Managing Your Money: What Happens After Leaning In?

Women attorneys, similar to women in the general population, still earn just two-thirds of what their male counterparts do. In addition, women only comprise 15% of the equity partners in AmLaw 200 firms. The income gap closes slightly once women reach this tier ' female equity partners make 11% less than male equity partners.

Men also work 12 years longer than women. Despite an increase in the number of women assuming the role of breadwinner, many still serve as the primary caregiver to their children. This may mean taking several years off, or deciding to return to work on a reduced-hours basis. Either option can delay the time it takes for a female attorney to become partner. In addition, women live an average of five years longer than men. In fact, research shows that women need their savings to last 30 years after retirement.

On top of that, a Life Insurance and Market Research Association (LIMRA) study found that while a woman who outlives her husband experiences a 50% drop in income, her expenses only decrease by 20%. And women often struggle with how to prioritize debt over other financial options, such as a 401(k) plan or buying a home.

Finally, women tend to be more risk-averse than men. If lawyers are already notoriously risk-averse, female lawyers are even more so. In terms of finances, experts attribute this to a variety of factors ' e.g., not understanding the jargon, being happy with small gains that require less risk, and worrying about losing everything whenever the market takes a tumble. This was evidenced by the large number of women who ran for the exits following the downturn in 2008. According to one study, over 30% of women stopped contributing to their retirement accounts during the recession. Limited risk leads to limited reward.

Confront Your Fears

This does not mean women do not worry about their financial futures, however. A recent survey by Allianz, a life insurance company, confirmed HoyleCohen's findings: One-third of high-income professional women are consumed by financial worries. Their concerns range from going broke and losing their homes to becoming “bag ladies.” Fifty-seven percent of these women say these anxieties keep them up at night.

However, even the most successful female attorneys do not dedicate appropriate time to their finances, because they think the process will be long and cumbersome. This perception, along with their lack of investment knowledge, keeps them from taking action. These are successful professional women who excel in their careers, but are in unfamiliar territory when it comes to their finances.

The key is to face down your fears and educate yourself. If you are reluctant to do this, take a deep breath and realize you are not alone. The process does not need to be overwhelming. We have provided four steps women attorneys should take to get their financial house in order.

Step One: Learn About Your Finances

The first step is to track all of your current expenses. This is where the old adage comes into play: It's not what you make that matters, it's what you keep. You need to see, in black and white, how much you are spending and on what. Mint.com can help you do this.

As part of this step, you need to get a clear picture of your net worth, in terms of assets and liabilities. Create a spreadsheet that shows where all your money is ' e.g., savings, stocks, real estate (and what each property could currently be sold for), loans, debt, obligations (memberships, your mother's nursing home, etc.), assets (major pieces of art, etc.). The value and cost of these items can vary considerably over time, so you need to update them annually to see where you are.

By figuring out your net worth and how much your current lifestyle costs, you can ascertain how to maintain it in the future. This may involve cutting back in certain areas or reallocating funds, but you are now on your way to developing a realistic retirement plan.

Step Two: Determine Your Financial Goals

Whether single, married, divorced or widowed, female lawyers need to create a vision for what they want their retirement to look like. One rule of thumb is that you should save at least 25 times your current salary or what you want to be able to spend each year. This will allow you to withdraw approximately 4% from your portfolio annually, without dipping into your principal. The widely used 4% rule applies across the board, regardless of the size of the portfolio.

When creating your vision, consider whether it is realistic to continue working into your 70s. Also think about where you plan to live and the cost of items such as rent or mortgage and health insurance. Additional factors you should take into account include long-term care for elderly parents and your children's education. Women tend to put money aside for their children's education and parental care before thinking about their own retirement.

By taking a hard look at the numbers, you might realize you need to work longer. A study by the Society of Actuaries showed that if you were in the top quintile of earners (which refers to lifetime earnings), working one more year would increase your annual retirement income by 7%. Working an additional five years could increase your annual retirement income by 42%.

An example of what not to do is provided by Mary (her name has been changed), a successful female attorney who can never retire at the going rate of her expenses and savings. Mary makes $600,000 a year as an equity partner. She has no children, and other than her home, has no savings or investments. She spends virtually everything she makes. If she is willing to dial back her lifestyle and reduce what she intends to spend in retirement by half (to $300,000 a year), she will still need to set aside $7.5 million by the time she retires (See Figure 1 below).

Because she has saved almost nothing, the only asset Mary has to help fund her retirement is the money she will receive from selling her home. However, since she has a mortgage on her house, she would net only a few hundred thousand dollars from the sale, far too small an amount on which to retire. Mary's scenario is much too common, and yet easily avoidable.

