The Millionaire Dentist Podcast

Episode 28: How Much Money Do I Need to Retire?

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On today’s episode of The Millionaire Dentist podcast we discuss how much a dentist needs to save to be able to retire and maintain their current lifestyle. Casey Hiers & Jason Ewers of Four Quadrants Advisory address dentists’ concerns about how much to save for retirement and what an exit strategy looks like.

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Speaker 1:

Hello everyone. Welcome to the Millionaire Dentist podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry, finances, and business practices to help you become the millionaire dentist you deserve to be. Please be advised we do speak with an honest tongue and may not be safe for work.

Casey Hiers:

Hello and welcome. This is Casey Hiers and I'm joined once again with Jason Ewers. Today's topic answers a question that Dennison specialists asked us almost every time that we present continuing education on the business side of dentistry. Today's topic and the question is, how much do I need to retire? Jason, if you had a dollar for every time we've been asked that you could probably retire on your own.

Jason Ewers:

Oh, absolutely.

Casey Hiers:

Now we understand that this year has been quite different with a pandemic and offices closed, but retirement is a static date and it needs to be top of mind. We're going to answer that question today of how much you need to retire with hard numbers. We're going to lay out a scenario. Now, I say that with this caveat, everyone's situation is different and we hear at Four Quadrants advise that a dental specific custom plan is composed for your unique situation.

Jason Ewers:

Yeah, I mean the first question that we're going to have to our listener is, are you willing to take a step back financially in retirement?

Casey Hiers:

Now wait a second. You're going to ask our listener, who went to dental school, put all that work in when an all that debt works their tails off, are they willing to take a step back financially in retirement?

Jason Ewers:

I mean that's the last thing you want to do, you're hoping to at least stay the same lifestyle you currently have or even enjoy a little bit better lifestyle when you retire.

Casey Hiers:

It's a good question. Let's dive into that, if they are willing to take a step back financially in retirement.

Jason Ewers:

Yeah, absolutely. So I'm going to throw out a number here and it's probably going to drop your jaw a little bit, but this is numbers from our clients that we see and this is an average number and if you look back and you go through your bank account at home, you're probably going to be pretty close to this number and that is $20,000 a month is a typical spend rate that we see. That is anything and everything paid by your personal account. So that's house payment, car payments, any type of tuition that you have to pay, everything that's coming out of your bank accounts today.

Casey Hiers:

And it is very common almost every time people think that they spend less than they actually do.

Jason Ewers:

Yeah, I know me personally getting going through my bank account or look at through it and your just like, where does the money go? It's like, I don't remember spending it, but it's $10 for lunch and next thing you know you spend a hundred dollars that day and it adds up.

Casey Hiers:

It adds up quickly. So that $20,000 a month or $240,000 a year of spending for our practice owners, that's an average. Is that correct?

Jason Ewers:

That is an average. Some spend more, some spend a little bit less. And I mean granted, this has been a pandemic, so a lot of us have been home, but I know that I've spent a little bit more money I normally would have been spending this time just sitting around, you got your Amazon open and available. Oh, I'm just going to go ahead and buy that or I'm going to buy this. That's really no different than what you're going to experience when you're actually in retirement, you have all that extra free time and by that free time you end up spending a little bit more money or more than you think you're going to spend.

Casey Hiers:

I'm glad I'm not the only one, Jason, when I'm not working, if my mind is wandering and I'm feeling joy outside in the sun, I'll think of three or four things that I have to have and I start to buy them. So I agree, in retirement it's easy to say, I'll spend less, but there's a couple more items here that you're going to address that. Maybe to the contrary.

Jason Ewers:

I mean, of course you're going to want to travel. You've worked for 20, 30 years, a lot of hours work per week. You put off those travel plans. I'm going to travel when I retire. Take full advantage of that with that new found time that you have. Grandchildren, you'll want to spoil the crap out of your grandchildren. There you go. So you're going to go take them to Disney. We know that's not cheap and you're going to be able to buy them things. If they don't live nearby, you're going to travel to, to where they live, to be able to visit them.

Casey Hiers:

And hopefully Disney opens in 2021 so people can make those trips. But here's a shot out of a cannon, probably less than 50,000 visitors a day like they currently have, prices are probably going to go up. They've been losing $30 million a day. So no doubt that the fun, the travel, spoiling the grandkids, that's going to be a significant cost.

Jason Ewers:

Oh yeah. And if you think the $20,000 is a lot per month thing, 240,000 a year. If you think you spend 50% more or if you think you spend 50% less, the numbers that we're going to give you needed for retirement, just adjust for that.

Casey Hiers:

That's right. And the one thing we didn't mention, which, which is never fun, but medical expenses, insurance expenses in retirement, those are formidable.

Jason Ewers:

Absolutely. We mentioned earlier, we'll say it again, you've really have worked too hard in your career to take a step back when you retire.

