Law & Life

More Than Money

Are you psychologically ready to retire?

By Ron Kelemen


Some lawyers never retire. But others, due to sound financial planning, investing and a little luck, are either on schedule or have arrived at retirement financially ready. But not all of them arrive with the ability to enjoy a prosperous and fulfilling retirement.

Believe it or not, the transition to retirement can be very stressful. According to a poll cited in American Demographics by Worth Magazine (January 1995), 41 percent of retirees say retirement was a difficult adjustment. By contrast, only 12 percent of newlyweds saw marriage as a difficult adjustment and only 23 percent thought becoming parents was difficult. There are several reasons why retirement can be stressful.

MONEY ISSUES
You've basically changed jobs. You have left the structure and relative security of working for someone or in the routine of running your own practice. You are now self-employed in an unstructured environment managing your retirement and the income sources that support it.

All of a sudden, your portfolio takes on a whole new meaning. It's all you've got for the rest of your life. Regardless of how convincingly a financial advisor can demonstrate that one has enough capital to last a long and comfortable life, many new retirees fear that it won't be enough. This leads to four versions of 'protecting the principal.'

1. The starting retirement nest egg becomes sacred principal that cannot be touched, regardless of age, health or retirement happiness. Too bad, because by the time some retirees finally realize that they cannot possibly spend or give away all they have, their health and energy are declining. They have missed their golden opportunity to enjoy their golden years.

2. Even more extreme, this principal amount is reset every quarter with each account statement. Thus, it is not okay to dip below last year's values, even if they are higher than at the beginning of retirement.

3. They will take only dividends and interest from the principal, never the capital appreciation. In earlier decades with high bond interest and stock dividend rates, that was a reasonable proposition. But nowadays, many good companies reinvest their earnings for future growth rather than pay large dividends to shareholders. The total return from all sources is still there, but the nature of the return has changed. (In fact, this change is even being acknowledged in trust law as some states, notably Maryland, New York and Missouri, have created 'Total Return Unitrust' statutes.)

4. They 'circle the wagons.' This means wanting to convert everything to cash at retirement. This is fine if you and your spouse are going to die within a year, but generally during retirement you need less liquidity than you did in the early years of starting your practice and raising a family.

The remedy to this is to know 'your (financial independence) number.' Retirement is a confidence game where good financial planning can increase your odds of enjoying retirement. Without knowing what it takes to be financially independent, 1) You are unwilling to spend money and enjoy the fruits of your labor; 2) you take unnecessary risks with your money or invest too conservatively because you don't know how much you need; or 3) you are reluctant to make important estate planning decisions for your family because you don't know if you can afford to commit any assets to them.

Upon retirement, client perceptions and lifestyle change dramatically. For one thing, some retirees now have the time to catch the financial noise on CNBC and check their portfolios on the Internet. According to recent behavioral finance studies quoted in Dow Jones Investment Advisor, the more a person checks his or her portfolio, the less volatility that person, on average, will be able to tolerate.

Fortunately, with time, sound financial projections and good advice, most retirees eventually learn to relax and start enjoying the fruits of their money, rather than the anxiety of having it, watching it and fretting about it.

But it's not just about money. Many other factors create an adjustment challenge in retirement, particularly for lawyers. Here are the major ones.

PERSONAL IDENTITY
It's taken many years of study, hard work, practice development, victories and defeats to get to where you are. If you are like many other lawyers, much of your identity is your profession. And all attorney jokes aside, there is still prestige and status attached to being one. How often when someone asks you 'What do you do?' you reply with 'I am a lawyer'? Can you live without that identity? At some point, you have to be able to say, 'I am not a lawyer.'

As Corvallis estate planning attorney Gretchen Morris learned, until she could admit that she was no longer a lawyer, it was very difficult to fully retire. She had been trying to close her practice for nearly a year, and only when she came to that realization did the process speed up. 'Now everyday is Saturday,' she reports.

RETIREMENT AND WORK PHILOSOPHY
Retirement is built on the assumption that leisure is more fulfilling than work. For many lawyers, especially those who enjoyed their careers, that assumption is false and goes against the grain of their need to be productive. That is why some lawyers never retire. It could very well be that your idea of a fulfilling retirement is filled with work or volunteer activity - not because you have to, but because you want to. That is why many early retirees don't stay retired very long. They wonder after a year or two if there is more to life than just golf or travel every day.

