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The Lawyer's Financial Strategies - Stage 3: The Partner and Quest for Time

Partner: You’ve made it. It’s a heck of an achievement to make partner in a major U.S. law firm. It’s competitive and mostly an “up or out” culture. You're now one of the decision makers in the firm so it’s not just your own practice area you're looking out for. You think about the firm. You're an owner.

You are probably in your 40s now and have 10 to 15 years of peak earnings ahead of you. You could work longer but age 60 to 65 seems a reasonable time to dial back and you want to build options. You will have to make a capital contribution to the firm. It’s at-risk capital and probably funded by a loan. Nevertheless, you know about firms that went under and where you stand in the capital structure so it’s a gulp when you sign on the line.

But the firm’s remunerations are generous. You should now be eligible for a Defined Benefit Cash Balance Plan (see here for recap), which should start you at about 5% to 10% of your annual income. Remember these plans have a capped balance but it will take some years to get there. You should also be eligible for a separate partner-level 401(k), which provides more firm contributions and allows you to get close to the maximum of $54,000. There may also be deferred compensation plans or venture funds that you should review.

Yes, these are peak earnings years. But they are also peak spending years. You may have resisted the temptation to upgrade to a large house but school, college and any extracurricular activities cost money. You may also have other dependents, with parents high on the list. And a spouse may no longer be in full-time work. Always check in with your plan. Are you on goal for assets, investments and paying down debt? The big wealth destroyers are divorce, losing your job and a family illness. You can't plan for those but you can put some defenses in place.

By now your low-cost index fund and ETF investment program is well underway. You never missed the $100 a month you started with 15 years ago and you don't miss the $2,000 a month you invest now. You never went for the private equity and hedge fund pitches that came round the office so you're way ahead. Your net worth, excluding residence, should start to climb to four to five time your income. It should ramp up quickly in your late 40s and 50s.

That empty nest is coming up but it’s bittersweet. Yes, the tykes cost you an arm and a leg but you're justifiably proud. The money is good but the hours don't let up. But now you have options.

If you have any questions on these, or would like to discuss further, please feel free to e-mail us or call 415 435 8330.

 Please note that this discussion of our investments and investment strategy (including our research and investment process) represents our investments and investment strategy at the date of this commentary, and is subject to change without notice.  We cannot assure that the type of investments discussed in this commentary will outperform any other investment strategy in the future, nor can we guarantee that such investments will present the best or an attractive risk-adjusted investment in the future. This is for general informational purposes only; references to an individual security should not be construed as a recommendation to buy or sell that security.  The securities mentioned in this commentary are only several of the successful as well as unsuccessful investments by us, and do not represent all of the securities we have purchased, sold or recommended.  Although we deem reliable the sources of the statistical and other information referred to in this commentary, we cannot guarantee the accuracy or completeness of any statements or numerical data.  Past performance is no indication of future results.