How much money saved before you'd bounce from biglaw? Forum

[dabigchina]

It is terrible advice to tell people that the market is a one-way bet and that historical average returns can be expected at all times for any time period. 1987 is a nice cherry-pick by you that assumes that someone can time the bottom of the market, which is extremely difficult. Try starting with 2000 to 2010 (assuming a 10-year holding period on my parent which is more likely) and tell me what the numbers are then.

To be fair, you're basically saying real estate is a one-way leveraged bet. Try looking at real estate returns for someone who bought a house in 2006 and needed to relocate for a job in 2011.

[eastcoast_iub]

It is terrible advice to tell people that the market is a one-way bet and that historical average returns can be expected at all times for any time period. 1987 is a nice cherry-pick by you that assumes that someone can time the bottom of the market, which is extremely difficult. Try starting with 2000 to 2010 (assuming a 10-year holding period on my parent which is more likely) and tell me what the numbers are then.

To be fair, you're basically saying real estate is a one-way leveraged bet. Try looking at real estate returns for someone who bought a house in 2006 and needed to relocate for a job in 2011.

It's not a one-way bet but is a less volatile asset and the biggest busts occurred out west mostly. There is a structural imbalance in supply and demand for real estate in desirable, densely populated areas (superstar cities) that keeps a floor under prices, especially in DC which is more immune to recessions.

[eastcoast_iub]

Also, just to take the counter-argument to the logical conclusion here, it seems that people would argue that people should pretty much always rent and not buy, because expected returns on the stock market are always higher. Do you agree?

[PeanutsNJam]

It is terrible advice to tell people that the market is a one-way bet and that historical average returns can be expected at all times for any time period. 1987 is a nice cherry-pick by you that assumes that someone can time the bottom of the market, which is extremely difficult. Try starting with 2000 to 2010 (assuming a 10-year holding period on my parent which is more likely) and tell me what the numbers are then.

To be fair, you're basically saying real estate is a one-way leveraged bet. Try looking at real estate returns for someone who bought a house in 2006 and needed to relocate for a job in 2011.

What if the owner moved and rented out his home in 2011, then sold it in 2016? Imo if you buy a home such that you cant afford to move away and rent out your home, you either paid too much for the home or you couldn't afford the home. It's not like someone who was heavily in the stock market wouldn't have suffered huge losses if they had to sell stock in 2011 to finance living costs.

Only talking about NYC/DC/SF though. I agree that buying outside of a high CoL major metro area should not be considered an "investment" but thinking that way about NYC/SF/DC or other expensive areas isn't wrong. It's a diverse asset.

Also, people aren't considering that homeowner costs are going to be lower than rent costs in the same unit over a 10+ year period which should factor in to the analysis.

[JusticeChuckleNutz]

They way I figure it, I would like about $200,000-$250,000 in investments and another 6 months in emergency savings/down payment for a house around the time I am 30 before I would be financially comfortable leaving.

According to this link https://dqydj.com/sp-500-return-calculator/, in the past 35 years the market has returned 8.5% adjusted for inflation and after reinvesting dividends. (That's actually just the S&P500, but the Dow Jones is in a similar range.)

Assuming that repeats, I could just sit on my $200-$250,000 lump sump and retire at 65 with around $3.5 million-$4.3 million in today's dollars. According to the Trinity Study https://en.wikipedia.org/wiki/Trinity_study, you can withdrawal 4% of your investments into perpetuity in most scenarios (i.e. as long as you don't start your retirement on top of a bubble). That equates to about $140,000-$172,000 per year in retirement in today's dollars. That's most likely way too much, so I would just lower my withdrawal rate to 3.5% or so to make sure the money doesn't run out.

That's not to say I will stop investing once I reach this goal or leave big law; I will most likely just start diverting more money to my eventual childrens' education fund, which I see as one of the other upcoming big lump payments which could benefit from compound growth. Although the shorter time horizon means that the making money in the market is more uncertain, I figure that the crazy tax benefits from a 529 plan should at least make up for some of that.

