by Jason Smith
President, Founder, Four Quadrants Advisory
Sometimes I feel like dentists take the same approach as a hamster on a wheel, running their hearts out but never getting all that far. They’re working harder all the time, but not seeing any progress with saving for retirement each year. A while back I got a call from a dentist that heard about Four Quadrants Advisory. After some pleasantries, his worry came out laced with urgency. “I need to produce more.”
I slumped in my chair just a bit. Here we go again, I thought. That comment is like the thin outer skin of an onion. You peel that away – and maybe a few more layers – before you get to the good stuff, the real problem. “I need to produce more” means “I need more income” which means “my cash flow is not good, I have a bunch of poorly structured loans, I spend more than I should, I take too much cash out of the practice, my overhead is high and I’m in the mouth all day so I don’t have time to figure this out.”
The ADA surveyed dentists in 2008 and found out that they are not much different than the average American in terms of financial planning. They found that 96% of dentists are not saving enough money to maintain their current lifestyle in retirement. Americans overall don’t save enough, but it’s more alarming for the dentist for two reasons: a cash-based business won’t sell for enough to sustain lasting income, and their lifestyle requires more income at retirement than average. We could all learn a lesson from our grandfathers who emerged from a depressive era with the sense to save and not spend what they don’t have. There is a movement back to this kind of pragmatism today, and it’s just what we need.
It was quiet on the phone. “That’s not your real problem, and you don’t have to produce your way out of this,” I said. He thought he was doing all he could. He has a rudimentary 401k loaded with commission, internal fees, and a lack of management – orphaned while his broker looks for new clients. His CPA means well, but doesn’t have the skills to analyze overhead properly or suggest a cash-flow model that lends itself to saving a lot for retirement. The IRA got some attention as long as taxes were in check, and he intended to save for the kids’ college someday.
Imagine if you could press pause and take a hard look at how everything financial in your life and business is inter-related and then make changes to dramatically increase savings. Pure savings. Not returns in the market, not real estate gains, and not promises from hedge funds, options, shorts, swaps, IPO’s, or complicated insurance products.
It is my belief that a dentist can save more than they think they can and their lifestyle doesn’t have to be compromised. If you’re saving early for retirement, you can save 10% of what you collect. It’s not easy, but it is definitely possible. Do it with a pragmatic methodology that combines great cash flow, acceptable profit, and a custom financial plan. Are you going to produce your way out of it or are you ready to get serious about saving?