Why Plan for Succession and Retirement
by Lori Owens
As reported in the ABA Journal, attorneys have higher depression rates and more stress than the average American. At our own Elevate conference, this past year, Wendy Newman Glantz de-mystified emotional intelligence and provided concrete tips for lawyers to improve both their person and work lives as outlined here. Following on that theme, I had the pleasure of attending a session on succession planning presented by Roy S. Ginsburg to all LegalShield provider attorneys this past fall.
Briefly, Roy’s goal as a legal strategic advisor is to “help lawyers become more successful and satisfied in their careers.” Roy used quotes on many of his slides which helped to frame the discussion and I have included those below as headings. (A bit more information on lawyer and coach, Roy Ginsburg: Roy has spent more than 30 years practicing law in both private practice and as in-house counsel, and currently runs a successful part-time solo practice. You can reach Roy here for more information.)
I will first focus on why lawyers need to have a succession plan and what retirement is today and then will dive into how to retire, including some tips on selling your practice.
I thought some of the reasons why lawyers fail when it comes to planning for retirement were interesting and should be highlighted first:
- Only thing that is considered is the dollars needed retire;
- Or in other words, think with enough money, all will be fine;
- Believe this life of leisure will be fun and satisfying;
- 62% disagree on timing for retirement; 33% disagree on retirement lifestyle; and
- Many are overwhelmed by family issues.
“Failure to plan is planning to fail.” J. Wooden
This quote was an overall theme within Roy’s presentation. Looking at the statistics on our aging population is mind boggling. The American Bar Association (ABA) estimates that 400,000 baby boomer lawyers will retire over the next decade and a half. Over the next almost twenty years, 10,000 people will turn 65 years old each and every day. Also, Roy mentioned that each sixty-five-year-old has on average a twenty-year life expectancy.
Many lawyers scoff at the idea of retiring at the traditional age and envision practicing well into their twilight. However, it may be in your best interest and that of your clients and firm to retire when you are at the top of your game. Regardless, a succession plan needs to be well thought out and start several years prior to actual retirement.
When to Hold ‘Em and When to Fold ‘Em – Kenny Rodgers
All good things must end and in simple terms, it’s important to decide if it’s time. However, also consider that if you wait too long, you may risk your retirement years. Roy mentioned that among those 65 or older, 25% experience memory loss; 20% have a serious illness; and 20% struggle with depression. However, finances play a large role in any decision to stop working. This again, reminds us to do an inventory of our financial resources plus health insurance; social security; and estate planning. Also, it’s important to decide if it’s really time by taking stock as follows:
- How is your physical health?
- How is your mental health; do you have the same passion?
- How is your significant others’ or family member health?
- Is it time to give back in the form of pro-bono or a career shift?
- Do you desire more family time or wish to spend more time on hobbies, rest, or relaxation?
Further to the last two points, some wonder how they will replace work because it’s more than just something to do. For those who have left a firm or taken a leave, your sense of identity and purpose is wrapped up in your career. Many need the mental stimulation and social interaction, not to mention the challenge of the law plus the routine or structure associated with a daily trip to the office or court. For others, the idea of leaving by retiring means losing all this plus a reduction in compensation, social status and clout, or in some cases, retirement can be seen as political suicide.
“I haven’t been everywhere, but it’s on my list.” Susan Sontag
Shifting gears, there are many exciting idea for retirement as Roy outlined below. However, regardless of your age, you may wish to check-in on your level of addiction to work. For example, are you glued to your smartphone or tablet all week and into the weekend? Do you take vacations, and if yes, are they more than a few days? Roy recommends that retirement is practiced so you can choose from these activities:
- Earn an Honest Living: Alternative dispute resolution; politics; adjunct professor; entrepreneurship or small business; or write.
- Relax: Travel or be a couch potato; spend time with family & friends; go back to school; exercise to maintain your health and so on.
- Volunteering: At any of the following – clinics, shelters, bar associations, social services, civic organizations, continuing legal education, SCORE, education or youth services, cultural, sports, or arts. The list is endless!
Everyone must eventually retire and therefore, regardless of your management responsibilities, planning is needed to minimize the impact on the firm. Finding your successor requires time and training. Remember the reasons above why lawyers flunk retirement – overall those attorneys that pass, retire to something, not from something. I will now move from the why of retirement into the planning for leaving the law, including some tips on divesting your firm.
“The time to put on a new roof is when the sun is shining.” John Kennedy
As discussed above, those who are ready to retire have usually created financial stability and an identity above and beyond work. Once the decision is made, then a whole new list of action items is required. However, first a few decisions are needed in terms of your succession planning:
- Are you closing your practice?
- Are you retiring and leaving the firm to other partners?
- Will you entertain a buy-out by an internal successor or a buy-in from outsider?
- Will you sell to a competitor or merge your firm with another?
If this seems like a daunting list, that is okay as there are professionals to help you and also this is a long-term strategy as outlined below. Business brokers and consultants can help you advertise your firm and you can also use your own network to look for a potential buyer.
There is certainly less stress when you are retired but what if you still wish to work with clients? You can consider stepping down as partner to alleviate the management headache and still serve your clients. However, that might not be a good fit if there is a shift in firm culture. Or perhaps you may not wish to relinquish control over and work for someone else again at the end of your career.
“The best way to predict your future is to create it.” Abraham Lincoln
The value of a law firm is with the clients and the revenue stream. As you plan to either sell or retire, it’s important to review the plan for client transition to ensure that there is minimum disruption within the firma and amongst your clients. This should include the use of customer relationship management (CRM) and practice management systems to gather the information on clients’ billing history; future legal needs; and the relationship over the years.
A multi-phase and multi-year succession approach was discussed as follows:
Phase One (Years 1-3): Think of this as probation for you and your successor as responsibilities shift and you spend time training. There is still time to back out if you change your mind in this phase. Your goal is to test that you have picked the correct person to take your place.
Phase Two (Years 4-6): At this point, you are starting to scale back and will work less and start to receive payments as your clients that are transitioned to your successor.
Phase Three (Years 7-9): This is the tipping point where you will start to receive significant payments for your share of the clients as you are exiting. The marketplace will generally define a fair price for those payments.
The above deal is your compensation and you should structure your payout over time but the sooner this process is mapped out and initiated, the better. Please note that the years are just estimates and certainly the process can be shorter or longer. Remember, each deal is different.
Interested in learning more about topics like this while earning CLE? Join us at our second Elevate by LegalShield on June 28-30th, 2018, more information here.
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