This is exactly to the numbers I had in mind as well. Granted, my timeline age-wise will be a bit behind yours because I am a bit older. As long as the market maintains its historical average, I would feel comfortable leaving to in-house/gov with that amount.

Also, the rest of y'all have ruined this thread. I found the content re people's "walk away" numbers and their reasoning interesting/useful, but I had to wade through your pissing contest on renting vs. buying a home. Start your own thread about so its not destroying this one.

[Anonymous User]

They way I figure it, I would like about $200,000-$250,000 in investments and another 6 months in emergency savings/down payment for a house around the time I am 30 before I would be financially comfortable leaving.

According to this link https://dqydj.com/sp-500-return-calculator/, in the past 35 years the market has returned 8.5% adjusted for inflation and after reinvesting dividends. (That's actually just the S&P500, but the Dow Jones is in a similar range.)

Assuming that repeats, I could just sit on my $200-$250,000 lump sump and retire at 65 with around $3.5 million-$4.3 million in today's dollars. According to the Trinity Study https://en.wikipedia.org/wiki/Trinity_study, you can withdrawal 4% of your investments into perpetuity in most scenarios (i.e. as long as you don't start your retirement on top of a bubble). That equates to about $140,000-$172,000 per year in retirement in today's dollars. That's most likely way too much, so I would just lower my withdrawal rate to 3.5% or so to make sure the money doesn't run out.

That's not to say I will stop investing once I reach this goal or leave big law; I will most likely just start diverting more money to my eventual childrens' education fund, which I see as one of the other upcoming big lump payments which could benefit from compound growth. Although the shorter time horizon means that the making money in the market is more uncertain, I figure that the crazy tax benefits from a 529 plan should at least make up for some of that.

This is exactly to the numbers I had in mind as well. Granted, my timeline age-wise will be a bit behind yours because I am a bit older. As long as the market maintains its historical average, I would feel comfortable leaving to in-house/gov with that amount.

Also, the rest of y'all have ruined this thread. I found the content re people's "walk away" numbers and their reasoning interesting/useful, but I had to wade through your pissing contest on renting vs. buying a home. Start your own thread about so its not destroying this one.

Have the same mindframe, except 400k at 30. I think I've been counting on a more conservative CAGR of around 4%, which gets you closer to 1.3-1.4mm at age 65, but 7% or 8% inflation adjusted growth rate would of course be great. That being said though, I feel comfortable at this number now because an in house position, even with a paycut compared to big law, probably still has you contributing at least 30k/year into retirement funds, which more than makes up the difference in the next 35 years.

[JusticeChuckleNutz]

They way I figure it, I would like about $200,000-$250,000 in investments and another 6 months in emergency savings/down payment for a house around the time I am 30 before I would be financially comfortable leaving.

According to this link https://dqydj.com/sp-500-return-calculator/, in the past 35 years the market has returned 8.5% adjusted for inflation and after reinvesting dividends. (That's actually just the S&P500, but the Dow Jones is in a similar range.)

Assuming that repeats, I could just sit on my $200-$250,000 lump sump and retire at 65 with around $3.5 million-$4.3 million in today's dollars. According to the Trinity Study https://en.wikipedia.org/wiki/Trinity_study, you can withdrawal 4% of your investments into perpetuity in most scenarios (i.e. as long as you don't start your retirement on top of a bubble). That equates to about $140,000-$172,000 per year in retirement in today's dollars. That's most likely way too much, so I would just lower my withdrawal rate to 3.5% or so to make sure the money doesn't run out.

That's not to say I will stop investing once I reach this goal or leave big law; I will most likely just start diverting more money to my eventual childrens' education fund, which I see as one of the other upcoming big lump payments which could benefit from compound growth. Although the shorter time horizon means that the making money in the market is more uncertain, I figure that the crazy tax benefits from a 529 plan should at least make up for some of that.

This is exactly to the numbers I had in mind as well. Granted, my timeline age-wise will be a bit behind yours because I am a bit older. As long as the market maintains its historical average, I would feel comfortable leaving to in-house/gov with that amount.

