No one’s retirement years are exactly like anyone else’s, so getting advice like “here’s what I did” is useful but can’t be determinative. But you can’t get to actual retirement and then say, “what do I do now?” You need to make plans. Dwight Eisenhower said something like planning is essential, but plans are useless, and that is true in retirement planning: You may start with a plan, but it will surely change over time, and you need the flexibility to accept changes.
While you might want to continue to work indefinitely, that doesn’t always happen. We all know instances of lawyers whose health changed and prevented them from continuing to work; and, as well, illness of a spouse that required a change in work plans. And changes in one’s practice area might cut short the ability to practice and require a change in plans as time goes on. Finally, if you are working in a law firm, its rules may lead you to semi - or complete retirement sooner. Although many people might want to postpone retirement, others will embrace retirement in some form. But everyone needs to take a “short course” in retirement planning. Knowing the options and obstacles requires study, much as we studied to become lawyers, but learning the lessons of retirement planning will help no matter what your plans might be, at the outset of these years and as they continue.
Of course, planning for retirement really begins at the start of your career: save as much as possible, and as much as you can in tax-favored (“qualified”) retirement plans or accounts. Assuming you have done the best you can in that regard, your comprehensive planning should probably begin in your late 50’s or early 60’s. This is a time to start thinking where you would like to be in 5 or 10 years. It’s likely that, at that point, you will decide to keep working until at least 65 or the later date when you can collect full Social Security benefits. But this is also a time to decide what else you want to do before you become a candidate for probate. And that decision is more likely to be the right one for you if you consider these rules and choices:
Ages at Which to Consider Planning Options
There are ages at which important financial decisions need to be made, which I call The Seven Ages of Retirement. Let’s review each of them in turn. The first is age 50, when you may begin making “catch-up” contributions to most qualified retirement plans. The idea behind this provision of tax law was that people might have missed saving opportunities when they were younger. But the catch-up is available even if you saved at the maximum permitted by your plan.
Second, at age 59 ½ , you may withdraw money from most retirement plans without paying the penalty imposed by the Internal Revenue Code for early withdrawals. But, beware: the money you remove from your plan at age 59 ½ will not be there when you reach retirement. Some financial discipline is needed.
Social Security
Several of the “Seven Ages” relate to decisions about Social Security. For most people, 62 is the earliest age at which benefits can begin. Benefits beginning at that age will be in a reduced amount but, depending on your health and other circumstances, that might be the right choice. No choice is the right one for everyone, a statement that applies to most aspects of retirement. Full retirement benefits begin at ages stretching from 66 to 67, and the age for full retirement will probably continue to increase. By waiting until age 70, benefits are increased further, by 8% per year from 66 to 70. Many people choose that option but, again, it is not right for everyone. There is no benefit in waiting beyond age 70 to start receiving Social Security benefits. The Social Security Administration has an excellent website, www.ssa.gov, which contains much helpful advice. You might also look to other websites and to software or professional advice to determine the optimum date for beginning benefits. Whatever you decide, be sure to verify your benefits. The Social Security Administration is efficient and has knowledgeable staff, but everyone makes mistakes.
Medicare
Just as with Social Security, making choices about Medicare requires either extensive education or outside assistance. The initial age for Medicare benefits, for most people, is age 65. Medicare also has a useful website at www.medicare.gov, and for some people that might provide enough information to decide when and how to elect to receive Medicare benefits. For many others, consultation with expert will make sense, to decide whether to continue with an employer’s plan, elect Part A of Medicare only, elect Part B as well, and add Part D for prescriptions. And you’ll need to decide what supplemental plan to Medicare you should choose, to cover the expenses that Medicare doesn’t. It is now more common to have assistance in making decisions on Medicare and supplemental health insurance, not least because those decisions can have a long-term effect, both financially and on the quality of your health care. Be careful that those advising you don’t have a financial interest that varies depending on the choices made.
