What are the average lawyer’s retirement savings?
You don’t want to work forever, so how much do you need to start saving right now to comfortably retire?
Lawyers are really good at their jobs. In fact, they are really good at growing their retirement savings, too. According to ABA Journal, the average 401(k) account balances for lawyers with BigLaw range around twice the national average of people in other professions.
That seems impressive, but is that enough? What are the average lawyer’s retirement savings - and should you aim for that amount, or go higher?
If you read this guide and begin to have questions about your retirement savings, please contact a financial advisory team experienced in financial planning for lawyers. They will answer your questions and create a plan specifically for your situation.
Lawyer Retirement Savings: How Much to Save
You can look at the average lawyer’s retirement savings, but that won’t tell you how much you should save. Each career and lifestyle will have different factors that affect that dollar amount.
When you are trying to decide how much to save in your retirement accounts, look at the savings rate, how much you will spend each month, and your projected retirement date.
Savings Rate
Look at the percentage of your income that you are saving right now. What is the percentage your employer is contributing and how much are you putting into it?
Take this number and multiply it by the number of years you plan on working full-time. Now you have the projected amount that you could potentially have in your account when you retire.
This number is important because it will tell you if you need to increase how much you are adding to your accounts.
Desired Monthly Spending
Next, you’ll need to calculate how much money you will need per month after you retire.
This is a very important figure because it will tell you whether your current savings rates are enough.
As you try to calculate this amount, remember that some expenses will decrease (such as your mortgage payments or other debts) and others might increase (like health insurance).
Retirement Date
The average age of retirement in the USA is 65, but lawyers tend to keep working until they are older than that. According to the American Bar Association’s 2020 Legal Profession Profile, 15% of lawyers are 65 years or older.
Many lawyers postpone retirement for various reasons. Either they enjoy working, they aren’t financially ready to rely on their retirement accounts, or they want to keep earning a full-time income.
Knowing when you want to retire will help you figure out if your current financial activities will help you reach that goal comfortably or not.
Key Things to Remember
As you continue to create goals and action plans with your finances, it’s important to remember a few things. These things specifically apply to lawyers.
Lawyers Must Save a Higher Percentage Compared to Others
Do not compare yourself to professionals in other fields. Statistically, lawyers will need to save a higher percentage of their income compared to people in other professions.
This is because lawyers typically join the workplace later in life, thanks in part to the amount of education that is required first. For example, a typical college graduate will start their full-time job at 22 years old and retire at 65 - that is 43 years of full-time work. If a lawyer retires at 65 that is only 35 years of full-time work.
With less time to add to their 401(k)s, a lawyer should be adding more to it in the time they have.
Consider the 25 Times Rule
One rule of thumb is to consider needing 25 times your desired annual income in retirement.
Where did we come up with the 25 number? It’s the average number of years someone will live after they retire. If a lawyer retires at 65, they will be 90 years old 25 years later.
It’s just a round number that is easy to remember.
So, if you think you can live on $100,000 per year, then you need to save 25 times that, or $2,500,000.00
Plan for Inflation
Finally, don’t forget to plan for inflation when you try to figure out how much you need to save up for retirement.
Typically, regular living expenses rise by 3% per year and healthcare by 5% per year.
If you pay $5,000 a year right now for health care, then plan on paying 100% more in 20 years.
Talk to an Experienced Wealth Manager
When you start wondering what the average lawyer’s retirement savings are, you know you are ready to take your wealth and finances seriously.
Call 646-647-2150 to speak with someone experienced in financial planning for lawyers. They will look at your debt, savings, and wealth goals and help you achieve them, every step of the way.
