In our last post, we outlined some of the reasons why planning for retirement is a tougher challenge for female dentists. Women are taking more leadership roles in dentistry without sacrificing their family roles. In many cases, the demands of running a dental practice and managing a family can be hard to balance. Saving for retirement and planning for the transition out of dentistry doesn’t have to take a backseat to the life happening now.
Many dentists are working longer and abandoning the idea of a full retirement. This is either out of necessity or desire; some dentists simply love what they do, they just don’t want to do it full-time anymore. Female dentists, on the other hand, don’t even report being able to fully retire with 100 percent financial security. About 30 percent of female dentists aren’t even sure they can retire, and the vast majority will continue to practice part-time.
For women in dentistry who want to transition their practice by a certain date and enjoy a financially stable retirement, there is a better way! Consider these tips for smart savings options before retirement to help make the transition easier and more secure.
Keep Expectations In Check
At different points in a woman’s career, her professional financial goals will conflict with her personal financial goals. Women may work part-time hours while their kids are young. This arrangement works well for their family, but it also means less income from the practice to save for retirement.
Or, if a female dentist is working full-time but needs to invest in upgraded technology, that also creates a conflict. It means less money for saving, even though it’s important to also invest in the practice. There are two approaches to take during these periods when financial goals conflict: either set a minimum amount to put away for retirement or divert all extra income to the practice or other family needs. We recommend the first option when possible. Here are some ways to save at least a small amount of money even during lean times.
Retirement Accounts
Most dental practices are small, private practice operations. This means there are options for retirement plans. These include owner-only 401(k) accounts, SEP IRAs, and SIMPLE IRAs. We’ll discuss the differences between each one and how to use them in a later post; for now, it’s important to know that contributions will grow tax-free. If certain income limits are met, then contributions can also be tax-deductible.
In addition to traditional retirement accounts, consider adding an HSA. A Health Savings Account is another tax-deferred savings option with high-deductible insurance plans. Contributions lower taxable income, and if the contribution is a payroll deduction, contributions are also tax-free. HSAs are a great investment vehicle, as earnings are not taxed.
Other Financial Strategies
For some female dentists who need to make up lost time and money later in their career, a cash balance plan is one option. Contribution limits increase with age, and like other retirement plans, pre-tax dollars mean more savings. Cash balance plans are best suited for women who are able to work in their practice full-time and later in their careers, as significant cash flow is needed to make them work.
Permanent life insurance policies can be another investment vehicle. There is likely already a life insurance policy in place for the dentist; make it work smarter. Having the option for a cash value benefit can be a back-up during retirement. Disability income insurance is also crucial, though not for retirement savings specifically. If something happens that forces a dentist into an early retirement, it’s better to draw on a disability policy than take money out of a retirement account.
Finally, any cash distributions from the practice should be invested in a diversified portfolio of stocks, bonds, and other investments, not the practice. As female dentists are approaching retirement, it can seem tempting to upgrade practice tech and equipment to attract younger buyers. But those needs should also be balanced with the need to fund retirement. These investments should be made under the guidance of a qualified financial professional.
Saving for retirement as a dentist is different from other careers. Most dentists start saving later because of student loans and practice debt. Female dentists have the additional challenges of personal and family demands to account for. Yet, it’s important to start as early as possible and utilize different ways to save and invest money. Advance planning for mid-career female dentists can go a long way in making their vision for a successful retirement a reality.
Contact N/L Transitions or call us at 410-453-5500 to talk about a transition plan that makes sense for your practice – and lifestyle.