Step Three: Saving for Retirement

Retirement funding should start with contributing the maximum to your 401(k) plan. In many cases, firms offer matches, as well as profit-sharing plans, for highly compensated employees. Participating in these programs may not be enough to fund the type of retirement lifestyle you are accustomed to, so additional savings should be invested in taxable accounts. To demonstrate the importance of this in hard numbers ' if you contribute the maximum amount to a 401(k) plan for 40 years, and this money grew an average of 6% per year, this would be equivalent to approximately $33,000 in annual taxable income in today's dollars. Hardly the lifestyle most successful attorneys want for themselves.

In Mary's case, to realistically retire, she needs to take a hard look at the quality of life she would like in retirement. She needs to step back and determine where her money is going and what changes she is willing to make so she can save enough to fund that retirement, and she needs to do this now. One of her very first action steps should be to maximize her contribution to her employer's 401(k) plan. If the firm has a profit-sharing plan, she should take advantage of it. If she sets up automatic contributions, the money will come out of her pre-tax income and be invested directly into her retirement plans. Any extra money should be invested in a taxable account. Not only will this help her save more for retirement, it will lower her taxable income.

Mary may have other financial goals besides funding her retirement. She may want to buy another home, pay for her children's education, fund her parents' long-term care and health care costs, and pay off her law school debt. She will need to prioritize these goals, and determine when they are likely to happen, what they might cost, and what her ability is to fund them. Mary will want to back into funding these goals once she has a strategy in place to fund retirement. It's important to remember that while you can get a loan for college for your children, there are no loans for retirement.

If Mary has outstanding debt from law school, she should first contribute the maximum to her 401(k) plan and pay the debt off over time. Depending on the amount of debt, the interest rates, and her available savings, she should choose a monthly amount to pay toward the debt, and save the rest. If interest rates are low, it makes the most sense to pay the minimum amount required on the debt and invest the rest. If rates are high, she may consider paying down more than the minimum once she has funded her 401(k).

Step Four: Getting Financial Help

Instead of trying to manage your entire financial future yourself, find an adviser with strong credentials, an established track record, and who is trustworthy. Reach out to friends who have financial plans they are satisfied with and interview their financial advisers. If you pick someone you trust, you will feel more secure taking the risks you need to build a strong portfolio. Advisers can help hold you accountable to your strategy and take the emotion out of investing. Since women tend to be risk-averse, have less to invest and need their money to last longer then men, advisers can help them achieve their goals by providing guidance and strategy. If left on their own, they may choose more conservative, and, thus, less rewarding options.

Keep in mind that like your life, your financial plan will be constantly evolving. This is not something you implement and then walk away from. You need to regularly communicate with your adviser so you know you are staying on track. Your adviser needs to spend time answering your questions and revising your strategy to accommodate your life changes. If you want details of every investment, make sure your adviser knows that. If you want to defer the details to your adviser, you still need to know the overall strategy and how you are doing in terms of accomplishing your goals. You need to participate to some degree in your financial future.

Conclusion

Many of the women we work with have it all. They were educated at prestigious universities, have worked hard, made sacrifices and reached the pinnacles of their professions. They have “leaned in.” These tips are the next step of the equation so they can put their wealth to work and gain financial security.

Those interested in learning more should contact their own professionals.

Disclaimer: HoyleCohen is a fee-based investment adviser and does not receive commissions for the investment strategies and products discussed. Analysis of market conditions and performance is neither an indication nor a guarantee of future market conditions or future investment performance. Descriptions of investments, asset classes and portfolios are for illustration purposes only. No decisions regarding investment strategies should be made based solely on this article. Each situation is unique and each client should first discuss his or her circumstances with an adviser. The opinions expressed here are those of the author(s) and may not represent those of others at the firm.

[IMGCAP(1)]

Bridget Grimes is a Director of Business Development and a Wealth Advisor in the Women's Practice at HoyleCohen. She can be reached at 858-636-7175 or [email protected]. Lisa Mu'oz Fell, Esq., is the founder and principal of LMF Consulting, an executive coaching and consulting firm. She can be reached at 917-656-4190 or [email protected].

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Although Sheryl Sandberg's “Lean In” has prompted interesting discussions within the legal community, the book stops short of taking women to a very important step in their professional lives ' planning for their retirement. A focus group conducted by HoyleCohen, San Diego, CA, found that female law partners are not saving appropriately, putting money into wise investments or taking advantage of employer-sponsored retirement accounts. Further, they have little idea if they are on track toward a comfortable retirement ' or heading toward financial ruin.