Also, the rest of y'all have ruined this thread. I found the content re people's "walk away" numbers and their reasoning interesting/useful, but I had to wade through your pissing contest on renting vs. buying a home. Start your own thread about so its not destroying this one.

Have the same mindframe, except 400k at 30. I think I've been counting on a more conservative CAGR of around 4%, which gets you closer to 1.3-1.4mm at age 65, but 7% or 8% inflation adjusted growth rate would of course be great. That being said though, I feel comfortable at this number now because an in house position, even with a paycut compared to big law, probably still has you contributing at least 30k/year into retirement funds, which more than makes up the difference in the next 35 years.

Completely agree with your point concerning still being able to contribute that amount into retirement funds once in-house. The 400K at 30 seems a bit high though. Even assuming you are K-JD, you would have to have like zero fixed costs, low COL, and no loans to get close to that number.

[nealric]

Also, just to take the counter-argument to the logical conclusion here, it seems that people would argue that people should pretty much always rent and not buy, because expected returns on the stock market are always higher. Do you agree?

The NYT has a pretty good rent vs buy calculator:

https://www.nytimes.com/interactive/201 ... lator.html

You can plug in all of your assumptions based on various return scenarios for housing and the market. The specific rental market can have a big impact. But keep in mind that housing is also a consumption choice. There are intangible benefits of owning that you can't get from renting. The owner can't decide to force you to move because he wasn't to sell the place, you can renovate the house exactly as you want, your monthly payments are less likely to substantially change, and the housing stock is often different (higher end single family homes rarely go for rent).

[Anonymous User]

Have the same mindframe, except 400k at 30. I think I've been counting on a more conservative CAGR of around 4%, which gets you closer to 1.3-1.4mm at age 65, but 7% or 8% inflation adjusted growth rate would of course be great. That being said though, I feel comfortable at this number now because an in house position, even with a paycut compared to big law, probably still has you contributing at least 30k/year into retirement funds, which more than makes up the difference in the next 35 years.

Completely agree with your point concerning still being able to contribute that amount into retirement funds once in-house. The 400K at 30 seems a bit high though. Even assuming you are K-JD, you would have to have like zero fixed costs, low COL, and no loans to get close to that number.

Pretty much. Not K-JD but saving 50% of gross income since I started big law because no loans and low fixed costs has gotten me to the $400k mark about 4 months past my 30th bday. Going in house next month.

[JusticeChuckleNutz]

Have the same mindframe, except 400k at 30. I think I've been counting on a more conservative CAGR of around 4%, which gets you closer to 1.3-1.4mm at age 65, but 7% or 8% inflation adjusted growth rate would of course be great. That being said though, I feel comfortable at this number now because an in house position, even with a paycut compared to big law, probably still has you contributing at least 30k/year into retirement funds, which more than makes up the difference in the next 35 years.

Completely agree with your point concerning still being able to contribute that amount into retirement funds once in-house. The 400K at 30 seems a bit high though. Even assuming you are K-JD, you would have to have like zero fixed costs, low COL, and no loans to get close to that number.

Pretty much. Not K-JD but saving 50% of gross income since I started big law because no loans and low fixed costs has gotten me to the $400k mark about 4 months past my 30th bday. Going in house next month.

Damn. Good on you. That is impressive -- Some serious discipline. How many years in Biglaw did that take you?

[Anonymous User]

Damn. Good on you. That is impressive -- Some serious discipline. How many years in Biglaw did that take you?

Class of 2017. Started with about 35k of cash. Didn't think it was too bad especially with the crazy market gains last year. Main sacrifice is I have quite a commute and roommates but it keeps rent down to $1100. I'm not naturally a big spender but still take multiple vacations a year and go out drinking on weekends etc. (lol will get beer or well drinks though).

[Anonymous User]

I'm class of 2018 and I hope to have about 300k at 30 (27 now). My rent is unfortunately very high (~3k) since I place a premium on being close to the office.

I try my best to save on other areas of my life so I think 300k by 30 is doable unless the market tanks but if that happens I will likely prolong my time in Biglaw.

