Attorneys are often so absorbed in the intricacies of legal matters, they overlook their own financial well-being. From student loan debt to increased taxes, fluctuating income, balancing their personal and professional finances, and not planning for succession, attorney financial challenges are persistent.
I wrote this article to share some of the difficulties I often hear from my attorney clients. Importantly, I also highlight strategies for overcoming these challenges.
Student Loan Debt
For many seasoned attorneys, particularly those with significant law school debt, student loans can remain a substantial financial consideration—even at higher income levels. Due to the substantial cost of legal education, even established attorneys can carry notable debt balances, impacting cash flow and investment flexibility.
While this debt may not inhibit major financial milestones like home purchases or family planning, it can influence broader wealth-building strategies and tax planning considerations. Managing student loan debt strategically can free up resources for higher-yield investments, retirement planning, or even philanthropic endeavors.
To address this, high-earning attorneys may consider refinancing at favorable rates, using structured debt reduction strategies, or leveraging tax-advantaged approaches to debt repayment. Consulting with a financial advisor can also help integrate debt management into a broader wealth plan that aligns with long-term goals.
Increased Taxes
As high-income earners, attorneys frequently pay greater federal, state, and municipal taxes. This can limit their disposable income as well as their capacity to save and invest. Additionally, due to complicated tax rules and regulations, attorneys can also find it challenging to manage their tax responsibilities and reduce their tax liabilities
To lessen the burden of increased taxes, attorneys should think about tax-efficient investment strategies like tax-loss harvesting and Roth IRA contributions. Law firm partners often have access to advanced retirement plans like cash balance plans or defined benefit plans, which can allow for significant contributions as retirement approaches. To optimize their tax planning and assure adherence to all tax regulations, they should also collaborate with a knowledgeable tax professional.
Fluctuating Monthly Income
Another attorney financial challenge is fluctuating monthly income. Because of the nature of their work, things like contingency fees, bonuses, and hourly billing make it difficult for attorneys to stick to a budget and plan for the future.
To handle income fluctuations effectively, attorneys with variable pay structures may benefit from a flexible cash flow strategy. This can involve maintaining a reserve to cover lower-income months and directing additional income toward priority financial goals as revenue allows. By setting clear, proactive parameters for cash flow, attorneys can better align their income cycles with their broader wealth-building approach, supporting long-term stability even when monthly income varies.
Balancing Personal and Business Finances
Due to the demands of a busy legal practice, attorneys rarely have time to attend to personal financial planning. As a result, the line between growing their business and paying attention to their own financial stability gets blurred.
To effectively manage these conflicting responsibilities, it’s a good idea for attorneys to set aside separate time for personal financial planning, including investing, saving, and budgeting. In addition to avoiding commingling funds, attorneys can make their tax preparation easier as well as maintain a healthy emotional balance between their personal and professional lives.
Lack of Succession Planning
In solo or small firm practices, attorneys may overlook the need for a strategic succession plan. However, without clear planning, the sudden departure or reduced capacity of a key attorney can lead to operational disruptions and financial strain.
To reduce this risk, attorneys can create a thorough succession plan that covers topics like client continuity, asset appraisal, and business valuation. By proactively planning for succession, they can safeguard their financial interests and assure the continuation of their profession. This could entail creating a written succession plan, documenting processes and procedures, or mentoring younger lawyers.
Retirement Planning
While retirement planning is a critical part of financial health for attorneys, the unique challenges of the legal profession that I discussed above—increased taxes, fluctuating income, balanced personal/professional finance, and lack of succession planning—can make it difficult to prioritize retirement planning.
To tackle this challenge, attorneys should start saving for retirement consistently and at a young age. One of the better ways to create a nest egg for the future is to make contributions to a retirement plan, such as an IRA, 401(k), or if your firm offers it, a cash balance plan. Attorneys should also consider the impact of taxes on their retirement income and explore strategies like Roth IRA conversions, tax-diversified accounts, or other options that align with their long-term goals.
Changing Retirement Incentives in Large Firms
One of the recent shifts impacting senior attorneys at large law firms is the trend of “incentivized” retirement. Traditionally, senior partners could rely on their firms as an informal safety net, often continuing to draw substantial income even as their workloads decreased. Many attorneys built their spending habits and retirement plans around this steady income flow, essentially treating it as an enduring partner share.
However, many large firms are now setting firm retirement deadlines, often around age 65. This change means that senior partners may no longer have the flexibility to gradually reduce their workload while maintaining income from the firm. Instead, attorneys are encouraged—or even required—to retire fully, sometimes years earlier than anticipated.
This shift has significant implications for retirement planning. Attorneys who had counted on continued income from the firm may need to adjust their retirement savings strategies or explore alternative income sources to bridge the gap. Those approaching retirement age might benefit from reassessing their financial plans and considering potential adjustments to meet their lifestyle goals once they’re no longer drawing a partner’s income. Proactively responding to these policy changes, often with guidance from a financial advisor, can help senior attorneys prepare for a stable transition into retirement despite evolving firm practices.
We’re Here to Help
One of the Deerfield Financial Advisors specialties is working with attorneys. We understand that building and managing wealth for those in the legal profession is dependent on understanding and incorporating the financial complexity and nuances specific to the industry.
If you have questions or are interested in partnering to pursue your ideal financial future, please reach out by calling (317) 644-7701 or emailing mroop@deerfieldfa.com.
About Matt
Matt Roop is Wealth Manager and Shareholder at Deerfield Financial Advisors, a fee-only financial advisory and wealth management firm with offices in Indianapolis and Chicago. In his role, Matt acts as a personal “chief financial officer” for his clients, overseeing every facet of their financial landscapes, orchestrating strategies to grow their wealth, and enhancing their financial clarity. Catering to the distinct needs of lawyers, engineers, and business owners, he empowers them to embrace their passions and lead their optimal lives. Matt conveys a depth of experience and a calm demeanor that clients find reassuring and soothing, and he loves providing peace and confidence around their financial future.
Matt received a Bachelor of Science from Indiana University and a Master of Business Administration (MBA) from George Washington University. He is a NAPFA Registered Financial Advisor and holds the CERTIFIED FINANCIAL PLANNER® and Certified Exit Planning Advisor (CEPA) designations. Committed to staying at the forefront of his field, he is actively involved with the Exit Planning Institute, National Association of Personal Financial Advisors, and the Estate Planning Council of Indianapolis. Since 1997, Matt has been involved in the investment and wealth management realm, with experience at Charles Schwab & Co., Inc., as well as a boutique Indianapolis-based independent advisory firm and a brief stint at his family’s closely held business.
Outside the professional realm, Matt serves his Indianapolis community by volunteering for Meals on Wheels of Hamilton County and is on the Executive Leadership Team for the Indiana Alzheimer’s Association’s Walk to End Alzheimer’s. He is dedicated to financial stewardship and continuous growth, with an unyielding commitment to enhancing the lives of both his clients and his community. Matt and his wife, Kimberly, reside in Carmel, IN, with their four children, who are all pursuing their college dreams. When he’s not working, he enjoys traveling, reading, and spending time at his lake house in southern Indiana with family. To learn more about Matt, connect with him on LinkedIn.
