As more and more dentists approach their 50s and 60s, they’re realizing that retirement and practice transition aren’t just theoretical ideas anymore—they’re impending realities that are just around the corner. And while the profession of dentistry has been a great ride for many, fatigue and loss of patience (not patients!) when dealing with staff and others is undeniable. At this stage of the game, everything is just a bit harder than it used to be. Sure, for many dentists this age, practicing would still be fun, but only on a limited basis and without the management headaches.
So why aren’t more senior dentists embracing the idea of retirement and flocking out the door? Because many dentists wonder if they can retire…financially, that is. They wonder if they have enough saved in their retirement plans. They wonder if they really can live comfortably the rest of their life without the daily grind of work. They wonder if they’ll still be able to pay for their daughter’s wedding or help send the grandkids to college. Most of all, they wonder if they’ve made the right investment decisions over the years.
To help ease any fears about retirement you may have, consider the top seven retirement and investment mistakes senior dentists typically make. Avoid these and your chances of a comfortable retirement are much greater.
Mistake #1: Not investing in technology and education.
By the time they reach their 50s, some dentists stop investing in their practice. Why bother, they say. Since they won’t be there to reap the benefits of all the new gadgets and technology, they figure that there’s no point in investing in them. The problem is that patients are becoming more sophisticated. And when they see their dentist not keeping up-to-date with all the new procedures and equipment, they’ll be tempted to leave the practice in favor of a dentist who is more attuned to the needs of today’s patients. Also, remember that you can sell any new devices you purchase, making your practice more valuable to a prospective buyer. The incoming dentist won’t have to invest in the high-tech equipment to bring your practice up to modern standards.
Mistake #2: Not continuing to grow the practice.
As many dentists near retirement age, they stop advertising and marketing for new patients. They believe they can simply “coast” until the day when they hand the keys over to someone else. But realize that when you stop growing your practice and try to just maintain it, nine times out of ten the practice will take a nose dive. Patients sense your air of complacency and feel that there’s a barrier between you and them. So if you’re not continually replenishing your patient base, you’re making it more difficult to sell your practice.
Mistake #3: Making irrational investment choices to make up for past mistakes.
Hot tips, high risk investments, and big real estate deals are not the cure all for failing to plan. Unfortunately, many senior dentists make the mistake of taking what money they have accumulated and putting it all in one big investment. 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.
Mistake #4: Becoming a seminar junky.
Some dentists think there is a “magic formula” that will enable them to sell their practice for double the price that it’s worth. Since many older dentists are trying to maximize the value of their practice to make up for any shortcomings in their retirement plans, a plethora of seminars and workshops exist that promise the “secret” to getting big dollars for your practice. Realize that no magic formula exists, and the only ones getting rich from the workshop secrets are the workshop coordinators and speakers.
Mistake #5: Not carefully selecting an associate or candidate to buy your practice.
Many dentists bring in an associate and do a phased buyout. Unfortunately, some dentists strike a deal with the first person who seems willing, and often, that’s the wrong person to be buying your practice. Before entering an agreement with anyone, you have to make sure the new dentist has the personality, business savvy, and professional skill needed to complete the sale. Think of it like a marriage—you need some degree of compatibility. The last thing you want is for the new dentist to bail out on you two years into the deal, as then you’ll have to start your phased buyout process all over with someone new.
Mistake #6: Not investing in essential insurance.
Many older dentists view their pre-retirement days as the ideal time to drop key insurance policies they have been paying on, namely disability insurance. But realize that now is the time when you’re most likely to become disabled, so don’t drop the insurance and risk losing all you’ve accumulated. Additionally, if you haven’t already done so, now is the time to obtain long-term care insurance. Becoming disabled or needing to go into a long-term care facility can quickly derail an otherwise finely tuned investment strategy.
Mistake #7: Selling too soon.
If you really do need to accumulate some more funds before you retire, simply working for two additional years can significantly boost your assets. How can such a short time period help? First, it’s two less years that you’re consuming from your nest egg. Second, it’s two more years for you to contribute. The power of compounding during those two years can bale you out if you’re in trouble or simply add the peace of mind you need to retire comfortably. For example, Dr. Jones considered retiring at age 63 and would need to draw 5% per year out of his retirement plan. If instead he worked just two more years, then started taking 5% per year, by age 70 he would have about 20% more money. The trade off of two years of working for 20% more at age 70 just might be worth it.
Make Your Golden Years Truly Golden
Unlike a corporate job, once you retire from dentistry, it’s nearly impossible to jump back in. So make sure you’re ready for the big life change, both financially and emotionally. That is, in addition to having your nest egg ready, be sure you also focus on developing interests outside of work that can keep your days occupied. Most important, take the time to evaluate your alternatives when you’re in this stage of your life. If you’ve made any of the mentioned mistakes, take the corrective action with your financial planner to fix them. You’ve worked long and hard to build your practice. Make sure you’re able to enjoy the fruits of your labor for many years to come.
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.
