5 Actions Dentists Should Take To Build A Retirement That Supports Their Lifestyle

Posted by Mathew Ryan on Mon, Feb 15, 2016

By Mat Ryan,
Financial Planner and Analyst, Four Quadrants Advisory

If you’re a successful Dentist, you should be able to retire with several million in savings, so you can continue the standard of living you have now. Unfortunately, most Dentists aren’t doing that according to an American Dental Association study. 

It concluded that the average income expected by the Dentist at retirement of 49% of current income – or $127,000 expected per year. We think this is a travesty!401KIRA_Egg.jpg

To put it bluntly: if you have at least $750,000 in collections each year, you don’t have an excuse: you should be saving more. You will need to have set aside $8 to $10 million for retirement in order to maintain the lifestyle you're living now. After all, why should you take a step back once you finally reach retirement?

Here are 5 actions you need to take this year to create a retirement that will support your current lifestyle:

1. Put the right savings plan in place
There are savings strategies that work well for some but are not adequate for Dentists. A Simple IRA doesn’t provide the kind of flexibility that a 401K or profit share plan does if you can afford to have one. If you do have one of these, discipline yourself to make regular contributions by setting up an automated paycheck deferral into your retirement account to fund it to the maximum amount by year’s end. And your spouse should be on the practice’s payroll as a front-office employee to maximize the amount of money you can contribute to the practice retirement plan.

To make sure you have more money available to save, you still have to think beyond even these savings instruments. For instance, do you have a $5,000 loan payment that’s about to end? Make a plan for what happens to that budgeted payment once it’s not going toward your loan anymore. You should re-invest it or put it into savings.

2. Skip budgeting - it's overrated
It’s complicated and time-consuming to plan a budget, and let’s face it, are you actually going to stick to it? The better strategy is to live within your means, save proactively, and try to increase the amount you save every year. And you need to invest that saved money properly. We recommend to every client a low-cost, no-commission environment; ideally fee-only one.

3. Run your practice efficiently 
There are two factors to balance to make your practice as efficient as possible. The first is your production. Why not set a goal to surpass last year’s revenue, and then sustainably grow from there?

The other is your overhead level: if it’s above 65% it’s killing your cash flow, and, as a result, your income and savings stream. For every 10% you lower your overhead drops, that means you bring in 10 cents more for every dollar you collect. So if you’re collecting $900,000 a year and you lower your overhead 10 percent, that’s $90,000 more to add to the bottom line.

4. Don't "Sweat the Small Stuff" especially regarding bank accounts
Balance (pun intended) is the key. By watching your cash reserves at home and work each month, you will find it easier to deal with unexpected expenses on both fronts. Remember what I just said about budgeting: live within your means, know how much you need and make sure you have enough at all times.

But too much is also unhealthy. If you have money just sitting in a bank account, it’s not working for you. Once you surpass the level of cash you need to have an adequate safety-net (we recommend 1-1.5 times the amount of monthly expenses) put that excess cash to work! If it’s in your practice account, take it home. If it’s at home, invest it.

5. Keep the cash flowing
This can be difficult given the unexpected challenges that confront dental practice owners such as yourself. But every business owner faces them. The key is responding to these curve balls in a way that doesn’t crunch your cash flow.

You might be so debt-averse that you pay for a new piece of equipment in cash. Inadequate tax management could lead to a big surprise and, therefore, IRS bill at tax time. Maybe your practice hit a slow patch last June and July. No matter the issue, your response must be educated to minimize the number of crunches you have to handle.

Ironically we recommend our clients “sweat the small stuff” because if you are managing details and stay on top of problems when they’re small, the bigger issues will either never materialize or be far less traumatic. Attention to detail will make your practice profitable over the long term, and will put you in a position to have that $10 million retirement – or at least more than you are on pace for now.

What's your plan for retireing the way you want to. If you don't have one, or would like us to review it, you can contact us directly at (877) 720-6213 or send us an e-mail so we can determine together the best place to begin.

