Can You Retire at Age 40?
By Liza Vasquez ICF CMC and Jeffrey F. Silber CPA MBA CMC
Certified Master Business and Life Coaches
The answer is Yes! You can retire at 40, 50, 60 or 70 depending on what retirement means to you. Your grandparents’ image of retirement had very little in common with what you have in mind for your own future.
Firstly, because their lives were much shorter than ours. In the US, a 45-year-old adult in 1945 had an average life expectancy of only five more years. A child born in 2020 in the US, on average, can expect to live until age 77.
But that does not tell the whole story. The Today Show on NBC-TV used to announce the names of people who turned 100 years of age that day. But they had to discontinue this practice because the list of new centenarians was getting so long, it was going to take over the entire show!
Second, most of our grandparents did not go into retirement with the financial resources that most of us will have. This gives you possibilities which they never dreamed of.
There are two interactive factors that affect your retirement. 1) What is it you would like to do when you leave the practice of law? You see, retirement is not a question of biological age. In fact, there is a new term, “Middlescence,” which defines this new life stage as being filled with potential, vitality and purpose.
On my way from Mexico to Brazil, I stopped off in Miami to spend some days with an old friend from high school last year. He is now retired from a long corporate career where he finished as the company’s president. The main activities one day, other than eating, were watching the news, a Netflix movie on TV, and going to a shopping mall to buy a birthday card for his grown daughter. I was horrified how empty the life of this once dynamic man had become. Is this how you see yourself spending your “golden years?”
As Life Coaches, we think there is no such thing as retirement for those with active minds and who remain in physically good condition. We think it is more a period of “transition” into new activities that perhaps you may have more passion for than you do for law; or to be more adventurous than you were when you had a young family to take care of. We recommend Dr. Andrea Brandt’s book on this subject, Mindful Aging to show you a new way to look at your retirement years.
In our twenty-five years of coaching lawyers, we have seen cases where lawyers, faced with mandatory retirement at age 65, have opened a small law firm of their own.
Sometimes it was because: they truly loved the practice of law and they could not think of anything more pleasurable to do; or it was necessary because they just did not have the financial resources to pursue their other interests or to live in the lifestyle to which they had grown accustomed; but sometimes it was because they just didn’t know what else to do.
Regarding not knowing what else to do, from the time they were legal interns to their mandatory retirement, they spent five or six days a week, 12 to 14 hours a day for the last 55 years reading, preparing and reviewing contracts, or doing other similar legal activities. All too often, this dedication to the law washed away any thoughts of the outside world.
In these cases, we tell our clients:
With modern medicine, you will likely live into your 90’s but you are also likely to be in the same good physical condition you are today (their retirement age), for perhaps only another fifteen years. Then we ask our clients: Is reading, preparing and reviewing contracts the best use you can think of for the remaining active fifteen years of quality life, you still have ahead of you?
Today, you are still actively working, but take a moment to think about which category you are probably going to fall into when your time comes? Will you keep practicing law because: you need the money? Or because you think there is nothing more fun in life than practicing law? Or, because you simply don’t know what else to do with your life.
If you love law so much that you can’t imagine stopping, then we are truly happy for you and we wish you a great retirement. Of course, we hope that you find a bit more time than when you were younger to travel, visit friends and pursue some other adventures. Mix it up a little. The best is yet to come.
For the others, we will devote the rest of this article to a) planning your transition into doing something that really touches your heart; and b) the financial aspects of planning for when you leave the firm.
What is Your Passion?
You will face perhaps the greatest moment in your life when you leave the law firm. When you entered the practice of law all those years ago, you were young, and you barely knew what options there are in life. By your retirement age, you will have seen the world.
Your responsibilities of raising a family will be behind you. You will need to provide for yourself and your life mate. If you have taken care of your finances (see below), then you should have very little pressure to continue to bring big income into your household. A lifestyle to impress others, will no longer be necessary. We urge you to simplify your life once you retire.
If you want to write that novel that has been rattling around in your head for a decade, perhaps you should take a course in novel writing.
Before all the dreams of your youth are gone, think deeply about what your passion is. The sooner you think about this, the better off you will be because you may need to prepare now for your later transition in life.
Are there things you can do that will be satisfying and which will not throw away your 55 years of legal experience? That is, perhaps you would like to teach in a university. Look into this now because you will need to obtain an LLM or Doctorate to insure you will be hired. Have you thought about becoming and arbitrator or mediator or perhaps a judge? These may also require additional education and credentials. Get started now.
