Retirement used to mean loading up the Winnebago at age 65 and hitting the open road. For people who have an unlimited amount of money to spend on gas, that freewheeling lifestyle might still be an option. But people are living longer now than ever before, and some are choosing to extend their careers beyond what they originally planned.
It’s a trend that Ogletree Deakins shareholder Ann Carr Mackey has noticed in the legal profession. She has handled employee benefits law since the late 1980s and exclusively for about a decade. She’s seeing more lawyers choosing to transition gradually from practice to retirement.
“I think it’s a combination of economics, of fewer lawyers and fewer employees generally having a pension plan that guarantees a significant portion of their income for life,” she said. “I think there’s an awareness or concern about the economics of retirement. We’re all living longer, so you’re now looking at: Do I have enough money to live on for 25 years instead of 10?”
Best laid plans
Bob Hamlett, a member of Frank & Kraft who handles estate, tax and business planning matters, said that he is aware of a few major pitfalls in retirement investing.
“I think there are two, and they are opposite sides of the same coin – one is not starting soon enough, and two is not getting good advice,” he said. “If you save the money and start putting it away for retirement, what are you going to do with it? Because, unfortunately, hiding it under the mattress won’t help much.”
Paul Donahue, a certified financial planner and accredited investment fiduciary for Valeo Financial Advisors, explained that the deferred compensation plans that used to be popular for top-level law firm executives seem to be declining in popularity.
Many law firms offer some combination of plans, Donahue said. In firms where a deferred benefit plan used to be the standard, it may have been cut off at some point, with new attorneys enrolling in 401(k) plans instead.
In 2011, the Internal Revenue Service announced that beginning this year, annual elective employee contribution limits for 401(k), 403(b) and 457 plans would increase to $17,000 from $16,500. A catch-up contribution limit of $5,500 means people over age 50 could contribute $22,500.
For senior partners and top-level executives, Mackey said a 401(k) plan is probably not sufficient to maintain the same standard of living in retirement. And generally, people are probably not saving enough, she said.
“Even in these qualified plans, if employees – lawyers – don’t save enough during their working years starting very young, then they get to retirement and they do not have enough money to maintain their lifestyle, or even a similar lifestyle,” she said.
Solo and small firm attorneys may experience additional challenges in funding their retirement.
“The small firms don’t have the kinds of retirement programs that the large firms have and can afford, so individual lawyers are pretty much on their own,” Hamlett said. “Small partnerships can create a profit-sharing plan or retirement plan and be diligent about funding it, and that’ll help.”
In saving for retirement, planning for the worst may be the best approach.
“Any number of things can happen, and we see it all the time,” Hamlett said. “Fortunately, I’ve been blessed not to have any of those events – a disabling injury where you can’t work. Do you have disability insurance that can replace some of your lost income? Loss of a spouse who is working – again, can you replace that income with life insurance or something like that?”
Mackey pointed out that Social Security and Medicaid funds are quickly drying up.
On April 23, the Social Security Board of Trustees announced that the combined assets of the Old-Age, Survivors and Disability Insurance Trust Funds will be exhausted in 2033, three years sooner than projected last year. The DI Trust Fund will be exhausted in 2016, two years earlier than last year’s estimate. That means that, continuing at this pace, in 2033, Social Security will be able to cover only 75 percent of full benefits scheduled to be distributed.
Attorneys can help supplement their post-practice living expenses by continuing to work in some capacity. And for attorneys like Don Knebel, continuing to work after retirement provides an asset more valuable than money.
“I think when you’ve got almost 40 years doing things that keep your mind occupied, winding down and doing nothing is not a very attractive possibility,” he said.
Knebel, a partner at Barnes & Thornburg, said it’s important for his clients to have someone to turn to when he retires in December 2013, so he has begun gradually transitioning his practice to the firm’s younger attorneys. He will then become more actively involved with the Indiana University Maurer School of Law’s Center for Intellectual Property Research, where he is currently an adjunct professor and senior adviser to the center.
“Teaching law is something I have thought about my entire career, and from time to time, I’ve done guest lectures in other people’s courses and enjoyed that, but having a full-time practice as a litigator, it was impossible to take an appointment like this,” Knebel said.
Knebel will also stay busy with his many civic and volunteer roles, like chairing the board for the Center for Interfaith Cooperation and co-chairing the 2013 Classical Music Competition for the American Pianists Association.
The take-home message
Both Mackey and Hamlett emphasized that the key to successful retirement planning is to begin saving early – and to seek some guidance.
“Depending on the nature of their practice, many attorneys – because they don’t deal with these kinds of issues regularly – are unfortunately just woefully ignorant of retirement planning and those types of things,” Hamlett said.
Mackey said that she understands saving money may be difficult for young attorneys who graduate from law school with significant debt. But starting early may be the key to growing wealth over time.
“For young people, they ought to start doing something, and don’t wait until they feel like they’re in a position to save a lot,” she said. Even a small amount dedicated to retirement savings can result in significant growth if done for 30 or 40 years.•