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Topics: dental retirement

The Top 1% Club: Saving for the Perfect Retirement

Posted by Jason Smith on Sun, Jun 22, 2014

oneIt’s hard to be proactive when you’re surrounded by the problems of the present. When cash is tight now, and production isn’t giving you the results you expect, that’s what you focus on. You try to fix now before you think about tomorrow. But if that’s your approach, by the time you’re ready to think about tomorrow it will be here. And it’ll be too late.

You have to save for retirement now, and if you want to retire comfortably and happily, you should be saving a lot. According to the ADA, only four percent of dentists will be able to retire by age 65 – mostly due to poor savings and tax planning. In fact, dentists are only saving, on average, $23,000 a year. But if you’re producing $1 million a year or more, you’re anything but average. You’re the best of the best, even if your results aren’t showing it.

You can do better than that. You deserve better than that.

Only a select few are able to reach the $100,000-a-year barrier. In fact, only the top 1% of dentists nationwide are doing it. We’ve never seen anyone crack $65,000 a year in savings, aside from our own clients. It’s an elite club, made up of dentists who have the ambition and discipline to master their finances and build a bright future for themselves. And you can join them.

If you’re producing at a high level already, you can get to that $100,000-a-year level. You can get control of your cash flow, reduce overhead, fix your tax structure, and free up the money you need to build your tomorrow while still living the life you want to live today. We guarantee that in just a year you’ll have 50% more annual savings for retirement – or you won’t pay us. You can do it all, with our help.

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Topics: dental advisor, dental retirement, dental financial planning, Financial Planning, Tax Advisory

Producing More Won’t Lead to Your Retirement

Posted by Jason Smith on Tue, Jun 17, 2014

jason_smithOne of the biggest misconceptions in dentistry is that the only way for you to achieve your financial goals is by producing more. But piling on more work isn’t always the best answer – and can do more harm than good.

What’s the real problem? Consistency – or a lack thereof. Watch the video to learn more about how the multimillion dollar secret for dentists can be your secret, too.


Hi, I'm Jason Smith, founder and CEO of Four Quadrants Advisory. We turn dentists like you into multi-millionaires.

One of the biggest financial pressures and misnomers in dentistry today is feeling like you have to produce your way out in order to achieve financial freedom. We have clients across the country and the one thing they all have in common is they’re not saving as much as they would like for retirement, and they have a lot of month-to-month financial pressures in their practice because of lack of consistency in cash flow. They’re tired of looking at their bank accounts every 2 to 3 days online to see if there's enough money to pay payroll, and they’re tired of getting calls from home asking for another check in the form of a distribution to pay their bills. And a lot of the ups and downs and lack of consistency and the lack of efficiencies are what lead to ultimately not being able to be proactive with saving enough on a monthly basis and taking the pressure off.

Regardless of where your production is, if you’re not on a roadmap that builds cash all the time it's going to lead to a career in dentistry unfortunately where you wonder why you’re 53 years old and don't have enough money for retirement. The American Dental Association says we save $23,000 a year for retirement as the average dentist, and you should be saving well over $100,000 for retirement. And if we can first put the tools in place to save on a monthly basis in our practices and at home, we can become more efficient and we can get you on a financial road to save more for retirement.

This is just a glimpse into the multi-million dollar secret for dentists.

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Topics: dental advisor, dental retirement, Financial Planning, business of dentistry

The Tax Implications of Starting a Dental Practice Transition

Posted by Kathy Collins on Fri, May 9, 2014

tax2The decision to begin the process of transitioning your practice into the hands of your successor is a tough one, of course. It’s been the center of your life for years, and even if you’re totally ready to ride off into the sunset of retirement, it can be tough. If you don’t have your financials in order before you start the process, it can be torture. That includes your taxes.

The way your practice is structured as a business will have a major impact on your tax obligations after selling. There’s a significant difference between what you’ll owe after selling a C-corporation and what you’d own from selling a sole proprietorship, for example. And that all needs to be taken into account before making the sale.

