Most attorneys will eventually retire and you shouldn’t wait until the last minute to start planning for your retirement.
In this episode of The Lawyer Millionaire, Darren Wurz discusses the challenges you may be facing in the legal profession when it comes to your retirement planning.
- Why attorneys procrastinate when it comes to retirement planning
- Some of the biggest fears that attorneys have about retirement
- The difference in planning for retirement as an attorney then it is for anyone else
- The importance of having a good investment strategy
- And more
- Wurz Financial Services
- The Lawyer Millionaire: The Biggest Financial Challenges in the Legal Profession (Ep.3)
Connect with Darren Wurz:
- 30 Minute Chat With Darren
- Wurz Financial Services
- LinkedIn: Darren P. Wurz
- LinkedIn: The Lawyer Millionaire
- Twitter: Wurz Financial Services
Transcript:[00:00:00] We are on a mission to help lawyers and law firm owners maximize wealth and achieve financial independence. Welcome to The Lawyer Millionaire with Darren Wurz, from Wurz Financial Services. In this podcast, we will help you build wealth, minimize your taxes, and plan for retirement with money management strategies designed for the legal profession. Join us in this journey where we help you manage your money so you can make the most of your future. Start feeling confident in knowing you are well-prepared for retirement and on track to financial independence. Now on to the show.
Patrice: Most attorneys will eventually retire and they shouldn’t wait until the last minute to plan for that time. Darren Wurz can help lead that conversation. After all, he wrote a book on financial planning for attorneys, and this is his podcast. I’m Patrice Sikora. And this episode focuses on retirement planning for lawyers, [00:01:00] Darren, be honest, do they procrastinate like most?
Daren: Well, yeah, that’s true. And most of us do procrastinate. In fact, the clients that I get tend to come to me about five to 10 years away from retirement. You might think seems a little bit late. But most of the people I talk with, they have done a lot of kind of planning on their own, or they’ve been really serious about squirreling away money.
So they’ve been really putting it away as quickly and efficiently as they can. So that works out nicely. But if you’re not doing that, yeah. You need to start a lot earlier. Five to 10 years is not a lot of time to really make any major changes that need to be made. Really the truth is you need to start as early as possible.
If you haven’t started already, start now. [00:02:00]
Patrice: And you talked about that in episode three, your podcast, episode three. They can go back and refer to that as well. But I’m sorry. Go right ahead.
Darren: No, you’re absolutely right. Your biggest resource is your time. And the more you can harness the power of compounding over time, the earlier you can start any retirement planning, the better, and really it’s more than that. It’s about making sure you’re on the right path. You know, there are a lot of decisions that you can make early in your career about what kind of retirement vehicles you’re going to use, even what kind of investment strategy you’re going to use.
How are you going to structure your business? How you’re going to plan for taxes and different things like that. So, the earlier that you can start getting on the right pathway the better.
Some of the clients I work with are younger and that’s great. They’re taking the bull by the horns. And so for them, [00:03:00] retirement planning is maybe a lot less specific. We’re not dealing with really specific numbers, but it is important to at least make sure you are on the right pathway and headed in the right direction. You know what I mean?
Patrice: Yeah. Well, what are some of the biggest fears that attorneys have about retirement?
Darren: Attorneys have a lot of the same fears that many of us have. Running out of money would be one of those chief concerns. That seems to be pretty universal across the board. I think I mentioned this in an earlier podcast, but it’s a kind of universal thing no matter how much money you have when it comes to retirement. Running out of money is really kind of a universal concern for most folks.
Patrice: Well, I was going to say again in episode three, I really highly recommend that to everybody go back and listen to that because you went through this in great detail. But just give a high level [00:04:00] overview of the challenges that attorneys face today because they’re coming out of school late, start their careers. So what are the challenges they’re facing?
Darren: Yeah. Lack of time and planning is really a big one. And then because as attorneys, you’re very busy, you’re busy running your practice. You’re busy with your professional work. If you own your own practice, you’ve got all those hats that you’re wearing as a business owner.
