Can I Aford to Retire?
Financial and Psychosocial Issues Facing Dentists
Joel Greenwald, M.D., CFP* and
Loren Swanson **
Something to Reflect On
study*** of people two to 15 years following retirement broke retirees down
into four distinct groups:
Empowered reinventors - 19%
Carefree contents - 19%
Uncertain searchers - 22%
strugglers - 40%
group, retirement is the next stage of life, filled with new challenges. They
have done more planning and preparation. Fifty-six percent feel empowered after
retirement, while only three percent feel depressed about retirement.
Ninety-two percent agree that their retirement has worked out the way they
people are also successfully adjusting to retirement, but through an approach
very different from the empowered reinventors. Eighty-seven percent felt
optimistic about their retirement lifestyle, but they are not taking on
adventure or new challenges. Few are continuing their education, doing
meaningful work, or pursuing hobbies that are important to them.
folks in retirement are still trying to figure out what to do with the rest of
their lives. In general they did less preparation for retirement than the empowered
reinventors, and this is showing up now. They are less likely (59%) to feel
they are on track financially, and only 36% of them are comfortable that they
know how much money they will need in retirement.
folks are having the most trouble in retirement. Thirty-eight percent report
being worried, 34% feel bored, and 19% report feeling sad. Only 31% say they
are greatly enjoying their retirement.
the major lessons from this study was that the more time retirees had spent
preparing during the pre-retirement period, the better they were faring in
Mind the Mix
planning is a complicated mix of the financial and psychosocial. It is
important to understand what you want for your post-work years, and then to assign a price tag to achieve
these dreams. However you choose to approach this task, the sooner you start
planning, the better off you will be.
Dr. Bob H
is a 62-year-old general dentist. He is married to Joyce, who is 61. They have
three children, ages 35, 32, and 30, and six grandchildren, with number seven
on the way. Joyce has not worked outside the home since they were married. Both
Bob and Joyce’s parents are financially independent and are not expected to be
a financial burden. By the same token, neither Bob nor Joyce is expecting a
• $1,200,000 in practice 401(k)/profit-sharing
• $1,000,000 in a taxable brokerage account
Joyce anticipate $30,000/year in social security starting at age 67. They would
like to be able to spend $10,000/month in today’s dollars while in retirement.
Is Bob in
a position where he does not have to continue to practice dentistry? Maybe.
were to close the doors of his practice and walk away, he and his wife would
have only a 70% chance of living to age 92 without running out of money,
according to a financial planning program incorporating Monte Carlo analysis.†
Not bad, but not entirely reassuring. However, if Bob were able to realize $300,000
from the sale of the practice, the odds of success rise to 95%. Not bad.
questions facing this couple fall outside of simple number crunching. As Bob
and Joyce are so close to retirement, they should already have spent time
preparing. They should be working on their vision of what they want once they
are financially independent and do not have to go to work. Where will they be
living? What will they be doing? How much will they be traveling, and what sort
of travel? Will they be volunteering? If so, where and how often? Will they
increase the time they spend on their current hobbies, or pick up new ones?
Will they be gainfully employed, and if so, will it be by necessity for income
or benefits, or because they choose to? What about their family and social
network after they have left the social network of employment? Will no longer
being “Dr. Bob” affect self-image?
Dr. Tom T
is 62 years old. He is married to Janet. They married in their mid-40s and do
not have any children. Their passion is golf, and they travel several times
each winter to warm locales to play. Dr. T. is tired. He would like to be done
with dentistry so he can spend more time playing golf with Janet and his
golfing buddies. Tom met recently with a financial planner who indicated the
assets saved are not enough to support Tom and Janet in the $12,000/month
lifestyle they would like to have in retirement. Tom and Janet are not
interested in living on a budget or trimming their expenses. Janet has worked
in various retail jobs at higher end boutiques to provide for her spending
money, but never stayed at one long enough to accumulate any significant
401(k)/PSP of $500,000
Brokerage account of $500,000
• The latter came as an inheritance from Dr. T’s parents, who passed away last
year. Janet has six siblings. Her parents live simply in southern Minnesota, and she is
not expecting any inheritance.
• Dr. T is willing to work five more years to age 67 and contribute $50,000/year
to his retirement account over that time period.
• Same social security of $30,000/year starting at age 67 as Case #1.
Dr. T. has started his financial planning late, and is not on track to realize
his dreams in the timeframe for which he was hoping. His options are more
limited than in our first example. He certainly needs to get some value for the
practice if possible. He’ll also need to balance working beyond age 67 and/or
saving more now vs. spending less per month in retirement and having a lower
standard of living.
needs to look at trade-offs such as golfing some, working some, living at a
lesser lifestyle, and delaying the retirement process. Another option is that
if Dr. T has a large enough patient base, he could bring in a partner to work
with him for the next five or so years, then have the partner take over the
whole practice in such a way that Dr. T can maximize both his current income
and buy-out price.
Dr. M is 50
years old. He is married and has three children, ages 20, 18 and 16. His
20-year-old is at school at a small eastern liberal arts school, and the other
two children would like to go there as well. Dr. M. and his wife have agreed to
pay for college for all three children, but have let the children know they
will be on their own for graduate school. Dr. M’s income has gone to building
up the practice, which is thriving, but he has neglected savings.
Mrs. M’s assets:
401(k)/PSP of $600,000
account of $100,000
security of $30,000/year starting at age 67.
couple’s goal is to retire at age 60 with $10,000/month in spending in today’s
Dr. M is
hoping that if he contributes $45,000 annually to his 401(k)/PSP for the next
10 years, that will put him on track to catch up and be financially independent
at 60. Unfortunately, that is not the case, and as in our second case, Dr. M.
needs to consider working longer, saving more, or spending less in retirement.
Part of this doctor’s problem is that in order
to put more each year into the retirement plan at the practice, such as through
a cash balance plan, he will have to put a great deal more away for his many
employees. One creative solution might be to sell the practice and have a
long-term contract with the new owner to provide dental services as a separate
entity. This way the staff will still have their jobs, all the benefits they
were promised, and the patients will be well cared for. Now the dentist can put
away $150,000/year or more into his retirement account and meet his retirement
needs. At the same time, the new owner is gaining equity in the practice and is
able to meet his own needs to grow his business.
*Joel Greenwald is a Certified Financial Planner, Sterling Retirement Resources, Inc. St. Louis Park, Minnesota. Registered Representative offering securities through Financial Network Investment Corporation: Full Service Broker Dealer, Member SIPC. Financial Network and Sterling Retirement Resources, Inc. are not affiliated.
E-mail is email@example.com or www.sterlingretirement.com.
**Loren Swanson is a transition specialist with AFTCO and is based in Roseville, Minnesota. E-mail is firstname.lastname@example.org. AFTCO is not affiliated with Financial Network or Sterling Retirement Resources, Inc.
†The New Retirement Mindscape by Ameriprise Financial in conjunction with Age Wave and Ken Dychtwald, Ph.D. and Harris Interactive, Inc., January, 2006. See also The Power Years, by Ken Duchtwald, Ph.D., and Daniel Kadlec, Wiley 2005.
Copyright 2008. Minnesota Dental Association