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After the Bar

Personal & Financial

How New Attorneys Can Begin to Plan for Retirement

Christina Gregg

Summary

  • Small savings at the outset will really make a difference. Anything you can initially put aside right at the outset of your career will matter.
  • Targeted funds are a good solution for people who may not have the confidence or expertise to determine their risk tolerance. These are diversified funds with stocks and bonds. They start out stock-heavy and then, over time, become more bond-heavy to be less risky as they move toward retirement.
  • Weathering economic downturns is not always fun, but staying the course and continuing with consistent contributions to your retirement accounts are both key.
How New Attorneys Can Begin to Plan for Retirement
iStock.com/Max Zolotukhin

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At any age, beginning to think through strategies for long-term saving and retirement planning can feel daunting. For newer attorneys, it is particularly easy to fall into the trap of thinking retirement is so far off in the future that there is no need to plan today. If the numbers, contribution breakdowns, and asset location verbiage of it all scares you, have no fear. I sat down with Scarlett Ungurean and Will Moreton of the ABA Retirement Funds to break down how attorneys just starting out can begin to think about and plan for retirement in a smart, strategic way.

Q: The learning curve for retirement saving strategies can be steep. Why do you think there is such a knowledge gap—especially with younger attorneys—in this area of critical life planning?

Scarlett: I think everyone—not just younger attorneys—can fall into the trap of thinking about retirement as far off in the future. There have been studies that show that individuals value immediate payoff versus future benefits a lot more.

Will: And there is generally a lack of financial literacy education at all levels in the country. You really don’t get that as much as you should. Younger attorneys, particularly, are often in the routine of looking ahead to just whatever the next big step is in their career. So that can be taking the LSAT and applying to law school, then getting through law school and passing the bar exam, landing your first job and getting started as an attorney, then working hard and potentially making partner or the equivalent. So, folks are often just focused on that and less on financial planning.

Q: What is a key misconception younger attorneys have about 401Ks and retirement savings?

Scarlett: People definitely think that if they don’t start now, then they can just catch up later. We see that people often do not start planning until they are well into their forties, regardless of situations, and again, it’s that immediate trade-off versus future benefits. People also often do not think about employer match. Let’s say your employer has a 3 percent match—so if you put in $100, your employer gives you $3—then that’s free money. That’s another big thing that individuals aren’t thinking about.

Will: Another big misconception is that small savings won’t make a difference early on. People often have a hurdle where they think, “Once I’ve finished paying off a loan or hit a certain internal goal, then I will start saving.” But it’s really the truth that small savings at the outset will really make a difference. Anything you can initially put aside right at the outset of your career will matter.

Q: During this process, people are often asked to assess their tolerance for risk—whether aggressive, moderate, or low. What advice can you give to someone to help frame this kind of self-analysis?

Will: They should consider their age and how many of them are just starting in the workforce. And this means that they often have a ballpark 40-year horizon of investment ahead of them. With that long horizon ahead of them, they can consider taking on more risk because they can weather the downturns, use them as buying opportunities, and then eventually grade down their risk over time.

Targeted funds are a good solution for somebody who may not have the confidence or expertise to determine their risk tolerance. These are diversified funds with stocks and bonds, and they start being stock-heavy and then, over time, become more bond-heavy to be less risky as you move toward retirement. This is a good solution for someone who may not know what their risk tolerance might be.

Another key piece of advice is to stay the course. Weathering economic downturns is not always fun, but staying the course and continuing with consistent contributions to your retirement accounts are both key.

Q: When we think about asset allocation, people can use many different vehicles when planning their savings. Can you give any advice on how to differentiate or assess what might make sense for them individually?

Scarlett: Everyone should have an emergency fund. There, the rule of thumb is six months of spendable cash, but even if you can get a month or two months of cash, that is helpful. The age-old example is, “Well, what if your car breaks down?” That’s an important bucket to have in terms of assets.

Will: I would also go back to target-date funds. Rather than waiting until you get yourself fully up to speed, most retirement plans have these target-date funds available, and from Day 1, that’s a great place to start.

Q: For those worried about saving during times of economic volatility, what would you say to them?

Will: I think a lot of younger attorneys are aware of the deep pain in the markets that was felt in a time like, say, 2008. They saw their parents stressed out during that time. I think they need to put that in perspective, that they’re young and can stomach those fluctuations. And I do think messaging is also important. When those downturns do occur, I think it’s really important for plan sponsors to reiterate to participants that it’s normal to be a little afraid, but making rash decisions with your money in response to near-term events doesn’t always lead to good outcomes.

Scarlett: And often, if you try to time the markets, you may miss the opportunity for gain.

Q: For someone who feels like they have very little understanding of where to begin understanding this process, where would you have them start?

Scarlett: The best way to start with something simple, like putting aside an emergency fund, is to use modeling software to assist with spending. This is a great place to start.

Will: They should consider looking into the resources provided by their plan sponsors. The American Bar Association Retirement Funds, for example, has plenty of resources that participants utilize, and for those saving for retirement, that’s a really great place to start. We even have a phone line where people can call and get tailored advice regarding their plans.

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