We all have a picture of our retirement in our heads. I’m sure for most of you, it’s an idyllic picture of time spent with family, of relaxed holidays, of pursuing hobbies and enjoying our time. I don’t think we’d ever envisage a retirement of penny-pinching and struggles to afford the life we want to live. But without intention-rich, purposeful retirement planning, that just might be what you end up with.
Many of the women who become clients of mine have given some thought to funding their retirement plan, but often only in the sense that they have some savings, a plan to pay off their mortgage, and an IRA. They haven’t previously been encouraged by financial advisors to align their goals and plans for their retirement with their savings plan. So they are saving but with no purpose, and with no real picture of how their retirement is shaping up ahead of them.
Retirement planning is a complex landscape with many moving parts, and if you get it wrong now it’s almost impossible to put right later, especially once your earning days are behind you. It’s crucially important to be aware of some potential pitfalls when it comes to saving for retirement which are pitfalls faced by women generally, and by female attorneys specifically. If you can take these four challenges into account, you should be able to plan – and ultimately enjoy – the retirement you deserve.
Retirement Planning Challenge #1: ‘Lifestyle creep’
As a working female lawyer, you’re probably living for your work. You’re working long hours and are committed to your clients, caseload and colleagues. Lawyers are generally not good at finding a good work/life balance, and you’re often so dedicated to your work that you forget to bring your own needs and goals into view.
However, you’re well compensated. You have a higher earning ability than most other women and you’re living a lifestyle around your work that is going to be hard to maintain in retirement. In fact, the more established in your career you become, the more vulnerable you are to ‘lifestyle creep.’ When your expenses – be they accumulated through work costs, housing, your hobbies and pastimes – increase just as quickly as your income does, you’re falling prey to lifestyle creep.
My clients in their fifties may be earning four times what they did in their thirties, but feel they have the same amount of disposable income. It’s vitally important, therefore, to keep a close eye on your expenses and what you really require from both your life now and your retirement in the future. Having a good, realistic understanding of the lifestyle you want to live, and just how much that is going to cost, is one of the foundation blocks of successful retirement planning.
Retirement Planning Challenge #2: Longevity
This one is a double-edged sword, of course. In nearly every society on Earth, women live longer than men. This is also completely true in the USA. As a woman, you’re extremely likely to outlive your husband; in addition, you’re likely to live into your 80s, and further and further into your eighties, at that.
So for those retiring at 66 or 67, you need to think about funding two decades of fulfilling retirement years with your savings. Not only that but if you’re married, you have to consider the fact that at some point, you are likely to become solely financially responsible for your home and other affairs.
Acknowledging that you may well outlive your husband can help you prepare in advance for this particular challenge of retirement. As well as having sensible discussions around estate planning, your husband’s pension or Social Security payments may become part of your income so those little details will be crucial to your retirement planning.
Retirement Planning Challenge #3: Healthcare
With the blessing of a long retirement comes the curse of healthcare costs. On average, American women pay out $150,000 over their retirement on healthcare expenses. That doesn’t include long-term care costs, which are likely to be more for a woman, given their life expectancy beyond their husband’s. The average cost of long-term care for women is $172,000. Is that in your financial plan?
Given that thanks to the gender pay gap, women are not as likely to have amassed as great a savings pot as men, this presents yet another challenge for women in retirement. It’s another reason why tailored financial advice for women is so valuable. It’s simple really: healthcare costs must be factored into your retirement planning, otherwise you face the possibility of your savings being entirely wiped out by unexpected medical costs.
Retirement Planning Challenge #4: Early Retirement – or the Very Opposite?
The career of a female attorney is extremely challenging. She may well be juggling a demanding family life at the same time as making partner in her firm. She may be pulled in several directions at once, and it takes a lot of strength and determination to keep all those plates spinning.
Studies show that as many as one in four female lawyers will consider a career change due to stress and burnout, and work-family conflicts. So for some women, this may manifest as a change in professional direction; for others, it may make early retirement more appealing. The high earnings and investment potential mean this is often possible, but it is most definitely another challenge – one that a financial plan has to be able to support.
On the flip side, it’s also common to see lawyers working well into their retirement years. Reasons for this include a loss of identity with retirement, inertia, fear of the transition and a failure or reluctance to plan for your succession. Having a goal-focused retirement plan will help you to make the difficult transition more easily; planning to leave your role will be far more appealing if your retirement is financially secure and personally fulfilling.
Three Tips for Retirement Planning
I’ve already mentioned that a good, resilient retirement plan is a complicated thing, and many factors need to be considered. Like other aspects of your financial life such as your investment strategies, it’s certainly not a DIY job. The more support you can bring in, in the form of financial advisors, tax advisors, and estate planners, the more likely you are to have a happy and secure retirement.
But to help you think about where to start with retirement planning as a female lawyer, I’ll give you these tips to start you off.
#1. Use the 80% Rule and the 4% Rule
To give you a rough starting point to understand how much money you are going to need to be able to generate for and throughout your retirement, you can use two simple calculations. People often believe they will spend significantly less in retirement than they do throughout their working life. This is not necessarily true.
A good guideline is to plan to have 80% of your current annual income to live comfortably with each year. So if you’re currently earning $150,000, you will realistically want an annual income of $120,000 in retirement to maintain your current lifestyle.
So, how much will you need to generate that kind of income? Using the iconic 4% rule, now updated to 4.5% by its creator, Bill Bengen, you can work out how much capital you will need to generate that amount of money each year, every year, without depleting your savings.
The 4.5% rule says that to receive an annual income of $120,000 throughout retirement, you need to retire with $2,666,667. If you have less, you may need to find ways to supplement your income once you’ve retired or accept a downgrade to your lifestyle.
#2. Look After Your Health – and Your Health Savings Accounts
Your best health insurance policy is to look after yourself. Eat well. Exercise well. Look after your joints, and your mental health. Of course, accidents and diseases happen to everybody, but you can give yourself the best possible chance against serious medical expenses by staying healthy and fit for as long as possible. And doing so is going to mean you’re able to enjoy far more of your retirement years, too.
Don’t let medical expenses eat away unnecessarily at your retirement fund. Use tax-efficient health savings accounts to section off some money that is purely used for medical expenses. We’ll visit these in a future post I’m sure – they’re an excellent savings vehicle for your future health needs.
Make sure you have the best health insurance policies available to you, as well as a long-term care plan as well.
#3. Keep Your Personal Goals In Focus
There is no sense in marching toward retirement if you do not keep your own personal goals front and center. You need to know that your personal life during your working years is as rich and fulfilling as your retirement years. It is no good to get to retirement and realize that the travel plans you’ve dreamt of or the larger home to accommodate family visits is entirely out of your financial grasp.
Make sure that your financial planning allows you to tick off goals, achieve ambitions, buy the big-ticket items you’ve had your eye on. Otherwise you might find yourself wondering what all the hard work has been for all along.
Retirement Planning – Don’t Leave It Too Late
Your retirement plan, complicated and intricate as it is, only plays a small part in your overall financial plan. But don’t let that cause you any anxiety if you feel that you may have fallen behind in your planning along the way. Top-ups to IRAs, 401ks and health savings accounts provide valuable boosts to savings as retirement approaches.
Women are incredibly savvy long-term investors, and make excellent decisions when they are empowered with the information they need to do so. Enlisting the help of a financial advisor is a great first step to making sure you’re heading for your ideal retirement, and the one you deserve after a demanding, gruelling career.
If you’d like to make sure that you’re on track, or to have a chat about how to get started with retirement planning, please don’t hesitate to get in touch.
