You know who you are…one of the many forty- to fifty-something-year-olds who seem to have it all. You’re a successful dentist, respected by your colleagues and patients, highly-skilled, and enjoying the fruits of the good life. So what’s the problem?
Well, chances are that every now and then you wake up in the middle of the night in a panic. Am I saving enough for my retirement? How much is enough? Can I keep up this pace in my practice? Will I be able to pay for my children’s college? What if I become disabled? What if…?
Sure, when you’re in your successful years of dentistry, you think the success will last forever. But deep down you know you have to think about retirement. After all, no one can work forever. That’s why you need to get serious about your future and not let the fears overwhelm you to the point that you sink your head in the sand, believing that if you ignore the inevitable, it will never happen.
Rest assured that you’re not alone. The majority of mid-career dentists enjoy their success, yet they are hesitant about their future. So in order to realize your retirement goals, be sure to avoid the following seven mistakes.
1. Failing to capitalize off your skills and judgment
Now is the time to make the most of your earnings. Too many mid-career dentists let their practices coast rather than making it something bigger. They’re doing the procedures that the average general dentist would do, but they’re not taking their practice to the next level. Depending on your practice and situation, the next level may mean investing in new technology or getting additional training for performing newer, cutting edge procedures.
Most dentists are very comfortable doing crowns, bridges, fillings, and normal day-to-day procedures. But taking your practice to the next level means doing more cosmetic work. Have the courage to leave the security of what you’ve always done so you can launch off to a bigger game. Get out of your comfort zone so you can reap even greater financial rewards. Those extra earnings will make the difference between financial freedom and financial scarcity at retirement.
2. Thinking that you won’t need to worry about retirement until your late fifties
Many mid-career dentists mistakenly believe that retirement planning is for “old people” and that they need to enjoy their money now while they can. While you definitely should enjoy the fruits of your labor, you also need to start thinking about your retirement sooner rather than later.
Why? Because numbers don’t lie. For example, if you were to start a retirement plan investing $45,000 per year at age 35, assuming an 8 percent yearly return, by age 65 you would have accumulated nearly $5.1 million. But if you were to start investing the same amount at age 45, assuming the same rate of return, by age 65 you would have accumulated less than $2.1 million. That’s a difference of $3 million in the end, with only a $450,000 difference in contribution. So the earlier you start investing, the better.
3. Believing you can make up for past years of investment inactivity with one huge investment win
You’ve heard the stories: “My friend’s cousin’s wife’s sister said she heard this would be the next big thing.” Hot tips, high risk investments, and big real estate deals are not the cure all for failing to plan. Unfortunately, many mid-career dentists make the mistake of taking what money they have accumulated and putting it all in one big investment. But that’s akin to taking your life savings, going to the casino, putting all your money on red-13, and letting it ride. Your chances of success are dismal.
Rather, be willing to accept normal rates of return, and have your investments diversified. When you save on a consistent basis and stay diversified, you’re virtually guaranteed financial independence when you retire.
4. Thinking that your retirement plan and your house are all you need to retire
Having a small retirement plan and the mortgage paid off may have gotten your grandparents through retirement, but times are different now, and you need a much bigger and better strategy to live comfortably in retirement.
Realize that you simply can’t use your house as part of your investment plan because you don’t know how well your house will appreciate. Plus, when you retire, you’ll still need someplace to live, so selling your house and living off the money doesn’t make sense. Finally, the concept of downsizing to a smaller house during retirement rarely happens. More likely than not, you’ll want an even bigger house (on a lake or at the beach) as well as a vacation house someplace else. Therefore, you need to be serious with your retirement plan and not use your house as an investment crutch.
5. Failing to use an outside specialist to guide you through the maze of complex tax and financial issues, or using too many advisors
People who want to “do it all themselves” in terms of financial planning generally spend so much time trying to gain the knowledge base they need that they make huge mistakes along the way. Additionally, they use time that they could have devoted to gaining more education, training their staff, or seeing patients (things that bring them immediate returns) to focus on learning something that isn’t their core area of expertise. It’s much wiser to hire the required help. In the long run, you’ll save both time and money.
On the flip side, some mid-career dentists have so many different advisors that it’s hard to determine which to listen to. When this occurs, each advisor wants to be the lead, and they often contradict each other. If you do want a large team helping you, then you need to choose a lead advisor. Also, make sure everyone wants to work as a team and not against each other because of their egos. The right help is essential; too much help can backfire.
6. Confusing strategies with tactics
A strategy is something long-term, such as achieving overall financial success. A tactic is something that helps you achieve your strategy, such as a tax savings program. Sometimes people focus so much on the tactics that they forget the long-term goal they’re trying to achieve.
A classic case is what happens with life insurance. By its very definition, life insurance is supposed to fill the need of providing funds for your family if you’re no longer there to support them. It’s not meant to be an investment product or tax savings technique. But if you have a strong insurance agent, life insurance can be the answer to all of life’s problems. That’s when you can confuse tactics with strategies.
7. Failing to apply the same tools to planning your financial life that you used to build your practice
When you went to dental school you learned new things and got involved with the profession. You learned that you didn’t have to be a specialist in every area of dentistry and that you could refer patients to others as needed. The same is true with your financial planning. You don’t need to know everything about retirement planning (you can, and should, have specialists to help you), but you do need to be kept “in the loop” and informed of what’s going on.
Remember that when it comes to retirement planning, you can’t just hand over your portfolio to someone and come back 30 years later expecting everything to be done for you. Just as success in dentistry is a collaborative effort between you, your hygienists, your assistants, your office staff, and outside specialists, success in your financial life is collaborative too. Use your team wisely and you will succeed.
From Mid-Career to Golden Years
Having the retirement of your dreams is possible. It simply requires some planning (and a good financial advisor by your side). So as you’re enjoying the rewards of all your hard work today, also plan how you’re going to reward yourself when you retire. By avoiding the seven mistakes highlighted, and doing some pre-planning today, you can experience fewer sleepless nights and a much brighter tomorrow.
Steve Leininger, CPA/PFS is a wealth strategist with Capital Performance Advisors in Walnut Creek, CA. He can be reached at 925-938-5188 or steve@cpacapital.com.
