How much is enough when it comes to retirement savings?
One quick rule of thumb is to save at least 15 percent of annual pre-tax income for retirement
No matter how much attorneys love their jobs and the clients they serve, most are looking forward to retirement one day. Their retirement dream may be as simple as sleeping late or riding a bike on a sunny afternoon, or something more adventurous such as traveling the country in an RV or as daring as skydiving at age 90.
What’s essential is saving now and saving enough. This way, the money won’t be a concern when retirement dreams can finally come to fruition.
How Much Retirement is Enough?
Determining how much to save for retirement can be tricky. Many financial advisors and other economic experts advise that most Americans will need between 55 and 80 percent of their pre-retirement income when they retire if they want to keep their current lifestyle.
One quick rule of thumb is to save at least 15 percent of annual pre-tax income for retirement, including any employer match. Assuming this amount of annual savings between the ages of 25 and 67 when combined with other steps can help ensure attorneys have enough to maintain their current lifestyles well into their retirement years.
Another way to quickly calculate how much to save for retirement is using the 25x rule. Consider that to stop earning new income, it’s necessary to have 25 times the amount spent annually in retirement. Here’s how to figure that out.
To calculate this:
- Begin with thecurrent monthly budget.
- Multiply by 12 to getarough yearly budget (if the plan is to keep spending at the same pace).
- Multiply theyearly budget by 25.
Retirement as an Attorney
Retirement as an attorney can look different than retirement from other professions. One survey revealed that in law firms with mandatory retirement:
- 38 percent mandate retirement at 65
- 36 percent at age 70
- 27 percent of lawyers plan to retire early
- 29 percent plan to retire at retirement age
- 29 percent plan to retire later
- 11 are unsure as to when they will or want to retire
- 4 percent don’t plan to retire at all
In fact, 61 percent of respondents plan to continue working in some capacity after retirement; 48 percent in the legal field. Some attorneys work to maintain an income or keep their minds sharp, and still others because they want to stay busy and enjoy what they do. There are many options for attorneys who desire to keep working well into their retirement years. They may work as legal consultants, professors, writers, or even take on completely different career paths.
Planning for the Unexpected
Just like other matters in life, it’s crucial to plan for the unexpected when it comes to retirement planning.
Some attorneys end up taking early retirement—be it due to a lucrative retirement package or health concerns. For those who think an early retirement might be in their future, the following steps are worth considering:
- Increasing retirement savings by 10 to 20 percent
- Living on 50 percent or less than current income and saving the rest
- Learning about other income streams accessible after retirement
Retirement is often best planned for in conjunction with other possible life circumstances. For example, what happens to retirement accounts or saving for retirement if someone has a long-term sickness? Will they need retirement care? Is there an insurance policy in place for retirement care?
Will they still have financial dependents at the time they reach retirement age? If so, how will they provide for them? Will their retirement savings be enough, or should they be calculating that into the equation for saving now?
Questions about Retiring as a Lawyer? Contact a Wealth Advisor
In general, attorneys do a good job of saving for retirement. The Economic Policy Institute (EPI) estimates that the mean average retirement savings in the United States is $95,776. A source from ABA Retirement reveals that the average law firm 401(k) account balance is more than double that sum. In fact, several well-versed law firm partners have even worked their way up to seven-figure retirement savings accounts. Maybe you want to be on par with this or already are. Either way, there’s always room to improve when it comes to retirement savings.
Contact a wealth advisor if you aren’t sure you’re doing enough to save for your retirement dreams and ambitions or if you simply want to know what more you can do to increase your retirement savings. They can assess your current retirement savings to determine if you should be saving more or what more you can do to maximize what you are already saving.
A financial advisor can also help you with any special considerations—such as planning for early retirement or planning to care for a dependent into your retirement years. Reach out today to learn more.
Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area.