Dentists Planning for Financial Independence

Dentists Planning for Financial Independence

Rick Epple, CFA*:

As we complete the first quarter of 2011, are you thinking, I have been working as a dentist for a number of years, and while I make a good income, I have no idea if I am on track for retirement? How do I take control of my future? The following process can be used to start you on your way.

Step 1: Determine Where You Are

Gather all your investment statements, checking account statements, 2010 tax returns, insurance documents, business documents including profit/loss statements, loan documents, spending history, and current estate documents. From this information, a net worth statement can be generated, plus cash flow and income projections.

These documents can be used to look at where you are today and make projections for the future. A dentist can use one of the following tools to create these helpful documents:,, Quicken, or Microsoft Money. Managing to Be Wealthy by John E. Sestina is a good resource that explains how to look at all areas of your finances.

Step 2: Financial Goal Setting

The next step for dentists is to determine how much extra savings will be needed to achieve their retirement and financial independence goals. There are a number of calculators available on the web that can help identify the target savings number. However, make sure to be careful when doing these calculations, because the assumptions used in the calculators can have a big impact on the results. Another way to look at determining a target number is to use the four percent “safe” withdrawal rate in retirement. The four percent rule, in my opinion, is a pretty good indicator of preparedness for financial independence.

Example: A dentist’s three million dollar investment portfolio can create a $120,000 income stream (before taxes). At this rate, the portfolio should last 30 years or longer without running out of money. Along with the retirement goal, however, other goals need to be included, and these can increase the amount that is required. Examples of other goals include paying for college for children or grandchildren, extensive traveling, charitable intentions, vacation properties, and so on. Recommended reading to begin the process of evaluating what retirement might look like is The New Retirementality by Mitch Anthony.

 Step 3: Determine Your “Gap”

After determining the gap between the expected income in retirement and the projected expenses, a plan to fill in the gaps is necessary. Following are areas to look at and consider.

Step 3a: Maximize Your Savings

Dentists have a number of vehicles to help build savings. Among them:

• Maximize contributions to your defined contribution plan. Up to $49,000 can be contributed for 2011. If you are over age 50, $54,500 is the maximum allowed contribution.

• Explore the possible use of a defined benefit plan. This type of plan allows for higher contributions to make up ground for retirement savings if needed. The downside is that it can be very complicated to set up and administer.

• Contribute to Roth IRA, Spousal IRA, or Non-Deductible IRAs as allowed, depending on income.

• Other possibilities — Use Health Savings Accounts (HSA) accounts, 529 college savings accounts, or build a taxable savings account.


Step 3b: Review the Insurance Element

Conduct a thorough review of your insurance program. In the author’s experience, dentists typically have huge gaps in their personal and/or business insurance programs.

• Meet with insurance agents to have a risk assessment and evaluation of your insurance program.

• Determine needs for life insurance, disability insurance, long term care insurance, business insurances, property and casualty insurance, and so on.

• Shop around to verify that you are receiving good value for the premium dollars you are spending.

• Implement appropriate and recommended coverage.


Step 3c: Do Some Basic Business Planning

• Run your dental practice like a business. Develop a business plan and marketing plan.

• Determine measures to benchmark the practice and monitor progress to the plans. These might include profit, patient satisfaction, employee satisfaction, new patients, expenses, and so on.

• Areas to look at:

          *        Do you want to focus a niche for your practice and then develop it?

          *        Do you need help with dental marketing?

          *        Do you have the systems and procedures in place to manage the practice? One source for beginners could be E-Myth Revisited by Michael E Gerber.

          *        Does dental patient retention need to be improved?

          *        Review insurance to improve value for the premium dollars spent and to protect the practice.

          *        Most dentists/employers don’t realize the costs of maintaining their retirement plans. Costs can have a significant impact on account growth. If you don’t know the costs, investigate to determine you have a plan with the features you want and are paying a fair fee or fees.

          *        Do you have a place where the people you work with enjoy coming to work? Do you have a good working dental team?

          *        Are you utilizing outsourcing as a tool to improve profitability?

          *        Maximize all deductions available to the business.

          *        Consider owning the building your dental practice is in instead of paying rent.

          *        Do you have contingency plans in place should you or a key employee become disabled or die?

          *        Do you have an exit strategy for your business? Do you, for instance, have a buy/sell agreement or plans to bring in a buyer for your practice?

• The bottom line is that you want to maximize the amount you take out of the practice while providing the necessary investment back into the business to achieve your goals.

 Step 3d: Other Areas to Consider

• Determine personal cash flow and income needs. Planning cash flow can be very difficult. However, having an accurate picture of expenses now and in retirement can ensure a successful retirement.

• Implementing a “pay yourself first” philosophy can help jump-start retirement savings if needed.

• Manage debt. Review all personal and business debt. This is often an overlooked aspect for dentists.

• Appropriate strategies can help increase net worth in the long run. Having consumer debt in retirement can also make it very difficult.

• Determine if your investment strategies include balancing risk, maximizing return, and preserving capital.

• Conduct a tax planning review to verify all available opportunities are being taken advantage of.

• Do you have a plan in place to pay for your children’s college education? Utilize pre-tax dollars to pay for college.

• Review that appropriate estate planning documents are in place.



There really are no short cuts to creating and managing a viable plan for a successful retirement.  You will need to invest time in determining where you are and then implementing a plan to help achieve your goals. If you do so, you can take control, feel in control, and be in control of a process that can be very rewarding. Proper planning can provide dentists and their families with genuine and significant peace of mind.


*Mr. Epple is an NAPFA Registered Financial Advisor, and founder and president of Epple Financial Advisors LLC, Wayzata, Minnesota. Email is