There are two ways to sell your practice – by selling a partnership interest or stock, or by selling off the practice’s assets. Generally you as the seller will prefer the first option, as it carries with it a capital gain treatment of 15-20%. The buyer, on the other hand, will prefer a sale of assets, because then they will reap the benefits of depreciation. If it is not pre-determined by the transition structure in place, you can negotiate with your buyer, and find a level of price and sale type that suits you both the best.

You’ll also need to negotiate the method of financing your buyer will use. In the event that they cannot or prefer not to go through a bank, it’s possible they could pay through seller financing – that is, essentially you would hold a note on the purchase price as negotiated, loan the money to the buyer, and they would pay you back over time. You get the benefit of keeping the bank out as a middleman, and won’t have to recognize the gain from the sale all at once. The flip side to this option, however, is that you lose the time value of money of getting that money to work for you in the market. There are times when seller-financing is ideal, but for the most part, it is not the first choice by anyone because it muddies the relationship between partners.

But when negotiating price, remember this – you won’t be keeping all of the money paid, no matter what. Even if the bank’s not involved, it’s income and you will be taxed for it. So don’t start eyeing that yacht or Lamborghini until the whole procedure is complete – including your tax liability.

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Topics: dental advisor, Practice Transition, dental retirement, dental tax, Tax Advisory

What Happens to Your Practice When You Sell?

Posted by Brogan Baxter on Sun, Apr 27, 2014

SoldIf you do everything right, what happens to your practice immediately after you sell it and retire is up to you, for the most part. You can have a custom transition process, and ensure that everything is executed to your liking. That allows you to find the partner who’s best suited to carry on your legacy, and to protect the parts of your practice that you most value.

The problem is that not every practice can handle the requirements of a custom transition. Do you have enough production, a large enough facility, and low enough overhead to be able to take on an associate? If not you may be forced into a walk-away sell – zero to six months of preparation, then you hand over the keys and leave. That probably doesn’t sound like what you want, so your priority should be to get your finances in order so that you can transition properly. You’re preparing the nursery for the baby, so to speak.

If you have done that, what’s your ideal transition look like to you? What’s most important to you, what do you want to dictate? Don’t try to ask for too much – there will be a lot less interest in joining up with you if you’re perceived as a meddler. Nobody wants to run a practice if they won’t actually be running it.

But there are things that you can do to give you peace of mind. Be up front with your successor, both with your philosophy as a dentist and with what things are important to you. You need to find the perfect successor to your practice, not just the first person who’s willing to come in that’s willing to give you a check.

Finally you need to evaluate the way in which you want to unwind yourself from the practice. Are you going to quit cold turkey? Are you going to phase yourself out, and gradually sell the practice to your new associate? If you’re asking my advice, what’s best for all involved is for you to leave gradually, based on my experiences over the last decade. You get to keep working until you feel totally ready to leave. Your patients get to meet your new partner, and see you work together as a team. And your associate gets the increased goodwill that creates, and will end up keeping more of your current patients – earning you more value for your practice.

In the end, a custom transition isn’t just best for you. It’s best for everyone. Remember, it’s a transition, not a transaction.

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Topics: dental advisor, Practice Transition, dental retirement

How Dentists Should – And Shouldn’t – Invest

Posted by Brogan Baxter on Sun, Apr 20, 2014

crashLast time we discussed the best ways to build a framework that allows you to invest in ways that will help you build wealth from your dental practice. But once you’ve done that, what should you actually do with the money that you invest?

The short answer is, “invest conservatively.” Chasing big returns can be a hard temptation to resist, though. There’s a direct correlation between increased risk and increased potential rate of return, and many dentists feel the pressure to make large sums quickly to try to build a floundering retirement plan. According to the ADA, the average dentist only saves about 10% of their income – around $21,000 – and at that rate, they won’t be able to hit their retirement goals. To try to make up for it, they get forced into investing aggressively to get the big returns, and many get bitten by risky investments that eventually turn south. Anyone remember 2008?

At Four Quadrants Advisory, we recommend a more conservative investment strategy that concentrates on savings first. You don’t need to chase that high rate of return when your practice finances are structured so that you can save $100,000 a year rather than $20,000. To get that kind of money from investing alone, you need a 500% rate of return.