Casey Hiers:

Absolutely. No doubt about it. How about the second question? We've talked about willing to take a step back financially. Most of our listeners, if, if they are achievers and don't want to settle as they don't want to take a step back financially, they want to enjoy their retirement and not worry. The second question is, what age do you, do you want to retire? Is it 60? Is it 65? And we hear a wide range of answers. Some will tell me they want to retire yesterday. Others say they'd like to be financially free in their fifties to retire, but they liked dentistry so they could see themselves going longer.

Casey Hiers:

For this example, we're going to say age 60 and age 65. And we're going to give you the answer right now at age 60 bare minimum, we think and know from experience that someone needs to retire is $3.778 million. $3,778,470 to be precise is what we would say with an annual spending of around 240,000. This is at the life span of 90 and we're saying market return, just a conservative 8% market return for this example, but 3.7 and that's living to 90. If you have a younger spouse, there's no more money left for her or him if and there's no legacy or anything to leave for folks. So when we talk bare minimum 3.7 really is. Now at 65, let's say you want to retire at 65 we say the bare minimum is $3.466 and again, bare minimum.

Jason Ewers:

Yeah, that's the numbers. That's what we always been asked. You know, ideally is the age of retirement is when you want to retire on your terms. And if you, like Casey mentioned earlier, if you're 56 and you've got enough money in retirement and your financial team says, yeah, you're good to go, you can retire at 56, have at it, go down to part time, enjoy your life a little bit or continue to work more but you know that you have that knowledge that you could retire at any time.

Casey Hiers:

Now how about those practice owners that want to maximize the profitability of their practice over the duration of most of their career and they don't want to settle for 3.7 million at retirement. If somebody has their financial house in order and is truly maximizing and capturing that profitability, we see it all the time, six, eight, $10 million, $12 million at retirement and they're not changing a whole lot. They are just treating the business side of their practice with the same expertise as the clinical.

Casey Hiers:

But to our listeners, if any of this is making you uncomfortable, you might want to sit down for the next part. How much does a 35 year old practice owner need to save if they want to retire at 60 and here's the setup for you, Jason. You're 35, you realize the importance of retirement, you want to retire at 60 but you also have a lot of student loans. Maybe you were an associate for a couple years and now you own a practice. Most likely you are seven figures in debt. It's really tempting to put off into lay retiring, but age 35 to retire at 60 what would they need to save per year?

Jason Ewers:

That's $47,260 a year, Casey.

Casey Hiers:

And if you wait until you're 40 to start saving anything significant for retirement, that number goes from 47,000 to what?

Jason Ewers:

75,000.

Casey Hiers:

Ouch.

Jason Ewers:

Yeah, So putting off retirement for five years, from 35 to 40 your annual retirement savings goes up almost $30,000.

Casey Hiers:

And we hear that all the time from dentists because they're riddled with so much debt early, they put it off. And at first glance you could understand why they could do that, but then they really get themselves in a pickle. And I hate getting those phone calls from the dentist who's 72 years old. He has no debt, he has very little saved. And while he loves dentistry, he's unable to retire.

Jason Ewers:

Yeah, I think, we mentioned all the time to our clients and people that are interested in becoming part of the firm is, there's good debt and bad debt. Good debt is debt that's going to pay for itself, bring money into the practice. Bad debt, like credit card debt, high interest loans, things like that. So there's a fine balance between paying off debt and saving for retirement.

Casey Hiers:

No doubt about it. Let's give the scenario to our listeners if they're a 45 year old practice owner and they fancy themselves to retire at 65, what would they need to save?

Jason Ewers:

Yeah, that number is $68,750 a year.

Casey Hiers:

And if a 45 year old wants to retire at 60.

Jason Ewers:

$125,000 a year to be able to retire and maintain the current lifestyle that you live.

Casey Hiers:

Now it is common for a dentist to say, well, I really enjoy dentistry and I don't ever see myself fully retiring. That's partially true. Many dentists love helping patients. However, the ugly truth is that many dentists say they don't see themselves ever fully retiring because they can't. And we didn't even mention this part, but what if you experience a medical issue that renders you unable to practice? We've seen a handful of examples recently of someone who is in their early fifties medically, they're unable to practice. That's a scary proposition.

Jason Ewers:

Oh yeah, it absolutely is. And it's scary for the whole family. I mean you're expecting to work another 15 years and you can see just by the numbers we gave earlier what 15 years can do to the end number for retirement and if that is taken from you and you're not able to live the lifestyle that you were living to begin with, that obviously puts a lot of stress on your home life.

