Ep 9 Crafting a Rewarding Retirement: Strategic Exit Planning for Attorneys

Embarking on the path to retirement can be as complex as a high-profile legal case, which is why we, Todd Whatley and Ian Weiner, are here to serve as your seasoned guides. We understand that hanging up the robe doesn't mean the same for every lawyer; for some, it's about rewiring instead of retiring. In our latest episode, we unpack the essentials of transitioning from a full-throttle legal career to a life that champions balance, bringing you personal insights and expert advice that will help you pinpoint the perfect moment to step back. Is it time to swap briefs for golf tees or simply slow down the pace? We reveal how a well-timed exit strategy is not just desirable but entirely attainable, whatever your version of 'retirement' looks like.

Navigating the retirement landscape is a strategic endeavor, especially for attorneys with an eye on tax implications. We dissect the nuances of tax-deferred plans, the impact of your nest egg on government benefits, and what Biden's budget could mean for your golden years. Small firm owners and solo practitioners get a special nod, as we map out strategies to maximize retirement savings without running afoul of the taxman. With an emphasis on respect and kindness, our conversation is a beacon for anyone looking to retire smartly and comfortably. Let us arm you with the knowledge to craft a retirement that's as rewarding as your time in the court.

Transcript

Speaker 1: 0:01

Welcome to the Lawyer's Money Show with your hosts, todd Wattley and Ian Weiner, where finance meets the legal profession. Here we dive deep into the economics of law practice, from managing your firm's finances to optimizing personal wealth strategies for legal professionals. Every episode we bring you insights, strategies and stories from leading experts to help you navigate the financial landscape of the legal world. Stay tuned as we uncover the tools and tactics needed to help lawyers make the right money moves so they can grow their career, manage their practice and optimize their wealth so they can focus on enjoying the life they've worked so hard to build. For more resources, visit us at wwwlawyerstotalplancom.

Speaker 2: 0:45

Yes, sir, this is the Lawyer's Money Show podcast, and I am Todd Wattley, and I am here with my co-host, ian Weiner. Hey, man, todd, this is going to be a good one. This is becoming the new intro, okay, I tried to change my intro just a little bit. I don't want y'all getting bored out there.

Speaker 3: 1:06

Maybe I'll change mine up a little bit too. This is going to be painful today, Todd.

Speaker 2: 1:13

Thanks. Sometimes there is some pain, okay. So this is the Lawyer's Money Show and we talk about all things money, all things legal, financial things focused on lawyers, okay. And so I'm assuming that you're an attorney and if you're not, I'm sorry, but this is kind of focused on lawyers. That's why the name's in the show title. So today we're going to talk about and I may say this every time it's like this is one of Ian's favorite topics, okay, it's such his favorite topic that his other website is justretirenowcom. That's true, and so he loves to work with older people in that pre-retirement, retirement, post-retirement thing, and he has a lot of information on social security, when, to take it, roth conversions, I mean, he can go on for days, but I want him to talk today about specifically attorneys getting older, possibly wanting to sell their practice or transition the practice to someone else and God forbid not working anymore or not working 60 or 70 hours a week.

Speaker 3: 2:29

Only like 55.

Speaker 2: 2:31

Yeah, just 55 hours a week, I like it Take it light. What's your phrase? Retirement is living the way you want to.

Speaker 3: 2:41

I'm trying to get some really good ones here. Okay, because when you say retirement, it means something entirely different to everybody, and that's a good thing and a bad thing, you know.

Speaker 2: 2:56

Mine's going to be me coming into the office at most twice a week, maybe once a week, sometimes twice a month. I have a high-dollar client or an owed client that just wants to see me, or whatever. I'll come in from the golf course or the lake or whatever and I'll dress up and I'll come see them, but I don't ever see me, never coming to the office again until I'm dead. All right, so that's my version of retirement. I'll be traveling a lot, I'll do phone calls from Hawaii or Sicily or wherever, but yeah, my version of retirement is still working, but just not dressing up and coming to the office every single day Not in the same way, and I think that is a good example that I want people to start to think about.

Speaker 3: 3:42

Most of the stuff that we talk about is what do you want and how do we make it happen? It really boils down to that.

