By Joshua Holt, Esq., Guest Writer
The White Coat Investor became a millionaire by the age of 38, about seven years out of residency with an average annual income of less than $180K. The parallels between this and the legal partnership track at the country’s largest law firms is pretty close to spot on, although you’ll make a little more money on average than WCI (good) but you’ll be doing it in a much higher cost-of-living locale (bad).
So where are all the millionaire legal associates? I’m not sure, but maybe a few will send me an email after reading this article. What I do know is that it’s perfectly possible to accumulate more than a million dollars before you’re up for partnership at your firm. Here’s the back-of-the-envelope way to get that done.
Legal Compensation
First, if you’re not familiar with legal compensation at the nation’s largest law firms (“Biglaw”), it’s amazingly transparent. All associates are paid along a standard Biglaw salary scale based on seniority. The Biglaw salary scale moves around from time-to-time. The latest shift in the industry occurred in the middle of 2016. We’re likely to see the same salary structure for the foreseeable future, which breaks down like this:
- 1st year – $180,000 + $15,000 (bonus)
- 2nd year – $190,000 + $25,000 (bonus)
- 3rd year – $210,000 + $50,000 (bonus)
- 4th year – $235,000 + $65,000 (bonus)
- 5th year – $260,000 + $80,000 (bonus)
- 6th year – $280,000 + $90,000 (bonus)
- 7th year – $300,000 + $100,000 (bonus)
- 8th year – $315,000 + $100,000 (bonus)
The good thing about transparent salaries is that it makes it very easy to discuss strategies such as budgeting and saving among lawyers working in Biglaw. Unfortunately, only a sliver of lawyers end up with “Biglaw” compensation. The vast majority of the legal workforce— including those that are busy prosecuting criminals—earn much less. This quirk in the industry is reflected in what’s called the bimodal salary distribution curve, a phenomenon where starting salaries are clustered around two mountain peaks.
Getting to $1 Million as a Lawyer
If you’re making $180,000 as your starting salary in law, chances are good that you’re living in a high cost-of-living city like NYC or San Francisco. That will make it tougher—but not impossible—to accumulate over $1 million before you become eligible for partnership, typically during your 8th year as an associate.
As I’ve written about previously, a modest first-year associate budget allows for almost $69K in savings your first year. That’s even accounting for punishing NY state and city taxes and the reality that you’ll be spending a lot of your time unwinding at bars and restaurants. A frugal lawyer could do much better. Heck, I’ve even accounted for a $2,500 monthly rent. If you split a place with roommates much closer to work, you can save another $12K and probably be happier for it thanks to the companionship of living with people.
The key, of course, is starting your career on the best foot possible by hitting that $69K target in your first year. After that, if you can hold your lifestyle inflation in check during the associate years, you’ll have nearly $1.3 million after your 8th year. My calculations assume a nominal 7% investment growth each year.
Of course that’s napkin math and I assume there will be a few people who think saving so much isn’t possible (although probably not a lot of readers of this site).
Objection!
Let me address some of the criticisms to get them out of the way:
#1 You Aren’t Accounting for Any Lifestyle Inflation
True. I’m presenting the numbers and it’s up to readers to decide if the lifestyle inflation trade-off is worth it. If you’re interested in saving over $1 million, you could start off living more frugally (i.e., living with roommates) and eventually move into your own place after 3 years. You could also allow for some modest lifestyle inflation and end up with closer to $1 million. The point is to be conscious about the decision.
#2 What About Getting Married? Kids? This Would Never Work Once “Real Life” Starts Happening
There aren’t too many stay-at-home spouses in NYC. If you get married, you’ll likely have an even higher income plus the benefit of a permanent roommate, thus allowing you to save even more. Once kids enter the picture, it might be tough to save so much. But, if you’re a “straight through” lawyer, you might start working at a firm at 26. It’s not unreasonable to think you might not have kids until your early 30s, at which point you’ll have done the bulk of the savings anyway. If you do have kids, I’m told they are expensive and not much good for your taxes at a certain point. Adjust these calculations downward accordingly.
#3 Your Tax Calculations Are Wrong
These are my calculations and are based fairly closely on my actual taxable numbers. Your situation will be different, so run your own numbers and see. When you put the numbers in the calculator, make sure you’re backing out things like 401(k) and HSA contributions as well as accounting for large itemized deductions thanks to a hefty state and city tax bill.
#4 A 7% Nominal Growth Rate Is Outrageous
Fine. Run the calculations with your own numbers.
