Planning Makes Cents
Peter Clark began thinking in earnest about planning for retirement when a solo lawyer down the hall in Clark’s office building died unexpectedly two years ago.
Clark, who is based in Mansfield, Mass., had been looking after some of the other lawyer’s cases off and on for a few years as the solo underwent medical treatment. Still, at the time of his death, the fellow had been doing well and seemed healthy, until he was felled by an infection in just a few days.
Clark took over the other lawyer’s caseload and made a deal to share some of the fees for those cases with the deceased lawyer’s estate, an option allowed by ethics rules in his jurisdiction.
He was fortunate that the deceased lawyer had a general practice similar to Clark’s, with matters in real estate, estate planning, a bit of commercial law and tax. The learning curve on the new cases was gentle for Clark because of the similarities.
Without Clark’s intervention, however, it’s likely that the dead man’s widow would never have received a dime from the pending cases. Clients would have been left to fend for themselves in finding new counsel, and it’s unclear what might have become of the solo’s files, since he had made no arrangements for their disposal.
“Up to then, I’d been so busy launching my own practice, I hadn’t given any thought to planning for retirement or what might happen to my firm if I die or become disabled,” Clark says.
Clark, who is 40 years old and has been a solo since 2001, says he is now beginning the process of talking to financial advisers and disability insurance brokers. He has a bit of retirement savings, but not enough that he can really plan to stop practicing altogether. He has one associate and a paralegal. Eventually, he thinks the associate could be called upon to take over if he decides to slow down, though he says he expects to keep working “until the day I drop dead.”
Chicago solo Shell J. Bleiweiss is in a similar position. A solo since 1998, Bleiweiss practices in a rather obscure area of administrative and regulatory law. As a result, finding someone to fill in if he should get sick would not be as easy as it was for Clark and the lawyer whose clients he took on.
Bleiweiss says he also expects to practice for the rest of his life, health permitting, but he might consider bringing in an associate in a few years if he opts to slow down. He spent the early part of his law career at a midsize firm that required all employees to contribute a percentage of their income to a tax-deferred retirement plan sponsored by the firm. At the time he was working there as a young lawyer, Bleiweiss says, he resented the parental nature of the requirement, but now he’s grateful for it.
He rolled over his savings plan into an individual retirement account when he left the firm. On the advice of his accountant, Bleiweiss also opened a simplified employee pension plan. He likes the SEP because the maximum amount he is allowed to contribute each year is high and is based on his variable income.
At the same time, he’s not required to make a contribution each year, so in lean years, he can cut back. Much like a traditional 401(k) plan, the SEP allows the participant to choose a fund manager, and to monitor and select mutual funds in which the money is invested.
“I can be as hands-on or hands-off as I want. I can control the investments,” says Bleiweiss, whose SEP is administered by Fidelity Investments.
The American Bar Association Members Retirement Program (www.abaretirement.com) also offers 401(k) and qualified plan investments and services to ABA members and their firms. The plan is administered by State Street Bank and Trust Co., one of the largest mutual fund management companies in the U.S. Plans are custom-designed for each firm.
Chicago lawyer and financial adviser Luke Novak says solos like Clark and Bleiweiss are doing the right thing by considering their options and consulting with financial professionals.
“A financial adviser can help you sort through the various options and figure out which works best in your situation,” says Novak. “The adviser will ask for your goals and work from there.”
He says one of the most pervasive myths among solos and small firms is that having a retirement plan is prohibitively expensive. Novak says it doesn’t have to be. Novak notes that a plan like Bleiweiss’ SEP or the similar SIMPLE IRA can be started cheaply and administered for next to nothing.
Novak cites an example: A lawyer has a secretary, a paralegal and himself. He can start a plan that allows the secretary and paralegal to each contribute a maximum of $10,000 per year to the plan. With mandatory 2 percent employer matching, the lawyer will only have to contribute $200 per year for each employee to satisfy the requirement. Add about $10 to set up each account and about $10 per year in administrative fees, and the lawyer’s total cost for the employee plan is less than $500 per year–and those expenses are tax deductible against the firm’s income.
Meanwhile, the lawyer can contribute a percentage of his personal income to his own fund on a tax-deferred basis.
There are a few drawbacks, Novak says, such as the fact that participants in these plans are not eligible to take a loan against their plan assets, as is available in other, more expensive plans used by bigger companies. But he says that having a retirement plan in place can help a solo or small firm find and keep good, long-term employees.
“The old saw–about ‘When’s the best time to plant a tree? Five years ago’–is true. The later you start, the less you’ll have by the time you get ready to retire,” Novak says.