The Wall Street Journal, October 28, 2013, published some interesting statistics;
To meet basic retirement needs, one needs to save 8 to 11 times salary by the age of 67; if your annual income is $100,000, you should have saved a minimum of $800,000 by the time of retirement.
There are a number of “disconnects” in the statistics. For example,
• 69% of the people surveyed said they expect to work for pay after retirement; yet, only 25% do.
• Only 46% of retirees will be able to afford their essential needs in retirement; yet 78% of those surveyed expect to be happy in retirement.
• Of workers 55+ years of age, 54% said they thought they’d need $250,000, exclusive of house and pension, for retirement. Only 24%, however, said they had that. Sadly, about 1/3 of this group had less than $10,000 saved.
• Only 38% believe they will be able to afford “extras” (like travel) in retirement; yet 72% believe their dream retirement includes taking really nice vacations.
• 62% say they’ve done everything they need to do to prepare for retirement; yet 68% say they expect to work after they retire.
• Before retiring, when asked, only 29% said they were very confident of attaining paid employment once retired, 45% were somewhat confident. But, after retiring, only 7% said they were very confident and 21% said they were somewhat confident of finding paid employment.
Retirement age has increased since the 1990s, 57 years of age in 1993. Now, we’re at least 66 years of age. The later retirement age continues to build the nest egg ... and one’s emotional health seems to be better with the later retirement age.
On retiring at the age of 65 today, the average life expectancy is another 19 years, meaning one may live 1/4 of one’s life in retirement. Hence, the title of my latest book, Life After Law: What Will You Do With the Next 6,000 Days? Planning for the “second season” is not something to be taken lightly.
Most people will agree that there are too many lawyers, an oversupply. (Parenthetically, I disagree; it seems to me that there is a dislocation between the supply and the demand for legal services, a situation that the organized bar has never been able to reconcile with successfully.) But I digress.
Assuming, for the moment, that there is an oversupply of lawyers, why should we care? Would that not mean the fees for legal services would come down? Would it not be best to let the marketplace handle supply and demand?
But, If the Bar wants to reign in the supply, how could they? Of course, get rid of some of the lawyers. (Making admission to the organized bar is another way, longer term. Economics seem to be handling this quite nicely, thank you. Law school admissions are down by 10 to 15%. Applications hit a 30 year low. Potential law students understand that spending many thousands of dollars to take the gamble that they will not be able to get a well-paying job at the end of three years is a fool’s gamble.)
Economics, once again, helps us answer the question of how to reduce the supply. There are more than 1 million lawyers in the United States. Of this group, it has been estimated that at least one half of this group are sole practitioners. Another statistic suggests that at least 400,000 lawyers will retire by the year 2020.
If we look at this latter group, and suggest that we treat it any differently than any other group in the organized bar, we would be accused of ageism, and prohibited discrimination. However, if we come up with a metric that is applicable to all lawyers, such as “competence,” then we are safe. Of course, if this metric also achieves our basic goal of reducing the number of lawyers available to serve clients, so much the better.
But, this metric is never applied uniformly. If we look at new lawyers, those who have been admitted to practice for three years or less, I am sure we will find many who are not “competent,” despite the fact that they have passed the bar exam. How many times have "mature" lawyers said, mostly to themselves, that they were happy that they were not the client "back then," that they didn't know enough to be really competent to handle the matter they did .... that they learned "on the job."
What is the metric for “older” lawyers? Do they have to pass another bar exam? If yes why should age be the factor that determines whether they have to take a new examination? If not, what might it be? Nowhere in the time spectrum of a lawyer’s career is there a requirement for such an examination.
How many times have you, as an adversary, said to yourself my opponent is not very good? In fact, how many times have you said my opponent is not “competent?” Until the appropriate metric can be accepted and applied throughout the entire career life cycle, it seems to this writer that the real focus should be on meeting the needs of our clients who are not served or who are under-served, making sure that all lawyers, young and old alike, are “competent” and move away from even the appearance of ageism.
Listen up, boomers! If you're a lawyer preparing for retirement, this week's vignette is for you.
At the end of the day, the value of our law practice is based on our success and the many people we have touched over the years. This is a significant legacy we will leave on retiring from the practice.
Most lawyers all around the country with whom I've spoken don't understand this and can't comprehend even the possibility that their many years of effort may actually have produced a monetizeable value of some significance. This value can enhance their retirement. It is a challenge to overcome such deep-seeded beliefs among many Baby-Boomers as they get ready to move on to their second season. This is the difference between personal goodwill and organizational goodwill. There is more of the latter than most people believe.
My conversations have convinced me that the most feared word in the English language is “retirement.” That may contribute to the refusal to consider an alternative to closing the office; we will maintain our office and work until our last breath. It is possible, however, to do both! The sale or merger of your law practice, rather than the closing of the office, should be an alternative that is kept open for your consideration.
“I am really tired, and want to retire.” But, retirement is out of reach for many lawyers after their homes and retirement plans took heavy hits over the last few years. “Business purgatory” is how one phrased it.
Delays in retirement are now common, with 38% in one survey saying their retirement will be at least 5 years later than expected. The income stream for many lawyers comes from their law practice. Selling, closing or merging the practice are options, but none are likely to provide the same income stream the lawyer is accustomed to receiving.
Unless the lawyer is willing to adjust one’s life style, he will remain in practice, working to build up the practice further in order to reap the rewards needed to fund retirement.
