Dental practice transition insights from
Dr. David Phelps, DDS
Financial freedom for dentists and making a dental practice transition during this uncertain economy are key questions facing many practitioners. Whether you are just starting out, own a practice or are looking to retire soon, the question is… how do you create financial security without continued reliance on trading time for dollars? How do you create financial independance from your practice?
Many fall into a trap of building bigger and bigger practices, increasing production and running faster on the hamster wheel. This may generate more income, but without a clear plan and strategy, lifestyle often rises with income, which limits choices and options – creating a “golden handcuffs” scenario. Without careful consideration and intentionality, true Freedom is pushed off for years, even decades longer into an unclarified “someday”.
Somewhere, did you lose the ability to be in charge of our life and time? Too many wait for some mystical day in the future when we can “retire.” This is a bad construct, and many (even the majority) are on this path.
Financial freedom for dentists will not come from a traditional 401k retirement savings plan.
Why? Wall Street stock market financial advisors have indoctrinated us over the years that finance is too complicated. You just need to work hard, save some money, give it to them, and they'll help you with it.
Typically, you put your money into a qualified retirement plan of some kind, like an IRA, 401(k), defined benefit plan, or cash balance plan. But you’re only deferring tax – not reducing it. You're simply kicking the tax can further into the future. Do you think tax rates will go up or down in the future? If history is any guide – there will be a price to be paid.
Also, I call this “ dentist retirement plan” a lockbox because you cannot take that money out to use it until you're 591/2.
Whether you want to make a large purchase, finance your children’s college education or simply invest back into your practice, you have lost the opportunity to take that money if you desire and put it to better use.
Look, I too started a 401(k) back in the nineties because I felt guilty. Everybody talked about having a 401(k) and how you needed it for your employees, and I bought into that. But, three years later, I shut the whole thing down, terminated it and rolled the money back over into everybody's individual IRAs. I wanted to be able to self direct my money and have control over it.
At some point, it will be a scaling a sliding scale, and you’ll need to pay more tax on that money than you originally planned to pay. I also think that the money in the financial markets, particularly retirement accounts, is low hanging fruit for the government.
What is to stop the government from deciding they know more than you do (because that’s what they always say) and announce they’re going to take your 401Ks, cash balances, defined benefit plans, and other retirement plans, and dole it out for you because they don’t think you can do it yourself. They’ll do this because they need the money so badly.
You may or may not agree with me. I’m just forewarning you.
Financial freedom for dentists, surgeons and other medical practitioners does not come by following what everyone else does.
Instead, it’s important to learn the skillsets necessary to manage your own money and make intentional strategic choices… especially now. Our volatile economy has completely changed the game. Maybe you’ve diligently put money away for years are approaching a stage of life and career where you are ready to escape the chair and begin to buy back your time. But can you? Do you know how to orchestrate income from your equity, from your practice sale and/or the money you put in?
The financial world talks about accumulation. But they have no plan for replacing cash flow – the oxygen needed to sustain your lifestyle. Without sustainable cash flow, you will slowly draw down your nest egg in retirement over a number of years. Do you really want to just “hope” that you saved enough?
You can grow what you’ve accumulated if you focus on how that capital creates income. This comes through education, surrounding yourself with a positive network of like-minded professionals and learning from others who have had actual experience in alternative investments like real estate investing.
The process takes time and effort, but it’s a reinvestment in yourself. No one is going to do this for you. It's your freedom, and you need to stay focused on it.