Focus on what you can control – your savings, not stocks – and avoid extreme risk. In 2008’s financial crisis, those who were heavily invested in risky stocks lost between 30 and 40% of their value. Those who were more conservative in their investments lost much less.

Finally, as a dentist you really shouldn’t be investing your own money. You are trying to run a million-dollar dental practice, you’re seeing patients, you’re running a staff, you’re raising a family. You don’t have the time to give your accounts the attention they need to grow the way you need them to. Get a team of qualified advisors to help you, and your money will be in much better hands.

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Topics: dental advisor, Practice Transition, dental retirement, dental financial planning, dental accounting, Financial Planning

Fee-only vs. Commission Investing: Which is Best?

Posted by Brogan Baxter on Fri, Apr 18, 2014

wallstreetIf you’re looking on advice for investing, and all you want is a few hot stock tips, you’ve come to the wrong place. What we will talk about is how to build a comprehensive investment plan that will build wealth in your dental practice and home accounts. There are two main things you need to keep in mind when building the framework of that plan.

The first is that you must do your best to invest in a fee-only environment, as opposed to one where your broker or manager is being paid on commission. The vast majority of people – up to 95% – use commissioned advisors. What’s the difference?

Look at the kinds of investments each type of advisor makes. A commissioned advisor will have you invest more in mutual funds that have commissions or “loads” attached to them. Do you have investments in mutual funds that end the description of the fund with “Class A”, “Class B”, or “Class C”? If so, you are in a commissioned investment. All make your advisor a commission in different places – class A will have a 3-5.75% charge at the front end, class B will have the same charge at the back end, and class C has a back end charge that’s a bit smaller. In other words, if you invest $100, only $95 will actually go into the market if it’s an A share. The rest goes to your advisor and the company they work for. And these fees pile up.

A fee-only advisor is much cheaper in the long run, and much of the time will also make you more money, since investment returns are eroded by these higher commissions. In a relationship like this the advisor is paid only on the value of your accounts rather than by the transaction, meaning that there’s a much closer correlation between the performance of your investments and the amount that you’re paying your advisor.

That’s all important because of the second thing to keep in mind when building an investment strategy – minimizing cost is crucial. There are a lot of hidden costs associated with investing, especially for a commissioned advisor. Administration fees, management fees, 12b-1 fees, the commissions themselves – again, they all add up. Together, they could eat up 5-6% of your return. You have to look at the net returns to see if your investments are really earning you what you need them to earn.

A difference in rate of return of only 3% can change your final values by up to 16% over ten years. In 20 years, the difference grows to 41%. By boosting your rate of return only slightly you can earn nearly twice as much over two decades. That’s a lot of money.

Any book on investing will tell you that a fee-only advisor is the way to go as soon as possible. But most fee-only advisors will only work with accounts that are already over $500,000 or more. That’s why you need to get your practice and personal finances in order generally, so you can take advantage of this and other useful wealth-building strategies.

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Topics: Practice Transition, dental retirement, dental tax, dental financial planning, dental accounting, Financial Planning

It’s Not Too Late to Save for Your Retirement

Posted by Brogan Baxter on Wed, Apr 16, 2014

piggyIt’s never truly too late to start saving for your retirement. Starting early is certainly better. A person who saves $20,000 a year for 25 years will, at the end, have $1.46 million saved. But to get that same amount in only 15 years, you’ll have to save $54,000 a year. In ten years, it’s $101,000 a year.

But if you’re already 50, 60, or even 70 years old it’s too late for that now. Now, it’s more about ambition. It’s about wanting to fight to better your situation, to be in a better place than where you are. If you don’t want to settle, you don’t have to. But the margin of error shrinks considerably. According to the ADA, only 4% of dentists will retire to a lifestyle similar to that which they had while working. Most dentists under 40 years old think they’ll retire at 61, but after 40 reality sets in and most say it won’t be until age 67.