Perhaps you could be a consultant to small start-up or minority enterprises. Look into the organizations that offer these services now and it might be possible for you to make a small start with them so that when you are ready, you can do this work almost full time, or to the extent that you are willing to devote your time to giving your services.
Would you like to travel more? Have you ever spent New Year’s Eve in Paris, seen the terracotta army in China, taken a safari in Africa? Maybe you would like to get to know your grandchildren better and take them to the Vatican or Holly Land or watch the changing of the guard at Buckingham Palace with them? Have you ever seen the sunrise in Machu Picchu or taken Tango lessons in Buenos Aires?
Would you like to learn how to play the piano, guitar or banjo? What about taking singing lessons? It does not matter that you will not be great. It is your satisfaction that matters. It would be more than enough if you could entertain your friends at parties with a few songs. Do you have a favorite breed of dog? You might want to become a breeder.
One of our clients has set the goal of playing 100 rounds of golf a year to get him out walking, to see many of his friends and to improve the game that frustrated him for so many years.
Would you like to learn how to sail? Maybe you would like to own and run an exclusive ten-room beach-front inn with a gourmet restaurant, in Cabo San Lucas or some other luxury beach.
Perhaps you would like to take painting classes or singing lessons. One of our clients, whose lifelong hobby was singing with a Barbershop Quartet, always wanted to perform more. Now he has the time to take acting lessons. There are always roles in movies for grandparents, bank managers and other distinguished looking mature people, so who knows where his later-in-life transitions into acting might lead him? Would you like to try your hand at acting?
The point is not to continue practicing law just because you cannot think of anything else to do. There is everything to do. Start paying attention to what gives you great pleasure now and perhaps you can take the first small steps to transition into it later on.
We want to point out that having a wide circle of friends will add quality to your life and has been scientifically proven to actually improve your health, memory and lengthen your life. If you don’t believe us, go to the TED Talk on the 80-year-long Harvard Study that proves these points. The more friends you have, the better your life will be.
As you contemplate the end of your working career, you may be concerned about how to support yourself in retirement. How do you know what you will need to live on? This is where you can work backwards from your passion. How much annual income will you need to support your new lifestyle?
You will probably not need the house in which you raised your children once they are grown and have lives of their own. Those charming stairs in your house will become a barrier for you as you age. We recommend moving into in luxury condominium.
If you do not need the money from the sale of your house to buy your new condo, then don’t sell it, rent your house instead. The value of your house will continue to increase as will the rent over time. You can always use the additional income and real estate is always the best performing investment.
The essence of preparing your finances for retirement is putting aside some of your current income for use later in life. All retirement savings and investment programs are based on the fundamental concept that the more you save during your active years, the more you will have for your retirement. It’s just that simple.
By the way, one of the most devastating blows that your retirement savings can have, is a divorce. We are not moralist nor are we particularly religious, however, instead of dividing your assets, which may include your pension, we suggest you make every effort at reconciliation. A successful reconciliation may not always be possible, but where it is possible, it is worth the effort.
We have coached and counseled clients back from the brink of divorce, where the divorce would have cost them millions of dollars. All we suggest is think twice, and do what you can. In fact, one of the reasons that lawyers continue to practice law after their official retirement is lack of money due to a punishing divorce.
Assess What is Available to You Now: In the US, some law firms provide private pension for retiring partners and other employees; plus, there are special savings accounts (401Ks) where lawyers can put part of their current earnings and only pay tax on this money years later when they take it out of the account.
Usually, the law firm adds some percentage to these savings accounts as a bonus and to encourage lawyers to save for their future. There is also your Social Security income to be considered.
In Latin America, you basically have to take care of yourself. There are private pension funds to which you need to make deposits monthly or annually. These deposits also keep this money free of taxes. Then when you retire, these funds can be drawn out also free of tax. So, you may never pay taxes on the money you put aside in these private pension funds.
Obviously, when your children are young, you will have a hell of a time saving money. This drain on your savings might last all the way into your children’s university years. However, these pension funds almost always have a life insurance component. Therefore, the younger you are when you begin, the better insurance rate you will obtain.
But once you are finished paying for their education, that is when you need to start saving all you can. There is a law of economics that expenses rise to meet income. As your disposable income increases, try to avoid spending your larger disposable income on your pent-up desire for luxury goods or lavish vacations. Wait. Have patience.
