When Should You Retire?

Be sure to start planning at least 3-5 years in advance

It’s always difficult to plan for retirement, especially for dentists who own their own practices because there are so many factors to take into consideration. Is your practice in a position to be sold? Are you financially ready? Will your employees be taken care of? The list goes on and on.

The question of “when is the best time to retire” depends on each dentist and his or her goals.
It is important to discuss your goals of a healthy and comfortable retirement at least 3-5 years ahead of your ideal retirement age to ensure things fall in line with your objectives. For some people, this may seem like a lot of time, but it is prudent to give yourself enough time before other things get in the way and it is too late to reach your target retirement date and be comfortable.

Good planning reduces the stress of transition and helps provide confidence. At 3-5 years before retirement, dentists usually start slowing down a bit. This time can be spent getting you and your practice ready to sell while still bringing in a solid income and retaining your current patients. Use this time to:

• Meet with a transition consultant. This is probably the best step you can take to develop a customized transition plan that will meet your needs and cover all of the bases. This plan can help you mentally prepare for retirement, establish a consistent cash flow after retirement and determine if you will stay on after you sell and for how long. An experienced consultant can also assess how marketable your practice truly is and ascertain what steps are needed before selling your practice. This time is also a great way for the consultant to get to know you and your practice in order to find a buyer who is a good fit.
• Have business valuation performed. A good valuation provides more than what your practice is worth – it can detect any weaknesses of the practice. For example, do you need to manage costs better, tweak schedules or keep up-to-date with current technology? With enough advance planning, there is plenty of time to improve the bottom line, which will increase the practice value.
• Work with your accountant. A CPA can go over your profit and loss statement and depreciation schedules so that you maximize any tax benefits and ensure you are in the right tax structure or find ways to minimize tax. Additionally, as the last year’s tax return is typically the basis of value for a dental practice, plan to finish your last year strong to look attractive to potential buyers. Your accountant can help with that by preparing a clean tax return with all reported income and a plan to post deposits before year-end, pre-pay bills, etc.
• Determine what you need financially from the transition. Will this be your entire retirement or just the cherry on top? This also lends itself to another question – will you sell your practice or just your patient charts and merge them into another practice. Each of these options can have much different outcomes. You will need to set things up accordingly.
• Assess if your office and equipment are up to date. Don’t wait until a year or two before you retire to make upgrades, you won’t recoup the cost. However, new carpet, ergonomic chairs, paint, etc. can really breathe new life into a practice, plus your staff, patients and future buyer will appreciate it. Even at five years out, you should avoid large equipment expenditures with the exception of a digital x-ray machine. This could be a good investment because the person who buys your practice may have never used film.
• Find out if you have liens or debts on your practice. Before you start the process of retiring and selling your dental practice, it is imperative to ensure there are no liens or debts against your practice. Some doctors would rather use the proceeds to pay off the debt instead of paying it off before the sale. That is fine, but you need to let your transition consultant know your situation in order to prepare for a seamless transition. If you are unsure if you have liens or debts, do a UCC search to look through financial records and find any loans you owe or liens you may have on your practice. Each state has its own portal on the secretary of state’s website.

That is a lot to do in just 3-5 years. Enlist the help you need to do everything to fulfill your needs in retirement. Keep in mind that basic retirement planning should start within a few years of graduating from dental school. Having a financial planner, accountant, insurance agent and pension advisor all working together early on will help you in the long run. The following are some general guidelines to consider well in advance of retirement that will then help you when that time comes.

• Don’t get into a bad spending cycle. As you earn a little more, you might start spending a lot more. A great habit to get into is to diligently track your spending. Use a money management tracking software to analyze your spending patterns and adjust accordingly.
• Save for tomorrow, today. While it’s great to try and pay down debt right now, if you are sacrificing retirement dollars for some debt reduction in your practice today, you might be sorry. It is essential to reduce debt sensibly with a long-term strategy that considers interest rates, your age, tax rates and your retirement goals.
• Invest in yourself. A well-maintained, up-to-date practice will always sell easier than those that are ignored. Some buyers don’t look past a dated office and equipment to realize there is a great patient base. Plus, when you make expenditures early enough, you, your staff and your patients will enjoy the majority of the useful life of the equipment or improvement.
• Make smart investments. While updating your basic equipment, décor and leaseholds on a routine basis is smart; make substantial investments wisely. Equipment such as a Cerec machine or a 3D cone beam unit should be purchased only if it will increase your return on investment. A good rule is that it should be used enough to offset the expense. Your patient base should be able to support your investment, don’t hope that it will expand your practice.

Overall, don’t get blindsided. Be prepared to help keep your stress at a minimum and ensure a worry-free transition. While every situation is different, a dental practice transition consultant will do everything possible to make your retirement a painless process.