You don’t need to know your last day of practice. But if stepping back may be within the next several years, some financial decisions may be easier to address while you’re still earning at your peak.
For a successful attorney, deciding when to step back from full-time practice can be unusually difficult.
You may be earning more than ever. You may still enjoy your work. And you may have accumulated enough that continuing to practice is becoming less of a financial requirement and more of a choice.
That can make it tempting to postpone the planning until you’ve chosen a retirement date.
But some of the most important financial decisions are easier to make before that date is set.
Leaving a law firm can change several parts of your financial life at once—income, taxes, benefits, healthcare, portfolio withdrawals and, for some partners, capital and deferred compensation.
These changes don’t necessarily happen on the same day.
Understand what stepping back actually does to your cash flow
For many attorneys, the transition from working to retirement isn’t as simple as receiving a final paycheck and beginning portfolio withdrawals.
An equity partner may have final partnership income, distributions, the return of partner capital, deferred compensation, or retirement benefits arriving on different schedules.
If you transition gradually—perhaps reducing your workload or moving into an Of Counsel role—the income picture may change again.
Before choosing a date, it can be useful to model those cash flows together.
When does earned income decline? When does capital come back? When do other payments begin or end? And when does your investment portfolio actually need to start supporting your lifestyle?
The answers may affect more than whether you have enough to retire.
They can influence how much liquidity you hold, how your portfolio is positioned, and which financial decisions make sense in the years immediately before and after you step back.
Look at the tax years surrounding your transition—not just the year you leave
Your final years of practice may also be some of your highest-income and highest-tax years.
That can make the years surrounding retirement particularly important for tax planning.
Partnership income may end in one year while other payments continue into another. Estimated tax payments and multistate tax obligations may continue. Charitable gifts may be more valuable in a high-income year.
Then, after full-time income declines, you may enter a very different tax environment.
Depending on your circumstances, those lower-income years may create opportunities for Roth conversions or other planning before Social Security and Required Minimum Distributions add income later.
Looking at each year independently can miss the point.
The better question is how income, taxes, and cash flow interact across the entire transition.
Determine what another few years would actually change
Working another three or five years can add to your wealth, particularly when those years coincide with peak compensation.
But the more useful question may be what that additional wealth changes.
Would it materially increase the lifestyle you can comfortably sustain?
Provide greater security for your spouse or family?
Change what you can give children or future generations?
Increase your charitable capacity?
Allow you to take less investment risk?
Or primarily increase the amount of wealth you are likely to leave behind?
There isn’t one correct answer.
But understanding the answer can help distinguish between continuing to practice because you need the income and continuing because you choose to.
Coordinate the decisions that change when your firm relationship changes
Leaving or reducing your role can also affect benefits and other parts of your financial plan.
Healthcare coverage may change. Medicare enrollment may need to be coordinated with employer coverage. Insurance needs may look different once professional income is no longer supporting the household.
Your investment strategy may need to shift from accumulating assets to supporting withdrawals. Estate and charitable planning may deserve another look as your income, assets, and priorities change.
For married attorneys, your transition may also need to be coordinated with your spouse’s retirement date, healthcare coverage, Social Security strategy, and the lifestyle you intend to fund together.
These decisions are connected. Addressing them separately can produce a very different result from modeling them as one transition.
Your professional decisions can change the financial assumptions
Your wealth manager doesn’t need to determine when you should hand off a client or how your firm should transition your practice.
Those are professional decisions.
But their financial consequences may belong in your plan.
If your partnership agreement affects compensation, capital, retirement benefits, or deferred compensation when you reduce your role or leave, those economics can be modeled.
The same is true if you are considering an Of Counsel arrangement, reduced workload, or another phased transition.
Understanding the financial consequences before making the professional decision can give you better information when you decide what you actually want to do.
Planning earlier doesn’t mean retiring earlier
You may ultimately practice longer than you expect today.
You may reduce your workload.
You may find a different way to stay involved.
Or you may decide that you’re ready to leave full-time practice.
The purpose of planning three to five years ahead isn’t to choose that outcome now.
It’s to understand what changes financially under each path—and address the decisions that become harder to change as you get closer.
You don’t need to choose your last day of practice three years in advance.
But if stepping back could be part of the next several years, it may be worth knowing which decisions should already be underway.
If you’re beginning to think about stepping back from full-time practice, a second opinion can help you understand how different retirement or transition dates could affect your cash flow, taxes, investments, healthcare, family goals, and the economics of leaving your firm. Meet Our Attorney Advisory Team →
Important Disclosure: Beacon Pointe Advisors, LLC (“Beacon Pointe”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a particular level of skill or training. Beacon Pointe does not provide legal or tax advice. This material is provided for general informational and educational purposes only and is not intended as individualized investment, tax, legal, accounting, insurance, healthcare, or employment advice. The considerations discussed may not apply to every individual and depend on personal circumstances, applicable law, and the terms of relevant employment, ownership, compensation, benefit, insurance, and estate-planning documents. You should consult the appropriate legal, tax, insurance, healthcare, and other professional advisers before taking action. Investing involves risk, including the possible loss of principal. Beacon Pointe is not responsible for errors or omissions in materials accessed through links to third-party websites and does not necessarily approve or endorse the information provided in those materials.