Maryland
Bar Bulletin
Publications :
Bar Bulletin
Editor: W.
Patrick Tandy
March, 2004
| |
The Solo/Small Firm
Financial Challenge
|
| By Gregory
S. Neal |
Attorneys are all affluent
professionals who retire financially secure, right? Well, it’s not
that easy, especially for attorneys in solo or small practices.
The unique demands of
solo and small firm practices require a different approach to retirement
savings. Here’s why and what you can do about it.
Attorneys in large firms
often enjoy tax-deferred 401(k) plans with generous employer matched contributions.
They also benefit from prescreened mutual funds, automatic payroll deductions
and a full-time administrator to handle all of the details.
For many small or solo
firms, these benefits aren’t available. Sure, you might have a basic
tax-deferred retirement savings account, but you’re unlikely to have
much help choosing investments, making contributions or tracking your progress.
If you work in a small firm, you’re probably more pressed for time
because you are responsible for a greater variety of administrative matters.
As a result, you may put off figuring out how much to save, forget to make
regular contributions or choose investments without adequate research.
Fortunately, solutions
exist to help solo and small firm attorneys meet these challenges. Here are
five ideas to consider.
First, determine how much
you need to save. This sounds obvious but few people have actually done it.
One source of help is the “Ball Park Estimate,” an online calculator
available at www.asec.org/ballpark.
The calculator is maintained by the American Savings Education Council (ASEC).
ASEC is a non-profit organization whose purpose is to raise public awareness
about retirement savings needs.
Second, once you estimate
how much to save, find a way to save that amount in a tax-efficient account.
Choosing among various types of tax-deferred accounts can be complex. However,
help is available. A good summary of IRAs available for small business can
be found at www.quicken.com/cms/viewers/article/retirement/18367.
However, understand that
retirement account types and rules undergo constant change. There are federal
proposals to simplify the rules and consolidate account types. For the latest
proposals, visit www.lifetimesavingsaccount.com.
Third, keep your investments
simple. One way to do this is to use diversified, low-cost index funds (funds
designed to track broad market indicators). This is a prudent solution for
many people. While never popular among brokers, significant academic research
supports the claim that, over time, index funds perform at least as well
as the more celebrated “hot performing”
funds. You can set up virtually any type of retirement account at a major fund
family and use their own in-house index funds or add other types of funds if
you wish.
Fourth, after deciding
which investments you wish to hold, determine the proportion in which you
should hold them. Allocating your savings among different asset classes such
as cash, bonds or stocks is one of the best ways to reduce investment risk.
Asset allocation is as much an art as a science. Yet many fund company websites
can be helpful, with most now offering online tools specifically designed
for this purpose.
Fifth, to insure that
you will actually save regularly, try to make the process automatic. If you
are paid a salary, direct a portion of it to your retirement savings account
each pay period. Solo and small firm attorneys without regular salaries can
take advantage of automatic investment plans offered by most mutual fund
companies. These plans automatically transfer money from your checking account
to your investment account at specified intervals. At the very least, mark
your calendar each month as a reminder to make regular contributions.
Finally, if you find that
you simply don’t have the time or interest in these tasks, by all means
seek professional assistance. Today, reputable financial planners are available
on an hourly-fee basis. You can get objective help without having to buy
investments. Thus, there’s really no excuse not to get your financial
house in order.
Starting and maintaining
a well-conceived savings strategy is the key to financial security, especially
for attorneys in small or solo practices. Consider the guidelines above and
get assistance as needed. You can achieve the same level of retirement security
as attorneys in large firms. But get started. When it comes to saving for
retirement, you can’t rewind the clock.
Gregory S. Neal is the
managing principal of The Retirement Office in Towson, a provider of retirement
income and investment planning services.
