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Voice of Experience

Voice of Experience: February 2023 | Transition

The Financial Transition from Employment to Retirement

Robert Henry Louis


  • Many lawyers face challenges during the financial transition from employment to retirement when shifting from regular paychecks to reliance on retirement accounts and Social Security benefits.
  • To make this process less stressful, you must assess ongoing expenses, estimate retirement lifestyle costs, and determine the regular income needed from various sources.
  • Don't be swayed by products and services marketed to older individuals who don't know your personal situation.
  • After you know your ongoing expenses, reduce them by the benefits you'll receive such as Social Security, but this requires some careful thought, because converting a lump sum retirement account into regular payments that cover expenses that also last the rest of one’s lifetime is a calculation that can only result in a range of estimates.
  • Planning for the transition, including expense and income considerations, can provide a clearer understanding of retirement viability and potentially allow adjustments for a more comfortable retirement.
The Financial Transition from Employment to Retirement

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For those lawyers working in law firms, in government, or the corporate world, the years of employment typically involve the receipt of a paycheck or a draw against future income.  Generally, there is some regularity of amount and time of payment, which permits the planning of expenditures.  The number might change from year to year, but the certainty of the payment schedule is a distinct advantage in financial planning.

But a day will come when those paychecks and regular draws will end.  (While some lawyers, or their spouses or partners, will be entitled to a monthly pension or deferred compensation payment after retirement, most will not.)  Instead, they will have one or more retirement accounts (retirement plans or individual retirement accounts-IRAs) with lump sum amounts, as well as other investments outside of retirement accounts.  They will also have Social Security benefits, which are paid monthly, but these benefits will almost always be far less than the paychecks or draws previously received.  So, an important transition needs to occur, between the period of receiving a regular payment from an employer to that of relying on Social Security benefits and distributions from retirement accounts and other investments.  This transition can be difficult, because it moves the individual from a method of receiving income that has been the standard for many years.  This is no doubt a reason why many lawyers try to delay moving into retirement: the difficult task of learning to live on different sources of income.  “If I jump off the diving board, will there be water in the pool?”

How can this transition be made less stressful?  The answer is in very careful financial planning.  This process is more than listening to lectures during public television pledge breaks or buying financial planning books or software.  It is a process of transforming the financial arrangements you have lived with for many years into a new set of financial arrangements that are unique to you.  Usually, it does not require special expertise, just a willingness to examine your income and expenses and reconcile them.

The first step is to consider what expenses you will incur during retirement.  Many of these expenses will be the same before and after retirement, such as utilities for your home.  Other expenses, such as medical insurance, might be very different in later life.  But these expenses can be estimated, with some careful research, taking into account the likelihood that they will fluctuate and increase over time.

It is important to consider that expenses might change significantly if the plans for retirement include moving to a different home, either in the same area or in one of those states considered as a retirement haven, or making other significant lifestyle changes.  Whatever the circumstances, there is a process by which you can determine at least a range of expenses for a continuation of your pre-retirement lifestyle or a new lifestyle elsewhere.

Once there is a reasonably accurate determination of ongoing expenses, both regular and special (such as travel), there will be a clearer understanding of the amount of regular payments that are needed from retirement resources of various kinds to cover those expenses, to replicate to the extent possible the regular payments formerly used to pay those expenses.  The goal of this part of the process, then, is to work toward a complete summary of the range of expenses that can be experienced depending on the (probably-evolving) plans for retirement.

I would like to add an important caveat here about expenses.  Older people are a highly desirable target for people selling products and services.  If you watch television programs that are more popular with older people, including news programs, or if you have somehow gotten on a to-be-dreaded list, you will receive offers for health and life insurance, retirement communities, medical supplies, etc., etc.  Some of these might be helpful to you, but remember that every one of these sellers is hoping to make money from you, nearly all of them know nothing about your personal circumstances, and more than a few hope to make a large profit from you.  Add this to the list of reasons why people are reluctant to think about the transition to retirement finances: the often-mystifying offers to buy things that were not needed before and often aren’t now.

Having determined the level of payments that are likely to be needed, the next step is to reduce that need by any regular payments of income that will be received.  For most people, this will just be Social Security benefits. It is easy to determine what level of Social Security payments you can expect if you begin payments at the earliest age, 62, or the latest age, 70, by setting up an account in the Social Security website ( and trying out various scenarios using the tools on the site.  (If you have not set up such an account, you should, no matter how far away you might be from drawing benefits.)  For most people, who will not receive other benefit payments, this means that the balance of the payments to carry out the transition from regular draws or paychecks to retirement payments must come from lump sum retirement plan accounts or IRAs.  This is another calculation that requires some careful thought, because converting a lump sum retirement account into regular payments that cover expenses but also last the rest of one’s lifetime is a calculation that can only result in a range of estimates.  As with the expense part of the transition process, the income portion provides not a path but a series of potential paths.

For retirement plans and most IRAs, minimum distributions must begin around age 73 (increased from 70 ½ and 72 and eventually to rise to 75).  There are exceptions for those who continue to work in an entity of which they are not a significant owner- this summarizes in a few words a complicated but valuable exception.  The amount to be distributed is determined each year using IRS tables.  These tables consider the account owner’s age and that of a spouse and are designed to stretch out the stream of payments over a period that likely covers the rest of one’s life.  If these minimum payments (which rise at older ages until they eventually, usually after age 80, start to decline) cover expenses, the issue of transition has likely been solved: by arranging regular monthly payments of the yearly required minimum, the pre-retirement stream will be replaced in a way that gives a high probability of adequate retirement payments for the remaining lifetime.  Of course, this conclusion is subject to many caveats.  The value of retirement accounts might decline because of a bear market in investments, as has happened a few times in the past twenty years.  In addition, the owner might encounter unexpected expenses, such as medical expenses or the desire or need to move elsewhere.  It is practically impossible to establish with certainty how much is needed or how much will be available in retirement.  But this calculation process can make the transition less forbidding.  And the calculations can and probably should be made long before the decision to retire or semi-retire. The process of planning expenses and payments in a transition can tell if retirement is possible in the next few years or, if it is not possible under the current calculations, might provide time to adjust both to improve the odds of success in retirement. 

If  more than the minimum required distributions from retirement plans and IRAs is needed, that is not necessarily fatal to the chances of a comfortable retirement.  Many people find that, in the early years of transition, they spend more than the minimum payment.  Often, spending declines in later years as people finish projects such as travelling.  Spending a little more than the minimum is not a problem, within limits.  The minimum required distribution starts at around 4% of the account balance and gradually rises, and taking out 5% or 6% some years might not create a problem.  However, if it is necessary to spend, for example, 8% of the retirement account each year, it might be advisable to rethink expenses or saving habits or both.  The process of planning the transition, whenever and however it takes place, will be made easier by starting to plan it some years before the date of that transition.

There are some people whose aim will be to work until they are carried out of the office- a horizontal retirement.  (The founder of my law firm, John G. Johnson, apparently worked until the day before he died in 1917.)  But for most people, a vertical retirement is preferable: working on some form of transition while there are still some years to enjoy other activities.  Whenever, or over what range of time, the transition is to occur, it can be successful and less stressful if planning the transition process from employment to retirement finances begins sooner rather than later.