In the previous post, we discussed how most college students really deep down want a personal balance of four things - 1) Money, 2) Job Security, 3) Appealing Job, and 4) Free Time. College students often become potential law students when they come to the belief that "working as a lawyer" is a way to achieve these four factors - and law school is the modality to obtain the state of "working as a lawyer." However, the potential law student's evaluation of the balance of the four factors is often flawed because they are typically only able to get solid data with regard to the Money factor and the students often fill in self-serving "soft data" for the rest of the factors to justify the hard data Money analysis. We are going to take a look at each of the four factors that students really want and then compare them to what law school and a career as a lawyer can actually provide at this time. In this post, we will look at the Money factor.
First, the discussion below is going to be in terms of law school and a career as a lawyer NOW. Not 5, 10, or 25 years ago. It's not relevant that you are a senior attorney and have enjoyed your career. Your law school and legal career experience will not be anywhere close to that a person considering law school today will go through. The supply and demand is mismatched more than it has ever been (See NALP) and law school costs more in real dollar terms than at any time in history - typically several multiples more.
Now let's look at the first factor:
There are some people who go to law school and get high-paying offers - however, it's really only about 5% of law students, and a number of those are going to be due to family connections. A one-in-20 "bet-your-life" chance is not very good odds. Some law students object to this being portrayed as pure statistics and believe that they will be one of the ones that will be in the 5% because they are so darn good. Ummm... sorry, but 100% of the potential law students think that about themselves and there is really nothing special about you, pumpkin.
According to NALP, the average salary of all law school graduates who reported full-time employment was $63K - however, only about 50% were employed full time. (You may notice that this number differs from the "employment rates" reported by law schools. That's because they count part-time and temporary employees in their numbers - they "massage" them or "lie".) Consequently, if we just want to look at the statistics, your risk-adjusted salary after law school is $63K*50%=$31.5K/year. You will be paying in $200K and your risk-adjusted outcome is pretty bad. It's probably a decrease from your risk-adjusted salary for most college majors.
Also, most of the 5% of high-paying jobs go to those with a corporate or IP background. If you don't have such a background, then your odds are even worse.
Further, even if you start making good money, there is no guarantee that it will continue - associates get fired or burn out, firms dissolve, the legal market itself may change.
If you are not already wealthy, then law school will cost you $200K - at an interest rate of maybe 8% once you consider federal and private loans. That means that you will have to pay $16K each year in interest before you even touch principle. Also - because you make $160K, your combined federal and state tax rate will be high - let's say 35-40%. That means you need $23-24K in pre-tax income each year just to pay THE INTEREST on your loans. Suddenly your big salary does not look so high any more.
In fact, even for the associates who end up in the top 5%, it often becomes a race between whether they will be able to pay off their students loans or "burn out" first. Considering that it will take about 8 years to pay off the $200K in loans and 50-66% of new associates leave their law firms by then, even most of the "winning 5%" don't actually end up winning.
I know that sometimes astronomical salaries are reported for some law firm partners. I know that they excite your greed and you think that you will achieve the same salary. However, you really have to consider the odds. According to the ABA, there are about 1.1M lawyers practicing in the country today - or about 800K according to the Department of Labor (DOL). Further, according to the DOL, in May 2008 the median annual wage for lawyers was $110,590. Further, the middle half of the occupation earned between $74,980 and $163,320.
That means that 75% of all practicing lawyers make less than $163K/year. Keep in mind this includes those who may have been practicing for decades. Also keep in mind survivorship bias - those who could not make a living at law have dropped out of the distribution and only the top earners remain.
So where do those astronomical salaries come from? Well, in some cases they were never there to begin with. That is, I have seen lists that purport to show "profits per partner (PPP)" with the implication that the PPP is what the partners take home. However, for some lists, the PPP is actually just the total firm revenue divided by the number of partners. That's not a very helpful metric because it doesn't take into account rent, associate salaries, staff salaries, and a whole bunch of other costs. Frankly, even an extremely high $1.5M in firm revenue per partner may translate into median partner take-home in the $300-$400K range. That's still a lot of money, but it's "comfortable life in the suburbs" money, not "sail my yacht around the world" money.
Another thing to consider is the difference between average partner compensation and median partner compensation. At most firms, there are a small number of super-rainmakers that produce the bulk of the firm's billings. These guys are super-salesmen and have usually also gotten really lucky as well. In a law firm, when you bring in work, everyone who works on your work has a percentage of their billings directed to you. Consequently, these super-rainmakers do real well. However, their compensation is by no means reflective of the median partner compensation.
For example, according to this article, the average partner in a large law firm in the US makes $640K/year. However, that's the average, not the median. Based on my knowledge of several firms, this average is skewed considerably higher by the presence of the few super-rainmakers. In reality, I would say that the median salary for a partner in a large law firm is probably in the $300-$400K range averaged over the US. (Obviously high-cost areas like NY will be a little higher, but probably not more than $500K on average - and it will be more than eaten up by the higher cost of living.) That's still a lot of money, but after 40% to taxes, even $400K becomes $240K - not millions.