[dabigchina]

It is terrible advice to tell people that the market is a one-way bet and that historical average returns can be expected at all times for any time period. 1987 is a nice cherry-pick by you that assumes that someone can time the bottom of the market, which is extremely difficult. Try starting with 2000 to 2010 (assuming a 10-year holding period on my parent which is more likely) and tell me what the numbers are then.

To be fair, you're basically saying real estate is a one-way leveraged bet. Try looking at real estate returns for someone who bought a house in 2006 and needed to relocate for a job in 2011.

It's not a one-way bet but is a less volatile asset and the biggest busts occurred out west mostly. There is a structural imbalance in supply and demand for real estate in desirable, densely populated areas (superstar cities) that keeps a floor under prices, especially in DC which is more immune to recessions.

Right, I don't think housing prices are as volatile as the stock market. However, because the investment is leveraged, any losses that do occur are amplified. If you are underwater, you will need to come up with the cash to pay off your mortgage after you sell your house. If you let the bank foreclose, your credit will be busted (I assume, not an expert in bankruptcy).

Re: renting out - it sounds good on paper, but it's a pain in the ass in real life, as you have to deal with tenants - not to mention if the economy slows down, rents will also go down. If that happens, you're looking at receiving rent that doesn't cover property taxes, maintenance, and your mortgage.

DC might be a good investment because of the federal government (unclear, because nobody can predict the future), but in general, owning a home isn't the best way to accumulate wealth.

[Anonymous User]

I just paid off the last of my student loans this morning. Made one big lump-sum payment since I couldn't stand the thought of having them for another minute and letting them dictate my life. Went from a -$255,000 net worth when I graduated in 2014 to +$355,000 today, with liquid investments equaling about $150,000 ($90,000 in cash - I hate my job - so always needed a large cash fuck you fund) and retirement investments equaling about $175,000.

I moved from a major city (LA/SF/NYC) to a much LCOL market in a small city that still has a few Amlaw firms. While we like it here and bought a house, the in-house market is lacking and I'm getting really burnt out with being a corporate firm lawyer, so we will likely end up moving to a bigger city (either back to LA/SF/NYC or maybe a place like Seattle or Denver). Either way, we plan on keeping out house and renting it out since the mortgage is only $1,500 a month and we bought the house as a little bit of a fixer-upper/investment.

Once I get my bonus next month, I'll be actively looking to finally jump ship out of the law firm life. First time in about 9 years I feel good about myself.

[JusticeChuckleNutz]

I just paid off the last of my student loans this morning. Made one big lump-sum payment since I couldn't stand the thought of having them for another minute and letting them dictate my life. Went from a -$255,000 net worth when I graduated in 2014 to +$355,000 today, with liquid investments equaling about $150,000 ($90,000 in cash - I hate my job - so always needed a large cash fuck you fund) and retirement investments equaling about $175,000.

I moved from a major city (LA/SF/NYC) to a much LCOL market in a small city that still has a few Amlaw firms. While we like it here and bought a house, the in-house market is lacking and I'm getting really burnt out with being a corporate firm lawyer, so we will likely end up moving to a bigger city (either back to LA/SF/NYC or maybe a place like Seattle or Denver). Either way, we plan on keeping out house and renting it out since the mortgage is only $1,500 a month and we bought the house as a little bit of a fixer-upper/investment.

Once I get my bonus next month, I'll be actively looking to finally jump ship out of the law firm life. First time in about 9 years I feel good about myself.

Congratulations! This is motivating af. Did you refinance your loans? If so, at what point of your BL career?

[Anonymous User]

I just paid off the last of my student loans this morning. Made one big lump-sum payment since I couldn't stand the thought of having them for another minute and letting them dictate my life. Went from a -$255,000 net worth when I graduated in 2014 to +$355,000 today, with liquid investments equaling about $150,000 ($90,000 in cash - I hate my job - so always needed a large cash fuck you fund) and retirement investments equaling about $175,000.

