Retirement planning is a long game, and for dentists, there’s a lot at stake. Unlike salaried employees who have structured pensions or employer-sponsored 401(k) plans, dentists must take charge of their own financial future.
The problem? Many don’t realize the mistakes they’re making until it’s too late. Here are some of the most common missteps and how to avoid them.
- Relying Too Much on the Sale of Your Practice
It’s easy to assume that selling your practice will fully fund your retirement. After all, you’ve spent years building its value. However, the market can shift, and your practice may not sell for as much as you expect. If your entire retirement plan depends on selling your practice, you may face a financial shortfall.
What to Do Instead
Diversify your wealth outside of your practice. Invest in a mix of stocks, bonds, real estate, and retirement accounts. A well-balanced portfolio ensures financial stability, even if your practice sells for less than anticipated.
- Delaying the Setup of a Retirement Plan for Your Practice
Many dentists put off setting up a retirement plan due to lack of time or uncertainty about their options. This delay can lead to missed tax advantages and lower savings.
What to Do Instead
Consider setting up a 401(k), SEP SIMPLE IRA, or defined benefit plan. These retirement plans are designed for small business owners and provide both tax benefits and long-term savings. The sooner you start, the better your financial outlook will be.
- Scaling Back Work Too Early
Cutting back on work in the years leading up to retirement might seem appealing, but doing so too soon can hurt both your income and the value of your practice.
A declining practice is harder to sell at a premium price, reducing the amount you can put toward retirement.
What to Do Instead
Maintain a steady production level and consider hiring an associate to ensure a smooth transition. A gradual exit strategy helps sustain revenue and makes your practice more attractive to potential buyers.
- Underestimating Healthcare Costs
One of the biggest financial challenges in retirement is healthcare. Medicare doesn’t cover everything, and unexpected medical expenses can quickly deplete your savings.
What to Do Instead
Plan ahead with:
- A Health Savings Account (HSA) – Offers tax-free growth and withdrawals for qualified medical expenses.
- Long-term care insurance – Helps cover assisted living or nursing home costs.
- Medicare supplement plans – Fill in the gaps not covered by standard Medicare.
By preparing for healthcare costs now, you can avoid financial stress later.
- Not Accounting for Inflation
The cost of living rises over time. A retirement fund that seems sufficient today may fall short 10, 20, or 30 years down the road.
What to Do Instead
Invest in growth-oriented assets like equities and real estate, which have historically outpaced inflation. A portion of your portfolio should be designed to keep up with rising costs to preserve your purchasing power.
- Overlooking Tax Implications in Retirement
Many dentists focus on saving as much as possible but fail to consider how taxes will impact their withdrawals. Without a tax-efficient withdrawal strategy, you could end up paying more in taxes than necessary.
What to Do Instead
Work with a financial advisor to develop a tax-efficient withdrawal plan. This might include:
- Roth conversions – Reduce taxable income later by converting traditional retirement accounts.
- Strategic withdrawals – Balance withdrawals from taxable and tax-deferred accounts.
- Delaying Social Security – Maximizing benefits can reduce taxable income.
Proper planning ensures you keep more of your money during retirement.
Final Thoughts
A well-structured retirement plan doesn’t happen by chance. It requires intentional decision-making, diversification, and tax efficiency.
Whether retirement is five years away or twenty, the best time to refine your plan is right now. Taking proactive steps today will set you up for long-term financial security.
If you have questions about steps you can take to prepare for your eventual transition to retirement, contact us at Engage Advisors. We can help you make a plan, so that whenever you’re ready to retire it’ll be a smooth transition.