Planning for Retirement as a Business Owner or Healthcare Professional

Jeff Vistica
September 25, 2023

Planning for retirement can be challenging for many, especially for business owners and professionals like dentists. Balancing patient care with the financial demands of a business is already daunting.  When you add the pressure of saving for retirement, it can be very stressful.

Later retirement

According to the American Dental Association, the average retirement age for dentists is 69, which is seven years longer than the average retirement age of Americans in general.

Yet, the typical dentist earns three times more than the average American.

So why do dentists have such a hard time retiring early?

Targets on their back

Ironically, dentists' financial success makes it more difficult for them to retire.  A primary reason is their affluence makes them a target for “product-focused, commission-based salespeople.”  Often, these products don’t serve the dentist's best interest.

While it may seem challenging to find a trustworthy advisor, by following these recommendations, you can narrow the field:

1. Only use advisors who are registered investment advisors (RIAs).  RIAs are required by law to always put your interest first.

2. Limit your selection of RIAs to those who hold any of the following credentials:

  • CFP® (Certified Financial Planner)
  • CPA (Certified Public Accountant)
  • CFA® (Chartered Financial Analyst)

These credentials reflect significant study, passing rigorous examinations, and a commitment to high ethical standards.

3.   When interviewing a potential advisor, ask about their investment philosophy.

Are they focused on low management fee index funds, exchange-traded funds, or passively managed funds?

Will your portfolio be globally diversified?

Do they emphasize ensuring your asset allocation (the division of your portfolio between stocks, bonds, and cash) suits your risk tolerance?

Confirm that they don’t try to pick stock “winners,” time the market, or identify the next “hot” mutual fund.

You have now made the first critical step towards retiring earlier.

Live within your means

You put in long hours to become a dentist.  You’ve finally paid off your school debt and are generating significant revenue.

There’s a temptation to celebrate with extravagant purchases.

Avoid it.

If you got a late start, you should be more aggressive with retirement savings.  The earlier you start saving, the more you will benefit from compounding, which is the increasing value of your money due to the interest earned on both principal and accumulated interest.

How much should you save for retirement?

While the general guideline recommends saving at least 15% of your pre-tax salary, dentists should aim for 20%.

Calculate how much you’ll need in retirement

According to Fidelity, depending on your lifestyle in retirement, you should expect to spend between 55%-80% of your current income annually.

Assemble a team

Your core competence is providing a high level of dental care for your patients.  However, running a dental practice involves administrative functions requiring you to wear many hats, including managerial and accounting responsibilities.

Successful dentists recognize that they can’t do it all.  They staff their office with highly qualified people and compensate them accordingly.  

A critical member of their team is your office manager.  They are vital to every dental practice.  They should be versatile enough to handle patient and staff schedules, organize patient files, coordinate with insurance companies, and recruit new staff.

The value of a competent, professional office manager can’t be overstated.

Other members of your advisory team should include:

  • A Certified Public Accountant who specializes in dental practices;
  • A financial advisor with the qualifications noted above who works extensively with dentists;
  • An estate planning attorney with extensive knowledge in taxation, trusts and estates;
  • A qualified business attorney who has deep knowledge in dental practice management and who can help provide timely counsel on anything from staffing concerns to real estate lease agreement reviews.
  • A dental practice marketing expert.

The role of your financial advisor

Here’s how a qualified financial advisor can help you plan for retirement:

Unique financial landscape: Dentists have distinct economic issues compared to other professionals, which include long education periods, significant school debt, practice ownership, and variable income.

A financial advisor with experience serving the dental community will consider these issues when formulating a retirement plan.

Financial goals:  A financial advisor will consider your vision for your practice and retirement, establish clear goals, and create a plan for achieving them.

Debt management: With high student loans and business debts, managing and strategizing repayment is crucial. An advisor can guide consolidation, refinancing, or prioritizing payments.

Investment planning: A financial advisor will assess risk tolerance, investment horizon, and financial goals to recommend appropriate investments. They can also provide insight into tax-efficient investing.

Tax planning: Owning a practice or working as an associate has tax implications. Advisors assist in identifying tax-saving opportunities working with your tax professionals.

Insurance and risk management: From malpractice insurance to disability coverage, a financial advisor will evaluate the potential risks associated with a dentist's profession and recommend appropriate insurance solutions, often in consultation with insurance professionals.

Retirement and succession planning: Whether setting up a 401(k) for a dental practice or advising on IRA contributions, a financial advisor guides the use of retirement accounts.

For those who own their practice, transitioning and potentially selling their business is a significant retirement consideration. Financial advisors can provide counsel on business valuation, finding potential buyers, and ensuring a smooth transition.

Estate planning:  Your financial advisor works with your trusts and estates attorney to ensure your assets are transferred to your heirs according to your wishes and tax-efficiently.

Regular review: The financial landscape, personal goals, and market conditions change. Regular meetings with your financial advisor ensure the plan aligns with your evolving goals.

Empowerment: A professional financial advisor doesn't just provide advice; they educate and empower you to make informed decisions about your finances, even outside of your scheduled advisor meetings.

Final thoughts

Balancing a demanding profession with the intricacies of financial planning can be challenging. You can set a course for a secure and fulfilling retirement with the proper guidance.

A financial advisor is integral, offering specialized advice tailored to dental professionals' unique needs and aspirations.

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