So you’re just generally a very busy person. And so it can be difficult to set aside time for that planning and stuff like that. And then of course you have the kind of environmental challenges that are happening right now. So that would be things like there aren’t any pensions anymore.
There actually used to be pensions in the legal profession–maybe not as common as other types of businesses or [00:05:00] industries, but those pensions are going away. Most companies have gotten rid of those. Pensions are difficult for companies to maintain. They make these promises that we’re going to give you X amount of dollars when you retire for the rest of your life.
There’s a lot of risk that the company has to take in setting that up. So those are going away and then people are living longer. That’s one of the reasons pensions are going away, people are living a lot longer. My grandparents are in their nineties, you know, so people are living well into their nineties and beyond.
They are living a lot longer than they used to. And so, you may be retired for 30 years. That’s a long time. If you retire at 65 and you have a life expectancy of maybe 95, That’s 30 years of retirement you have. And that makes that fear of running out of money, that much more real, right? Because your money has got to [00:06:00] last a long time, compounding all of those issues.
Now this is up for debate, but a lot of experts believe that the stock market is not going to be as generous in the future, as it has been in the past. From 2009 to the end of last year, the market’s had a really, really nice run-up and there’s some things happening with inflation, with population growth, with stock market valuations, if that means anything to you.
So, a lot of experts believe that the market may not be as generous going forward. So that’s a concern because obviously you need your money to grow, so it can last, and if that’s not happening, then you could be in trouble. Then finally, firms are pushing attorneys to retire earlier.
This may not be such a problem for [00:07:00] people who own their own practice. But a lot of the bigger firms they’re trying to get their attorneys to retire earlier.
Patrice: Why is that?
Darren: You took the question right out of my mouth. These big law firms, like, you know, the big, multinational kind of law firms, they are trying to make room for new talent. They’re trying to bring in that fresh crop of attorneys to get access to some new blood and that’s just kind of a dynamic that’s happening across the board in some of the bigger firms. They’re trying to get those older attorneys to retire earlier, if possible.
So add that to the risk that you’re living longer, you’re not going to earn as much on your money–there’s a lot of issues at stake here, you know? And, that makes retirement planning challenging.
Patrice: But what is different about planning [00:08:00] retirement for attorneys than it is for anybody else? It’s the same thing, as you said, we’re all worried about living longer. No more pensions. Okay. Yeah. So maybe some of us are getting pushed out earlier than expected, but what is so different?
Darren: Yeah, a lot of these are the same, right? We all kind of have some of these issues that we’re facing and concerns. But attorneys do have some unique things that they face. And so, you know, I’ve kind of developed my practice around serving the unique needs and the challenges of the legal profession.
Specifically, a lot of that involves just the way the legal profession is. The legal profession is not like a physically demanding job. You can continue to work as an attorney well into your later life. As long as you’re mentally sharp, you [00:09:00] can continue to do your job for a lot longer than many other professions.
So a lot of attorneys do. They love what they do. It’s part of their identity, it’s in their blood, you know? And so they really enjoy it and they can’t think of doing anything else. They want to continue to work. Now that’s not true with everybody. I know plenty of attorneys who are like, oh no, that won’t be me.
I’m out of here as soon as possible. But if you want to keep working, you can.
So that’s a little bit different. And so, for a lot of attorneys, it isn’t a specific retirement date like it might be for other professions. Maybe it’s a little bit more fluid. So instead of talking about retirement, necessarily, sometimes we talk more about financial independence–being able to get to a place where you have enough money [00:10:00] that you could retire if you want to.
And that gives you some freedom. It gives you the freedom to maybe be a little bit more selective with who you take on as a client. It gives you the freedom to be selective about what cases you take and things like that. So, people are looking for that kind of a lifestyle.
The other big thing is for attorneys who own their own practice. So that’s where a lot of my work centers around–helping attorneys figure out what to do with the law firm, right? What should I do? How do I sell it? Can I sell it? How do I transition it? What happens there? What’s the succession plan? So those are some of the unique things that attorneys face.
