- Dawn Reshen-Doty
3 Essential But Overlooked Policies Every Practice Needs
I sat down with Richard P. Terhune, Jr., CLTC, LUTCF of New York Life to ask him the top 3 things that our clients, including attorneys, don’t realize they need in terms of agreements or policies. Many of these issues are applicable to all types of companies but I’ve focused on attorneys and law firms in particular.
Retirement plan(s)
Key person protection (in case of death or disability)
Buy-sell agreement addressing seven different triggering events
1. RETIREMENT PLANS
According to Richard, “One of the things that we hear from many of our attorney clients is that no matter how much money they make, they still have not put away enough money for retirement. When preparing for retirement, it’s difficult for the average person to envision how much money they actually will need in order to retire at the same standard of living.”
Several factors are driving up the amount needed:
Prevailing interest rates are lower.
Life expectancy is greater, meaning money must last longer.
On average, less income is coming from other sources such as company provided pensions.
Today, a safe withdrawal rate – one that gives a reasonable certainty of having enough income even if the person lives well beyond age 90 – is not much above 3%. So an individual who retires at age 65 and desires a retirement income of $100,000 per year must accumulate over $3.3 million.
Income tax diversification is critical because increasing income tax rates will put downward pressure on standard of living. Translation – higher income tax rates mean having to accumulate more pretax money in order to generate the same standard of living. Having tax-free sources of income provides protection as well as flexibility.
In Richard’s experience, “Many professionals don’t know they have additional options for retirement plans beyond qualified plans like 401(k) or IRA’s. These other options – such as Section 162 plans, and split-dollar non-qualified deferred compensation – allow lawyers to pick and choose plan participants, or get a deduction for the firm, or avoid payouts being counted as current income, depending on their plan objectives.”
It’s important to remember that there are many choices when it comes to retirement plans and investments. Your advisor should walk you through options such as qualified options (401k, SIMPLE IRA, defined benefit pensions, etc.) versus non-qualified options (Section 162 plans and split-dollar non-qualified deferred compensation, etc.)
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