As the economy continues to get back to normal, lawyers are busier than ever. With private equity firms and public company balance sheets brimming with cash, there continues to be historically high M&A and other activities that require the work of lawyers.
Given how well many law firms are performing, I thought it would make sense to re-visit a concept that I developed several years ago, which I call RainCatchingTM. Every lawyer knows that rainmaking is extremely important to the health of their firm and their personal advancement within the firm. However, as the old saying goes, “it’s not what you make, but what you keep that counts.” That’s where RainCatchingTM comes in to help lawyers keep more of the rain they make.
Here are the key tenets of RainCatchingTM:
- Define your “Full Life” – What do you want the wealth you generate to accomplish for you and your family? When you think about retirement, what comes to your mind? How do you want to spend your time in “life after the law?” Slowing down to ask yourself and answer these questions will help guide you as you decide what kind of future you want.
- Understand “The Big Five” of Retirement Planning – These five factors will have the most significant impact on how successful your retirement plan will be:
1) How long you work –If you work until you are 60, you’ll need a much larger nest egg than if you decide to practice law into your late 70s. One of the perks of being a lawyer is you can generally work as long as you want, assuming you’re healthy. Make sure you understand how your retirement age will impact your sustainable spending levels throughout retirement.
2) How much you save – Lawyers build wealth through year-over-year compensation growth and savings. Unlike your private business owner clients who might have a large liquidity event to fund retirement, you have to make sure you are making the most of your peak earning years and socking away cash for the future. Ensure you know how much you need to save each year to retire safely at your desired age.
3) How much you spend – Your annual spending will have the largest impact on how strong your retirement will be. It is critical to understand what a safe, sustainable annual spending number is, depending on when you would like to retire. You will likely need help from an advisor to model this out, but you have to get clarity on this before deciding to retire.
4) How hard your money works for you – Make sure you are modeling realistic return assumptions for how your portfolio will perform over time. Risk and reward are inextricably tied together…if you want to earn a higher return, you have to take more risks. If you are not comfortable with risk, then you have to be willing to accept a lower return. Wherever your comfort level lies, you need to ensure that the assumptions you make on the growth of your portfolio are grounded in reality, based on historical averages.
5) How long you live – People live longer these days, especially people with means because they can afford better food and healthcare. Just for reference, we run financial plans out to age 93 for our clients. Make sure your financial plan is built to help your money last as long as needed.
- Evolve – As your life evolves, your plan needs to evolve. Make sure that your retirement plan is a dynamic process that accounts for changes in your life and that you make adjustments along the way.
As you are hopefully making a lot of rain this year, keep in mind that RainCatchingTM is what will ultimately determine how bright your financial future will be. Hopefully, this blog gives you some key concepts to implement into your plan going forward.
Justin works closely with clients to design wealth management plans that take into account the full spectrum of their career and personal concerns with a specialization in advising law firm partners. Justin earned his MBA from Northwestern University’s J.L. Kellogg School of Business.