Read the Guide: Financial Planning for Dentists

To get back ahead of the game, everything has to work harmoniously. You need a comprehensive approach that is focused only on building wealth. No new debt, unless it’s crucial to your practice’s operation. You can no longer overstaff just to keep things comfortable. Overhead has to be cut. An older dentist can’t just work more to make more – your practice has to get leaner and more efficient. You need to know your financial numbers, and know them fast so you can react quickly to any issue that comes up.

After your general finances are squared away, you’ll need to prepare to sell your practice. You’ll get 60-70% of your previous year’s revenue as a sale price, most likely. If you’re in a geographically desirable area you may get more than that. But remember that this should supplement what you’ve been saving already – less than a year’s revenue won’t get you very far on its own.

But if you’ve taken these steps and built your practice into a lean wealth-building machine, you shouldn’t have any problems. Even if you start late, you’ll still be able to retire very comfortably.

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Topics: Practice Transition, dental retirement, dental financial planning, Financial Planning

INFOGRAPHIC: 4 Symptoms of a Sick Dental Practice

Posted by Jason Smith on Sun, Mar 30, 2014

You run a successful practice and you're making a good income - but you know things can be better. You've tried practice management and marketing with short-lived results. You're not willing to settle with the status quo, but you don't quite know where to look or what to do about them. You see the signs of problems under the surface, but you're out of ideas for how to deal with them.

Check out our new infographic, 4 Symptoms of a Sick Dental Practice, by clicking on the preview image below. It's designed to show you a few things that could be amiss in your practice's finances and help you determine whether the worries you have are minor - or the start to something serious.


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Topics: dental advisor, Practice Transition, dental retirement, dental tax, dental financial planning, dental accounting, Financial Planning, business of dentistry, Tax Advisory

How Much Do You Need to Save for Your Retirement This Year?

Posted by Brogan Baxter on Fri, Mar 21, 2014

savingretirementCommon sense and logic tell us that the earlier you start saving for retirement, the better off you are. Interest compounds, so money saved at age 30 ends up worth more than what you save at 50. For example: a person who saves $20,000 a year for 25 years will, at the end, have $1.46 million saved. But to get that same amount in only 15 years, you’ll have to save $54,000 a year. In ten years, it’s $101,000 a year.

You probably don’t want to save $101,000 every year, so start now. But how much should you be saving?

That’s a loaded question, because the real answer is that it depends. Helpful, right? Beyond your age, there are several factors to consider. They include your retirement goals, how much you make, and how much (if anything) you’ve already saved.

At Four Quadrants, we plan for our clients to have the same income in retirement as they do while working, if not better (after adjusting for inflation). You’ve probably never been told this, but it is possible for a dentist to retire with between $8 million and $13 million in retirement savings. And we’ve had clients do even better.

Read the Guide: Financial Planning for Dentists

To determine what you’ll need in retirement, think about your current expenses. If you’re making around $400,000 a year, your personal expenses are likely to be around $20,000 a month right now. In five years, because of inflation, you’ll need $22,000 instead to meet that same value. In 15 years you’ll need $31,000 a month. In 25 years it’ll be $54,000 a month.

To plan for a thirty-year retirement (including inflation), that $400,000-a-year dentist must save about 27% of their gross income in order to hit their retirement goal. That amount doesn’t take into account any profit from selling the practice or any related real estate deals – but you can’t put all your eggs in that basket when it comes to the transition. Those sales won’t net you more than 60-75% of your revenue from the previous year and that’s not enough to maintain your lifestyle. Even if you take the above example and plan for a net $1 million to be invested around the retirement age, that only drops the savings percentage from 27% to 23%—hardly the game-changing difference that many dentists think it will be. One only should count on that inflow as supplementary income alongside years of savings.

For a younger dentist, somewhere from 20-30% of your gross income should be saved for retirement. If you’re older – say, within ten years or so of retirement – you should be saving closer to 30-40% of your gross. That way, your retirement won’t be filled with financial worry, and you’ll be able to continue in your current quality of life.

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Topics: dental advisor, dental retirement, dental financial planning, dental accounting, Financial Planning