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.
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.
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.
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.
Frequently Asked Questions
Q: Why is it important for dentists to plan for financial independence and retirement?
A: Financial independence and retirement planning ensure that dentists can maintain their desired lifestyle during retirement without relying solely on income from their dental practice.
Q: When should dentists start planning for retirement?
A: Dentists should start retirement planning as early as possible, ideally in their late twenties or early thirties, to benefit from compounding interest and build a substantial nest egg over time.
Q: What are the risks of borrowing from retirement savings for other financial needs?
A: Borrowing from retirement savings can result in high penalties, reduce future retirement income, and hinder long-term financial goals. It's essential to explore alternative funding options to avoid tapping into retirement accounts prematurely.
Q: How can dentists determine their retirement spending needs?
A: Dentists should assess their projected retirement expenses, including living costs, mortgage payments, healthcare expenses, travel plans, and desired lifestyle. Tracking current expenses provides a baseline for estimating future needs.
Q: What steps can dentists take to evaluate their current financial status?
A: Dentists should review their investments, savings, retirement contributions, and overall financial health regularly to identify gaps and areas for improvement in their retirement planning strategy.
Q: How can dentists become more financially savvy?
A: Dentists can educate themselves about retirement investment options, safe withdrawal rates, market trends, and strategies for achieving financial independence. Seeking guidance from financial professionals can also enhance financial literacy.
Q: What should dentists include in their retirement planning strategy?
A: Dentists should develop a comprehensive plan that prioritizes spending within means, investing in diversified portfolios, setting achievable financial goals, and regularly monitoring progress toward retirement objectives.
Q: How often should dentists review their retirement plan?
A: Dentists should review their retirement plan annually to track investment performance, adjust financial goals, and ensure alignment with changing life circumstances. Regular updates help maintain progress toward retirement objectives.
Q: What role can financial planners or tax attorneys play in retirement planning for dentists?
A: Financial planners or tax attorneys can offer personalized guidance, analyze retirement goals, optimize investment strategies, and provide expert advice to dentists seeking financial independence and retirement security.
Q: Is it ever too late for dentists to start retirement planning?
A: While early planning offers significant benefits, it's never too late for dentists to begin retirement planning. Taking proactive steps, making informed investment decisions, and seeking professional guidance can still lead to a comfortable retirement.
At Dental & Medical Counsel, we've been instrumental in realizing the practice goals of countless dentists. Whether you're looking to purchase, launch, or sell a dental practice, our expertise is your guide. Beyond the initial stages, we're committed to ensuring your dental practice remains legally compliant.
We provide comprehensive support, including employment law protections, dental contract reviews, and assistance with dental employment agreements. Additionally, we specialize in incorporating dental practices and securing trademarks. And for long-term planning, our services extend to helping dentists with succession and estate planning. Trust us to be your partner in every step of your dental practice journey.
About Ali Oromchian, Esq.
Your Dental Lawyer
Ali Oromchian, JD, LL.M., is a leading legal authority in dental law and the founding attorney of Dental & Medical Counsel, PC, with over two decades of experience. His deep connection to dentistry comes from his wife's nearly two-decade-long career as a pediatric dentist.
This personal insight fuels his dedication to empowering dentists to navigate their legal challenges and achieve their practice goals. In doing so, Ali has helped thousands of doctors open their practices while maintaining legal compliance.
Ali is frequently quoted and contributes articles to dental publications, including the California Dental Society, Progressive Dentist, Progressive Orthodontists, Dentistry Today, Dentaltown, and The New Dentist magazines, further showcasing his commitment to the dental community.