The First Monday Of A Lawyer’s Retirement: 5 Things To Settle Early

You probably have a rough idea of when you’d like to stop practicing. What happens the Monday after is a different question, and the answers are easier to find before you get there.

Most of what makes this transition go well gets decided years earlier. Here are five things worth settling early, with a few ideas for each.

1. Leaving The Practice Exit For Later

Many lawyers assume the practice will sell or transition on its own. A partner will step in, an associate will take over the files, and clients will stay put. Sometimes that works out.

A succession plan, an identified buyer, and a partner buyout agreement reviewed a few years ahead give the value of your book and goodwill the best chance of holding up once you start to slow down. Goodwill is the value of your client relationships and reputation, beyond the furniture and the receivables. It often rests heavily on one or two names, and it may fade quickly when clients sense those names are heading out the door.

Think about selling a house. Most of us fix the leaky faucet and repaint the kids’ playroom before the listing goes up because buyers tend to pay more for a place that looks cared for. A practice works much the same way. Clients who have met the successor, and watched the handoff happen gradually, may be more likely to stay.

A buyout agreement signed years ago may also no longer match how the firm works today. Reading it again while everyone is still at the table gives you time to fix what needs fixing, and more room to negotiate than you would have in the final year.

2. Overlooking The Tax Opportunity Around The Exit

The years between your last paycheck and the start of Social Security and required minimum distributions can be unusually low-income years. For many attorneys, taxable income drops well below its working-years peak for a stretch. That may make it a good time to consider Roth conversions, which move money from a pre-tax account into a Roth account and pay the tax on it now.

Conversions are not right for everyone, since the tax comes due today and the benefit can take time to play out. They are worth a look, though, while your income is lower than usual.

A large buyout or deferred payment landing in a single year can push the tax bill higher than it needs to be. Spreading payments across more than one year, or lining up conversions with the lower-income years, may help smooth things out.

Timing matters here, and it’s necessary to picture several tax years at once. That part is hard to conceptualize for most people. A conversation with your advisory team before you sign the buyout terms may leave you with more choices.

Again, every situation is different, and your numbers may look nothing like these general observations.

3. Having No Plan For What Comes Next

Many retirees tie their identity to the work, and lawyers often do so more than most. After decades of being the person clients call, a quiet phone can feel louder than you expect.

Deciding ahead of time how you will spend your days, and what role you will hold, gives the transition a shape. That role might be mentoring younger attorneys, serving on a board, teaching, or building something that has nothing to do with the law. The specifics matter less than having something to walk toward.

Without a picture of what comes next, it can be easy to overspend to fill the gap. Travel, a second home, and big projects all have their place, but they can add up quickly when they are standing in for a purpose. It can also be easy to drift back into work on terms you did not choose.

Try writing down what a good week looks like. Then see what that week costs. It doesn’t have to be perfect; a few honest answers is enough to start.

4. Missing The Health Coverage And Cash Flow Bridge

Retiring before 65 can make health insurance cost far more than many people expect. Medicare does not begin until 65, and if your firm has been covering part of your premium, you may be seeing the full price for the first time. Pricing out coverage before you pick a date is one of the more useful things you can do.

Then comes the cash flow side. Mapping out the first few years of income from the buyout, savings, and Social Security timing is where a lot of plans come together or come apart.

Some questions to put on paper. How much will you need each year, and which source covers it? If the buyout pays out over several years, what covers the gap while you wait? Claiming Social Security earlier generally means a smaller monthly benefit for life, so what does that choice do to the rest of the picture?

Mapping this year by year, even roughly, tends to reveal gaps while there is still time to close them.

5. Treating Investment Management As The Whole Plan

After decades with an investment statement — perhaps even a financial advisor, it is easy to assume the plan is in place because the portfolio is being looked after. The portfolio gets the attention in most advisory relationships, so it can feel like the whole picture.

I believe that’s a mistake.

A plan covers more ground. It addresses when to leave the practice, which accounts to draw from first to optimize tax exposure, when to claim Social Security, and how to pay for health coverage until Medicare (Even after Medicare with those IRMAA surcharges!). Each of those decisions touches the others, and the order you make them in can change the outcome.

A good question to ask is who is coordinating all of that, and where it lives in writing.

A well-managed portfolio is a good thing to have. Just remember that it works best as one chapter in a larger plan.

Back To That First Monday

Attorneys who feel good about this transition often did some of their thinking early. They gave the practice time to transfer, looked at the tax years around the exit, pictured their days, priced out the bridge, and asked who was holding the whole plan together.

None of it needs to happen at once. Picking one of the five and starting there is a fine place to begin.

If this kind of planning is useful to you, I write about it each week in the Money Meets Law newsletter for attorneys thinking about their next chapter.

This article is for general educational purposes and is not individualized tax, legal, or investment advice. Please consult your own CPA, investment advisor, and attorney about your situation.

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David Hunter, CFP® is a CERTIFIED FINANCIAL PLANNER™ and owner of First Light Wealth, LLC, a financial planning & wealth management firm with a unique focus on serving attorneys nationwide. David has over a decade of experience helping clients build financial plans and has been featured in publications such as Attorney at Work, ThinkAdvisor, MarketWatch, Financial Planning, and InvestmentNews. David also writes weekly to attorneys in his popular Money Meets Law newsletter. For more about David, visit firstlightwealth.com/lawyers or connect with him on LinkedIn.

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