Wealth Planning for Dentists

As you are probably well aware, dentists have rather unique advantages and needs in the world of long-term (and short term!) wealth planning. As a high-earning medical professional, you have the advantage of owning your destiny, so to speak, as you build and maintain your practice over the years of your career.

Like many physicians, you also have hurdles to contend with:

• Delayed entry into the workforce after years of advanced education
• The student loans to go along with those years of education
• Lifestyle expectations that have been on hold as you prepared for your career

And as a dentist, you have a major difference from many other physicians who increasingly are joining larger multi-practice groups. The vast majority of our dentist clients are solo owners of their practice, or part of a limited practice partnership. Both practice and personal financial goals are often intertwined, and it can be difficult to separate them, or plan accordingly. Add to that the ongoing time commitment of simply managing your practice and helping patients and there doesn’t seem to be a lot of time for enjoying the lifestyle you’ve worked to achieve.

One of the biggest myths about being a high-earning dentist is that wealth “just happens.” However, in spite of significant advantages, half of all physicians and dentists are so-called “paycheck millionaires”, who spend nearly every dollar they earn to support their lifestyle and maintain the practice.

As we often say to our dentist clients — professionals used to being the smartest people in the room, who are extraordinarily driven and successful based on significant hard work — you don’t have to do it all. We are specialists in helping dentists plan for personal financial goals and successful practice management.

You wouldn’t trust us with a root canal — that’s your area of expertise. We hope you’ll trust us to help with your financials. That’s ours.

 In this quick guide, we’ll touch on five important considerations. Please reach out at your convenience to discuss any, or all, in greater depth.

1. Get Started

“The journey of a thousand miles begins with one step.” – Lao Tzu or, expressed as a dad joke — “How do you eat an elephant?” “One bite at a time”

If you are like the majority of our dentist clientele, you started your career with a mountain of debt. It may seem overwhelming, especially when added to the expenses of a growing family and the financial responsibilities of running a practice. Believe it or not, many dentists are paying off student loans well into their 40s or 50s.

This may not be as dire as it seems; a key consideration in evaluating how much to pay off to conquer that elephant is to weigh paying off more of the debt faster, vs. saving for the future.

It may seem counterintuitive to consider, but it doesn’t always make the most financial sense to have zero debt. As part of building a comprehensive plan, we often consider factors such as:

• The ability to consolidate or refinance loans to get a better rate—allowing you to pay down principal faster
• The chance to qualify for repayment programs (an example: Revised Pay as You Earn, REPAYE)
• Better return options on investment opportunities to counter-weigh interest charges

Financial plans work best when they are comprehensive and holistic — meaning, they consider all of the factors affecting any financial decisions you might make and any financial situations you may find yourself in. They take into account your tolerance for risk and your long-term goals.

We’ll cover financial plans more in-depth in our next section, but what’s important to remember in starting good financial habits is: to start. We’re here when you’re ready (or even if you think you’re close!)

2. Invest Now

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – ROBERT G. ALLEN

Professor Jeremy Siegel of the Wharton School estimates that the compound annual growth rate of the stock market (after inflation) has been about 7% since 1802. The takeaway: it’s important to put your money to work, as you work.

A solid investing strategy needs to consider more than just the pursuit of maximum growth. You should factor in risk, psychology, taxes, behavioral finance, and — most of all — consistency.

What is behavioral finance?

It’s the emotions that go into investing. Investors are not always rational or self-controlled — a big market dip may convince you that it’s important to sell everything now, but that’s not wise. Strong financial plans include risk tolerance considerations, goal-setting, and solid education — so when bad times or good times come along, you know you’ve got a financial plan that you don’t have to second-guess.

Additionally, you need to think beyond personal or family investment goals. With a portion of your assets tied up in your practice and income dependent on practice variables, you need a comprehensive and holistic wealth plan that includes a deep understanding of your practice and considers future practice transition options. It is important to align your practice objectives and personal wealth goals with an integrated strategy that keeps you in control.

Things that we can discuss and consider:

• Do you have a good overview of all your investments (inside and outside of retirement accounts)?
• Do you have a comprehensive strategy that’s tied to goals?
• Are your investments diversified globally?
• Are you psychologically prepared for volatility and the emotional ups and downs?
• Are you taking too much or too little risk with respect to my goals and comfort level?
• Do understand the fees and expenses I’m paying and why

3. Manage and Protect

“What’s measured improves” – PETER F. DRUCKER

You are busy running and growing your practice. As we referenced at the beginning of this piece, it’s important to know when to delegate key support functions—after all, you likely don’t see patients, perform surgery, handle billing, and answer phone calls all by yourself. It’s not efficient or wise.

Delegating investment and financial planning decisions can help greatly with efficiency—but think even beyond that. The right team of advisors, who are familiar with helping physicians (and even better, specifically dental practices) can help you to keep your business goals on track towards growth. Working with advisors who provide comprehensive services that include assistance in understanding your practice key performance indicators (KPIs) can aid in goal setting, role designation, and even help identify opportunities for growth or expansion.

Not knowing the true worth of your practice can leave the practice vulnerable. Determining the value of your practice, including the impact of varying market conditions, and maximizing its worth by comparing exit options is important to do even when you don’t expect to exit any time soon.