The final age to consider is that at which distributions from retirement plans and accounts must begin. Until recently, this was age 70 ½ (actually, April 1 of the year following the year when you reach age 70 ½). Legislation passed at the end of 2019 has extended the required age for beginning minimum distributions to age 72. The issues of when you must begin to take distributions and how much you must withdraw (and what to do if your retirement account outlives you) are complex, and failure to comply with the rules can result in hefty penalties.
Expenses in Retirement
It is a useful exercise to determine what your living expenses will be in retirement. It is more of a range of expenses, depending on different levels at which you might live in retirement: basic expenses like utilities; costs of travel and other avocations; retirement homes, etc. Knowing what your expenses might be in retirement is a step in deciding when and how you can retire. Most importantly, if you have a spouse or partner, be sure that he or she understands your sources of income and your expenses in retirement.
Withdrawal Rates for Retirement Savings
Compare your planned expenses to your sources of income in retirement. Some sources of income are easy to determine, like Social Security benefits and pensions. But what amount can be safely withdrawn from retirement savings? A general rule of thumb has been that you can withdraw 4% of your savings each year, to avoid running out of money later in life. Some have challenged this number and have suggested that the percentage should be lower if you retire early, such as at 62-65, and perhaps at that level or a little higher if you retire later, such as 70–72. Here’s a more general rule of thumb: if you need to withdraw 7% of your savings to pay your expenses, you have a problem. The closer you can stay to 3-4%, the more likely you are to have enough funds for the retirement years. Think of this as an average: perhaps you will spend a little more earlier in retirement, when you travel or do other things you’ve been planning in retirement, and less in later years when you when your ability and desire to travel is less.
Health
An important part of successful retirement years is maintaining good health. While much of the discussion in this article is about financial matters, good health is a key part of retirement planning. What does that mean: a healthy diet, exercise regimen, and mental challenges are all part of it. It also means a regular plan to see primary care doctors, dentists and any specialists needed. Some people have the attitude that they will “tough it out” and not see doctors until something serious happens. It is much better to have a plan for good health, which will probably put off the date when there is need for more aggressive medical help and the expense that goes with it.
Planning Documents
It is a puzzle to me why so many lawyers haven’t done estate and retirement planning. These are the documents needed:
- A Durable Power of Attorney to cover the situation when you are disabled or otherwise unable to deal with your financial affairs.
- A Health Care Directive or Living Will, to tell others what to do if you need serious medical treatment.
- A Will to dispose of your assets, which, if prepared properly and thoughtfully, can avoid family disputes and discord.
- Beneficiary forms, to determine who receives the balance of retirement accounts, IRAs and life insurance proceeds. These assets are not passed under your Will, unless the beneficiary forms name the estate as the beneficiary.
Finding a Purpose
One lawyer attending a seminar at which I spoke said, “I’m afraid I’ll spend all day at the coffee shop with the boys.” It is important to find a purpose for the rest of your life. It might include continuing to practice for a while, or practicing in a different way, such as for a nonprofit or pro bono organization. Other choices include more travel, new hobbies, and more family time. The key is to think about what you want to do, perhaps things you have put off in past years. Plan ahead. Don’t wait until you are retired to think about other activities.
Financial Exploitation
Older lawyers know that they are bombarded with offers to buy all sorts of things, some useful and some close to scams. The reason is not difficult to see: Older people in general have more money, in retirement accounts and elsewhere. And they are facing different kinds of expenses, often unfamiliar to them. And maybe they aren’t quite as sharp as they were 25 years ago. The solution, or a solution, is to be a careful consumer, to get advice when you should and to think twice about any significant financial commitments. Several agencies, including the U.S. Department of Justice, have websites and information that can be very helpful in avoiding financial exploitation. If you become a victim of financial exploitation, tell someone, even if it embarrasses you.
Many books are written about retirement, but your retirement is unique to you. The topics discussed in this article merely touch the surface of what you need to learn and decide, to ensure that your later years are a just reward for your years of dedication to the legal profession.
