What attorneys need to consider financially about their retirement
The transition into retirement is a major life change for attorneys. I know because I just went through this process. You need to be aware that retirement is a process, and there are some upfront considerations that are unique to lawyers before taking the plunge to leave work. As an attorney, you’re likely well aware of the lawyer’s mantra: prepare, prepare, prepare. This could not be more appropriate with a slight adjustment: prepare, plan and pamper.
If your firm has a compulsory retirement age, usually 65 or 68, you have a horizon you must plan for before the actual date. If your firm doesn’t have mandatory retirement, then it’s up to you to set that target date and plan accordingly.
As a starting point, I suggest you begin planning about three years before the event to make sure you will receive enough money to fund your retirement plan. You’ve worked long and hard—make sure you’re getting everything you’ve earned!
For partners in a law firm
Considerations begin with what you will receive from being a partner in your firm when you withdraw. There are usually two levels of partnership: equity and nonequity (owner and income). Most firms have written partnership agreements that are very specific and govern the rights, duties and obligations of each partnership class, including withdrawal rights. These agreements can be complex and must be carefully checked at the outset. It should be noted that a partner in a law firm has the right to withdraw from the partnership at any time, provided the proper notice, if required, is given.
In some firms, the equity partners sell their equity or ownership rights back to the firm. In others, there might be one or more capital accounts into which partners have paid amounts over time that they will get back upon retirement. The partnership agreement will spell out exactly what the withdrawing partners get and when. When a partner leaves, there may be a lump sum payment or periodic payouts, or both, depending on the nature and purpose of the capital account.
In my case, I received a lump sum payment from one capital account and a periodic payment from another—all as spelled out in my agreement. You should know what you get and when you get it. You want to make sure things go smoothly. So, for purposes of planning, be certain to comply with any notice provision before you retire or withdraw from the partnership.
Another thing to consider is whether your firm has a claims-made insurance policy and tail insurance coverage for professional negligence claims. This insurance provides protection for claims that are reported after the insurance policy ends. Some states have laws related to tail coverage and some coverage may have a tail period in the policy so this should be checked. Generally, partners have the option to add tail coverage to their claims-made policies. You may wish to consider purchasing some protection and consult with your insurance broker on how long a period to extend your coverage. This consideration also applies to sole proprietors who sell or shut down their practices.
Considerations for sole practitioners
Sole practitioners have different considerations than partners, as some may wish to sell or close their law practice. In either case, state laws may regulate the sale or shutting down of a law firm; make sure there is strict compliance in either situation.
Specifically, in the event of cessation, there may be mandatory notice requirements to your clients, strict requirements for retention of client records or confidential information, dispersal of funds or other property held for clients and notices of withdrawal for any matter on which you’re counsel of record.
If you’re selling your law practice, two of the overriding concerns are maintaining client confidentiality and valuation of your practice. The ABA model rules and state laws again should be checked and followed. Consider an appraisal of your practice to ensure you’re getting full value for your years of labor.
Considerations for in-house attorneys
If you’re a general counsel or in-house attorney, you may receive a compensation package with restricted stock or stock options and/or bonuses. You also may receive a pension or other defined benefit plan. If so, you definitely want to know the company rules and requirements for selling your stock or options and collecting any bonuses or other compensation due to you. It is time to enjoy the fruits of your labor and make sure you avail yourself of everything you’ve earned over the years.
Life after law?
In cases where partners don’t fully retire and wish to remain in some capacity, there are options to withdraw from the partnership and become senior counsel, essentially becoming an independent contractor (like me), with their obligations and compensation spelled out in an agreement. In such cases, the structure and compensation are a part of the negotiation process and are tailored to the level of activity and engagement the attorney wants. These can be modified periodically.
There will be an adjustment from going full tilt to a hard stop—know this going in—but also remember that you’ve worked hard and had a great career, done the preparation and planning, and now it’s time to enjoy yourself!
Socialize with others in your age group and those with similar interests, perhaps reconnect with old friends. Stay active—travel, pursue hobbies and dreams, exercise, stay fit. Active people live longer and are happier! Meditate and commune with nature. Write that book. Give back by volunteering for local charities and pro bono organizations—there are lots of needs.
One last bit of advice before you dive in: Your retirement may seem like a distant state of nirvana now, but it’s never too late to start thinking about what your retirement will look like. In fact, today is the perfect day to start not just thinking about but planning your retirement. Your career will go by much faster than you think, and the downward slope will be upon you before you know it.
Author’s notes: I wish to thank Jim Bowman, my own retirement adviser, for reviewing this article and offering suggestions for accuracy and content. This article reflects the opinions of the author and not necessarily the views of Wilson Elser.
Stratton Horres is senior counsel at Wilson Elser in its complex tort and general casualty practice. He focuses on crisis management and catastrophic high-exposure cases. Horres is also co-chair of Wilson Elser’s national trial team. He is based in the firm’s Dallas office. His email is [email protected]
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This column reflects the opinions of the author and not necessarily the views of the ABA Journal—or the American Bar Association.