4 Common Mistakes Dentists Make When Planning for Retirement

When planning for retirement, Fettig says it is important not to put all your eggs in one basket

Douglas K. Fettig, CPA, MBA, has helped hundreds of dentists get their retirement planning back on track. As a dental business advisor at Aldrich CPAs + Advisors LLP, he works closely with dentists around the country. He will share his expertise during a talk at the Academy of General Dentistry meeting in Las Vegas. He spoke with Dentist’s Money Digest ahead of the meeting to discuss some of the most common retirement-planning errors he sees.

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1. Focusing on debt to the detriment of saving for retirement

According to the American Student Dental Association, the average dentist exits school with more than $200,000 in debt. Student-debt sticker shock can drive many dentists to devote all their financial efforts toward reducing debt, but there is a problem with that strategy.

“If someone focuses on reducing their debt at the risk of not starting to save for retirement, they miss out on many years of compound returns,” Fettig said. “And you can’t get that time back.”

Saving just a few thousand dollars a year can translate into a million dollars in retirement savings if a person starts saving early enough.

“It’s kind of mind-boggling when you think about it,” he said.

All debt is not created equal. While there are good reasons to want to quickly eliminate high-interest debt like credit card debt, Fettig said it is perfectly fine for a dentist to take his or her time paying off low-interest debt like mortgage and student loan debt, particularly if doing so enables saving for retirement and other long-term financial goals.

2. Thinking your practice is your retirement fund

Many dentists have the idea that they can fund their retirements by selling their dental practices upon retirement. Fettig says that’s a nice idea — in theory. But there are a few problems. For one, it is not always easy to find a buyer. A dentist who lives in a remote area might struggle to find a successor who wants to live where the practice is located, even if the practice is a financial success.

“You have to find someone who wants to live that lifestyle you’ve chosen, and if a dentist can’t find a dentist to take over, then what’s the value of your practice?” he said.

Another factor is technology. If the new owner will have to invest considerably to bring a practice into the 21st century, the sale price might be much less than the retiring dentist had planned.

Yes, a successful practice in a sought-after area might translate into a big payday for a retiring dentist, but given the potential uncertainty, Fettig said dentists should not think of practice sale proceeds as the centerpiece of their retirement.

“To me, I look at the sale of the practice for them as icing on the cake.”

3. Keeping the same retirement plan for your entire career.

Dentists can choose several retirement plans for themselves and their employees: a 401(k), an IRA, a Simplified Employee Pension plan, among others. However, the plan that works best for an early-career dentist might not be the same as the plan that works the best for a late-career dentist.

“What people don’t understand is that the benefit of your plan varies depending on your age and your career stage,” Fettig said.

To wit, factoring in elective contributions, catch-up contributions and company matching, the maximum amount a dentist over the age of 50 can contribute to a Simple IRA plan is $23,600 per year,

Fettig said. However, if that same dentist were in a 401(k) Profit Sharing plan, he or she could contribute up to $60,000.

Fettig said a smart dentist will re-evaluate and shift a retirement plan several times over the course of her career to maximize her retirement savings

4. Not keeping a careful eye on the practice’s finances.

Many dentists do not love the business side of their practice, and so they hire trusted professionals to handle the books. That can be a good arrangement, but it can also make the dentist vulnerable.

“There’s an old joke in the dental industry that 2 out of every 4 dental practices have experienced fraud; the other two just don’t know it,” Fettig said.

Even if a dentist does everything else right, all it takes it one bad employee to wipe out a dentist’s finances and practice. Fortunately, there are simple steps a dentist can take to lower his risk.

“Once a month, quick 15-minute finance meeting and talk about where your finances are,” he said.

That meeting, involving everyone involved on the business side, will give the dentist a chance to keep tabs, and will also send a signal to employees that he is minding the shop.

Another simple thing dentists can do is check electronic access logs to see who is entering the practice and when. If a dentist finds an employee is coming into the office in the middle of the night on a weekend, that’s a red flag that something is amiss.

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