Patrice: So what are some of the options for the practice?
Darren: Great question. Unfortunately, most attorneys that I talked to at least don’t really have a plan. And so their plan is the no plan plan. [00:11:00] They’re just going to turn out the lights. I have several clients like this. And unfortunately, they started working with me a little bit too late in the game and they didn’t really have an interest in doing much with their practice.[00:11:14] And so it was pretty much just finish with the current clients, finish with the current case load and then wrap up. But there’s a lot of money being left on the table there. So, I encourage attorneys to think about selling their practices. There’s a couple of ways you could do this. Basically you could sell to somebody else, like maybe another firm by merging with another firm. Or by finding another attorney who has a firm who wants to buy you out, something like that, or an internal transition, perhaps maybe you bring on a younger associate who can then take over the firm over time. But in all of these, it is a transition that does take some time.
Patrice: And how do you [00:12:00] value a law firm?
Darren: Yeah, that’s the golden question, right? It is tricky. Law firms are not like a McDonald’s franchise. It’s not something that can be so easily sold, but law firms do have value. All your tangible assets have value. If you may be own your office, the building, the land, all of that obviously has value. Your property, etc.–those are tangible assets.
Goodwill and reputation you have built up through your advertising, through your marketing. You’ve built up a reputation in the community. If people know you, if your name is recognizable, your brand is recognizable–all of that has value. Your intellectual property. Are there things that you do differently as a law firm?
Are there processes and procedures, trade secrets that you have that make you different. All of that is stuff that has value. [00:13:00]
Patrice: Definitely. All right. Now thinking as an attorney might think I’m going to ask you how much am I going to need to retire?
Darren: Yeah, I get that question a lot–what is the magic number? Do I need a certain amount? And you’ll see these articles all the time. I see them all the time on the internet and stuff that say, Hey, you need X amount of dollars to retire. A few years ago I saw an article by Suzie Orman. She said you need $5 million to retire. Well, if that’s how much you need, there are a lot of people who are going to be in trouble for a long time.
So, the true answer is it depends. How much you need to retire is unique to you specifically and what kind of lifestyle you want to lead. It’s all about your spending. How much do you want to spend in retirement? What do you anticipate your retirement looking like?
Patrice: Well, all right then, I mean, but how do you figure that out? You’re working now. You don’t know how much travel you might want to do or might not want it. What kind of lifestyle you may become accustomed to and want to continue? How do you figure it out?
Darren: Yeah, you have got to do some math, our favorite thing. There is a very complicated way to figure it out and there’s a very easy way. What I do with clients is we’ll sit down and we’ll create a retirement budget. We’ll look at your current spending and see what that will look like in the future. And then we use that to compute how much exactly you’re going to need.
The simple way to do it is to take your spending, how much you anticipate spending per year in retirement and divide it by 4%. It’s called the 4% rule. [00:15:00] So your withdrawals from your retirement accounts shouldn’t exceed 4% and yet you could have your spending be a little bit more when you factor in maybe social security and some other income sources that maybe you have, but as a general rule of thumb, you shouldn’t be withdrawing more than about 4% initially from your retirement accounts when you get to retirement.
Patrice: Why, so why 4%? Why the four?
Darren: There are a lot of studies that have been done that indicate that 4% is sustainable for a 30 year timeframe, given the market and inflation. Your spending is going to go up over time. That 4% is going to rise, unfortunately, and eventually your portfolio is going to start to decline in value.
But what we’re concerned is can we make sure that that portfolio [00:16:00] lasts for at least 30 years? Right? So 4%, based on a lot of different studies that have been done, seems to be kind of the general guidance.
Patrice: Okay, so continue, please.
Darren: Yeah. So, you can first figure that out and then, how do you set that up or turn that into income once you reach retirement? Basically you want to instill some, some regularity in your life. What you don’t want to do is retire and then just take money as needed from your retirement accounts. That’s a recipe for disaster. So, you need to be really specific about what your spending level is.