I moved from a major city (LA/SF/NYC) to a much LCOL market in a small city that still has a few Amlaw firms. While we like it here and bought a house, the in-house market is lacking and I'm getting really burnt out with being a corporate firm lawyer, so we will likely end up moving to a bigger city (either back to LA/SF/NYC or maybe a place like Seattle or Denver). Either way, we plan on keeping out house and renting it out since the mortgage is only $1,500 a month and we bought the house as a little bit of a fixer-upper/investment.

Once I get my bonus next month, I'll be actively looking to finally jump ship out of the law firm life. First time in about 9 years I feel good about myself.

Congratulations! This is motivating af. Did you refinance your loans? If so, at what point of your BL career?

I refinanced my loans about 5 different times. When I started biglaw I refinanced about $160,000 of loans and kept the rest government and paid the refinanced loans down fast since they didn't have the government protections if I lost my job. As I chopped down the debt, I refinanced more and more until I had about $160,000 left at 1.95% for 5 years. I refinanced one more time when I thought I was going to quit my job due to stress and got it to 4.1% for 15 years when I had about $135,000 left. Since then, I've just either paid minimums to stack cash or paid massive principal payments when I felt like it.

The goal this year was to get debt free by 12/31/2020, but my job has had me feeling pretty down and stagnant lately and I decided I needed to really start living life for me and not my debt, so a few days ago I transferred like $40,000 from my HY savings account and made the final payment this morning.

[PeanutsNJam]

People hitting 400k now, on the tail of the incredible 2011-2018 economic growth (I guess you can include 2019 too), does not mean people starting biglaw today are going to be able to hit 400k in even 4 or 5 years.

Historical averages are over much longer periods of time. I think treating taxable investment accounts as "highly liquid" is a huge mistake, as if you want to really bank on ~7% return, you have to be looking at a 15+ year timeline. I suppose you can time your withdrawals when the market is up so you're not losing money, but the only withdrawals from your taxable investment accounts should be for major purchases, like 6 fig purchases (like a home), or early retirement.

Your income should always be able to cover your living and leisure costs anyway, and you should always have a highly liquid HYSA emergency account in case of disaster, so imo, taxable investment are basically as illiquid to me as real estate would be.

[AVBucks4239]

Also, just to take the counter-argument to the logical conclusion here, it seems that people would argue that people should pretty much always rent and not buy, because expected returns on the stock market are always higher. Do you agree?

I'm not at all saying you should rent instead of buy. I own a house.

I'm saying that, if you are considering leaving a job or relocating, or "bouncing" from big law (as this thread title put it), you should not dump extra equity into a house because you are better off having those funds be far more liquid.

Sorry that this is dove-tailing the thread, but I am trying to make my point in the context of this thread -- how much to save, and how to save, before you move on from big law. And there are people on here talking about doing 15 year mortgages instead of 30, and renting out apartments in HCOL areas, and on and on; and it's just generally horrible advice in the context of this thread.

You want to start a real estate investing thread? Go right ahead. But these recommendations were made squarely regarding making financial moves that are extremely counter-intuitive to what somebody should be doing if they are considering leaving a big law job.

[LaLiLuLeLo]

Yeah I want to take advantage of the firms’s private bank mortgages before I leave but it’s kind of hard to know what I can afford if my future income is a big question mark.

[nealric]

People hitting 400k now, on the tail of the incredible 2011-2018 economic growth (I guess you can include 2019 too), does not mean people starting biglaw today are going to be able to hit 400k in even 4 or 5 years.

Historical averages are over much longer periods of time. I think treating taxable investment accounts as "highly liquid" is a huge mistake, as if you want to really bank on ~7% return, you have to be looking at a 15+ year timeline. I suppose you can time your withdrawals when the market is up so you're not losing money, but the only withdrawals from your taxable investment accounts should be for major purchases, like 6 fig purchases (like a home), or early retirement.

Your income should always be able to cover your living and leisure costs anyway, and you should always have a highly liquid HYSA emergency account in case of disaster, so imo, taxable investment are basically as illiquid to me as real estate would be.

There's really no way to be sure of what the market in 4-5 years will do. There were lots of commentators (including very well respected ones) predicting the end of the bull run 4-5 years ago as well. But I'm very much of the "random walk" mindset as far as investment returns are concerned. Of course there's no question that one shouldn't count on the returns of the last 4-5 years.

