Recently I had a dentist in his mid-forties ask me about whether he would need the same level of income in retirement as he has now. We know that financial planners will tell us that 80 – 90% of working years income will be needed to maintain a similar lifestyle. I believe the answer is much more complex.
Many dentists do not think much about retirement until they are well into their 40’s or 50’s. When they do think about retirement the thought process is often dreamy and incoherent. Like where they will travel or have a beach house. The thought process needs to be more focused.
The ADA Health Policy Institute has published a number of papers on dentist incomes, retirement savings and graduation rates in the past few years. The papers indicate that dentist incomes have been trending lower, 90% of dentists have not saved enough to retire and maintain the same lifestyle and we are graduating more dentists than the number retiring. This is very sobering information.
We all know that most new dentists are graduating with significant debt. That debt burden is impacting what type of practice these people choose. Corporate practice with an income guarantee looks attractive compared to the risk of starting a private practice or even an associateship. The new graduates and many other more experienced dentists have missed two important axioms:
Behavior is hard to teach – it is a complex and adaptive system. Much of our behavior is based on our culture/upbringing and our life experience. This is especially true with regard to bearing risk. Thus we find that behavior is also very hard to change because change involves risk.
Spend less than you earn – and save the difference. Our society is so strongly influenced by social media and instant gratification that this concept is difficult for almost anyone alive today. However, for those who grasp these two concepts a comfortable retirement is possible. Those who don’t will work far longer than they have ever dreamed.
My first questions to my early middle age dentist were not about money. They were: “Have you considered what will keep you busy when you stop working?” “Have you discussed your idea of retirement with your wife?” “Are you in agreement and can you both change behaviors enough to make it work?
Some of us should never retire as our work is our sense of self-worth and we may have no other satisfying outlets. Others have passions outside dentistry that they can pursue. And others are waiting to explore a world they never had time for while working. In all of these situations, if you can cope with the needed behavioral change the funds needed in retirement will be less of an issue.
Funding a retirement program is very important. It should be started as soon as you have any income – Live on less than you earn! Most planners will suggest that at minimum we should strive for two million dollars in retirement savings. But what we see is that those who have prepared mentally and emotionally to retire are still happy even if they discover that they need to have a change in lifestyle.
My three key thoughts for my friend:
Live on less that you earn – save and invest the difference, understand the effects of compounding – commitment and patience pay off.
Invest in your practice first – your money, your time, your effort, to get better at what you love to do.
Know your numbers – have a budget at work and at home and stick to it.