by Roger P. Levin, DDS, MBA
In the last year, we've noted an increased number of clients seeking advice because they are off-track for their retirement schedule. Some of the more unfortunate cases involved dentists who thought they were going to retire within one to two years, only to find that they have at least five or six more years ahead of them Was this due to poor planning, no planning, or some other event?
The Stock Market
In most cases, these clients planned ahead and seemed well on-target for retirement. Although their savings and investment levels varied, all were confident of retirement before the precipitous stock market decline of the last 24 months. However, the recession and the September 11th terrorist attack meant huge stock-market reversals. On average, these clients lost 21.3 percent of their retirement portfolio from the original market peak.
How to get more money
Whether you are close to retirement or not, there are only a few places for dentists to earn income. Let's take a brief look at some of these areas and determine which are viable options.
Investments
Investments include stocks, bonds, and money markets. You know — those typical investments that most of us use on a regular basis and believe we are geniuses at selecting. Everybody knew that Cisco was going to be the key winner when it was sitting at $33, $75, and $105. Unfortunately, most of us did not know that it would drop to around $15, $20, or $25.
Many dentists have watched their stock portfolios drop dramatically, wiping away a great deal of net worth accumulated in the 1990s.
For most dentists, this translates into at least five to seven more years of working in the practice unless they hit it big somewhere else.
Hitting it big
The second place dentists can accumulate income are on those wild, home-run investments like restaurants, real estate, mortgage companies, horse farms,or lending money to family members with a giant return promised as soon as they hit it big. The truth is, very few dentists ever hit it "big;" most accumulate their nest eggs at a slow, steady pace. Bear in mind that this strategy is much safer than striking out when you are trying to hit a home run.
Practice income
The best investment a dentist will ever make is to help the practice increase its income levels while reducing stress and creating an enjoyable career. When the dentists who had lost a significant portion of their nest eggs looked around, they realized that the best place to accumulate more money for retirement was from their practices. It's what we know best — and it's what we do best.
The main point of this column is to encourage dentists to safely accumulate retirement savings through practice income and conservative, steady investing. The best methods:
- Accumulate income early
- Reduce and/or eliminate debt
- Use compound interest in conservative investments to become financially healthy
All other methods have a significant amount of risk, especially "home-run" investment schemes where you have no expertise or must depend on other people.
Unfortunately, some of our new clients have lost significant amounts of their portfolios, only to take even more risk trying to make up for the losses.
What's gone is gone ... and it is time to get over it. Reallocate your portfolios to more conservative, safe investments and continue to add at a steady pace to your total net worth with the income you accumulate from your practice.
While there are no guarantees in life, conservative savings and investments are the best bet for assuring an outstanding career and financial independence at a reasonable age.
Roger P. Levin, DDS, MBA, president and CEO of The Levin Group and the Levin Advanced Learning Institute, provides worldwide leadership in dental management for general dentists and specialists. Contact The Levin Group at (410) 654-1234.
