Retirement planning for solo attorneys

By Sylvia Hsieh Dolan Media Newswires BOSTON, MA--Recent statistics indicate that more lawyers than ever are going solo, whether by choice or out of necessity. What has not changed, say law practice management experts, is that both newbie and experienced solos are not planning for retirement early or often enough. While retirement planning may not be all that different for solos than it is for other attorneys, the unique pressures of running a one-man or one-woman show often put it on the backburner. "The biggest concern with the solo crowd is that their plan is basically, 'I'm going to die at my desk,'" said Mark Bassingthwaighte, a risk manager with ALPS, a liability insurer for attorneys, in Billings, Mont. "One of the things most lawyers fail to understand is that they need a plan," said Ed Poll, a law practice management coach in Venice, Calif., who is writing a book on the subject. Solos, said Poll, tend to think that "whatever is left over from revenues after expenses is available to spend today." The economic depression may have worsened that trend. "The new solos are asking themselves, 'What kind of planning should I have for retirement down the road when what I'm worried about is today?'" Poll said. And contrary to public opinion, lawyers tend not to take care of themselves first. "What I see is [attorneys] who did a decent job of taking care of their clients, taking care of staff, raising a family, getting their kids through college and taking care of everything else, then they pay themselves last. They get to the point where they think, 'I'd like to retire,' and they don't have the financial wherewithal," said Bassingthwaighte. Socking away money A common pitfall for solos is spending net income without putting anything into a retirement fund. "The biggest mistake is getting swept up in a very high-expense kind of lifestyle before establishing habits to save for a rainy day," said Joel Framson, a CPA and personal financial specialist who advises solo attorneys on retirement and investment planning. For solos who want the most aggressive tool, he recommends a defined benefit plan, which allows you to put aside significant amounts of money and build up retirement savings quickly. For 2012, the maximum annual contribution to a defined benefit plan is $200,000 per year. "Assuming you can put $100,000 to $200,000 away every year, you can build up a million dollars in 5 to 10 years," said Framson, president of Silver Oak Wealth Advisors in West Los Angeles, Calif. "Then if you start getting stressed out or burned out, you have real choices. You can cut back on your number of hours, gain some independence or merge with a bigger firm. You have options and flexibility." By law, a defined benefit plan must cover a certain percentage of your employees, but as long as you meet that requirement, you can legally exclude certain categories of employees, such as an associate who is more costly than an office manager or other staff, Framson noted. "That's a huge benefit for an attorney who's a solo who is thinking about hiring an associate but doesn't want to cover [him or her]," he said, although he added that complying with the technical rules of how many and which employees must be covered can be difficult if you only have one or two employees. Because the rules are so complex, a qualified actuarial firm is generally needed to help with that determination. Another option is a SEP IRA, which allows you to sock away tax deductible amounts equaling up to 25 percent of your W-2 compensation, or 20 percent of your adjusted self-employment income if you are unincorporated. However, a SEP IRA has a yearly limit on contributions, currently $50,000, whereas a defined benefit plan looks at an average compensation level in setting contribution limits. A 401(k) plan is a third option, but Framson said it offers no real advantage over a SEP IRA because 401(k) investment fund choices are often very limited and contributions are capped at a dollar amount rather than a percentage of compensation. Lawyers who have existing retirement funds should consider hiring a financial advisor to manage them, along with their personal savings. "Too many attorneys are throwing their account statements into a drawer and ignoring their investment choices," Framson said. Some risks of retirement If attorneys aren't thinking about normal retirement, they're thinking even less about the forced retirement brought on by accident or illness. Bassingthwaighte said solos rarely have plans in place for "forced retirement" scenarios, like having to care for a spouse who develops a debilitating disease, or suddenly getting sick oneself. To protect themselves, lawyers should make sure they have an estate plan, and consider long-term care insurance and a "key man" life insurance policy, which will help the person in charge of administering the winding down of a practice, often a solo's spouse, with the costs of that process, he said. If you think you want to be active in the legal field after retirement, malpractice insurance decisions you make now could impact your available coverage later, Bassingthwaighte noted. For example, if you reduce your coverage in your later years of practice and then seek "tail coverage" when you retire, the tail will only be for the amount of your last policy, he explained. Entire contents copyrighted © 2012 by The Dolan Company. All rights reserved. Reproduction in whole or in part without written permission is expressly forbidden. Published: Thu, Jul 12, 2012

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