In part one, which you can read in LawTalk 892, 15 July 2016, we covered the financial impact of big life moments in the early years of a lawyer’s career. In part two, we continue our study of “The Game of Life” and the financial crossroads we come to.
Big OE and the stubborn New Zealand dollar
Most lawyers had spent time working and living overseas, most commonly in their 20s and 30s in London, New York and Hong Kong. Many believed the experience had a positive financial impact long term. On relocation, however, several noted a significant negative financial impact on their salaries. Even with Pound Sterling savings and a higher deposit for a house, the cost of returning and a pay cut didn’t make it any easier to enter Auckland’s competitive property market. Younger lawyers then faced the challenge of how best to invest a lump sum.
The timing of returning funds to New Zealand is also critical, since currency fluctuations can make a big difference to spending power. The Pound Sterling has fluctuated wildly in the last two decades, with many highs and lows. Depending on timing, your saved amount could have been a little less than doubled or almost quadrupled! It is purely the luck of the draw. Even the Reserve Bank has been watching our overvalued dollar powerlessly. It is also worth noting the potential tax consequences of leaving savings in a foreign currency to make a gain.
The financial impact and challenges of marrying a spouse met overseas are also not to be underestimated, including adjustment to life in New Zealand. From personal experience, I agree with comments made by survey participants. Non-recognition of degrees and overseas work experience can be difficult and regular trips home for the foreign spouse and the family, expensive. The costs of separation can become even more burdensome when the spouse’s elderly parents are no longer able to visit or need support back home.
Cost of raising children
The birth of a child can often mean the female lawyer is no longer able to work for at least a period of time. Dropping from two incomes to one requires sacrifices, especially when raising a young family. The adjustment can be stressful. Several female lawyers did not take extended time off, returning to work to pursue their careers. Others opted for consulting or part-time roles instead.
UK research found women graduates waiting until an average age of 35 to have children. Delaying motherhood helps in career building and securing a house of choice, but often at personal cost. Said Les Mayhew, Professor of Statistics at London’s Cass Business School: “Women who have children later in life may well have established their careers, but they also face the risk of becoming the ‘sandwich generation’ – looking after ageing parents or other relatives while also bringing up children.” The ongoing financial impact of children extends into adulthood.
Lawyers did not often highlight the impact of parental leave, but the funding of children’s education and giving children a head start were hotly debated. Education was a concern for those in their 20s and 30s, as opposed to those in their 40s and 50s with young children, for whom paying private school fees was no longer disproportionate to their income.
The pre-tax income needed to support three children for 13 years at private schools is more than $900,000. And that’s not including tertiary education. Taking into account the average cost of an undergraduate education at a New Zealand university and the associated living costs (such as student accommodation) for each child over three years, the necessary gross income increases by more than $300,000. This brings the grand total for a family with three children to more than $1.2 million. At a ballpark chargeable rate per hour of $300, this translates into more than 4,000 hours of billable time (or two years of solid graft). No mean feat for many families, requiring careful planning.
Views differed on tertiary education. Some happily covered costs. Others chose to teach their children varying ways of paying for it themselves, with either a Government-funded student loan or a privately negotiated loan between parents and child.
Tertiary education is typically the biggest education cost in New Zealand (as most children attend public schools) with the average student debt more than $24,405, up 57% from 2011. Many surveyed lawyers had never had a student loan, but several younger lawyers who did, had repaid the amount before graduating.
However, this may be changing. A recent survey revealed that 83% of students expect to be in debt by the time they graduate, with 73% (up from 65% in 2011) expecting that their student loan will have a significant impact on the ability to save for their retirement.
Most lawyers felt it important to give their children a head start, varying from a private school education, to paying for tertiary education, weddings, a deposit on a house, cash distribution from a family trust or simply the cost of adult children moving back home. However, offering children the chance to save for a deposit on a house by returning home can delay the parents’ ability to downsize.
