When I'm 64

Retirement is not just a financial or professional shift, it’s a personal transformation. David Rowe encourages you to plan now for making the big leap into a successful retirement

For solicitors approaching retirement age, many new opportunities and challenges present themselves.

Having worked in an environment that is demanding, but certain, for a large number of years, both the individual and the firm must address a wide array of issues to ensure the transition is a success.

Larger firms have structures in place, including working and non-working consultancy periods, mentoring for those approaching retirement, and exit arrangements that are defined in a partnership agreement.

The challenges are greater for those in smaller firms in particular and, in some cases, in medium-sized firms, which is the focus of this article.

Planning for retirement

The financial reality of retiring now from a small or medium-sized firm is that the practice sale or migration will not yield sufficient funds to support an individual through their retirement.

Sale prices are currently quite modest and vary from a small amount of goodwill and a payment for work in progress, to it costing the individual money to extract themselves from practice.

Therefore, the individual is likely to have to lean on the State pension and the pension fund that they have built up themselves, together with any private income or assets they hold.

With top-rate tax relief available on pensions, this is by far the most cost-effective way of building a fund large enough to support an individual who no longer has earnings from a practice.

We see individuals in firms shying away from paying the maximum pension contribution rate, mainly because of cashflow concerns in the autumn (professional-indemnity insurance, income tax, pension and practising certs all coming together), but we would view avoiding making maximum pension contributions as a foolhardy strategy.

Avoiding the cliff edge

The cliff edge arises where a solicitor has been working hard, often in excess of five days if they are running their own business, and at a high pace, to suddenly having seven days available a week to walk the dog twice a day.

In our experience, a gradual tapering of working commitments suits most individuals.

We advise individuals to consider doing a four-day week in the year approaching retirement as an equity partner and, in the case of a sale or an internal transfer to another partner, most firms will want the retiring partner to stay on in a consultancy role for a period of time.

We often see three days for one or two years, followed by two days – all depending on energy levels, health, interest levels, and needs of the new practice.

Another large influencer in this is the personal (not professional) reputation of the individual. Put bluntly, if you are seen as a difficult individual, the willingness to keep you on will be considerably lower. Being seen as a good colleague who works well with others goes a long way.

There are, of course, alternate roles outside the business for the retiring solicitor. We see roles as a locum solicitor, in mediation, arbitration, teaching, writing, pro bono, an in-house role, or a complete change all having worked well for retiring solicitors who wish to have some, but a reduced, work focus.

Exiting a practice

For a sole owner, exiting an Irish law firm has become a lot more difficult.

This is partly because the number of younger solicitors choosing to be a sole owner is significantly fewer than the number of similar solicitors retiring – that is, there aren’t enough people to fill the shoes of retiring solicitors.

While there are some individuals who want to be a sole principal, most retiring sole practitioners are now either merged with a larger firm, with the sole principal standing back from ownership, or have to face the closure option.

The number of firms having to close is increasing because of the lack of younger solicitors willing to take over firms and the fact that other local firms are probably at their maximum in terms of workload in the current economy and simply do not have the time or resources to take on more work.

This is also a large factor in values on sales having fallen as supply outstrips demand.

The close-down option is not as bleak as it sounds. It is a matter of stopping taking in new files and working out the existing ones, finding a firm to hold wills, title deeds, stored files, etc, and applying to the Run-off Fund for professional indemnity insurance.

The Run-off Fund has been a gamechanger for smaller firms who do not have any sale option: it provides free insurance cover for six years once admission criteria are met.

The most effective exit strategy and least change for a retiring solicitor is to have somebody coming through internally or joining that will take over the firm or their interest in the firm.

It is more seamless and less unsettling for the retiring person, and there is a mutually beneficial dependence on each other in terms of migrating clients and ensuring success for the new owner.

The owners I meet are proud of the firms they have built and want the firm to go into good hands and be a success for the new owner and for clients.