But, it can be tough to be objective about your own business, and that’s another reason to involve experts to help evaluate the practice, equipment and real estate financing options, and then connect you to the right bankers and other professionals as needed.

 And it’s important to think about protection; you and your ability to earn can be your greatest assets. When you consider that most physicians earn over $7 million in a 25-year+ medical career, you’ve got a lot to protect. Both your family and your practice have a lot at stake if something were to happen to you.

If you’re well into your career, it’s more important than ever to review your coverage to make sure you’re covered enough, while not paying for more than you need. Insurance is critical for physicians and dentists.

Considerations:

Life Insurance

• Is it enough to ensure your family can live comfortably and save for retirement without your income?
• Does your spouse have enough to cover his or her contributions to the family?
• Will your life insurance move with you if you switch employers or benefit providers?
• Are you taking full advantage of tax-free income opportunities with life insurance?
• Have you reviewed coverage to make sure you’re not paying too much for features you don’t need?

Disability Insurance

• Do you have specific insurance for your dental specialty?
• Is your policy through a company with a good rating and reputation; have you reviewed coverage to be sure you have the best rates and coverage for your current income?
• Have you reviewed the tax treatment of your disability coverage?
• Are you paying for disability coverage in the most cost-effective way?

Additional Coverage

• Have you reviewed your umbrella policy to make sure it’s enough to protect your family and assets from personal liability?
• Have you considered how you are going to cover long term care needs in retirement?

Build Your Team

It’s important to build a team of trusted advisors who work well with each other and who have experience in the unique needs of this industry; it will save you time and money because you will receive coordinated, comprehensive and holistic guidance. Your core team should include advisors who provide comprehensive wealth and investment management, tax and accounting services, insurance consulting and estate planning. There are other advisors to consider such as practice management and real estate consultants. Where to start? Find one resource you connect with and trust and ask for recommendations.

4. Taxes

“Death, taxes and childbirth! There’s never any convenient time for any of them.” -MARGARET MITCHELL, GONE WITH THE WIND

We’ve covered a lot about planning, investments, and protection. Time for the gorilla in the room no one ever wants to talk about!

Taxes may be the biggest bill you pay over the course of your life; optimizing your taxes is critical to your long-term wealth plans.

The Tax Cut and Jobs Act complicated tax strategies for high-income earners, especially physicians, dentists and medical professionals who earn income from multiple sources. While some medical professionals can take full advantage of new business pass-through deductions, higher earning physicians may not be able to because they fall into a different “service provider” category.

The bottom line is this: you have a time-limited opportunity (current laws are due to sunset in 2025) to lower the taxes you pay now and tomorrow. Don’t lose that chance.

• What type of retirement plan do you have set up through your practice and are you maximizing your contributions?
• Can you consider after-tax contributions or a backdoor Roth strategy to maximize tax sheltered growth and tax-free retirement income?
• Tax laws changed in 2017 — have you reviewed choices and deductions since then?

We can talk about tax-efficient investing and how to allocate investments for tax-sheltered growth; we can discuss tax-loss harvesting to lower taxes now and in the future. We can get into specifics such as bunching deductions and qualified expenses to beat 199A thresholds. All this may seem complicated, but it’s what we do regularly, and we are happy to coordinate with your accountant or recommend one familiar with dental practices.

5. Retirement

“Retirement is wonderful if you have two essentials – much to live on and much to live for.” – AUTHOR UNKNOWN

Whether retirement is around the corner or a long way away, you have special considerations as you approach and enter retirement. You have all the tax considerations of a high earner, and must be savvy about how you draw down your investment accounts and where you take your income.

Practice owners, contractors, and high-income earners can take advantage of advanced strategies to sock even more away in tax-sheltered accounts and draw tax-free income in retirement.

Though earlier is always better where retirement is concerned, high-income earners can “catch up” to retirement account maximums even when they start later than they’d like. Here’s what you should consider:

• Running income projections to determine how much wealth you need to build before retiring.
• What’s the “big number”— and are you saving effectively to make that goal?
• How your practice valuation and succession plan can help you maximize value while protecting your patients.

There’s been a common theme throughout this paper: planning and thinking ahead! A retirement plan plays a critical role in helping you reach your retirement goals. Whether you’re establishing a new plan or redesigning an existing one, it’s important to work with advisors who have the skills to help you manage the complexities of an effective retirement plan design on an on-going basis.

We very much enjoy our ongoing work with dentists (perhaps more than we enjoy visits to the dentist!) and we hope this guide was helpful in raising some points to consider. Right now, you might be thinking:

• I know I should be doing all this, but I don’t know how to get started… I’ve got a few questions that I’d like answers to…
• I’m probably paying too much in taxes right now… 
• I’m knowledgeable about finances, but I just don’t have time to manage all this…

Instead of burning your limited free time on research, projections, accounting, tax planning, investing, risk management, and more…wouldn’t you rather be spending time with your family and living life, confident that you’ve got a team of professionals working to keep you on track?

We would love to have a conversation about how we can help you succeed on the financial side of your life, to match your professional success.