure out ways to do more of the stuff I do like.” And if that’s meaningful work, then keep doing that. And if there’s nothing meaningful about the work you do now, take that optionality you’ve developed and find something that is, right? Like, go back to school. People pointed that out on Twitter. Like, “Oh, my wife, she’s 40...my wife just got accepted at 49 to her dream design school.” Right? Somebody said nurse practitioners on there.

So those are...I’m just saying what my traditional plan started looking like. Because after those...I was like you. After those keep bumping up against that and then bumping up against my 67-year-old client who’s kind of miserable, because they’re trying to golf every day, I started saying to people like, “Hey, what if we think about it this way?” And it seemed to be around age 50 or 55, where I was like, “Can we make this a little more optional?” And then we build in a 10-year period. All my plans ended up having this, a 10-year period of no distributions and no saving.

Michael: Right. So, just their income ratchets down a notch. They’re living off of it. It’s not enough that they can save, but it’s enough that they don’t really need to withdraw from the portfolio.

Carl: Ten to fifteen more years of compounding with no savings. And so then it was like 50 to 65 or 70. And that window, that changed from like 60 years, I’m going to be 60 years old and I’ve got to tap my retirement, to like 70, give me another 10 years of compounding. And yeah, I know you’re not contributing anymore. That actually became the default scenario, where I would suggest to people and say, “Look, I know you think there’s this, but you’re 42 right now, and I bet at age 45, 46, 47 when we’re going to start having this conversation, you’re going to think, “Hey, I want to do something a little different.” So that became the default plan. And I just don’t buy into all the excuses around, “Well, yeah, nice for you, you have something you love to do.” Well, let’s reconnect you with something you love to do. Right?

Michael: Yeah. I’ve found of the questions I’ve started using and putting forth with clients, particularly if they’re still otherwise in their working years but we’re at least approaching these conversations or starting to think about them, is just to ask them, “Hey, so I’m just wondering, what kind of work would you do if you were financially independent and it didn’t matter how much you made?”

Carl: Perfect.

Michael: “So maybe it makes a lot, maybe it hardly makes anything, but just if money wasn’t the purpose of work, because you had enough that you were financially independent, what kind of work would you do at that point?”

Carl: Perfect.

Michael: And a handful of clients will actually just say, “Oh, I’d do nothing. I’d lounge around. I just want to travel and do nothing.” And we have a few folks like that. I think our client base probably skews a little bit more towards the ‘must do something’, or ‘must stay engaged with something’, because we just have a lot of knowledge-worker types, all the graduate degrees that end out in professional services where they get really engaged with that sort of stuff. But we do have some that just answer with, “Well, I wouldn’t do anything.” But a lot of clients answer something. And sometimes it’s really different.

I’m reminded, we had a client that we’d worked with for years and years. She worked at a big national corporation in a mid-level manager job. Just made decent income, lived frugally, saved well, built up a couple hundred thousand dollars, which, plus Social Security, was enough for her. She finally got to retirement and opened up a business doing window treatments. She’d always wanted to do that.

Carl: I love those stories.

Michael: She opened up a business doing window treatments and made about $10,000 to $15,000 a year off of it. It was all gravy money. She loved the work. It became a little passion hobby. She got to blow all the money on whatever she wanted, because it was all gravy money at that point. And my regret to it was, we never actually asked her about that in the planning phase. That’s just what she landed in and started doing. And even for her at her standard of living, she probably could have transitioned to that two or three years earlier, at least, if we had just known to plug in $10,000 or $15,000 a year. But we never had the conversation with her. It never even occurred to me like, “Hey, by the way, I know you’ve been a mid-level manager at a major national conglomerate for a long time, but I’m just wondering, is a window treatment side business in your retirement future?”

How To Explore The Options For A More Meaningful Retirement With Clients [20:54]

Carl: Yeah, I’m sensing sort of as we wrap up here that that’s a really, really valuable thing for all of our friends out there to think about, right? Like, the value you could add by having that conversation earlier. And even just suggesting. You can blame me, you can blame Michael if you want to, but I think you can just even suggest like, “Hey, I’ve seen a bunch of these now, and I’m noticing a pattern, Mr. and Mrs. Client. These days, people are thinking about retirement differently. Can I walk you through a scenario?”

