Hinman Dental Meeting: Put Your Personal Finances on the Right Path

The 2017 Hinman Dental Meeting gave dentists the opportunity to put their personal finances on the right track with a continuing education session titled, "Achieving Financial Independence."

How would you like to be financially independent in 10 years?

John K. McGill (J.D., C.P.A, M.B.A.) delivered the information dentists need to achieve that goal at his continuing educations session, “Achieving Financial Independence,” at the 2017 Hinman Dental Meeting in Atlanta, Georgia.

“Believe it or not, most doctors are not wealthy,” McGill said during his morning session on Thursday, March 23.

According to McGill, only 5 percent of dentists can retire at 65 and maintain their current standard of living. He’s seeing a megatrend in the personal finances of dentists.

“Seventy is the new 65 when it comes to retirement age in dentistry,” McGill said.

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What’s driving this trend? According to McGill, high practice overhead, large debt loads, unwieldy tax burdens, lavish lifestyle, lack of savings and poor investing are all to blame.

“Most doctors in here are overpaying their taxes by $10-20 thousand dollars per year,” McGill said.

He described working with doctors who were grossing $300 thousand or more annually who had little to no savings. The most well-paid dentist he ever worked with was bringing in $415 thousand per year, had no savings. He had been divorced three times, was paying three mortgages, maintained three country club memberships and was fond of Italian sports cars.

“Believe it or not, higher spending will not lead to more happiness,” McGill said. It only leads to more stress. Saving for retirement, he said should take precedence.

Just how much you need to retire, McGill explained, depends on several factors, including longevity, tax rates, investment returns and your spending level. Tax rates, he explained, may go up. Investment returns could be lower than you expected. The only thing you can control, McGill said, is how much you spend.

Would you treat a patient without taking their history or imaging, McGill asked rhetorically? You shouldn’t do the same regarding your personal finances.

“If you don’t know what your spending is, you’re committing malpractice on your finances,” he said.

Most people who track their money discover they were spending more than they thought. An internal study of his clients revealed that most believed they were spending $10 thousand per month, but they were spending $16 thousand. To reduce spending, McGill suggested the following:

· Refinance and pay off debt.

· Reduce insurance costs.

· Work to make your adult children financially independent.

· Reduce the amount of money you’re pumping into their education.

· Reduce insurance costs. Nobody should be spending more than $7 thousand on life, disability, and business overhead insurance, he said.

After getting a handle on their spending, McGill said dentists need to identify savings opportunities. Typically, he said he’s able to find between $50-60 thousand in savings for his clients. Dentists, he said should focus on these savings opportunities:

Click to the next page for savings advice.

HEALTHCARE SAVINGS ACCOUNTS

Think of your HSA as tax-deductible retirement funding. When money is withdrawn from these accounts, it’s tax free up until the amount of your medical expenses. “That’s the best deal you’re going to get on earth,” McGill said. Properly funded, an HSA could contain as much as $500 thousand on retirement.

BE TAX-WISE IN DEBT REDUCTION

If you’re in a higher tax bracket, you’ll want to maximize your tax-deductible savings. But if you’re in a lower tax bracket, you’ll want to prioritize paying of your debt. Higher-earning dentists, however, should pay off their debt at the minimum rate, then when they sell their practice or retire, pay off their debt in one fell swoop, McGill said. Many younger docs, he said, will try to pay off their student loans first instead of saving for retirement, but this is not the best approach. It’s better, McGill said, to set aside money on a tax-deductible basis.

PUT SAVINGS ON AUTOPILOT

Automate your savings process by scheduling recurring deposits into your retirement accounts, McGill suggested. He’s seen this approach lead to higher amounts of net savings, because psychologically, you think of the automatically deposited money as already gone. Additionally, this strategy reduces the temptation to try and time the market with your investments. “Buying high and selling low won’t get you there,” McGill said.

RECONSIDER YOUR EMERGENCY FUND

“You don’t have to have money sitting around for an emergency, you just have to have access to money for an emergency,” McGill said, noting that the notion of having six months of income on hand in a checking account is not the best approach. It’s better to have the money invested. Emergency fund options include home equity lines of credit, Roth IRAs and HSAs, McGill said. He added that Roth IRAs have certain tax advantages. He gave the example of a hypothetical investment of $50 thousand. If you received $10 thousand in returns on that investment, you can withdraw up to $50 thousand tax free. Cash, he said, should be a last resort.

REDUCE YOUR INSURANCE COSTS

This should be a priority, McGill said, once you’ve earned enough money to self-insure. For example, he said, if you’re Warren Buffet and have a net worth of $3 billion, do you really need to be pumping your money into a life insurance policy? Once you reach your financial goals, McGill said, drop your life and disability insurance policies. You don’t need them anymore.

Discover more Dentist’s Money Digest coverage of the 2017 Hinman Dental Meeting here.