Start Your Retirement Plan Early in Your Career

If you are a new lawyer, you’ve undoubtedly experienced many changes accompanying the start of your legal career. Maybe you moved to be closer to your new job. Maybe you got a new wardrobe that’s appropriate for working in an office. I’d like to recommend one more change for you: opening a retirement account or reviewing your existing one.

Other financial needs might seem more pressing right now, such as paying off student loans, buying a house, getting a new car, or paying for a wedding, but this is the best time to establish retirement goals and a retirement account.

Why Now Is the Best Time to Start

Consider the following:

1. The sooner you open an account and establish an investment plan, the more opportunities you have to set goals for your plan and then review those plans and goals as the account grows.
2. The sooner you start the plan and let it grow, the more you will have available for your retirement years.
3. Accounts can be opened normally with any amount. The amount of your deposits can be small and can fit any budget—sometimes, your employer will even assist.
4. You now have the widest flexibility regarding the type of retirement plan to choose and what will be included in your account.
5. Money deposited into properly established accounts can grow tax-deferred throughout your career, which is a huge benefit.
6. An account can be transferred to some other place of deposit without penalty.

True, you are locking up the money you invest. If you withdraw the money or even a portion before age 59 and a half, then you must pay a withdrawal penalty to the Internal Revenue Service. But the benefits far outweigh this risk.

How to Start Your Retirement Plan

When you open an account, I recommend you do so at a discount brokerage firm. Such firms generally offer the cheapest rates, but they also leave you with the responsibility of making all of your own decisions. For this reason, I generally recommend that you have two persons helping you with your retirement planning. One will be solely an adviser. This person should be knowledgeable about the entire market rather than just one segment, such as stocks or bonds. Interview several advisers before choosing one. Their fees should not be transactional (where they get paid for each purchase or sale); rather, they should get paid on either a monthly or a quarterly basis. They will advise you on how the markets work, what are the current market trends, when to purchase or sell certain instruments, and so on.

The other person assisting with your retirement planning will be the one who actually purchases and sells financial instruments for you. They are often paid on a transactional basis and/or based on the realized profit from a transaction. I do not recommend that you give any broker a power of attorney to trade your account, especially if you have little experience. Rather, I think the person who is your broker should explain the transaction to you, and you should then discuss it with your adviser before making the transaction. In that way, you will be learning more about the market and gaining experience with each transaction. Also, be aware that not every trade will be profitable. Before you enter any trade, set a realistic amount you are willing to lose, and keep to it, even if you lose on that trade.

Plan Now, but Plan Wisely

I hope all this is of value to you. Remember one important rule: If the transaction seems too good, it probably is, and you should stay away.