#5 People in Biglaw Burn Out in 2–3 years, So This Won’t Work
Burnout is common in the industry and many people leave after 2–3 years. From my own anecdotal experience, after 5 years barely anyone from my class year was still around. However, if you’re going to walk down a path, it might as well be this path until such time as you exit the path.
#6 I Have Student Loans
This is the biggest impediment to having the full million dollars before you become partner, but it won’t stop you from saving $1 million even if your net worth ends up being a little lower than $1 million. The White Coat Investor has been telling us for years to get a lower interest rate on your student loan. After refinancing, I’d first fill up the tax-advantaged retirement accounts and then go “nuclear” on the loans. You should be able to pay them off pretty quickly, especially if you decide to take a more frugal approach to your first three years in Biglaw.
The Benefits of Early Millionaire Status
Now that we’ve discussed and, I hope, answered why this plan wouldn’t work, let me tell you a few of the benefits.
The first is obviously that you’ll end up with $1+ million before you ever become partner. It makes the annual reviews a lot easier (the time when you could be told that “it’s not working out”) when you’re not relying on the paycheck.
Second, even if you exit Biglaw and step off this 8-year path, you’ll be in a great position to do so. The third year is a critical time for most associates. Do you want to be the associate in the nice 1 bedroom that still owes $100K on his loans or do you want to be the associate with no debt, a little savings and a low-overhead lifestyle? The first associate feels stressed and obligated to push themselves through the next couple of years. The second associate laterals to go work for Spotify. Give yourself the option to go work for Spotify, even if you never take it.
Third, as every WCI reader should know, it’s really not that hard to “live as a law student” for the first few years out of law school. You’re already used to being poor and living with roommates. You won’t be able to control the fact that your peers are now spending time at fancy restaurants and bars, but you can control whether you’re spending a lot on rent and cars. Take care of those big ticket items and a lot of other little things will fall into place.
If you’re a millionaire associate or on the path to millionaire status, let's hear from you!
What do you think? Do you think it's reasonable for a Big Law attorney to be a millionaire before making partner? Why or why not? Comment below!
[Editor's Note: I've been begging for more guest posts from attorneys for years, but rarely get them. This one is from attorney and blogger Joshua Holt (now best known as The BigLaw Investor). For the attorneys (and even the doctors) who are reading this, be sure to check out Josh's blog too. This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]
This should be required reading not just for lawyers, but for everyone. I followed a nearly identical path on a fraction of the comp and had proportional results.
After a decade as a plaintiff’s side litigation paralegal in SF out of undergrad (the pay is about 1/4 BigLaw 1st year comp), I’d accumulated a half million bucks AFTER self-funding a part time MBA at a top-tier program and graduating debt free a couple years ago.
Granted, I made some lucky (smart? Nah, lucky) trades going into the financial crisis and then had a generational bull market at my back and took dozens of moonlighting gigs, which added over 10% to my salary in good years.
IT CAN (AND SHOULD) BE DONE!!!
I’m a third year pre-med undergrad who’s seriously considering going to law school. Just to clarify … As a BigLaw associate that laterals over to an in-house job for better hours/less demands, where is the line between those that voluntarily choose to leave and those who are pushed out? If you stick out at the first 3-4 years and are sufficiently competent, hardworking, and want to stay should you still expect to be pushed out by year 8? What % of those that stick out the first few years make it to year 8 and then junior partner?
When you lateral out from BigLaw (for whatever reason) what would the expected starting income and then growth in compensation over the following 10-20 years be?
To get to the very top firms who would typically match the new pay-scales, pay the big bonuses, and have the prestige/name-recognition to help get a better in-house job after leaving BigLaw: would all T-10 schools be a good jumping point, or does it matter even further? To get a job at a firm like Cravath in a major market city like D.C. would Michigan/Virginia be enough or is U-Chicago/Columbia necessary?
How does the degree of competency and ability to bring in work required of an associate to make senior associate, junior partner, equity partner vary within the top Am100? Since more senior associates at the biggest/best firms can make more than the PPP at firms even within the AmLaw200, than could an associate that sticks out it but can’t make partner at a top-earning firm hope to lateral over and in time make partner at a smaller firm (where the PPP might still be an additional several hundred thousand dollars but not in the multiple millions?) … refer to: https://www.law.com/americanlawyer/2018/11/21/partners-at-these-am-law-200-firms-make-less-than-cravath-associates/?slreturn=20181128145728
Thanks!