Unique Challenges Faced by Female Attorneys

At the beginning of their careers, many lawyers face considerable debt. In 2011, the average student loan debt for public school graduates was $75,728, while private law school graduates had an average debt of $124,950 (not including other sources of debt, such as credit cards). As a result, many attorneys start out in the red, take a long time to move into the black, and have a poor track record when it comes to putting money aside for the future. Since women attorneys make less than their male counterparts throughout their lifetimes, this situation becomes especially worrisome for them.

Women attorneys, similar to women in the general population, still earn just two-thirds of what their male counterparts do. In addition, women only comprise 15% of the equity partners in AmLaw 200 firms. The income gap closes slightly once women reach this tier ' female equity partners make 11% less than male equity partners.

Men also work 12 years longer than women. Despite an increase in the number of women assuming the role of breadwinner, many still serve as the primary caregiver to their children. This may mean taking several years off, or deciding to return to work on a reduced-hours basis. Either option can delay the time it takes for a female attorney to become partner. In addition, women live an average of five years longer than men. In fact, research shows that women need their savings to last 30 years after retirement.

On top of that, a Life Insurance and Market Research Association (LIMRA) study found that while a woman who outlives her husband experiences a 50% drop in income, her expenses only decrease by 20%. And women often struggle with how to prioritize debt over other financial options, such as a 401(k) plan or buying a home.

Finally, women tend to be more risk-averse than men. If lawyers are already notoriously risk-averse, female lawyers are even more so. In terms of finances, experts attribute this to a variety of factors ' e.g., not understanding the jargon, being happy with small gains that require less risk, and worrying about losing everything whenever the market takes a tumble. This was evidenced by the large number of women who ran for the exits following the downturn in 2008. According to one study, over 30% of women stopped contributing to their retirement accounts during the recession. Limited risk leads to limited reward.

Confront Your Fears

This does not mean women do not worry about their financial futures, however. A recent survey by Allianz, a life insurance company, confirmed HoyleCohen's findings: One-third of high-income professional women are consumed by financial worries. Their concerns range from going broke and losing their homes to becoming “bag ladies.” Fifty-seven percent of these women say these anxieties keep them up at night.

However, even the most successful female attorneys do not dedicate appropriate time to their finances, because they think the process will be long and cumbersome. This perception, along with their lack of investment knowledge, keeps them from taking action. These are successful professional women who excel in their careers, but are in unfamiliar territory when it comes to their finances.

The key is to face down your fears and educate yourself. If you are reluctant to do this, take a deep breath and realize you are not alone. The process does not need to be overwhelming. We have provided four steps women attorneys should take to get their financial house in order.

Step One: Learn About Your Finances

The first step is to track all of your current expenses. This is where the old adage comes into play: It's not what you make that matters, it's what you keep. You need to see, in black and white, how much you are spending and on what. Mint.com can help you do this.

As part of this step, you need to get a clear picture of your net worth, in terms of assets and liabilities. Create a spreadsheet that shows where all your money is ' e.g., savings, stocks, real estate (and what each property could currently be sold for), loans, debt, obligations (memberships, your mother's nursing home, etc.), assets (major pieces of art, etc.). The value and cost of these items can vary considerably over time, so you need to update them annually to see where you are.

By figuring out your net worth and how much your current lifestyle costs, you can ascertain how to maintain it in the future. This may involve cutting back in certain areas or reallocating funds, but you are now on your way to developing a realistic retirement plan.

Step Two: Determine Your Financial Goals

Whether single, married, divorced or widowed, female lawyers need to create a vision for what they want their retirement to look like. One rule of thumb is that you should save at least 25 times your current salary or what you want to be able to spend each year. This will allow you to withdraw approximately 4% from your portfolio annually, without dipping into your principal. The widely used 4% rule applies across the board, regardless of the size of the portfolio.

When creating your vision, consider whether it is realistic to continue working into your 70s. Also think about where you plan to live and the cost of items such as rent or mortgage and health insurance. Additional factors you should take into account include long-term care for elderly parents and your children's education. Women tend to put money aside for their children's education and parental care before thinking about their own retirement.

By taking a hard look at the numbers, you might realize you need to work longer. A study by the Society of Actuaries showed that if you were in the top quintile of earners (which refers to lifetime earnings), working one more year would increase your annual retirement income by 7%. Working an additional five years could increase your annual retirement income by 42%.

An example of what not to do is provided by Mary (her name has been changed), a successful female attorney who can never retire at the going rate of her expenses and savings. Mary makes $600,000 a year as an equity partner. She has no children, and other than her home, has no savings or investments. She spends virtually everything she makes. If she is willing to dial back her lifestyle and reduce what she intends to spend in retirement by half (to $300,000 a year), she will still need to set aside $7.5 million by the time she retires (See Figure 1 below).