I have been getting more calls from lawyers wanting to retire, wanting to sell their law practices. As a result, I started writing a new book. I just finished Life After Law: What Will You Do With the Rest of Your Life? It is being edited now and will be available for sale in October.
As a result, I've been giving a lot of thought to the definition of Goodwill, the primary asset a lawyer has to sell. And though it is not consistent with the accounting profession's definition, I have come upon a new definition that I believe is more meaningful to the average lawyer, whether buying or selling:
Goodwill can be defined as legacy ... it’s your legacy that you’re passing along to others ... It’s your reputation, your phone number, your system and way of doing business, all the intangible elements that made you successful and provides you, the selling lawyer, with what to sell ... The better is your reputation, the more value your law practice will have.
What happens to your firm when you need to retire, or during unplanned circumstances such as death? In today's clip, Ed discusses the importance of succession planning, and gives some helpful tips to get you started.
More elderly find they cannot afford to retire ... they must continue to work. The recent economic woes have taken a big bite out of the retirement hopes and plans of the Baby Boomers. And this includes lawyers.
Just today, a lawyer in his late 60's called me to talk about selling his practice and retiring. But, he said, he enjoys what he does and financially cannot see his way to retiring. For interesting tax reasons, he turned away from selling his practice. Of course, he didn't consult me before he made this decision.
But, I find it interesting that the prediction made by the ABA only a few years ago that by 2020 (or perhaps sooner), 400,000 lawyers would retire. As evidenced by the phone conversation today, I believe the numbers are correct, but the timing is not. Succession planning, whether a solo or large firm practitioner, will require more thought than we anticipated. And experts should be consulted to determine sales potential, tax planning (both estate and consequences of a sale) and future personal life planning.
Ed advises understanding what you want to do with the second season of your life.
More than 23% of the Washington State Bar Association, a mandatory bar, are 60 years or older. Several years ago, the American Bar Association, a voluntary bar, estimated that 400,000 lawyers would retire in the next 10 years. For the ABA, that’s equal to its entire membership. And that's equal to about 40% of all lawyers and a majority of private practitioners.
How will the ABA, in effect, replace itself? Will the WSBA replace these 23% as they leave the practice? Law school admissions are down by more than 10%. Will our recent economic turmoil be played out in the supply and demand of legal services? This is the 50,000 foot, or macro, perspective.
At the ground level, lawyers in the Baby Boomer generation will need to look at their “second season.” What plans do they have for their future? Or, as I ask myself each day, “What do I want to be when I grow up?” What is it that “turns me on?” What do I enjoy doing? How is it that I want to make a contribution?
One-third of the 23% in Washington have said, their “exit strategy” from the practice of law is to “die at their desk.” In cowboy literature, it’s the equivalent of “dying in one’s boots.” In other words, doing what they're doing is what they love doing and that is how they want to be remembered, not as a faded shadow of themselves in retirement. Some might say that it is a shame that that is all they have, their law practice. On the other hand, think of the valuable contribution they're making to the lives of all their clients. Better that than nothing. Better that than feeling useless. Better that than aging overnight because your hobby and profession, one and the same, were removed from you.
A friend, and former trial court judge in California, Ellen Peck developed the idea of an “Estate Plan for the law practice.” She says it’s equivalent to malpractice not to plan for how one’s clients will be served in the event of death or disability of the lawyer.
Recently, I was engaged by the family of a deceased lawyer to value the practice and assist in its sale. On inspection, we found that there were inadequate time records; a trust account that was in shambles and needed an audit to reconstruct and reconciled; and inadequate client records to know precisely what had been done and yet needed to be done. This is a perfect example of where an “estate plan” for the law practice would have served everyone’s interests, the family, the clients and the judicial system.
Those lawyers who fail to address this issue put their families and loved ones at risk. Not only will the family have to deal with the emotional trauma of a sudden death, they will also have to deal with the economic turmoil left by the lawyer. If negligence is found after the lawyer’s death, or if the lawyer failed to balance the clients’ trust account (to the penny!), the family could be responsible.
In the case of a famous actor, who was educated as a lawyer, he failed to have an estate plan ... and his family paid the consequences (estate taxes). This left quite a hole in the wealth of the family. Fortunately in this case, there were no other repercussions. But, this result is not necessary.
Do all lawyers need to have a succession plan was one question raised in my recent WSBA presentation. Yes, and no. No, in the sense that some lawyers … those lawyers in firms … will have other lawyers in their immediate environment to take on his/her practice and files. Thus, the lawyers will be protected. The interests of the lawyers will be protected and the heirs will receive their appropriate due. This assumes, of course, that the firm has addressed the issue of how to compensate the lawyer for the value of his practice. That, unfortunately, is not always the case. But at least, the files will be parsed out and the clients protected.
One-third of the lawyers in WSBA … and more in the ABA … are sole practitioners. They must have a plan or force their heirs and loved ones to close their office and transition their clients to other lawyers who can serve their interests.
And Yes in the sense that all lawyers need to decide when to retire … to leave the practice … how they will do that, whether by merely closing the doors (a tragedy in my opinion) or selling the practice … and what they will do in their “second season.”
One WSBA member said we’ve always gone TO somewhere. We went to grade school, went to high school, went to college, went to law school … became a lawyer … and now, what will we do … where will we be going TO? That is a question that all lawyers must address … or “die at their desk.”