I’m the guy who posted as “DFAman” back when this thread was first active. Here’s my perspective on Undergrad Student’s questions. I want to add the caveat that, given that I was lucky enough to have been a partner at a very large and profitable (AmLaw 20) law firm, my experience may not be representative of experience at BigLaw firms in general. However, here goes:
“…. where is the line between those that voluntarily choose to leave and those who are pushed out? If you stick out at the first 3-4 years and are sufficiently competent, hardworking, and want to stay should you still expect to be pushed out by year 8? What % of those that stick out the first few years make it to year 8 and then junior partner?”
At my firm, there were occasional cases of associates being pushed out after only a few years due to performance and/or attitude issues, but those clearly were the exception rather than the rule. More often, people left of their own volition because they got tired of the grind and wanted to have a lifestyle that might be more manageable in-house or at a smaller firm. Most associates did not accept positions at my firm believing that they would make partner – it was viewed as a long-shot. Some other top firms, however (e.g. Kirkland), make more people “partner” (not true equity partner) with the understanding that the new “partner” has 3-4 years in that role, after which he or she will either (i) develop into someone who can be made a true equity partner (usually means developing a significant book of business) or (ii) quietly ride off into the sunset by either going in-house or accepting a partnership at a firm with less prestige. At my firm, good quality people who might be unlikely to make partner certainly weren’t pushed out at year 8. They were hugely profitable for the firm at that point, and the firm would love to keep them around a few more years and, for some, might even try to find some “of counsel” or “senior attorney” status to try to keep them longer. In my experience, those people generally did not have difficulty finding other good jobs when they ultimately chose to leave (partnership at smaller law firms or good in-house jobs). Often, people did take some sort of pay cut when they left, but they were generally still making very good money.
“When you lateral out from BigLaw (for whatever reason) what would the expected starting income and then growth in compensation over the following 10-20 years be?”
I can’t place a number on starting income (see my comments above), as this is quite variable. I don’t know enough about growth in compensation for these types of roles to offer any opinion. As compared to a job as a physician, the range of outcomes for someone going into a BigLaw associate position clearly are much, much wider. A few make equity partner and may easily earn 7 figures pretty quickly thereafter (sometimes two or three times the seven figure threshold within 8-10 years of making partner), but most do not become equity partners and therefore do not win that lottery.
“To get to the very top firms who would typically match the new pay-scales, pay the big bonuses, and have the prestige/name-recognition to help get a better in-house job after leaving BigLaw: would all T-10 schools be a good jumping point, or does it matter even further? To get a job at a firm like Cravath in a major market city like D.C. would Michigan/Virginia be enough or is U-Chicago/Columbia necessary?”
Michigan/UVA is enough to get hired by firms/offices at the very high end of the prestige spectrum, but you will have to do quite well in law school to be confident (top 25% or so). Perhaps those firms dip down a bit more at Columbia/Chicago (or maybe NYU), but I don’t think it is clear-cut. If you get into HYS, I think that does make a larger difference. If deciding between Michigan/UVA and Columbia/Chicago, for me personally, it would come down to how much $ you were being offered by the various schools, because schools in that range often will compete aggressively with one another to lure the students that they really want, and I don’t see such a clear-cut career placement advantage at any of those schools. If you are set on DC, UVA does quite well there (as they do with federal judicial clerkships, as compared to most of the other schools short of HYS). If landing at the absolutely most prestigious firm/office is not critical for you, all of those schools should serve you well, at least in today’s economic/hiring environment, to give you a good shot at getting hired by a BigLaw firm at or near the top tier.
“How does the degree of competency and ability to bring in work required of an associate to make senior associate, junior partner, equity partner vary within the top Am100? Since more senior associates at the biggest/best firms can make more than the PPP at firms even within the AmLaw200, than could an associate that sticks out it but can’t make partner at a top-earning firm hope to lateral over and in time make partner at a smaller firm (where the PPP might still be an additional several hundred thousand dollars but not in the multiple millions?)..”
Good senior associates from my firm generally did not have trouble securing either partnerships at smaller firms or comparable in-house positions. Once again, I assume (but do not know from first hand experience) that your mileage may vary when you get beyond the top tier of BigLaw firms.
That’s my two cents, for whatever it’s worth.
I should have added that I’m the same guy who posted as “DFAman” back when this thread was first active.
Hi – thanks so much for the response! I appreciate the insight. I don’t want to beleaguer the point about lateraling out of BigLaw, but for those good senior associates who left, any idea about general ranges? Would hoping to break $250k+ be unreasonable? 300k+? (though it looks like a partner at a smaller firm should be reasonably confident of making 350k+?)
