There’s something strange in the neighborhood. Who ya gonna call ... Myth Busters!
There’s something weird, and it don’t look good. Who ya gonna call ... Myth Busters!
You spend a large part of your career overcoming myths that patients have about what is possible in attaining a beautiful smile and dental health. I see seven myths that permeate dentists’ (and many advisors’) views about how to attain financial success. Let’s look at each myth:
Myth No. 1: Financial success comes from high production, high net income.
When looking back at your career at age 62, it won’t matter what your lifetime’s net income was. All that will matter is how much income your investments produce. Financial success comes from the freedom provided by large annual savings that accumulate with compound growth and a solid-as-a-rock investment portfolio.
Myth No. 2: Financial success comes from not being in debt.
If being out of debt is the key to financial success, then your children who are minors may be more successful than you. They don’t have any debt. They also don’t have any assets. The definition of being broke is having no assets and no debt. You were broke when you started college. Even if you pay all your loans, don’t you still have “debt” if you lease your office space? What about the payroll you have to pay this month and next? It’s not on the balance sheet, but it’s an obligation you have to meet. Focus on savings, not retiring debt.
Myth No. 3: Retirement is an age like 62.
The dictionary’s definition of retirement is to “put out of use.” Most dentists want to work as long as they are healthy. They don’t want to be “put out of use.” Financial freedom is the real goal. Financial freedom, or “retirement,” means doing only things you love and not things you hate to do because you need the money. So why not retire now? Stop doing things you hate because of money. Ultimately, financial freedom will exist only when you replace your income from working. To do this, you need about $1 million in savings for each $50,000 of needed annual income. Based upon what you saved last year, will you get there?
Myth No. 4: Financial success comes from paying the lowest taxes.
There are some real financial dangers that can take you down. One of the most common wealth-ending dangers is participating in cute tax gimmicks designed to eliminate the majority of your income taxes. Several of these have blown up recently due to IRS prosecution of dental tax schemes. This has left participants with audit bills in the hundreds of thousand of dollars. In my opinion, it is not healthy if the primary focus of financial success is to just save taxes. It’s a game with no winner. An example is the dentist who took $80,000 from savings to purchase an SUV when tax rules allowed expensing $100,000 under IRS Code Section 179. He saved $30,000 in income taxes. But he still withdrew $80,000 from savings!
Myth No. 5: I can trust my financial success to my ... CPA, stock broker, life insurance agent, or spouse.
Ultimately, your potential for financial freedom is directly related to the level of ownership and investment of your personal time in the results. Some of the saddest 60-year-olds I know are dentists who trusted their spouse or financial advisor to take responsibility for their retirement. We call this “responding with financial instinct” instead of financial intent. When financial decisions are abdicated to others, the result invariably is disappointing. Others may advise, but you need to take ownership of the outcome.
Myth No. 6: I can rely on my practice’s sale for retirement.
Quite likely, your dental practice is now a valuable asset; however, each year in the next 15 years will progressively see fewer and fewer practicing dentists due to the retirement of baby boomers. Demographics could present challenges to maintaining practice value. Why not simply consider the sale of your practice as a way to pay any remaining debt, and focus on savings only as your means to retirement. If the practice won’t sell, then working another year or two will retire any debt.
Myth No. 7: I’m not going to fund my pension because I will be in a higher tax bracket when I retire.
Sellers of financial products use income or estate tax myths to convince dentists to not fund pension plans. The myth is that, by purchasing a product, you can avoid the onerous result of being in a higher tax bracket when you retire. But if you run the numbers, you’ll find that a pension plan is the best financial vehicle for retirement. While it may not be the best way to leave money to your children, it’s better than having them support you in retirement!
In the end, knowledge and wisdom are the ultimate financial Myth Busters. Who ya gonna call?
Brian Hufford, CPA, CFP®, is president of Hufford Financial Advisors, an independent, fee-only planning firm dedicated to helping dentists achieve financial peace of mind. Many dentists attend Hufford Financial Advisors’ Financial Breakthrough Workshops. Upcoming workshop dates and locations are listed at www.huffordfinancial.com. Contact him at (888) 470-3064, or at [email protected].