Caring for elderly parents
At some stage, the financial impact starts to reverse as children begin to look after ageing parents. For a number of lawyers, looking after elderly parents had coincided with supporting their children. Hence the expression the “sandwich generation”.
Many had experienced or expected to experience the death of a parent. However, not all saw such an event impacting in a financial sense, underscoring an earlier observation that most lawyers do not come from particularly wealthy backgrounds.
One surveyed lawyer clarified the position with regard to the death of his mother. “It’s not an inheritance at all she’s giving me,” he said. “She’s paying off a loan!”
I asked lawyers to specify the life events they expected to experience in the next 10 years. Many in their 40s anticipated the death of a parent in their 50s. However, of those currently in their 50s, only a handful identified such loss. Those in their 60s and 70s appeared to be experiencing parental bereavement at a much later stage.
One of my most memorable conversations took place over coffee in a neighbourhood cafe with a retired lawyer in his 70s. His face lit up as he talked about his parents and the lovely life they still shared at ages 97 and 98. They had lived a frugal but happy life and now lived independently in a retirement home with no financial worries. His father, a teacher, had contributed to the Government Superannuation Fund (which is now closed to new members). They didn’t have a lavish lifestyle, but were certainly no burden and he could see them living to 110 at the rate they were going!
This really brought home to me the critical nature of planning for a long future, especially since some of the older superannuation schemes no longer exist and people still want to retire at 65.
The myth of sabbaticals
With the 50s/60s/70s group, I frequently discussed sabbaticals, an old tradition in law firms and a real incentive for new partners.
“Taking a sabbatical was life giving, where I experienced a profound sense of living versus working. It was a return to, and awakening, of self,” professional coach and lawyer Martin Wilson says.
Offered by most firms, sabbaticals are quite different from career breaks, the latter generally a proactive step away from a legal career and often involving a decision to leave. Both create space to recharge, obtain a better perspective and even rethink a career in the law.
Mr Wilson recalls his sabbatical experience. “For the first time in 20 years I experienced a sustained period of meeting my needs, rather than others. I focused deeply and productively on myself. Experienced too was a good shift in capacity to trust, to reflect and draw on the past plus build and ‘front foot’ the future. I realised that others benefit, too, from my living in a more present, authentic way; in my being out of ‘role’, whether that of provider, lawyer or employer. Many looked on with concealed disapproval or open disbelief. I smiled, for only a year earlier I experienced similar doubt.”
His formula to convert a sabbatical or career break from a good notion into a beneficial reality was Trust + Decide + Act, which can also apply to the winding down of work commitments.
Most feared four-letter word
Common to many transitions in life was the overarching relationship with debt. Struggles with debt and the burden of repayments were not confined to the younger generation. Loan repayment and the relationship with debt (more so than with money) were the prime priority for most lawyers. Although debt can play a part in creating wealth, the associated love-hate relationship deems it one of the most feared four-letter words in the English language.
The word mortgage comes from the French words for death and pledge, since the deal dies either the moment you pay it in full or fail to fulfil your obligation to the bank. But who wants a death pledge hanging over their head like the Sword of Damocles? As a financial adviser, my advice is simple. Pay off debt as soon as you can and don’t be beholden to the bank. While it may sound conservative, the day they repaid their loan in full, most lawyers felt a weight lifted from their shoulders.
No matter which stage they are at in life, lawyers want to call the shots. They want to be director, screenwriter, editor and, most importantly, executive producer. It takes a mighty bankroll to fund an epic production, such as your career, family and beyond. But as the scenes change, the fundamental production mantras remain the same. Keep one eye on the budget, avoid costly reshoots and always have your Oscar™ acceptance speech ready.
Laetitia Peterson is a personal wealth adviser and is married to competition barrister, Andrew Peterson. She has worked with companies such as Goldman Sachs and boutique funds management firm Liontamer, which she co-founded with Janine Starks. She is now the CEO (and founder) of The Private Office, helping successful lawyers achieve the financial goals important to them and their families.