Casey Hiers:

It definitely bleeds into that. Here's another false hood that many practice owners, or that we hear, it's many practice owners, they depend on selling their practice and they have the false belief that it's going to make up the majority of their retirement. The first data point to consider is that 80% of associates never become partners. And what that means is that successfully transitioning a practice is no small feat and we say it's at least five years before you can do that correctly. And I'm always saddened by those that want to retire in the next 18 to 24 months and it's just not enough time to properly transition for the most part. And that's when corporate dentistry comes knocking and that topic's for another day. But let's say you do successfully sell your practice. And for simplicity sake, Jason, let's put collections at a million dollars in this example. So someone has a million dollar practice. They generally sell for between 65 and 75% of collections. So run us through this example of a million dollar practice that, let's say they get 70% of collections. Will you run us through that?

Jason Ewers:

Yeah, absolutely. So a million dollar practice sells at 70% of collections, which is a good middle point number of what we see. That means you sell your practice for 700,000. You're not going to get $700,000. Uncle Sam's going to take his lovely cut of 30% so that means you pay uncle Sam 210,000 that means you net about 490,000. Now 490,000 sounds like a pretty big number, but if you go back to our $20,000 a month, that really only buys you two more years of retirement.

Casey Hiers:

That's a good point. A $490,000 infusion of cash is great, no doubt. But if you look at the data, it's a couple more years of retirement and here's the thing, when we present this in a room of dentists, there's always a really good dialogue and good engagement and it typically comes down to wanting to debate the market returns. While we put that at 8% which we find conservative, but 8% is a good general number for this exercise as we look decades down the road. And the other thing that we do is that we say that that spending is a $240,000 a year. You mentioned it earlier, a lot of people like to say, well, I'm going to spend less and here's why and that's okay.

Casey Hiers:

Typically what the conclusion is that whatever the tweak off of this example, it still means dentists are under saving. It means they need to really focus on it. They need to find some help with it. And that there's way too many dentists who are at the age of retirement and cannot retire.

Jason Ewers:

Yeah. And you know, it kind of goes back to the amount of money that you need to start saving. If you're 45 and you want to retire at 65 and you're just starting to really think about retirement and we set $125,000 a year is what you need to retire with and you're only saving 50, you're like, there's no way possible I can save an additional $75,000. I love a story Casey always tells and it's a great story, is a client of ours now and Casey want to share that with us.

Casey Hiers:

Yeah, and it goes back to it is hard to do it on your own. You are the owner of a practice. You are providing excellent dentistry. You're a father, you're a husband, you're a parent and there's so much that goes into that. And then you're supposed to be expected to be a master of business. And I had somebody who was saving about $20,000 a year for retirement, very successful dentists, wildly popular with his patients, excellent clinically. And we got into a little bit of a debate because he felt like it was really hard for him to save the $20,000. I kept referencing the majority of our clients save a hundred thousand dollars or more and he got cross at me and use some lively language to express himself.

Casey Hiers:

But I share this story with you because year too with our firm, we helped him say to $153,000 for retirement and when I reminded him of his anger towards me mentioning a hundred he said, "Casey, the crazy thing is it was so hard for me to save 20 but having a team help me find it in the practice and capture more. I didn't really feel it saving that 153." And it was a compelling story because it is hard to do everything and be all things as a dentist practice owner and too often that's what they're asked about. Jason, how do you feel like some of this is hitting our listeners? Some of these numbers?

Jason Ewers:

Well probably it's right between the eyes Casey.

Casey Hiers:

Well and we've seen a lot of data from dentists around the country and we understand what the real numbers are and how severely dentists do and practice owners do under save for full retirement. But again, just 3.7 to retire at 60, that's a low number and hopefully a lot of listeners out there, some of them might be feeling validated like, well I've got five or 6 million or I'm on track for five or 6 million, so I'm good. And the one thing I would poise to them is if there was a way to potentially bump that number, four or five, $6 million, is that worth investigating? Is that worth listening to? And that's something we do all day, every day, is we help folks save more and they don't feel it.

Jason Ewers:

Yeah, I mean it's really is capital preservation. It's about putting more money away, not relying on the market to make you more money. Taking a little bit less risk but putting more money into the market unlike other thought processes of I'm going to take less money and try to get great returns on the market, which is dramatic and unpredictable as it is, that's another stressor to add to your life. I mean recently, the market has swinging up and down hundreds of points a day and if you're looking at your portfolio and you're seeing that retirement go down and down and down, that's a big stressor. But those are for people that are relying on high returns in the market to be able to retire.

Casey Hiers:

No doubt about it. Well, we like to give our listeners the straight juice in the answer. And today I think we did have of how much do you need to retire at minimum, if you want to retire at age 60, $3.7 million if you want to retire at 65, 3.4. We find that to be a bare minimum and we'd like to see people at eight, 10, 12 million, which is absolutely doable. Jason, this was a good topic and I'm glad we got to share it today with our listeners.

Speaker 1:

That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information and thank you to you, the listener for tuning in. The Millionaire Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.