You need to be realistic with what your spending level is going to be. I see a lot of folks that underestimate their spending. So, you want to [00:17:00] be really careful about figuring out what that spending level is going to be.
If you have a million dollar portfolio you’re going to start with a withdrawal rate of about $40,000 and then that would be sustainable over 30 years. It doesn’t seem like much, but then maybe let’s add in social security. So maybe that’s 20,000 for you and 20,000 for your spouse.
So, you’re looking at 80,000 and that starts to seem pretty reasonable. Now that number can vary a little bit. If you maybe are planning to retire later, maybe you’re planning to retire around 70, maybe you can afford a little bit higher number. And the 4% rule is to be ultra safe. You know, you could maybe get away with withdrawing a little bit more, but if you’re interested in trying to be as safe as possible, that’s a good guideline.
Patrice: What about retiring and then pulling out more at the beginning, planning later to take out less.
Darren: Yeah. There’s a lot of nuances that go into it, right? Some of these simple guidelines might help you kind of gauge some things, but there is a lot of nuance that goes into it around your different income sources and when those kick in and how your spending changes over time, because let’s be real, your spending will change. There are certain things that are going to go up over time, like healthcare costs and other things.
And there are other things that you’re going to spend less on overtime. When you’re 90, you’re going to be traveling a lot less than when you were 70. [00:19:00] So there are a lot of variations and that’s where someone like me can help you out.
Patrice: All right. And then Darren, how do you know if you’re on track?
Darren: Yeah that’s going to require some pretty good math to figure out, but I can give you some quick little guidelines. You could use a multiple of your income. The general wisdom is to have maybe two times your income saved by age 40 and maybe five times your income saved by age 50.
If your income is a hundred thousand, you should have about $200,000 tucked away by 40, uh, and maybe $500,000 tucked away by age 50. And that’s kind of a general guideline. Now, if you want to know more, schedule a meeting with me and I can help you and we will let them know how to do that by the end of this podcast.
Patrice: Definitely. So what else? [00:20:00] Talk to me about investment strategies and all the things that go into creating a retirement plan.
Darren: Yeah, there is a lot more to it, right? It’s not just the numbers–you need to make sure you’re doing other things correctly. Social security strategy would be one thing, you know, when do you take that?
That’s a really big question. I get all the time and that can have a really dramatic impact on your retirement plan. I’ve seen that dramatically change results for folks. The other big one is your investment strategy. You really need to make sure you have an appropriate investment strategy and it’s a balance, right?
Patrice: Okay. Define appropriate.
Darren: You want to be aggressive somewhat because you have to make money. Your portfolio has to grow. That’s pretty important, but the other really big thing is protection. Because you also can’t lose a lot of money. So you’ve got both of these things that you’ve got to hold, [00:21:00] you know, at the same time. And really the number one biggest risk to any retiree is a really big, nasty bear market, right at the beginning like 2008.
You want to make sure you’re set up in such a way that you’re going to get growth, but you’re also not going to face disaster if a major bear market comes along now. In terms of investments, one of the questions I get a lot is about investing for income. So sometimes people think, well, when it gets to retirement, now I need to focus on investing in things that produce income.
I would say that that’s generally a mistake. You need what we call total return. So yeah, you need some things that provide income, but you need other things that provide growth. Don’t neglect growth for investing in income. You [00:22:00] need, well, the key word here that we’re all focused on right now is inflation, right?
So you need things that are going to keep pace with that. And the only way you’re going to really truly keep pace with inflation is if you are investing for total return. You need that growth piece of the portfolio in addition to the income. That’s really important.
Patrice: Any big risks that attorneys especially should look out for?
Darren: We were just mentioning one of them and that’s inflation, right? For the last 10 years or so, we haven’t really had to deal much with inflation. Inflation has been really low.
Patrice: It’s staring us in the face right now.
