Retirement Income Planning: The Art and Science of Enjoying Lifelong Wealth for Attorneys
As many families as there are in the world, that’s how many ways there are to transition through the various phases in your life – from earning, to enjoying, to retiring and bequeathing your accumulated wealth.
That’s why planning for optimal lifelong wealth is an art and a science.
The art: Come what may, you’d like to savor the rewards you’ve earned during the countless hours dedicated to your career. And you don’t want to wait forever to do so.
The science: Along the way, you also want to create an unassailable financial safety net to last the rest of your life – for both of you, if you’re a couple.
Add to this an attorney’s overarching dilemma: You’re way too busy in the here & now to worry about your distant spending plans. But deep down, you know you must; nobody else is going to take care of them for you.
So how do you squeeze critical lifelong wealth planning into your already jampacked days (and, often, nights)?
Wealth Management Essentials
Fortunately, whether you’re an attorney, a baker or a candlestick maker, many of the same planning essentials apply.
First and foremost, we would suggest that the best, most tax-efficient financial planning differs from what we usually see out there. Most people separate their career/earning plans and retirement/spending plans into two, isolated events.
Instead of approaching your family wealth like there’s a retirement “cliff” looming in the distance, it’s easier and more effective to travel a gradual, lifelong slope.
Believe me, your 65-year-old self will thank you many times over if you initiate a few no-nonsense steps when you’re 30-something. Plus, you’ll be far better positioned to seamlessly enjoy your wealth throughout your lifetime – whether it’s for your children’s higher education; a grand, mid-career vacation; fulfilling philanthropic aspirations; or, eventually, entering your ideal retirement.
So, what are those no-nonsense steps?
During your working years, your best bet is to employ an evidence-based investment strategy in your retirement and taxable accounts alike, with a tax-efficient buy, hold and rebalance approach. And start funding it immediately. This will help you minimize taxes along the way, and position you to accelerate into tax-efficient retirement spending when that day arrives.
An evidence-based investment strategy also makes it easier for you (and any advisor who may assist you) to select a model portfolio in your retirement plan that best suits your lifetime goals.
See how it all begins to come together?
Skill Sets for Successful Spending
Even if you excel at accumulating wealth, spending it often requires a different mindset – especially as you approach and enter retirement, or otherwise ease out of your primary earning days. The skills may overlap. But in spending versus earning your wealth, the emphasis shifts toward these three key areas:
- Spending power – Positioning your portfolio for maximum spending power (especially during the “blackout period” after you retire but before Required Minimum Distributions, or RMDs, kick in at 70½).
- Legacy – Preparing for any legacy goals you may have.
- Taxes – Managing tax ramifications throughout.
One way to effectively address these and other spending goals is to have a written spending plan in place and to regularly revisit it – at least annually. At Cogent Strategic Wealth, we refer to this as our clients’ Life Well-Spent Plan.
GET STARTED ON YOUR LIFE WELL-SPENT PLAN TODAY
Some of the key actions within a Life Well-Spent Plan include defining expected costs, tracking real-time spending, deciding how to maximize Social Security and other income sources, and (again) synchronizing all of the above into a smooth, unified course.
Financial Planning for Attorneys
Next, let’s talk about some of the distinct wealth and retirement planning challenges attorneys often face, beyond these general essentials.
Your benefits have changed. Ah, the good old days. Your hard-working predecessors certainly faced challenges of their own, but being responsible for safeguarding their retirement was rarely one of them. A sturdy pension plan typically took care of all of that, come what may.
Today, most “father-knows-best” defined benefit plans have been replaced with defined contribution plans. For better or worse, you’re far more directly in charge of your own retirement assets. You can now more effectively integrate them into your overall investment management activities. But the added control also adds more work for you, as well as another risk …
You may be tempted to play the market instead of investing in it. We humans are generally optimistic. Once you’ve made it through law school, passed the bar, and risen in the corporate ranks, optimism can morph into overconfidence. And overconfident investing is a dangerous thing. It tempts otherwise intelligent individuals to abandon their disciplined (“boring”) evidence-based strategy in favor of their or their friends’ clever whims and hunches.
That may be fine with a bit of play money. But for the core of your wealth, you’re far more likely to prevail by embracing time-tested best practices: controlling cost, managing risks (globally diversifying) and staying on course toward your plans when others around you grow emotional.
This also includes grounding your financial goals in realistic expectations. While patient investors are expected to earn satisfying returns over time and after costs, you must have staying power through the market’s many moods to do so.
Your career may not go as hoped for. As covered in this August 2018 article, the shift toward dropping mandatory retirement ages in the legal industry may seem like a sweet boon, but it can also become an unexpected financial bust. As the columnist comments (emphasis ours), “In the absence of a mandatory date, productivity becomes a more important determinant of when a lawyer will retire, which means that some lawyers will retire before they intended.”
In other words, you may be banking on earning a bountiful income into your 60s, 70s or beyond. But life may have other plans. In wealth management, it’s a good idea to prepare for worst-case possibilities as well as best-case scenarios.
Your spending goals may need a reality check. You don’t need to be a actuary to know that most of us are living longer, healthier lives That’s wonderful! But if you’ve grown accustomed to living large during your career, it’s unlikely you’ll want to drastically alter that lifestyle as you transition into retirement or other phases of your life.
While it may be commonly assumed that “retirees spend less,” your own reality may vary from that adage. So, when you’re planning your lifetime spending, don’t sell yourself short by either underestimating your true spending needs, or overestimating your available sources of income. Average rules of thumb may not work well for you and your goals.
Again, integrated, lifelong planning is the key to success. By contemplating earning, spending and risk management issues in concert with one another, you can best estimate your realistic Life Well-Spent needs. These are the sorts of questions to mull over (on your own, or in alliance with a financial professional):
- What can I do to ensure I don’t run out of money?
- Do I have the most effective and efficient retirement plan in place?
- How can I maintain my lifestyle, during my career, throughout life’s transitions, and in retirement?
- How do I avoid getting locked into a high tax bracket for the rest of my life?
- How do I make best use of the step-up in basis for a surviving spouse or heirs?
- How else can I maximize sharing wealth with heirs and charitable causes?
- How can I minimize estate taxes?
- How do I prevent my assets from falling into the wrong hands (ex-spouses, unjustified litigation, etc.)?
Ready, Set, Roll on Your Financial Plan
As you strive to make all the right choices at all the right times in your life, your ideal plans integrate every aspect of your wealth: financial planning, investment management, tax preparation, risk management (insurance), philanthropy and legacy planning activities alike.
As such, creating and sustaining a personalized balance between safe and satisfying lifelong wealth rarely happens by accident. Early and ongoing collaboration among your financial team players is critical to addressing the many, varied and significant details that inform your best Life Well-Spent decisions.
What other planning questions can we answer for you and your family? We’re available for a Cogent Conversation® anytime.