Because she has saved almost nothing, the only asset Mary has to help fund her retirement is the money she will receive from selling her home. However, since she has a mortgage on her house, she would net only a few hundred thousand dollars from the sale, far too small an amount on which to retire. Mary's scenario is much too common, and yet easily avoidable.

Step Three: Saving for Retirement

Retirement funding should start with contributing the maximum to your 401(k) plan. In many cases, firms offer matches, as well as profit-sharing plans, for highly compensated employees. Participating in these programs may not be enough to fund the type of retirement lifestyle you are accustomed to, so additional savings should be invested in taxable accounts. To demonstrate the importance of this in hard numbers ' if you contribute the maximum amount to a 401(k) plan for 40 years, and this money grew an average of 6% per year, this would be equivalent to approximately $33,000 in annual taxable income in today's dollars. Hardly the lifestyle most successful attorneys want for themselves.

In Mary's case, to realistically retire, she needs to take a hard look at the quality of life she would like in retirement. She needs to step back and determine where her money is going and what changes she is willing to make so she can save enough to fund that retirement, and she needs to do this now. One of her very first action steps should be to maximize her contribution to her employer's 401(k) plan. If the firm has a profit-sharing plan, she should take advantage of it. If she sets up automatic contributions, the money will come out of her pre-tax income and be invested directly into her retirement plans. Any extra money should be invested in a taxable account. Not only will this help her save more for retirement, it will lower her taxable income.

Mary may have other financial goals besides funding her retirement. She may want to buy another home, pay for her children's education, fund her parents' long-term care and health care costs, and pay off her law school debt. She will need to prioritize these goals, and determine when they are likely to happen, what they might cost, and what her ability is to fund them. Mary will want to back into funding these goals once she has a strategy in place to fund retirement. It's important to remember that while you can get a loan for college for your children, there are no loans for retirement.

If Mary has outstanding debt from law school, she should first contribute the maximum to her 401(k) plan and pay the debt off over time. Depending on the amount of debt, the interest rates, and her available savings, she should choose a monthly amount to pay toward the debt, and save the rest. If interest rates are low, it makes the most sense to pay the minimum amount required on the debt and invest the rest. If rates are high, she may consider paying down more than the minimum once she has funded her 401(k).

Step Four: Getting Financial Help

Instead of trying to manage your entire financial future yourself, find an adviser with strong credentials, an established track record, and who is trustworthy. Reach out to friends who have financial plans they are satisfied with and interview their financial advisers. If you pick someone you trust, you will feel more secure taking the risks you need to build a strong portfolio. Advisers can help hold you accountable to your strategy and take the emotion out of investing. Since women tend to be risk-averse, have less to invest and need their money to last longer then men, advisers can help them achieve their goals by providing guidance and strategy. If left on their own, they may choose more conservative, and, thus, less rewarding options.

Keep in mind that like your life, your financial plan will be constantly evolving. This is not something you implement and then walk away from. You need to regularly communicate with your adviser so you know you are staying on track. Your adviser needs to spend time answering your questions and revising your strategy to accommodate your life changes. If you want details of every investment, make sure your adviser knows that. If you want to defer the details to your adviser, you still need to know the overall strategy and how you are doing in terms of accomplishing your goals. You need to participate to some degree in your financial future.

Conclusion

Many of the women we work with have it all. They were educated at prestigious universities, have worked hard, made sacrifices and reached the pinnacles of their professions. They have “leaned in.” These tips are the next step of the equation so they can put their wealth to work and gain financial security.

Those interested in learning more should contact their own professionals.

Disclaimer: HoyleCohen is a fee-based investment adviser and does not receive commissions for the investment strategies and products discussed. Analysis of market conditions and performance is neither an indication nor a guarantee of future market conditions or future investment performance. Descriptions of investments, asset classes and portfolios are for illustration purposes only. No decisions regarding investment strategies should be made based solely on this article. Each situation is unique and each client should first discuss his or her circumstances with an adviser. The opinions expressed here are those of the author(s) and may not represent those of others at the firm.

[IMGCAP(1)]

Bridget Grimes is a Director of Business Development and a Wealth Advisor in the Women's Practice at HoyleCohen. She can be reached at 858-636-7175 or [email protected]. Lisa Mu'oz Fell, Esq., is the founder and principal of LMF Consulting, an executive coaching and consulting firm. She can be reached at 917-656-4190 or [email protected].

'