What is Retirement?

I recently talked with CNBC for a story about Dolly Parton and Gloria Steinem, two people who kept working well past traditional retirement age.

One thing I've learned about retirement is that it’s not really an age-dependent thing. To me, retirement means reaching the point where working is optional. Working because you have to and working because you want to are two completely different situations.

Having control over what you want to do is a better version of retirement, and that's different for everyone. If you enjoy what you are doing and want to keep working, great. Maybe you want to start another career or open a business. Maybe you want to work into your 70s. The important part is having the freedom to make that decision.

Retirement planning sometimes focuses too much on retirement age, which is just an arbitrary number. Wanting to retire at 65 is a goal, but it doesn't tell you much about what it takes to get there. And you might not get a choice.

Financial independence requires knowing what your life costs. Everyone's number is different, but identifying your core expenses helps you calculate the number you're working toward. What are you paying for housing and living expenses? Do you have debt like student loans? What do you actually want to do with your time? Traveling is a big one. The other thing I’m seeing is people helping their adult kids while getting the benefit of seeing their kids thrive.

Social Security, retirement accounts, a pension if you have one, a business, taxable investments and real estate all need to be inventoried. Once you know what your life costs and what's coming in to fund it, you're building toward financial independence instead of an arbitrary birthday.

Retirement accounts aren't the only way to fund your life. Maxing out your 401(k) or IRA can be a good decision, but contribution limits are tax rules. What you need to save should be determined by what you want your money to eventually do.

Making work optional earlier in life may mean saving beyond traditional retirement accounts. A taxable account doesn't get the same tax treatment as a 401(k), but it gives you flexibility. Money available before traditional retirement age gives you choices, such as leaving the high-paying job or starting a business.

Getting to where work is optional also requires decisions along the way. I think it helps to think about spending in terms of what you're giving up in the future. Spending an extra $10,000 isn't just $10,000. If you invest it for 20 or 30 years, it could be worth a lot more.

This doesn't mean you shouldn't spend the money and enjoy your life. You should. None of us knows exactly what the future holds. It just means understanding the trade-off.

We tend to treat retirement as the finish line. Financial independence is the finish line. Once you get there, you decide what comes next.