Finances Are the Easy Part of Retiring for High-Powered Lawyers

Saving for retirement may not necessarily be hard when you charge at least $350 an hour.

But executive compensation in the legal world can be complex. Between K-1 income, capital accounts, deferred comp and buy-in/buy-out terms, there’s a lot to consider, especially when it comes to planning for retirement. 

The finances are actually the easy part for many successful law firm partners, said Spuds Powell, managing director at Kayne Anderson Rudnick Wealth Advisors. It’s making the psychological transition from leadership in a high-stakes work environment to whatever comes next that’s a lot more difficult. After decades in the trenches, top attorneys can struggle to navigate the retirement transition on their own. 

“They need significant financial and behavioral guidance from experienced advisors,” Powell said.

Giving Up the Reins

Leaders at high-powered law firms are a particular type. 

“They’ve gone from being the top of their class in undergrad to getting into top law schools and then top law firms. Then they make it to be a partner,” Powell said. “They haven’t come up for air in 20 or 30 years.”

Many identify with their work, and that perception gets stronger by the time someone reaches their late 50s and retirement becomes a more pressing reality. That’s one reason why executives at law firms tend to retire a lot later than the general population, a fact that is starting to cause strain in the legal industry:

• Roughly a third of lawyers in the US are 55 or older, according to the Bureau of Labor Statistics.
• That includes 14% over 65, and it isn’t unusual for lawyers to work well into their 80s.
• That tendency creates a bottleneck at some firms, and the likes of Latham & Watkins, Morgan Lewis, Debevoise & Plimpton and other large firms have even hired consultants to help lawyers think about their next phase of life, per the Wall Street Journal. 

Financial advisors are in the perfect position to break this pattern by starting conversations about finding meaning outside of work, Powell said, ideally sooner than later. 

What About the Benjamins? The financial side of retirement for successful lawyers is also important, of course, but it’s usually not too difficult. Many law firm partners will have significant pension income to complement personal investments, liquid assets and Social Security. That brings a meaningful degree of certainty, as does the recommended transition toward a more defensive portfolio that favors high-dividend paying stocks and investments in tax-free municipal bonds. 

“The main challenge is dealing with what can be big lump sum payments that come maybe only once a year and translating that into a steady income stream in a tax-efficient manner,” Powell said. “For the wealthiest clients who are going to exhaust their estate tax exemption, trust planning, gifting and philanthropy come into play.”