Why do Dentists Need a Retirement/Transition Plan? – NaviPath Financial
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January 25, 2021

Why do Dentists Need a Retirement/Transition Plan?

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Brian Swilling

by Brian Swilling

We help dentists plan a financial path through the different phases of their career towards the goal of financial independence.  Retirement and transition planning conversations take place throughout many of our meetings.  The key here is to strategically invest money according to a well thought out and implemented plan.

For more information on financial planning for dentists please use the following hyperlink. Financial Planning Services

Why do Dentists need a Retirement / Transition Plan?

I imagine you would like to maintain your current lifestyle after you transition away from your practice, which is very possible if you plan ahead. Without a plan, you may be looking at the possibility of working in your practice for longer than anticipated, selling your practice for less than anticipated or having to make serious lifestyle sacrifices in your retirement years.

1. Relying on the sale of a practice to fund your future lifestyle can potentially be risky business. In general, we tend to overvalue what is closest to us and your practice is likely no different. The sale of a practice goes toward funding your retirement. How long that lasts will be impacted by the sales price of the practice and your lifestyle in retirement. If you think your practice is valued at $500,000 and it is only worth $400,000, then what? A retirement plan can help ensure you are able to walk away on your terms, regardless of the sale price. 

2. Retirement plans can help fund practice buyout. Some retirement plans can be strategically set up to help fund an installment sale of a practice while continuing to build retirement assets. 

3. Tax rates. Depending on how much and where you are saving could determine when your retirement funds will be taxed and by how much. Tax rates are at historical lows right now and the likelihood of rates staying this low, in our opinion.

  • Plans like a 401(k) or IRA are funded with pre-tax dollars but are taxed as ordinary income when they are withdrawn. You are also required to withdraw funds from these accounts at 72 which can make legacy planning more difficult.
  • You may prefer a Roth IRA or Roth retirement plan to help reduce your future tax bill. Having that portion of your savings strategy taxed today but tax-free in retirement may be a better approach.
  • Finding a tax efficient investing strategy is important to help maximize future tax planning.
  • You should prepare for potential capital gains tax from the sale of your practice. You can be caught off guard if the practice sells for significantly more than you paid for it. With proper planning you can make the tax liability more predictable and manageable.

4. Compounding Investments. You might be familiar with the concept of compounding. Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. The earlier you can start investing the higher likely you can meet your goals.

5. Asset protection. Early in your career you likely have significant liabilities, however; as your career blossoms those liabilities are generally reduced, and you have the opportunity to build significant assets. Working with your legal advisor can help ensure these assets are protected with proper titling and entity structure. Also, certain strategies may help protect your assets from creditors.

A comprehensive financial plan can help you determine what investment, insurance, tax, and protection strategies are appropriate for your situation.

No matter where you are in your dental career, thinking about how you're your life will look like after practice ownership and what steps you need to take today can help you plan your financial path. This can give you the flexibility you need to take control of your next phase of life.

Please feel welcome to give us a call at 704.553.7220 or email at brian@navipathfinancial.com or ryan@navipathfinancial.com.

RFG Advisory and its Investment Advisor Representatives do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. Please consult your own tax, legal, and accounting professionals for guidance on such matters.

Securities offered by Registered Representatives through Private Client Services, member FINRA/SIPC. Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Advisor. RFG Advisory, NaviPath Financial, and Private Client Services are unaffiliated entities.