And here’s another way. I love that idea of, “What would you do?” Another way to do this would be to just grab a couple of your plans and create a copy... Because the question I used to ask was, “Is there something you would like to do for work where you could make enough to live off of and then, what if we were to stop saving?” So you can go in and just test a couple of these with your plans. Go ahead and say, “At age 55, if we stopped any contributions, but we also had no withdrawals.” Essentially, what we’re saying at that point is, “We don’t care what you do, just don’t touch this money. What would you do? Is there a job you could go earn the $50,000 you need a year to live off of, or the $80,000 or the $60,000 a year. so you can stop doing surgery all day?”

I think that that’s a really valuable conversation to have, incredibly valuable. Because if you can say to somebody, like you just said, “Oh, man, I could have told them 10 years earlier.” And I think we can afford to be a little stronger in our opinions. Like, “Go read the research. Somebody on Michael’s crack research team will find it for us. But go read the research.”

Michael: We’ve had a few pieces. We’ll add some in the show notes for the episode here.

Carl: Then we think we can be pretty strong in our opinions to say, “Hey, I think that word ‘retirement’ that you are using, I do not think it means what you think it means.” Right? I think that we can have an opinion about that.

Michael: So as we wrap up, any other suggestions from you on how to actually have this conversation, or broach the conversation? I get it from your end. You’re in a world where you can lob out there and tweet, “Retirement is dumb. Waiting till an arbitrary age and stopping meaningful work is dumb.” I don’t know, would you ever actually try to say it that way sitting across from a client? Was that just meant to be provocative out there on the interwebs?

Carl: Absolutely, I would. I maybe wouldn’t use the word “dumb,” but I have. This is the way I would say it. I would say, “Listen.” Let’s just say that they’re 45 and they’re convinced they want to retire at 62 and be done. I would say to them, “Hey, the conversation I want to have, you may...” I used to say this all the time, it’s one of my favorite lines, I used to say, around scary markets or blind spots or bad behavior, I would say, “What I’m about to tell you, you may fire me for what I’m about to tell you, but you should definitely fire me if I don’t.”

And so I would have some version of that. Like, “Hey, the conversation we’re about to have, you may not like it, but I’m going to just tell you, the concept of retirement is broken. It’s kind of dumb.” And I would suggest that to exactly the kind of people that we work with, the reason they have the optionality to retire, that makeup, that mindset, that work, they’re precisely because they have that option. Most of them are precisely the kind of people that it won’t work to just turn it off.

So that’s the conversation I would have is just say, “Hey, I totally get that, and let’s plan on that. But let’s have a quick conversation. You know I love playing with you, Mr. and Mrs. Client, these sort of ‘what if’ games. I built another scenario. You’re 42. At age 52, I made work optional. Actually, I made the kind of work you’re doing right now optional.” And all I said was, “Look, you’ve got to earn enough to cover your living expenses, but you can stop saving. And then you do that for another 15 years. Like go back and teach, work at the garden center, become a ski patrol.”

And I don’t mean to downplay ski patrol. I shouldn’t say it that way because sometimes people get mad. I’ve had this conversation and people are like, “Oh, teaching is just easy.” I don’t mean it that way. I mean, it’s going to be some hard work. “You go do this other thing that’s not quite your 80-hour a week surgeon job. I think it works. And so I just want you to know we’ve got these options. You’re 42, we have time. And we’ll bring this up in a year from now, and then a year from now, and then a year from now, and we’ll narrow in on what we want to do.” That’s how I’d have it.

Super good conversation, Michael.

Michael: Yeah, it’s a fantastic conversation. Well, thank you for hanging out today, Carl, and talking about how retirement is D-U-M-B, dumb, and alternative ways to maybe have that conversation with clients. I know it has definitely impacted me more over the years just sitting across from clients, again, both, seeing people not do the plan, the thing that theoretically they’re supposed to do, and even as you framed it – just, boy, if you sit down with a good old-fashioned retirement projection, you start doing things like, what if they work another five years making part-time income? What if they work for 10 years making just enough to cover their expenses so there’s no savings but there’s no withdrawals? The numbers change so radically that it’s such a powerful conversation to have and put on the table.

Carl: Totally. Super valuable. This is the kind of thing that I love saying, like, what’s that worth? You know what I mean? What’s that conversation worth? Thanks, Michael.

Michael: Awesome. Thank you, Carl.