Dental and Medical Counsel Blog

7 Tips For Planning Your Financial Independence

December 21, 2017
Estate Planning Attorney

Financial independence: it's an important goal for everyone. As a dentist who is in charge of your own practice, you want to be sure that you're taking the necessary steps to plan for financial independence not just during these working years, but during the important years of your retirement. These tips will make it easier for you to reach your retirement goals--and help ensure that you're able to live the lifestyle you want during the golden years of your retirement. 

A million dollars, for example, is not what it used to be. Let’s assume that you have $1 million saved upon retirement but as a result of a medical issue, you need to have in-home or nursing home care at a cost of $250 a day which is a conservative average nationwide. That means that you will be paying $7,604 per month or $91,250 in one year – after only 5 years, you will have spent $456,250 of your $1 million in savings. That is a lot of money, which leads us to our first tip of starting your plan earlier, rather than later.

Start planning as early as possible

When you're fresh out of school, with student loans to contend with and expenses piling up fast as you open your own practice, retirement is the furthest thing from your mind. You have to start your practice before you can retire from it! Savvy dentists whose goal is financial independence throughout their retirement years, however, know that the sooner they start saving for retirement, the more they'll benefit from it. If you're able to start putting money back toward retirement in your late twenties or early thirties, you'll have a much better nest egg to draw from than if you wait until your forties or fifties to start preparing for retirement--not to mention the interest you'll accrue on those savings over twenty or thirty years. Even if you can only put back a little, consistently contributing to your retirement account with every paycheck will put you in a better position to retire on your terms. If you're already in your forties or fifties, it's not too late to start planning, but you'll need to be more aggressive about your savings.

Don't borrow from your retirement

You're ready to open your own practice for the first time, but first, you need a start-up investment. Perhaps your practice has hit hard times and you know that giving yourself a little loan will help give you the boost you need to get through. It's critical, however, that you don't borrow from your retirement in order to reach your other financial goals. Not only will you pay high penalties when you take money out of your retirement account early, you must keep in mind that borrowing from your retirement account is borrowing from your future. Instead, find other ways to raise the capital you need or to reach your goals. 

Take a look at your spending needs

How much money will it really take you to retire? It's important that you consider all of your needs at retirement, including:

  • Your average bills each year, including electricity, food, and other necessities

  • When your mortgage will be paid off versus when you plan to retire

  • How much travel you'd like to do

  • What kind of lifestyle you'd like to live during your retirement

  • Track your expenses now, keeping in mind how they'll change when you're ready to retire. For example, you might spend less money on gas, but your healthcare costs may go up as you reach retirement age. 

  • Check where you are. An evaluation of your current financial status will go a long way toward letting you know what you still need to accomplish to meet your goals. Check out your investments, your savings, and your current retirement contributions. In some cases, you may be relieved to find that you have more in savings than you thought! In other cases, you may find yourself struggling to figure out how you're going to close the gap between your needs and your current financial status. 

  • Get money savvy. Take the time to learn more about things like safe withdrawal rates (typically 4% of your retirement account per year), interest rates, and how you can bring in a steady stream of income during your retirement years without having to keep up with your current "work" pace. Obtain a realistic view of your practice's market value (and where you can expect it to be when you're ready to retire) so you'll have a good understanding of what you can make by selling it. Learn more about investment strategies and how they can help you meet your goal to be financially independent, potentially including early retirement. Dentists often struggle with financial stability. You start out with an expensive education, then have to come up with a large amount of money to buy (or buy into) a practice. Sure, you're a high wage-earner; but you may lack the tools to reach financial independence when you'd like. The right investment strategy and plenty of financial savvy will help you get there sooner. 

  • Design a Plan. Create a plan that will help you fill in the gaps between your current financial status and where you'd like to be by the time you retire. Carefully consider your retirement needs, your current investments, and how that needs to change in order to help you reach financial independence. When do you want to retire? What needs to change with your current income in order to help you reach those goals? Make sure your plan includes:

    • Spending less than you make and investing the rest to design a solid investment portfolio

    • Diversifying your investment plan so that even if one investment doesn't go according to plan, you have other options

    • Deadlines for meeting specific financial goals

    • Your other financial goals, including paying for children's college, major purchases, and other key financial plans. 

  • Review Your Plan Often. Once you have a plan for financial independence and retirement, review it often! Check in annually to make sure that you're meeting your goals, including watching your investments grow and continuing to add to your portfolio. Make changes to your plan as needed, whether that means increasing your investment risk level with the hope of bringing in big returns or adjusting your savings so that you'll meet your goals faster. Working with a solid financial planner or tax attorney is one of the best ways to be sure that you're on track to reach your goals and that you'll be able to retire when you want, rather than being trapped in your practice by the need for increased income. 

Planning for retirement is a critical step that you need to take as early as possible. Even if you've let it go for too long, however, it's not too late to reach the financial independence you've dreamed of. At Dental & Medical Counsel, we provide access to a dental lawyer who can work with you during the process and ensure that all factors have been carefully considered. A dental attorney can take a look at your situation, review your options, and make sure you do not overlook anything important. If you would like to learn more about how we can help you, contact us today to speak to a member of our team.

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