You always have to keep tax considerations in mind and discuss your savings plan with a knowledgeable and recommended accountant. You should also discuss your savings and investment plans with a knowledgeable and recommended financial adviser. Space does not allow us to give you an extensive list of what types of investments you should make.
Don’t forget, the more you save now, the more comfortable your retirement lifestyle is going to be.
Now let’s see what planning your finances looks. Here are some details for each step.
1. Set your Retirement Goals
This takes some analysis and imagination. What will you retirement look like? Based on your passion, you can calculate how much you will need to support that lifestyle. Preparing a retirement cash flow budget is a very important step. You may need as much as 80 to 90% of your pre-retirement income to meet your goals in retirement but this is totally dependent on how you are planning to live.
Take into consideration what your income you will have from your post-retirement activities.
The difference between your projected income and your lifestyle expenses will be the income you need from your savings / investments. From this you can calculate what you Retirement Goal should be. Here is a simplistic illustration in USD.
Assumed Post-Retirement Annual Expenses $200,000
Income from working activities $55,000
Rent from your house 75,000 130,000
Annual Cash Shortfall $ 70,000
A Safe Rate of Return 5%
Retirement Saving Goal Needed $1,400,000
The $1.4M is calculated by dividing the $70K by .05, the safe interest rate.
This is an accomplishment because now you know the target you are aiming for.
2. Assess your Current Financial Position
You need to know your starting point. You can ask an accountant to help you, but you already know the answer. List all your assets together with their value. It is easy to know the value of your Financial assets. However, you may need to get an estimate or an appraisal for any real estate, collections or investments which you may have in privately held companies. Do not bother to include the value of any cars you might own. They will not be assets in the long- run. The total is your Gross Assets.
Now list all the money you owe. Please include on this list of debts, money that is included in the financial assets that is set aside for your children’s education or other commitments to which you may be obligated. The total is your Gross Liabilities.
Subtract your total liabilities from your total assets, and there you have your net assets. That is the starting point from which you can consider you are building your retirement goal.
3. Identify Retirement Income Sources
This is your retirement income from your own labors. Your other Retirement income will come from a private or company pensions, Social Security, tax-free savings accounts and so on. The after-tax benefit of each source of income needs to be considered.
4. Evaluate Retirement Risks
When working with a financial advisor, keep in mind that no one has repealed the investment rule that the higher the rate of return on your money, the greater risk your investment has. High rates of return mean risk and you will no longer have enough time to earn the money again if you lose it to a risky investment. The mid-20th century humorist Will Rogers, used to say, It is not the return on my money that concerns me, it is the return of money that I worry about
You must consider the risks that affect your retirement income such as Inflation or the volatility of the stock market which will erode the purchasing power of your income over time. This is a caution because you may well live to be 100 years old. All of these risks need to be considered.
One of our clients was raised by a wealthy surgeon who retired at 65 in a very comfortable financial position. The retired doctor set out traveling and enjoying the good life he had earned and dreamed of. He never expected to live to be 98. He outlived his money and in old age, he because a burden to his daughter.
5. Understand Health Care Issues
As you approach your retirement years, examine your health insurance options once you are no longer covered by the law firm. This field is constantly changing and varies from country to country. For now, we just suggest you learn your options when retirement is looming up ahead.
6. Invest your Retirement Assets
With your financial retirement goals now identified, develop a written investment policy that will govern your investment approach. The investment policy statement is your retirement investments road map. The mix of pension funds, stock, bonds, real estate, investment in privately held companies and cash - should be clearly identified.
As mentioned, discus all this with a qualified financial planner/advisor. Listen to his/her advice but know your own mind – know what you want, and you should not be easily persuaded to change your ideas.
7. Monitor your Retirement Assets
It is important to conduct periodic reviews of your financial situation. Have your financial advisor demonstrate to your satisfaction that you are on track to meet your financial retirement goal.
A quarterly review of your portfolio performance is important to detect early signs of inappropriate asset allocation or poor performance of any single investment. These reviews will give you the confidence to know that you will live the retirement lifestyle that you planned.
Your retirement is too important to leave to chance or to the last minute, both in terms of what you will do with yourself when you retire and the financial resources. Inasmuch as you want to enjoy the last third of your life, you need to plan.
Think about how you will spend those years and resist the temptation to spend now. You probably have some life insurance in the event you die. But what are you doing for yourself in the event you live a long life? Don’t leave it to chance.
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