Retirement Planning for Dentists: 3 Important Factors to Consider

Just like everyone else, dentists need to have a plan for retirement. A comfortable, financially idependent retirement needs a strategy to guide saving for retirement, investing, limiting tax exposure, and much more.

As a dentist, the specifics of your work can influence certain important considerations related to retirement. For example, if you own your practice, you’ll need to pay special attention to exit planning and the tax considerations that come along with it.

You’ll also have to take your personal needs and goals into account. That includes where you want to live, travel and entertainment, healthcare expenses, and much more.

Retirement planning is unique to your priorities, financial position, and objectives after leaving the field of dentistry. Building an effective and informed retirement strategy is crucial. An informed and experienced retirement planner can help you reach that goal.

Working with a fiduciary — a financial professional legally obligated to put your best interests first — can be a good place to start.

As you begin to think about planning for retirement as a dentist, consider the following factors. They can have a significant influence on the specifics of your plan.

1. Practice Ownership

The American Dental Association reports that, as of 2021, 73% of dentists in private practice owned their practice.

That’s a noticeable decline from 2005, when close to 85% of private-practice dental professionals also owned their business. However, even with that decline, 7 out of every 10 dentists are both healthcare professionals and business owners.

Are you one of them?

Owning a business can significantly influence your retirement. Exit planning is one especially important consideration in this context, and there are many potential options on the table. It all depends on your goals for the business as well as your objectives for a financially stable retirement.

You might want to — or have an agreement to — sell your share of your practice to your partners, or the entire practice to colleagues who currently work for you. Your goal might be to keep your practice open to continue providing high-quality care for your community.

Perhaps you want to simply wind down your practice as you become a dentist in retirement. Or, you may want to retain a small ownership stake as a source of income.

Some business owners, including dentists, have a significant portion of their net worth tied up in their business. Understanding how to extract that wealth while minimizing the associated tax burden can be especially important.

No matter how you want to exit your business, having an informed, thoughtfully considered plan to do so can be crucial. There are many business exit strategies and a variety of tax implications that come along with them.

Finding the right option for your needs can mean reducing your tax burden and more effectively supporting your needs in retirement.

2. Life as a Business Owner

Dentists who own their practice wear many hats. Along with dentistry itself, they often play a key role in marking, accounting, HR and staffing, and other operational needs.

Those broad responsibilities can make it difficult to dedicate the time needed for retirement planning. A dentist’s financial plans for retirement can take a backseat to managing finances and caring for patients.

That can leave you unprepared or underprepared for retirement when the time comes. The good news is that you don’t have to approach this especially important task alone.

An informed and experienced retirement planner can help you decide on how to move forward. They can provide personalized guidance on topics previously mentioned, including exit planning and related tax implications. They can also assist with:

• Selecting the best retirement plan for dentists on the individual level. Potential choices include a Simplified Employee Pension (SEP) IRA, SIMPLE IRA, Roth IRA, traditional IRA, 401k plan, and other options.
• Setting contribution goals for those plans and providing guidance on specific investment options within them.
• Building a personalized strategy to take all retirement wants and needs into account.

3. Universal Needs in Retirement 

As we’ve seen, certain unique factors influence retirement planning for dentists. These healthcare professionals are especially likely to own their practice and earn an above-average or high income, for example.

However, there are many universal considerations for retirement that dentists should recognize as well. In the following cases, and many others, a fiduciary retirement planner can provide context, information, and guidance:

• Generating enough retirement income. Having enough money for a comfortable retirement is a foundational goal in retirement planning. It’s vital to have a complete picture of investments, savings, assets, expected debts, and more.
• Tax Management. The Internal Revenue Code is incredibly complex, offering potential pitfalls as well as opportunities to reduce tax burdens as a retiree. Avoiding unnecessary obligations and lowering income tax and other tax exposure when possible can mean a more stable financial position in retirement.
• Social Security. When and how you file for Social Security benefits will influence both the monthly and lifetime amount received. Picking an approach that aligns with your retirement needs and goals can have a significant impact.
• Managing beneficiaries. Selecting beneficiaries for retirement accounts is an important part of long-term retirement and legacy planning. Updating beneficiary information as necessary and finding opportunities to reduce tax burdens for those beneficiaries can be especially influential.
• Medicare. Medicare can help to subsidize the cost of healthcare in retirement. There are many benefit options and, for high earners, additional costs to consider. Planning how to use Medicare to your best advantage can help support a more stable retirement.

Retirement planning for dentists, and everyone, is a complex process. There are many specific programs, opportunities, costs, and needs to consider.

Remember that you don’t have to go through this process alone, as an individual or with your spouse. A fiduciary retirement planner can learn about your specific financial position and plans for the future.

Dechtman Wealth Management takes our fiduciary oath seriously. Our team is committed to putting your best interests first. That means taking the time to understand your goals and needs on a personal level, then providing informed and personalized guidance that supports a financially secure retirement.

Schedule a complimentary consultation with Dechtman Wealth Management today.