Retirement in a worst-case economy

Sept. 1, 2008
The INDUSTRIAL AGE concept of retirement is dying as quickly as manufacturing jobs in the United States.

by Brian Hufford, CPA, CFP

For more on this topic, go to and search using the following key words: dental retirement, economy, Industrial Age, balanced life, practice transitions, vision.

The INDUSTRIAL AGE concept of retirement is dying as quickly as manufacturing jobs in the United States. An article in The Washington Post chronicled the human toll of United Airlines' $9 billion default on retirement obligations to 120,000 employees and pensioners. The article detailed the devastation for one United pilot, Gerald Innella, who — prior to the bankruptcy — had $500,000 of company stock and a promised pension of $110,000 per year for life. According to the article, Innella's stock sold at bankruptcy for $10,000 and his annual retirement was expected to drop by $80,000 annually. Could other large airlines and U.S. auto companies be next on the list?

Among dentists, retirement attitudes are changing. This change was first noticed in the large retirement preparedness survey that we completed in 2007 with the Academy of General Dentistry. This e-mail survey of 24,000 dentists revealed strong attitudes about the prospect of retirement. We were surprised to find that 62% of respondents indicated the traditional notion of retirement was not foremost in their planning. This group wished to stay connected with dentistry as long as possible, regardless of financial preparedness. Retirement seemed to repulse this group.

The investment performance that has unfolded during the first decade of the 21st century has added to the uncertainty surrounding traditional retirement. Through mid-2008, the S&P 500 had lost 12.9% of its value, and the NASDAQ exchange had lost 43.7% for the decade to date.

In addition, many dentists are concerned about obtaining affordable health insurance coverage in a market that has been unfriendly to 60-something retirees. Dental demographics favor older dentists who work as long as possible, even with a scary economy. From our survey, most dentists see the definition of retirement as "put out of use." Who wants to be put out of use, in any event, whether financially prepared or not? Based upon the current dental retirement, economic, and investment landscape, and at the risk of being proven wrong by future economic events, let me make several predictions about the concept of retirement among current dentists who are late in their careers.

Future investment and economic uncertainty will cause most late-career dentists to work longer than the traditional retirement age of 63. Retirement, which means living on income from investments, will seem too risky unless retirement withdrawal rates are 4% or less of invested retirement capital. In other words, for each $1 million of retirement investments, younger retirees will not be comfortable withdrawing much more than $40,000 per year as retirement income with the investment and economic climate that is likely to be present. This may seem depressing. But we have noticed a trend among 60-something dentists who are financially prepared for retirement but do not wish to retire.

Recently, one of these dentists told me that his ideal scenario is dentistry as a hobby. He is physically healthy and still enjoys dentistry. Since he is financially prepared, realizing the maximum value from his dental practice is not his primary concern. Practicing excellent dentistry and a balance in life are his priorities. He no longer needs to save for retirement so he merely supports his current lifestyle. He has been creative and intentional about pruning his practice schedule to meet his vision of a balanced life. He is also passionate about his avocation, acting in community theater.

Practice transitions and practice brokerage will change. A walk-away practice sale will be more rare because of demographics and the desires of older practitioners to stay connected with dentistry. Future practice transition models will embrace creative transition methods involving mergers and group practice models, which support quality of life for older dentists while allowing them to practice at a reduced pace for longer periods of time. Younger dentists will gain through delayed purchases and the mentoring of older dentists. These new dental transition models are evolving. Currently, many practice brokers and dentists still function in a walk-away-sale mindset. But this vision generally doesn't fit today's economic, demographic, and retirement-goal landscape. We find that once a dentist is clear about late-career goals for a quality-of-life practice, a creative practice transition can make this possible.

The Industrial Age vision of retirement isn't necessarily the best one. Ironically, saving for financial freedom is still paramount. A large savings offers a new definition of retirement: staying connected with dentistry, a balanced life, and more economic certainty by balancing work and time off with the transition of the dental practice in a different way. Dreams never retire.

Brian Hufford, CPA, CFP®, is CEO of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. Contact Hufford at (888) 470-3064, or at [email protected].

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