Speaker 2: 3:51

State planning what do you want? Checkbooks how do you want it?

Speaker 3: 3:54

to happen. What do you want? And that sounds overly simplistic, but it really is true. Retirement should be reframed into financial independence is the way that I try to talk about it, and especially with the younger folks, retirement isn't a positive thing for them, which is really kind of interesting, but they don't see it as a positive thing. And so, whatever your vernacular that you prefer financial independence or retirement I want you to think about what you want to happen, because if you don't have a clear vision of it, it's really hard to execute on that.

Speaker 3: 4:37

And the most dangerous thing to do is to retire without a plan and without purpose, because odds are you're not going to make it a year. I mean, you see it all the time. I see it all the time. It's tragic. Yeah, your body is not built to not do something. Sure, and we have to have that conversation, and it doesn't mean that you have to work 80 hours a week. But how do you transition to spending your time differently, in a different way, and at a certain point you get to where, if you had more money, you wouldn't spend it. You always find it any differently, and so we've got to kind of figure out what that really looks like We've got to find those numbers and that specific thing for you. You may be able to retire sooner than you think, in whatever way that means to you. I find a lot of people that are like oh, I'm getting ready to retire, got about three million bucks saved and we spend about $40,000 a year and I'm like you should retire 10 years ago.

Speaker 2: 5:39

You'll never spend that, why not?

Speaker 3: 5:41

now, yeah, and people get addicted to working Sure, and maybe that's another conversation for another time but so think about what you actually want and what you would do If you had 100% time freedom. There was no one to tell you when to show up and where Would you do what you're doing now?

Speaker 2: 5:59

A version of it. I would still come into the office, son, not as much as I do now, but yeah, son, because I love what I do. I love meeting my clients, I love seeing them smile. I love doing what I do and, yeah, I would continue to do that, son, but I would also want to travel and spend some time at home, more time at home. So, yeah, do some other stuff.

Speaker 3: 6:24

Put the money that you've worked for to work right. That's what it's about. But again, those are just a few things to begin to think about. But when it comes to retiring as an attorney, there's a handful of different complexities that come, and if you own your practice, it gets a little bit more tricky selling the practice and transitioning. I suppose we should talk a little bit about retirement plans and how those are set up, because, depending on where you work, you may have different types of retirement plan. We gotta make these things work together.

Speaker 2: 6:59

Well, when we started working together, you used this term deferred compensation plan I was like I don't know what that is, but I'm not doing it, so I don't know, and I've always thought it was some big fancy elaborate something that you do. And just after we've sat down here I was like tell me what that is.

Speaker 3: 7:19

Your answer was Well 401K is a type of deferred compensation plan. Okay.

Speaker 2: 7:24

It's not that complicated, but setting one up is complicated. I know there are companies that do that, and so, yeah, your office should have a 401K.

Speaker 3: 7:35

It should, and you might have a variety of different types of plans, and so when we start talking about retirement plans, we will do a number of episodes on them, but the thing that I want you to understand is that most retirement plans fall into one of two categories, really. You've got a defined contribution plan and a defined benefit plan.

Speaker 3: 8:01

And these are types of deferred compensation arrangements. There are other types as well, but the two types that we'll talk about briefly are these two. So defined benefit is a pension plan. This is fairly straightforward Once you go oh okay, I get that. What is defined in that situation is what the monthly or annual benefit you're gonna get at some future date. Defined benefit pension, like per month Yep per month.

Speaker 2: 8:28

You're gonna get $3,000 per month for the rest of your life Yep.

Speaker 3: 8:32

So very traditional. These are not as common anymore, but we can use them in specialized planning scenarios, Like if you're a husband-wife team that owns a small firm. Oh man, the stuff that we can do is amazing Really.

Speaker 1: 8:44

Yes.

Speaker 3: 8:45

When you have few employees or only specific employees. The other type, defined contribution plan this is what probably most people have. A 401K is an example of this. So what is defined is not the benefit that you're gonna get later on, but how much you can put into the plan. Got it? It's that simple, okay? And a SEP IRA, self-employed pension is another type of those, and that's typically. You're gonna have either a 401K or a SEP If you're a small business owner.