Darren: Yeah. Now it’s a completely different story and I think it’s going to be something that is on a lot of people’s minds. So, when we do a retirement plan, we build in planning for inflation. What does that [00:23:00] mean? We plan for your budget to increase over time. That’s really, really important. The other thing, when it comes to inflation is not just inflation itself, but how inflation affects different things. So general inflation is one thing, but healthcare inflation is a whole different beast.
Patrice: Did not look at it that way.
Darren: Yeah. So everything has different inflation rates, healthcare and medical expenses have been outpacing the general rate of inflation for many, many years. And so, when we build a retirement plan, we plan for that. We plan for a much higher rate of inflation on the health care budget specifically.
The other thing too, you know, when it comes to inflation is if you’re planning for retirement right now and you are age 50 and you want to retire at, let’s say 65–[00:24:00] things are going to cost more 15 years from now. So, your budget today is going to be higher 15 years from now when you get to retirement and that’s something that you need to pay close attention to.
And the other big risk is what we call sequence of returns risk. Maybe you’ve heard of this term. I see you nodding your head, Patrice.
Patrice: In fact, when you were talking earlier about getting hit with a bear market at the beginning of your retirement, I’m thinking, I know there’s a phrase for that.
Darren: Yes, it’s a real thing. And it’s really actually kind of fascinating. You can have two individuals who get the exact same rate of return over, let’s say 20 years, but if you’re pulling money out of your retirement funds [00:25:00] and if you have a bunch of negatives right at the beginning, and the other has a bunch of negatives at the end, the one who had the negatives at the beginning winds up with a lot less money. It’s really fascinating. And they both have the same rate of return, but yeah, how can you plan for this?
You can’t. You don’t know what’s going to happen when you retire. We could be in a bear market right now. We don’t know. And I was talking with a client about this yesterday and he was like, so what are we in? Are we in a bull market or a bear market? Unfortunately, the answer is we won’t know till it’s over.
And that’s where having a really strong investment strategy comes into place.
The other thing is having an expert like myself, help you. So we can use [00:26:00] advanced software to model and simulate different circumstances, different scenarios. We can run a simulation of your retirement and see what if we do have some negatives right at the beginning, how will that impact things?
And we can design the plan in such a way that we try to mitigate that risk as much as possible. So that that’s where I can be helpful.
Patrice: For sure. Now, Darren, you have a book that will be coming out at the end of June, 2022. Tell us about the book. Tell us about that.
Darren: Yes, the book is The Lawyer Millionaire and it is all about helping lawyers to maximize wealth, minimize taxes, and ultimately achieve retirement and financial freedom. In the book I go through all kinds of different things from the basics to the [00:27:00] more advanced strategies. So, no matter where you are in your career, if you’re just starting out, if you’re somewhere in the middle and starting to think about retirement, or you’re real close to retirement, and really trying to nail things down, you’ll get a lot of value out of everything in the book.
Patrice: Alright. And how can listeners reach you before they even get that?
Darren: Absolutely. If you’re listening to this and you’re like, this is inspiring me to sit down and really think more seriously about my own retirement. That’s great. And I would be more than happy to help you. You can always just give my office a call at 859-291-9879 to schedule a formal consultation or just a quick chat–whatever works best for you. If you go to the website, there is a place there you can go to my calendar and pick out a time to talk. And it doesn’t have to be super serious. We can just have a quick [00:28:00] introduction. You can ask some questions. I can give you some general guidance. If you want to go deeper, we can do that too.
Patrice: Outstanding. Darren, thanks so much. And for all you attorneys out there, pay close attention, please. This is The Lawyer Millionaire Podcast. Follow us and share with friends and colleagues. And again, the book of the same name is coming out. So be aware of that. I’m Patrice Sikora. And let’s talk again later.[00:28:37] Thank you for listening to The Lawyer Millionaire. Click the follow button below to be notified when new episodes become available. This content has been made available for informational and educational purposes only. This content is not intended to represent investing or tax advice. Always seek the advice of a qualified investment or tax advisor with any questions you may have regarding your own [00:29:00] financial circumstances.