I think $250-$350k is reasonable for 75% of them, but law jobs bring a greater variability of outcome than medicine. I can think of some senior associates who left for in-house positions at private equity firms and who were earning $1mm-plus within a couple of years. A few others probably made low $200s in-house, but generally those were people who were looking to really ratchet down the workload and enhance lifestyle. I have no insight into what people were earning 5 or 10 years after making the jump. As indicated earlier, this is just one person’s experience, so it may be skewed for obvious reasons.
That really helps, thank you! I appreciate your taking the time to respond.
What are your GPA and LSAT score? Tell me that, and I can tell you whether or not you should be concerned with lateral opportunities from AmLaw 20 firms 10+ years from now.
I can tell you that even with two and a half years of pre-med classes bringing down my GPA I am reasonably confident of getting into a T-10 law school, if not at the least a T-14, with one gap year between undergrad and grad school. The same goes for getting into a US med school with one gap year.
I also don’t understand your idea that someone planning to enter a specific professional field shouldn’t find out exactly everything they can about it… 10+ years from now is the minimum someone should think about. Obviously I’m not gonna think to plan a life out based on hypotheticals/speculation several years away, but I’d be dumb not to map out what life could be like 30-40 years from now based on whether I go to law school (what I should’ve been planning from the beginning) or med school (what my own family has pushed me to go into.) If I were in the position my parents were in I wouldn’t think twice about pursuing a career in medicine, especially since they had far fewer opportunities than what they’re giving me. I can tell you at LEAST half the worlds population think about their life within a multi-generational plan, not just a 5 years from now plan.
I’d also remind you that planning out these kinds of hypotheticals in advance is the only reason there are any home-grown US physicians in the first place… Why do you think roughly a fifth of physicians in the US are either first-generation immigrants or directly imported from somewhere else?
I read this as “I have a low GPA.” So if you want to get into a T14 (which tens of thousands of people want to do every year), you’re going to need a very high LSAT score. I think you should focus your energy there first, then we can talk about which law schools you’re likely to be admitted to, which firms might hire you, and which post-firm career opportunities might be available to you. I would also suggest reading the Top Law Schools forum.
FYI, Cravath does not have a DC office.
I hope someone can answer those questions. I don’t think I can answer any of them.
I am a 4th year associate at an AmLaw 20 law firm in Miami. I got married about a year after I graduated from Law School and my wife is an engineer. Since we had to move for my career, she was without steady work for about a year. She is now employed full-time and has re-started her career in a different field.
In that time, we’ve been able to save about 400k (including our savings in our 401(k) accounts), paid off about 120k of student loans and about 20k in other debt (mostly for our car). I think that would put us on track to the 1 million mark at year 8 discussed in the original post.
First thing I would say is that it is definitely doable. We basically save all of my biglaw salary and I don’t feel deprived of anything. Granted, I have a 10-year old TV that my parents gave me when I moved out. But we just watched The Wire for the first time and it was great for that. Project that frugality to other areas of your life and you’ll get the idea. Nevertheless, we did take a 3 week vacation in Europe last year (I billed around 2200 and nobody complained about me taking 3 weeks off). It is definitely harder to do this in NY. So my first financial advise would be to join or transfer to your firm’s Miami or Houston office. You’ll have to do your research about the teams there but it is definitely doable to get stellar training and work on top notch work from such lower cost jurisdictions.
To me, the hardest thing is to keep motivated in light of the constant grind that is biglaw. Make no mistake. It is physically and emotionally difficult. Developing as the quality attorney they demand takes an extremely high percentage of your mental capacity and pushes aside the mental space for lots of other hobbies and even personal relations. It definitely helps if you like the technical aspects of it and the people you work with. Also going against you is that you’ll be in an environment where people will think that you are from Mars if you talk about higher savings and a more fulfilling life that is unrelated to unscrupulous consumption. You’ll just need to block all of that out.
To second some of the comments about making partner, I have obviously not been close to partnership promotions. But I have seen people that are universally regarded as excellent attorneys (both internally and externally) be passed over for promotion. I’ve also heard of equity partners being de-equitized or outright pushed out at other firms (lets call them, credible rumors). So I think it is wise to consider your stay (whether of one or 20 years) in big law as temporary.
Sorry for the long post but hopefully it is insightful for the Jr attorneys reading this. I get jr people asking me about this all the time. If someone has any thoughts about the most favorable distribution of investments between index funds and rental property, that would be very useful for me.
Thanks for sharing your experience.
I think a reasonable stock to real estate mix has a very wide range. I’d say anything from 0-80% in real estate is reasonable. Personally, I’m 60/20/20.