Lawyers In Transition Part Ten – Can’t Afford to Quit
Lurking just below the surface of a transitioning lawyer is a bundle of anxieties – and the root cause is usually money.
Naturally, the lawyer who is leaving practice will be stressed about the financial future. But their families will be concerned as well. And so will the partners and remaining members of the firm.
Can anybody afford this transition?
The good news is that with planning and foresight, the answer is yes. Not only that, the post-transition world can be even brighter and more profitable for all concerned.
The key is having a transition plan. This should be prepared with the help of a financial planner, and it should be put in writing.
The risk of not having a financial plan for retirement could be disaster.
“If planning has not been addressed with sufficient vigor, a lawyer, or his or her estate, could find that instead of reaping economic value from the practice, he or she will actually incur costs to properly transition a practice following a death or permanent disability,” says this expert.
For more guidance on financial planning, see Part 8 of the Lawyers In Transition Toolkit.
Avoid the 10 Most Common Planning Mistakes
Steer clear of these common attorney retirement planning errors, according to Think Advisor:
- Underestimating your life span and overestimating investment returns. Some projections suggest that attorneys who are now working will live to be 90. That’s a quarter-century of retirement to budget for.
- Being clueless about pension plan basics. One survey showed that half of retiring attorneys did not know whether their plan paid benefits in a lump sum or monthly, and if monthly, how long payments would last.
- Not keeping current on pension plan changes. After the recession, many firms discontinued traditional defined benefit plans in favor of other alternatives.
- Underestimating retirement expenses. People over 75 spend almost twice as much on health care than those just 10 years younger.
- Getting a “gray divorce” and other family crises. A late-life divorce, new marriage or unexpected parent care can add an unanticipated burden to a retiree.
- Not diversifying enough. Assets should be spread over various risk and gain options.
- Tying up too much money in their homes. Downsizing is difficult, and real estate values can fluctuate wildly.
- Not accepting the need to reduce spending. Retirement could mean making some hard lifestyle choices.
- Using the final capital distribution to splurge. Consider it a retirement nest egg, not a bonus.
- Overlooking all tax implications of retirement plan distributions. Consult a tax expert when needed.
5 Practice Tips to Make Your Transition Affordable
- Continue working in some capacity, perhaps in an entirely different field. Professional retirees are increasingly turning to part-time work, temp jobs or self-employment. Economists call this “bridge” or “encore” employment.
- Talk it out. Discuss the financial aspects of your transition with your family, as well as law partners and other stakeholders.
- Assemble a financial planning team. In addition to your financial advisor, the team might include a tax expert, accountant and healthcare specialist.
- Stay active. A 2009 study from the University of Florida found that people who pursued post-retirement bridge employment in their previous fields reported better mental and physical health than those who retired fully, says the American Psychological Association.
- Consider selling your law practice. We’ll explore this option in greater detail in an upcoming installment of the Lawyer In Transition Toolkit.
- Lawyers Mutual / Lawyers in Transition Toolkit http://www.lawyersmutualnc.com/blog/lawyers-in-transition-part-eight-financial-planning-prepare-a-financial-plan-for-your-transition
- Financial Planning https://www.financial-planning.com/news/planning-for-lawyers
- Think Advisor https://www.thinkadvisor.com/2016/08/29/top-10-retirement-planning-mistakes-lawyers-make/
- American Psychological Association www.apa.org/monitor/2014/01/retiring-minds.aspx