Speaker 3: 9:16

The big thing that we need to know about these plans is that they are tax deferred in most cases. The traditional version is you contribute to the plan and you get a tax deduction in the current year and in the future, when you take it out, you've gotta pay the taxes. We've talked about this a little bit, but I wanna just frame the conversation here, because retiring today is much more complicated than it was 50, 60 years ago. For sure, my grandfather ran the trust department for a bank, and that was the equivalent of what we do today managing retirement assets, because what everyone had was in after tax dollars. Wow, in the 60s that's what it was.

Speaker 3: 10:01

Okay, your trust had all your cash in it. Sure, and that's what they did. But it's different now. It's very different. It's much more complex and the tax situation is far more complex, and so you need to understand that. You need to understand that the dollars that are in those types of accounts, there's a liability attached to them, which is the future tax that you're gonna have to pay, and that is a variable rate right now variable ever four years and so that's a, that's a concern, that's something that you need to be aware of, and, depending on how that's set up, your social security can be taxable and Medicare you can pay increased.

Speaker 3: 10:44

You can pay an increased part B for Medicare.

Speaker 3: 10:47

So if you're not careful, a ton of complexity comes in when you get ready to retire, and most people what I find is they start planning too late and they don't make optimal decisions because they don't have as much time.

Speaker 3: 10:59

And so, whether you're you know in your frankly, whether your early, mid or in your late career, you should be thinking about retirement planning and maybe reframing it as creating financial independence, because the more, the more control you take over that situation, the less tax you're gonna pay and the more you're gonna be able to get what you want. And so we really have to start from the the perspective of what do you want to happen, how do you want it to happen, and then how are we gonna pay for it? You know we've got to look at your unique situation and say, okay, of the accounts you have, of the assets that you have, which ones are we gonna sell when? Or how are we gonna create income so that You're not spending most of your time managing your assets and figuring out where you're gonna get a paycheck every month, and you can spend more time doing what you enjoy, sure, so that's you know.

Speaker 3: 11:50

That's all you got to do for retirement playing. You should become an expert in. You know retirement plans and taxation, and then how social security works, and then Investments and you know that's pretty easy. You could do that over the weekend.

Speaker 2: 12:02

I'm kidding, but some people can you know, isn't that kind of what's on the the CFP exam?

Speaker 3: 12:09

yeah, A third of it. Most of that's not on the insurance exam or the, you know, the, the series seven exam. Frankly, only a little bit of that is. So some of those, some of those pieces matter. But one piece that I want that I want to talk about too is you know, if you do have a practice and you plan to do something with it, start thinking about that before, like the year that you want to retire, and if you do that, you might actually be able to get something for the, for the practice. You know, we can create a transition plan. Maybe, you know, a couple years before you're ready to retire, you hire another attorney or two and you sell the practice to them over a period of time.

Speaker 3: 12:52

Familiar. That does that familiar, doesn't it? This is a specific. This is not specific advice for anybody particular, but yeah, but these are things. These are things to think about, because what I find a lot of times is is People are so focused on practice and they don't think about themselves enough. It's the great, the great ones, sure, and then, before you know it, you're like, oh gosh, maybe I should do something about that, and it's too late to do anything about it, and there are different rules about when you have to take money from these different accounts and there's a lot of nuance here and it keeps changing.

Speaker 2: 13:25

Okay, so listeners are out there going. Oh okay, that sounds cool. What are the Benefits to that? You know why. Why do that, as opposed to just putting money back into a savings account?

Speaker 3: 13:43

So there's there are a few that I think are really important. Especially if you are earlier in your career. You can use these types of accounts to To manage your your tax rate later on. So there's really two types of situations that I run into. One type is Folks who are in their, you know, mid to late stage of their career. They've been doing this for a while, which means that they started contributing when things like Roth IRAs or Roth 401k's were not around, and so most of their assets are in deferred Accounts, so they've got a looming tax problem. In that situation, we need to act as quickly as we can, because you can still control your tax bracket to an extent when you take it out, that's, when you pay those taxes.

