Voluntary or not, you will probably have to stop working someday.
People like Brian Wright, of Valeo Financial Advisors in Indianapolis, are asking their clients these questions: When do you want that to happen, and what do want retirement to look like when it’s time?
“It depends on your goals,” he said. “It depends on your time frame.”
One trend Wright has seen when talking to lawyers and other high-income earners is this: They are maxing out their 401(k) contributions and doing little else to save for retirement.
He said that while this is generally sound advice — companies generally match contributions, which are in a pre-tax state — not diversifying further may lead these individuals to make tough choices down the road.
“(They) have grown accustomed to a certain lifestyle while they’re working, and they don’t want to step back,” he said. “They don’t want to start eating ramen noodles if they’ve been eating at St. Elmo’s.”
Further, these 401(k) contributions have exposure to stock, bond, and even real estate markets depending on which investments the company’s plan administrators choose.
The last few weeks have demonstrated to those saving for retirement the sudden volatility that can rattle the stock market in particular.
Riding the rollercoaster
After hitting an all-time high of 26,616.71 on Jan. 26, the bottom all but fell out of the Dow Jones Industrial Average just days later.
By Feb. 5, the market had set yet another record when it suffered the largest single-day point loss in history. That day, the market fell 1,175.21 points, closing at 24,345.75.
A brief recovery ensued, but the market experienced the second-largest point drop in history Feb. 8, when the Dow lost 1,032.89 points, closing at 23,860.46.
Stocks had been edging up slowly since, but volatility remained. The Dow closed the week ending March 2 at 24,532.10. Market volatility has left those who depend on their plan administrators to invest their 401(k) contributions shaken.
Cynthia Sharp is the author of “The Lawyer’s Guide to Financial Planning,” which was published in 2014 by the American Bar Association.
A native of Anderson, she now lives in Philadelphia and often returns to the state to lead Indiana Continuing Legal Education Forum seminars. At 63, she has been retired from the practice of law for the last eight years.
She said she credits her early retirement to a disciplined savings program she started when she was 32.
“It’s a mind game,” she said. “If I would have become discouraged … I would never have put away another dime, but I looked at the long term.”
She said most of her money was still in the stock market, but she was more comfortable with the ups and downs because of this long-term thinking.
“Investment-wise, I’m conservative,” she said. “I don’t pick apart the stock market. I don’t micromanage my broker.”
Sharp said the key is to have a trusted financial adviser. Greg Duncan — who practices in the areas of estate and wealth transfer and matrimonial law at Bingham Greenebaum Doll — agreed that having someone to help you focus on why you’re saving is preferable to just setting a 401(k) contribution and hoping for the best. He said living through the Great Recession beginning in 2007 was a truly eye-opening experience.
“The sooner you start saving, the better,” he said. “We all know that, but without accountability, it just gets hard to put it into place and implement that plan. A good financial planner will hold your feet to the fire to help with that planning.”
Still better than average
Jennifer Brown is a tax attorney and the manager of research at the National Institute on Retirement Security.
She said even if lawyers are only hitting their 401(k) contribution limits and doing nothing else, it would still be better than most of working population.
According to the most recent NIRS report on “The Continuing Retirement Savings Crisis,” which was published in March 2015, more than 45 percent of all working-age households do not own assets in a retirement account. Further, the average household has a median retirement account balance of only $2,500.
She said that’s where she gets the impression that attorneys are doing a better job of saving for retirement than most Americans, on averge.
The most recent mean salary number from the Bureau of Labor Statistics for all legal occupations was $105,980. Brown said this could mean that a 401(k) might still be the best option as individuals must have made under $133,000 as a single person to contribute to a Roth IRA in 2017.
“This population is probably doing the best that they can do by maxing out their 401(k),” she said. “We would really like people to save 10 percent of their income and 15 percent of their income if they’re a millennial.”•