The last word
This is my last Breakthrough Financial Planning column as I move on to my next phase of life.
This is my last Breakthrough Financial Planning column as I move on to my next phase of life. But one can't close a chapter and start a new one without reflecting about its meaning.
Early on in my writing endeavors, with my interest in tax planning, I was proud to introduce dentists to several new tax planning strategies that have become widely used in the profession. For instance, I introduced cost segregation studies for the rapid depreciation of dental office buildings, helped develop several retirement planning strategies that have become best practices (e.g., cross-tested profit sharing plans and paired-plan arrangements with 401(k)/cash balance plans), and explored the pitfalls of several entity issues, particularly those related to S corporations. Tax planning is important to dentistry, but it's certainly not the last word in a dentist's financial success.
READ MORE | Tax planning: The 'Big 3' strategies
Planning a successful retirement has been a central focus of my work. Our firm completed the first-ever scientific survey of dentists' retirement preparedness in partnership with the Academy of General Dentistry. We found that about 15% of dentists were on track to achieve their self-stated retirement goals without the projected sale of their dental practices and about 30% were on track when their projected practice sale values were considered. Knowing that dentists are serious about saving for retirement and having identified the major impediments to saving (specifically, capital expenditures and debt repayment), many of my articles have addressed the right way to manage debt and pay for new equipment. I introduced a cash flow management tool that I named "The Financial Balance Guide," which is intended to help dentists save 20% of their incomes throughout their careers by aligning their financial priorities in the form of "needs," "wants," and "savings." One by-product of the Academy of General Dentistry retirement study was my realization that dentists only accumulate, on average, about five times their incomes in retirement savings by age 60. In other words, with an annual income of $250,000, a dentist's expected savings at age 60 would be 5 times $250,000, or $1.25 million. I've found this expected savings figure often needs to be about 15 times greater than annual income for a successful retirement. Retirement planning is important, but it's not necessarily the last word in financial success either.
So what is the last word related to dentists' financial success? Perhaps the central challenge I have noticed in my career is the tendency dentists have to always put their personal financial well-being last. Academic economists call this tendency "present bias." Present bias describes the reality that when humans are confronted with two future challenges, our focus tends to be on the more urgent, present one versus the more distant and maybe more important strategic one. It is the tendency for dentists to worry mainly about the financial well-being of their practices and about safeguarding their incomes that leads them to purchase the latest technology, eliminate debt, and upgrade a facility without much thought to their personal financial security over a lifetime. Perhaps the last word financially is, "Dentist, treatment-plan thyself! Always proceed with the end in mind-the end being your own personal financial well-being."
READ MORE | New dentists: How much debt is too much?
Finally, that said, I am at the end of my own career and the delight (or burden) of earning an income. My future living expenses now must be met entirely from the savings I've accumulated over a lifetime. While this is a somewhat scary proposition with the world in its present state, my thoughts don't turn to regret for not contributing every last penny to a retirement plan. Rather, my thoughts are filled with pleasant reflection on the relationships I have been privileged to have, both good and bad, over my career. They are filled with immense gratitude to PennWell and Dental Economics for offering me this forum to share ideas with you. They are also filled with a large amount of optimism that dentistry will continue to be a profession of growing prosperity and clinical excellence that blesses the public with incomparable dental health. I hope that, in some small way, I might have contributed to that. My last word is gratitude to you, my readers, for instilling in me a desire to put my best ideas forward, commensurate with the great respect I have for the dental profession.
Brian Hufford has spent nearly three decades working with dentists and other clients to create and execute comprehensive financial planning strategies. In November 2016, he retired from his role as a wealth advisor and dental practice thought leader at Buckingham, a national, independent wealth and financial advisory firm with a specialty in helping dentists achieve their most important goals. To connect with Buckingham, visit BuckinghamAdvisor.com, call (800) 711-2027, or e-mail email@example.com.