As far as liquidity: I think your post is confusing liquidity and volatility. If I have $400k in Tesla stock in a taxable account, my investment is completely liquid. I could cash out on a whim in 2 minutes. But the investment is very volatile, in the sense that it could go up or down by $50k in a single day. By contrast, a house is a very illiquid asset even though it's not that volatile in most cases. This is a particular sore spot for me as I've been trying to sell my old house for 6 months now while paying two mortgages

It's true that money in a volatile investment is not money you should rely on for a rainy day. Everyone should have an asset allocation that has a risk level they are comfortable with. It does you no good to be all in on equity if a 20% fluctuation is going to make you panic sell- if that's you, then you need a much more conservative portfolio.

[Anonymous User]

7th year. Spent two years clerking where I neither saved money nor paid off full boat loans. Leaving in a few months with probably about $375,000 in investments/401(k).

I would not have lasted til 7th year but for two years clerking. Those years ended up being a blessing because I realized my biglaw income at a higher level of seniority (and stayed in the biglaw racket through raises, summer bonuses, etc.).

The money gets so much better the more senior you get, it does create an incentive to try and last til 5th, 6th year. I currently make well more than double what a 1st year made when I started, thanks to 190k scale.

[PeanutsNJam]

7th year. Spent two years clerking where I neither saved money nor paid off full boat loans. Leaving in a few months with probably about $375,000 in investments/401(k).

I would not have lasted til 7th year but for two years clerking. Those years ended up being a blessing because I realized my biglaw income at a higher level of seniority (and stayed in the biglaw racket through raises, summer bonuses, etc.).

The money gets so much better the more senior you get, it does create an incentive to try and last til 5th, 6th year. I currently make well more than double what a 1st year made when I started, thanks to 190k scale.

My understanding is that compensation spikes 4th year and on because that's when you become really marketable.

[LaLiLuLeLo]

3rd year to 4th year Is the biggest jump in bonus (for end of 3rd year) and salary (increase from 3rd to 4th)

[AVBucks4239]

People hitting 400k now, on the tail of the incredible 2011-2018 economic growth (I guess you can include 2019 too), does not mean people starting biglaw today are going to be able to hit 400k in even 4 or 5 years.

Historical averages are over much longer periods of time. I think treating taxable investment accounts as "highly liquid" is a huge mistake, as if you want to really bank on ~7% return, you have to be looking at a 15+ year timeline. I suppose you can time your withdrawals when the market is up so you're not losing money, but the only withdrawals from your taxable investment accounts should be for major purchases, like 6 fig purchases (like a home), or early retirement.

Your income should always be able to cover your living and leisure costs anyway, and you should always have a highly liquid HYSA emergency account in case of disaster, so imo, taxable investment are basically as illiquid to me as real estate would be.

There's really no way to be sure of what the market in 4-5 years will do. There were lots of commentators (including very well respected ones) predicting the end of the bull run 4-5 years ago as well. But I'm very much of the "random walk" mindset as far as investment returns are concerned. Of course there's no question that one shouldn't count on the returns of the last 4-5 years.

As far as liquidity: I think your post is confusing liquidity and volatility. If I have $400k in Tesla stock in a taxable account, my investment is completely liquid. I could cash out on a whim in 2 minutes. But the investment is very volatile, in the sense that it could go up or down by $50k in a single day. By contrast, a house is a very illiquid asset even though it's not that volatile in most cases. This is a particular sore spot for me as I've been trying to sell my old house for 6 months now while paying two mortgages

It's true that money in a volatile investment is not money you should rely on for a rainy day. Everyone should have an asset allocation that has a risk level they are comfortable with. It does you no good to be all in on equity if a 20% fluctuation is going to make you panic sell- if that's you, then you need a much more conservative portfolio.

Well said.

[stoopkid13]

Yeah I want to take advantage of the firms’s private bank mortgages before I leave but it’s kind of hard to know what I can afford if my future income is a big question mark.

I never looked into it, but are private bank mortgages that advantageous?