You gave 7 years to law school, at least 25 years to building your law firm, and now the payoff is on the horizon. You can smell the salt from your favorite beach in the air, and you hope in the next 5 to 10 years to be spending your days lazily sipping something with a tiny umbrella in it.
However, if you are like most attorneys, you still need a plan to help get you from being a successful attorney to being a successful retiree in the next 10 years or so. Here are a few planning strategies that you can use as a starting point to begin moving in that direction.
A Penny Saved
The car dealership, the high-end clothing store, and the Jet Ski salesman all have something in common: they all want a piece of your six-figure salary. But they’re all going to have to get in line, because successfully attaining your retirement dream needs to become your new priority. No matter how young or old you may be, it is vital to learn to pay yourself first.
Having a high income can lead to some bad financial habits. If you feel rich because your paycheck is large, then it’s easy to feel that you can always make up for lost time later. This feeling can often lead to unhealthy procrastination when it comes to retirement saving. However, if you really want to make retirement a reality, then it’s time to make a change!
The new plan is to max out your retirement income before your paycheck is cut. It is essential to maximize your contributions, especially during the years when you are maximizing your income. For 2021, the maximum 401(k) contribution is capped at $19,500. If you are over 50, you can add an additional “catch up” amount of $6,500, for a grand total of $27,000. Give it to your future self by putting it into your 401(k) tax-deferred.
By doing this, Uncle Sam will think you made less this year, and won’t tax that money until you pull it out from the account when you’re retired. Even better, that money can begin to be invested and grow on its own, earning compound interest that could grow exponentially.
Are you your own boss? Maximize your own matching and employer contributions to give yourself the maximum benefits possible. You get a savings boost, and your business income gets an additional tax write-off.
Total contributions into a 401(k), including employer contributions and the catch-up contributions, for 2021 are $64,500. Theoretically, if you maxed that out every year for 10 years, with an aggressive annual return of 12%, you could have north of $1.2 million in your 401(k)!
You’ve done well, you’re making good money, and your highly profitable firm could be worth a considerable sum. You may be able to sell your practice to another competing attorney, or possibly to someone just starting out who doesn’t want to start from scratch.
You will need an exit strategy if you want to successfully transition your business and cash out your hard work. Whether you want to court another attorney to purchase your firm or take on a junior partner who intends to buy, these processes take time. You need a solid plan now that will allow you to maximize the value of your firm when you are ready to sell.
This process can get complicated, and if not done correctly, you could leave a lot of money on the table. You will want to have expert help in your corner while strategizing the sale of your firm.
How much do you need to save to be able to retire comfortably? How much is your firm worth, and how do you evaluate it fairly? At what age should you reasonably be able to retire given your income and assets?
If you still have questions like these, we have the expertise to help you get the answers. At Wurz Financial Services, we specialize in helping attorneys turn retirement dreams into actionable goals. To schedule a no-obligation consultation, contact us at 859-291-9879 or firstname.lastname@example.org today!
Also, please join us at one of our free webinars:
- Social Security 101: The 3 Rules To Maximize Your Lifetime Retirement Benefits!
- Will I Have Enough To Retire?
- Retirement Planning Strategies for Solo & Small Firm Attorneys
Darren Wurz is a co-owner and financial planner at Wurz Financial Services, an independent, family-owned and operated financial services firm dedicated to helping its clients transition from their working life to a comfortable retirement with confidence. Darren received his Master of Science in financial planning from Golden Gate University and also holds the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation. He operates the Northern Kentucky/Cincinnati office of Wurz Financial Services and is an active member of the Northern Kentucky Bar Association, the Northern Kentucky Chamber of Commerce, and the Covington Business Council. To learn more about Darren, connect with him on LinkedIn.