Retirement Planning for Lawyers
If you were born before July 1960, (and therefore turning at least 55 in the next year), no doubt you have given the subject of your retirement at least passing thought.
For many principals of small law firms, this has led to the realisation that they firstly haven’t accumulated enough retirement assets and that secondly, their practice currently has little or no value.
A good reason to forget about retirement and just keep working.
Let me assure you that many principals are in the same position.
If you act now though, you may well be able to quickly and dramatically improve this situation.
If however, you leave your practice retirement planning till you are ready to retire and you have simply run out of time and energy to do anything, you will be at the mercy of everyone.
Plenty of people want your practice for nothing and if you do nothing, that unfortunately is a likely scenario.
By acting now, there are easy things that you can do to firstly increase your current income and secondly to increase your practice value.
If you make those changes, this will give you the following benefits:
1) It will allow you to firstly build your assets by contributing more out of your current income to your retirement nest egg. (Strategies like superannuation allow you to do this in a very tax effective way)
2) Build your retirement assets with a lump sum on the sale of your practice that could be significantly larger than it’s current value ( Current business sale rollover provisions let you also do this in a very tax effective way, as well)
Start with the end in mind
The starting point with any strategy, is to start with the end in mind.
How much do you need to fund the retirement you want?
You can find this out in a couple of ways:
1) You can see your financial planner, who can map out some retirement scenarios for you based on various assumptions of your income and practice value:
2) You can visit a website like the ASIC Money Smart website ( click on the name for a link to the site) and work through their simple on-line calculator
Your next step
Having now got a better picture of your retirement situation, I’ll assume that you want to improve it.
Even if the picture is a good one, you may want to make it better.
The good news is, that for many practices it really isn’t that hard, providing you are prepared to take action.
From within your practice, you will be able to improve your wealth in two ways:
1) Extra income while operating
Amount you can increase profit X Number of years you plan to work = Y
2) Extra Increase in practice valuation
Value your practice could be worth – It’s current value = Z
Improvement in your new worth Y + Z
Say you plan to work for another 5 years and your goal is to lift practice profitability by $100,000 p.a. ( NB Plenty of practice principals have done this and I’m sure they aren’t all as smart as you)
If your practice is consistently much more profitable, providing you have done that in the right way ( read work smarter not harder) , it is likely that your practice will be worth more than before.
You can see that the improvement in your net worth could be substantial, particularly if it is currently well below where you want it to be.
If you take the time to work through this exercise for your personal situation, you are already well on the way to improving your personal financial position.
The hardest step for most of us, is to start.
If you are thinking of retiring in the next 10 years and want to improve your financial position to enjoy your retirement with the income you deserve, you can’t afford to miss our new report:
Retirement planning for the principals of small law firms
This report will focus on the strategies that you need to put in place to both increase your pre-retirement income and also to maximise your practice valuation.
Whether you ultimately sell your whole practice, or you sell your equity, if you have other partners, you can’t afford to miss this report.
The link to the report is “Retirement Planning for Principals of Small Legal Practices“