Out of the 1.1M lawyers that the ABA reports, I would be very, very surprised if more than 1% brought home $1M or more (about 11,000 lawyers). Actually, I would be more comfortable with an estimate of 0.5% (about 5,500 lawyers). 5500 - out of 1.1M practicing - or maybe 1.75M that went to law school. Vanishingly small odds. The rest of it is just "salary porn" and really does not reflect reality.
The bottom line is - law school is not going to provide you with the money that you fantasize it will.
So what do you do instead?
Well, that's really going to depend on you. You remember how I mentioned in the first article that people get too hung up on the money metric and ignore their other 3 factors? Well, you really need to take some time out and evaluate your strengths and what is going to be a good fit. Every person has their own strengths and weaknesses - and their own balance. That being said, here are some things that some people I have met should have done rather than go to law school:
1) Get an engineering degree/go to engineering grad school/stay working in engineering
Why? No 200K in loans, grad school is often free, hiring percentages are much greater than law school, and the lifestyle is a lot easier. In fact, you may very well have a higher net worth over your career as an engineer than a lawyer. Figure a 40 year career - the engineer is earning for the first 3 years while the lawyer is just accumulating debt. At the lawyer's graduation, the engineer has been saving for 3 years while the lawyer (even if lucky enough to find a job) has $200K in debt. Also keep in mind that the average starting engineering salary is around 60-70K with 90%-ish employment while the average law school starting salary is $63K with 50% employment. I am not saying that engineers never have a hard time finding a job, but the odds are a lot better than law school.
Frankly, the average lawyer will likely never catch the average engineer in terms of net worth. Further, the average 1 in 20 "winning" lawyer who gets that 160K will probably not catch up to the engineer's net worth for 10 years or more. A three year head start, no 200K in debt, and less taxes are very powerful. Keep in mind also that 50%-66% of "winners" drop out before year 8. Consequently, even most of those who "win" at law school end up losing to the engineer.
2) Go to medical school
There is even more debt and a longer learning time, but the AMA manages the supply and demand better - you don't have 50% of new doctors being unemployed. Compared to the engineer, the doctor is likely to have an even longer catch-up time, figure 15-20 years, but placement seems to be a lot better for doctors. Sure, there are a large percentage that transition out of trauma, but they usually don't have to transition out of the practice entirely. Also, there are certainly unemployed doctors, but again we are going with the odds.
According to the DOL (that gave us the statistics above that the median wage for lawyers was $110,590), the median wage for physicians practicing primary care is $186,044, and physicians practicing in medical specialties earned total median annual compensation of $339,738. Employment is also expected to grow "much faster than the average" for doctors - as compared to "competition will be keen" for lawyers.
3) Go for business, especially finance and accounting
Accounting has a reputation of being dull - and it sometimes is at the low levels. However, that's good for accountants because 1) it keeps people out of the major so the supply and demand is better, and 2) you can't really be a CFO without an accounting (or finance) degree - and there are a LOT of companies needing CFOs. Being a CFO is not usually thought of as dull by college students, but somehow the accounting degree that enables the person to be the CFO is thought to be dull and lead to only a dull life.
Finance is also good. If for nothing else, it may teach you the ridiculousness of spending $200K to achieve an outcome that gives you on average a salary of $31.5K/year.
4) If still in undergrad, make course corrections
It's time to re-think the english, ploy-sci, or psychology degree. Look to engineering, bio/chem pre-med, or business - especially finance or accounting. "But I don't like math - Waahhh!" Well, then get used to not making much and having few opportunities. You are making decisions that are going to impact your life here. I would advise you to move away from "playtime", "doing what I love", "but basketry is my passion" - at least as a career. They make fine hobbies. Instead, focus more on what skills you want to have that you can put to use for the long term without going crazy and that people will pay you for.
If you have to, take an extra year or two of undergrad to graduate with a valuable degree. The cost of the extra year or two will be much less than the cost of you trying to make your non-marketable degree into something of value by going to law school or something else. There's no prize for finishing two years early with a worthless degree.
5) If employed, consider incremental changes instead
Recognize that the average outcome for law school is pretty bad. Further, even the "winning" 5% often don't win long-term. Further, even if they make partner, they usually don't pull down the numbers that are reported. Some do, but a vanishingly small percentage.
I can understand the dissatisfaction that can creep in from the day-to-day grind and how your wanting to "just break out" may lead you to put more positive emotional weight into the potential of going to law school. However, I would recommend a safer, more incremental transition. Additionally, incremental transitions often pay you back with relatively little cost and risk. For example, your employer may be willing to pay for more training. Alternatively, most companies will allow you to take on an additional role that may lead to you transitioning into that role.
For example, if you like the money aspect of law, then maybe try to start working with your company's sales team. Frankly, even if you went to law school, you won't make the big bucks unless you are a sales superstar. If you find you don't like sales, then you can cross big firm partner off of your list. If you do like sales, then you may be able to make more in sales than you actually would by going to law school.
In the next posts, we will take a look at the other three factors.