When thinking about retirement, images of sitting by the pool drinking pina coladas comes to mind. However, the reality is- that doesn’t happen without the proper planning. Many times, we meet dentists who are disappointed or worried that their “ideal” retirement dreams won't come true. Why is this? Lack of proper planning! Retirement planning is not something you start thinking about the few years before your career wraps up. It takes decades of mapping out your path and adjusting along the way.
There is a huge gap in what you need for retirement income and the retirement income methodology used by most "advisors" - I see this all the time, a new dentist client will say, “I was told I need 90% of my pre-retirement income during my retirement years”. Or, "I know that I need x times of my annual income in assets before I'm ready". These frequently spoken "rules" spread like wild fire in on-line forums because it feels simple to follow, right? Truth is, something as important as your lifetime experience cannot be trusted to a pithy rule of thumb. You must ask more questions.
- Do you currently spend everything you make?
- In what accounts do you hold assets? (If all of your investments are pre-tax dollars, be prepared to hand Uncle Sam at least 25% of that)
- How much are you relying on the sale of your business to fund your goals?
- If you don’t achieve that magical 90% or $x what then?
Instead of relying on an arbitrary figure of “X” amount of your pre-retirement income, work with a professional to have a wealth plan created. Not a static document but a free flowing, ever changing roadmap. There are going to be bumps along the way (like the current bear market we are in) where you will want to know, am I still on track or do I need to make any adjustments. You also need to know how different variables can impact your long-term success.
- What if there is an extended period of low returns?
- What if inflation remains persistent?
- What if there is a prolonged bear market right after I retire?
- What if I don’t get as much for my practice as I thought?
These variables can alter a plan if you don’t start planning early. By starting to plan your future in your 30s and 40s you will know how to navigate the bumps, make changes along the way and ultimately be on track to live the life you want no matter what happens with the stock market.
Planning Considerations for your retirement:
Practice exit strategy- Start thinking about if you will sell to a DSO, internally, an outside dentist or transition out over time.
Take a hard look at your current expenses- In retirement you no longer have money coming in so creating a well-defined budget now will help you live within your means down the road.
You (probably) have a good idea of what your business is worth- However, is the sale of your practice enough to fund your lifestyle. If not, how much extra do you need to be saving and which accounts are the best to utilize?
Do you have your investment assets tax diversified– If you are only saving into your workplace retirement plan, remember this is all pre-tax and Uncle Sam will want his piece when you start taking money out.
Are my investment accounts too aggressive or are they too conservative? – Both can be very damaging long-term, finding the appropriate level of risk that facilitates your long-term goals will keep you on track.
It is too easy to get caught up in your normal routine and neglect what may seem like forever from now (your retirement). However, as everyone can agree- time moves quickly and waits for no one. Start addressing your post-career years now and move through the next phases of your life confidently knowing you have taken the steps to ensure your future success. If you have questions about being on track, staying on track or have not begun to think about retirement at all yet, reach out to us to start the conversation.