No retiring solicitor wants to meet an ex-client in Main Street who tells them how great they were and how the new owner has let them down.

The Law Society’s Close of Practice booklet outlines the regulatory requirements and obligations in greater detail, while the ‘Buy/Sell/Merge’ platform facilitates transitions by connecting solicitors at different stages with each other.

Private entities, such as Outsource, also match buyers and sellers.

Options by firm size

Sole practitioners face the greatest challenge at the moment due to the change in demographics and career choice outlined previously.

Even if a sole practitioner is lucky enough to find someone, client compatibility, compatibility with the owner, and financial viability come into play.

The merger route with a larger firm provides more certainty, but is a greater change for the exiting partner. 

It also necessitates finding a firm with younger ownership in the locality that has an interest in taking the firm on.

Deal-breakers include poor professional-indemnity insurance, disciplinary issues, difficult personalities, highly personal following, and age.

In reality, most owners of smaller firms need to address succession planning in their late 50s or early 60s, on the assumption they want to get out in their mid to late 60s. Most address it too late.

Emotional and lifestyle

Retirement is not just a financial or professional shift – it is a personal transformation. Many solicitors struggle with the idea of retirement due to their deep professional identity and working commitment.

Advance planning helps with this by identifying new hobbies, goals, and new roles – there will be a significant amount of extra spare time, and filling this with activities you enjoy rather than with boredom is key.

The Law Society and other organisations offer retirement planning courses and support in this area.

Compliance obligations

Any solicitor looking to retire has obligations and liabilities to divest. If there is a continuing practice or the firm has merged with another firm, this is of considerable assistance, with many of the obligations being taken over.

The retiring sole practitioner who cannot find another firm to take over their firm must arrange run-off cover, another firm to hold files, deeds, wills and other client documents, and answer future correspondence.

File storage can be an issue if the retiring practitioner has not been regularly culling files down to Law Society requirements.

Clients remain central in any retirement process. Where the person is simply closing the practice, the client must be informed of the cessation and active files transferred to the nominated solicitor.

In a continuing firm, the process of gradually migrating a portfolio of work to another solicitor takes about 18 months to two years, where fully planned.

This is best achieved if there is a generational change in the client also but, in the absence of this, by introducing the younger solicitor into the work for the client gradually, most clients translate once service levels and pricing remain consistent.

The situation in relation to staff has changed over the past number of years. It was quite difficult to persuade acquiring firms to take on all staff in the past, particularly those with longer-service records, while also being mindful of the TUPE regulations.

Now with a widespread shortage of support staff in particular, and also of qualified solicitors in smaller and medium-sized practices, the situation has evolved into having staff available and willing to transfer being no longer an obligation, but a prerequisite.

Final thoughts

Retirement planning for Irish solicitors is multifaceted. It involves:

• Thinking about it at least two years before the retirement date,
• Early financial planning to maximise pension benefits and tax relief,
• Exploring tapering work options to ease the transition,
• Understanding exit strategies tailored to firm size and structure,
• Complying with Law Society regulations to protect clients and reputation,
• Preparing emotionally and psychologically for a new phase of life.

Solicitors are encouraged to consult financial advisors, legal peers, and the Law Society, and to craft a retirement plan that suits their personal and professional goals.

The Law Society has recently extended the Practice Advisory Service, provided by Outsource, at a subsidised cost to those approaching retirement, which addresses these issues on a tailored and confidential basis.

David Rowe is managing director of Outsource, advisors to Irish law firms.

LOOK IT UP

• For more information on retirement planning and succession: www.lawsociety.ie/succession
• Law Society’s ceasing practice guidelines: www.lawsociety.ie/globalassets/documents/ committees/pii/close-ofpractice-guidelines.pdf
• Law Society’s ‘Buy/Sell/Merge’ service: www.lawsociety.ie/ Solicitors/business-careerresources/Buying-SellingMerging/search-buysellmerge
• Practice Advisory Service (Outsource): www.outsourcefinance.ie/practice_advisory_ service