It seems that being an attorney has been romanticized by Hollywood and John Grisham. However, while the law can be a very rewarding career, it isn’t without challenges. In this article, we are going to look at the top 5 financial and retirement planning challenges that attorneys face.
1. Late Start
It takes a while to earn a bachelor’s degree. Then you must get through law school and the bar exam. Sometimes it even takes a while to get into law school. As a result, attorneys are usually a little behind others their age when it comes to starting their careers.
That doesn’t only mean that attorneys are late bloomers when it comes to earning an income. They also get a late start in saving for retirement, which can be even more challenging. When saving and investing for the future, time is one of your most powerful tools because of the power of compounding interest. When you enter the workforce late because of all of your schooling, you’re not only missing out on years’ worth of income but years’ worth of compounding growth for your retirement accounts as well.
2. Student Debt
For most attorneys, they aren’t just starting their careers late, they are starting them deep in debt. It can take years to dig yourself out from under several hundred thousand dollars’ worth of student loan debt. Every one of those years is a lost year of compounding interest for your retirement savings, and every payment is a lost contribution to your retirement accounts. Student loan debt can be even more detrimental to an attorney’s finances than getting a late start in your career.
3. High Taxes
While it can take quite a while to become an attorney and start earning an income, once you do, you can earn a pretty high income. Unfortunately, a high income usually equates to high taxes. This is especially a problem for contingency fee and trial attorneys when they win a big case.
One way to limit your tax liability is to set up a retirement plan that allows you to minimize taxes while maximizing retirement savings. A 401(k) or cash balance plan allows you to put away a lot of money pre-tax. To combat the taxes that come from winning big cases, you can set up a structured fee arrangement that allows you to reduce taxes while still being able to invest the money and get market-like returns.
4. Unpredictable Income
Another financial challenge for attorneys is that many have an unpredictable income. It can be hard to tie up money in a retirement account when you are unsure of what the future holds, and your income fluctuates regularly. The unpredictability also makes it hard to budget strategically and make a plan for your finances.
5. Lack Of Succession Planning
It may sound silly, but many attorneys have trouble knowing when or how to retire. Once you’ve made the decision to slow down, how do you step away from the business? If you own your own firm, how will you sell it? If you’re part of a small firm, who will buy you out and how will they fund the buyout? These are things best thought of many years in advance.
How We Can Help
At Wurz Financial Services, we help attorneys just like you every day. We help develop law firm succession plans so that when the time comes to step away, it is a smooth and painless process. We assist firms in setting up appropriate retirement plans that allow them to save large amounts of money for the future while minimizing current taxes. And if you’ve just won a big case, we can help you set up a structured fee arrangement so that you can reduce taxes and be more strategic with your money.
If you’re an attorney looking for a financial professional that understands your life and challenges, we just might be the right partner for you on your journey to a comfortable retirement. Contact us at 859-291-9879 or firstname.lastname@example.org today for your no-obligation consultation. If you’re not ready to talk, you can still join us at one or both of our free webinars:
- Social Security 101: The 3 Rules To Maximize Your Lifetime Retirement Benefits!
- Will I Have Enough To Retire?
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’s of science degree 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 Covington, KY rotary club, the Northern Kentucky Chamber of Commerce, and the Covington Business Council. To learn more about Darren, connect with him on LinkedIn.