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.”