Speaker 3: 14:32

Now, odds are and at the time of this recording, the president biden has just released his his budget plan for going forward. We're in in march of 2024. At the time of this recording and, by all accounts, is not a political statement it looks like taxes are going up, particularly for folks who have higher earnings or Are business owners. There's some things that are in there that this is a reasonable expectation, and so the best case scenario is to pay taxes on your terms and so if we do, if we do planning and are proactive about it, we can either realize those taxes and put them into an account that will grow tax-free or, if you're younger, we can position your savings to be so that we can Manage your tax bracket in retirement. I think that's a really big thing that people don't realize is If you have, there are three potential ways that your dollars could be three different types of accounts after tax, which is like your, your bank account or your brokerage account.

Speaker 3: 15:35

Sure, we have a lot of flexibility, but there is still some tax due on capital gains and interest income as taxes. Ordinary income, that's number one. There's the tax deferred type of account. That's your IRAs, your 401k's taxes do later. Or there's tax free, which is like Roth. We've paid the tax on it. Growth is tax free if we do things right. So if you have money in each of these types of accounts, we can manage your tax bracket in retirement and you can control it. That's what we do. But most people what I find is they just take money out when they have to and they're just. They're really at Uncle Sam's behest on this and that's not optimal for anybody other than Uncle Sam.

Speaker 2: 16:20

My grandmother's voice comes into my head when you say that it's like they're being very willy-nilly.

Speaker 3: 16:28

Yes, they're just whatever that's the tradition. That's what most people do, though it's really nilly it's just like you know what, we'll just take what we need to when we can and we won't worry about it. We won't worry about paying one of those advisors, you know.

Speaker 2: 16:39

Who cares? But meeting with you or someone like you can literally result in hundreds of thousands of dollars, yeah, and millions of dollars. We do a presentation with your slides and everything and you've got numbers up there that when we get to this part, it's easily half a million dollars difference, yeah, between when you take Social Security, if you pay those taxes now as opposed to then. I think the coolest thing about a Roth is you can leave that to your. You don't have to take RMDs from that. Yeah, required minimum distributions. You can leave it there for your kids and it's growing tax-free. It's just. It's one of the coolest things and to my knowledge, I don't have one, but I think we're going to start working on that, okay. So there's people after you're listening. They're like okay, I have a retirement plan in my office, but the last time I talked to the person was a few years ago. Can I get you to look at it and give me some feedback on it?

Speaker 3: 17:47

Yes, absolutely so. Depending on the type of retirement plan, that's a little bit more of an involved process, but we have the tools to be able to benchmark, particularly if you have a 401k, to be able to benchmark that across other 401ks. You know we want to look at a couple things. We want to look at fees how expensive are the investments that are inside and what are you paying? We want to look at what are the investment options that you have in there. Sometimes they're fairly limited and so, or if you're a solo practitioner and you have a solo 401k, we can make the whole world of investments available to you, right? So that's nice. If you have a SEP, maybe we need to look at does it make sense to set up a solo 401k? Instead, contribution limits potentially can be higher, depending on your income and your situation. Okay, and if you haven't set these up and you want to retire someday, we could probably save you $10,000 to $20,000 a year in taxes.

Speaker 2: 18:43

But that was my next question. The next group, they're out there listening. It's like I don't have this. Who do I call? How do I do this?

Speaker 3: 18:52

Call us. We can absolutely help with that and we'll coordinate. If you have a tax preparer, we'll coordinate with them. If you don't, we'll help you find one. I've got a couple great ones that I work very closely with. That I'm comfortable with. But really the folks especially that I hope are listening. If you're a solo practitioner or you've got a family husband, wife I mean, that is the stuff that we can do is really cool.

Speaker 3: 19:15

Depending on your income level, what your firm is bringing in. We can put a couple hundred thousand dollars a year per person away into these plans, tax-deferred, and if we're smart we can manage it so that we can do Roth conversions at a really low rate and get that money to be tax-free. I mean, my clients that are younger than I work with I've got a handful that and they listen to me. You got to be terribly inclined or have a business. We got to use some of the the tools that are available to us by playing by the rules with the tax code. But you can. There are clients that I have that will contribute to a 401k or defined benefit plan. They'll get a tax deduction in the year they contribute and then later on they'll convert in a year where their income is low or is artificially low, by doing charitable contributions or using things like the depreciation from real estate to offset that income and pay zero tax on those Roth conversions. So, yes, so if we plan well, we can get money to grow tax free for the rest of your life and at least for 10 years of your kids life, and get a tax deduction for doing it. And it's 100% legal.