Work can also provide important mental stimulation and a social outlet with a network of friends, colleagues and clients. You need to develop an alternate network of friends and a way to make new ones in retirement.

Some people view retirement as a solution to their unhappiness at work. They are running away from something instead of to something. That is why it essential to develop a vision of your retirement and the rest of your life before you retire. As one retired client lectured me, 'You can't learn to play golf, steelhead fish, paint or play the piano the day you retire. You need to practice before you get there.' You also need interests that span the different seasons. Retirement can be very easy in beautiful weather, but very boring on rainy winter days.

Former Salem real estate attorney Ray Shaw is living proof that one needs to develop and cultivate diverse interests to sustain a long and happy retirement. He and his wife recently retired at relatively young ages to live in Europe and eventually settle in Hawaii. Their passion for travel and his love of photography gave them a clear retirement vision and a reason to retire.

LETTING GO
Finding the right successor and building a good team can take time. But until you do, you will find it psychologically difficult to let go. This makes closing a thriving practice difficult, especially for solo practitioners. As Gretchen Morris discovered, clients either did not read her retirement letter, they forgot it, or they did not want to believe it. Depending upon the type of law you practice, clients generally do not want to start from scratch with someone else. When you become their trusted advisor, it is difficult to transfer your favorite clients to someone else. You feel indispensable. It is hard to let go and give up control. After all, you have spent your career trying to control outcomes.

This process is much easier for shareholders or partners in larger firms. As Ray Shaw notes, he had the confidence to be dispensable because he believed that files given to associates or paralegals in his firm would be handled just as well or maybe even better than if he had handled them himself.

Another part of letting go is putting closure on your career accomplishments. If you still want to argue a case before the Supreme Court, win the Big One, publish, hit the lecture circuit, build a more efficient practice or mentor young attorneys, you may not be ready to retire until you do.

THE 'DABBLING AT IT' MODEL
For a variety of reasons many lawyers choose not to fully retire. They dabble at it by working at law and retirement part time. This works well for those who love what they do or who still need supplemental retirement income. But it doesn't work for everyone, as Gretchen Morris learned. The new estate tax law was her final straw. She didn't want to sacrifice travel plans and time with grandchildren to maintain her CLE requirements and upgrade her competence for the new law.

You also need to be psychologically prepared to deal with work issues while on extended vacations. As every lawyer has experienced, all it takes is one bad phone call from the office to completely destroy a vacation frame of mind. Sooner or later, due to these factors or health, the 'Dabbling Model' might run its course. Complete retirement might be forced upon you, so you need to address the issues mentioned above.

SPOUSAL ISSUES
For better or worse, you and your spouse are together more, which can provide opportunities for conflict. You may have married each other 'for better or worse,' but probably not for lunch every day. Are your visions of retirement the same? Are your interests at least compatible?

CREATING A RETIREMENT VISION
Retirement involves three phases: 1) active (during the early years with health and energy), 2) passive (during the middle years with declining mobility and energy) and 3) final (the last part with failing health and no mobility). The questions in the sidebar on this page can help you develop some insightful thinking so that you can develop your retirement vision for all three phases.

Retirement planning is more than just numbers and pure financial planning. It is all about creating a vision for the rest of your life-planning for The Second Half. Yes, you need enough money and you need to know that you will have enough to stay comfortably retired under different market environments. But more importantly, retirement planning is about controlling the most important outcome of all by organizing your practice, financial resources, and your life now in a way that supports your vision for the rest of your life.

RETIREMENT QUIZ
1. Why do I want to retire?
2. What do I really like/hate about my practice?
3. What is my vision of retirement?
4. Does my vision match that of my spouse?
5. Can we stand to be around each other 24 hours a day?
6. Does my vision include practicing part time?
7. Can I let go?
8. What would be a perfect day during each of the three phases of retirement?
9. Between now and when I retire, what is the most significant thing in my career that I would like to accomplish?
10. Between retirement and when I die, what is the most significant thing I would like to accomplish?

ABOUT THE AUTHOR

Ron Kelemen is a fee-based certified financial planner with The H Group, Inc. in Salem. He can be contacted at (503) 371-3333 or through his website at www.kelemen.com.


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