Speaker 3: 20:31

And most people don't do it because they just they don't put those pieces together.

Speaker 3: 20:36

Most advisors are, you know, trying to sell you the next mutual fund or insurance product, you know, and so that's not what they're focused on, and so we just need to have a conversation about it. Whatever your situation is whether you have an advisor that has run your plan for a long time, that you have an IRA with them somewhere you've rolled your 401k's as you've moved jobs over to them they might not do financial planning and it's probably worth having a conversation about should you pay those taxes early. Or, if you're, you have a firm and maybe you've got a couple employees, maybe you don't and you're like you know, I should probably think about getting some of this money in a tax advantaged account. Let's have that conversation as well, because the best place for your money to be invested is tax free if possible, and it takes a little work to get there. But if we make a plan, we can do it in a way that you can pay very little tax legally, and why would you not want to do that?

Speaker 3: 21:34

Yeah, I mean it makes good sense, I like to spend it. If you want to contribute extra, you can donate to the Treasury Sure. If you want, that's fine, you can do that, you know. But or you could pay your fair share, which could be zero if you play by the rules. Okay, so that's a conversation that we need to have.

Speaker 3: 21:52

So, thinking about retirement planning, what do you want to do in retirement? What's important to you, and no matter what it is that you want to do, being able to create income in a tax advantaged way is going to support those goals, and so the earlier you start planning, the better, the more that we can do, and we just have to have that conversation. These are these are sometimes hard conversations, because people feel like they haven't saved enough, or you know that they're going to get beat up for not saving enough, or that they did stuff wrong. Look, I understand. I understand what that feels like, but here's the thing. Would you rather know five years ago that you could address it, or now that there's not much that you can do?

Speaker 2: 22:34

Yeah, yeah, trust me, this is a no judgment zone. Both of us We've been there, done that. We are trust me.

Speaker 3: 22:43

We don't evaluate people based on their numbers. Yeah, we evaluate them whether or not they're kind people really and I don't work with jerks. I'll tell you, that's my thing.

Speaker 2: 22:53

You mentioned that in a previous podcast. I was producing those and getting them out and I was just laughing because Ian has a no jerk.

Speaker 3: 23:04

Yeah. It's a rule, rule, there we go, yeah, and so you know, if you're a jerk, that's okay. Like I can, I will introduce you to someone who is a jerk.

Speaker 3: 23:14

I've got a couple and that is totally fine, like there's no, and some of it. We joke about this because, look, you got to like us and I've got to like you, because if my job is to put my feet in your shoes and think about what the best thing to do for you would be, I've got to understand you enough and like you enough to be able to do that, and my thinking time is very important to me. And if I don't like you and I don't like what you want to do, and I think you're not a nice person, then I'm not going to do a good job and I shouldn't work with you. And I'm just being totally transparent here. You know, and there are some people that I'm just like, you know, I just I don't want to help you, and that's okay, that's. They're not many of them.

Speaker 3: 23:53

Sure, most people I feel very tender towards and I like to help people, but that's a part of the process. And so just know that we don't evaluate people based on the numbers. The numbers are objective, sure, and it is what it is, but we do evaluate people on whether they're kind and whether they they have a fit with us, and if not, we'll help you find someone that is a better fit. I have. No, I have zero problem doing that. I'm more interested in people doing what they need to do and not overpaying on taxes and having the retirement that I want. Then me, bill, and everybody, frankly, absolutely. So think about these things, start thinking about what you want to happen in retirement and let's make a plan to pay for it.

Speaker 2: 24:36

We'll say it and then you'll have to think about what you want to do. In your terms, well said, all right. Thank you all very much for listening and please subscribe and share this. If you know someone going through this and this might help them, please tell them about the podcast and we will see you all next time.

Speaker 1: 24:56

Thank you for joining us on the Lawyer's Money show. We hope today's episode has provided you with valuable insights and actionable advice to enhance your financial well-being. If you have more information to access show notes or to explore further, please visit our website at wwwlawyerstotalplancom. We look forward to guiding you through your financial journey. You can give us a call at 479-485-1911. Until next time, keep striving for excellence in both law and finance.