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Joel Greenwald, MD, CFP, is a physician-turned financial planner who exclusively provides financial advice to dentists and physicians. He has contributed many articles to Northwest Dentistry magazine and has been a frequent speaker before the Minnesota Dental Association's Star of the North conference on financial planning. More about Joel Greenwald and his firm, Greenwald Wealth Management, can be found at www.joelgreenwald.com.
The most common question I’m asked at speaking engagements or by new dentist clients is easily, “How much should I be saving towards retirement?”
From my experience counseling hundreds of dentists, retirement planning depends on the stage of your career. From dental school to selling your practice, here are tips to save for a comfortable retirement.
Financial planning textbooks say one should save between 10 and 20 percent of gross income towards retirement. In short, a doctor earning $300,000 per year should aim to save $30,000 - $60,000 annually.
Because dentists have a later start on savings than other professions, due to lengthy schooling, the minimum amount should be 15 percent, 20 percent, or more. Why? Saving towards retirement by living below your means gives you the freedom to cut back or retire when you want. It frees you from being tethered to work long after the satisfaction may be gone.
Once you’re ready save, determine where your annual retirement savings will go. This depends on your stage of life. Early on, most dentists have significant debt, which might include that from school, practice acquisition, a home mortgage, and sometimes even high interest credit cards. Still, the young doctor should always fully fund a pretax retirement vehicle such as the $17,500 allowed annually to a 401(k) or the $12,000 allowed into a SIMPLE IRA.
After fully funding the pretax retirement vehicle, a dentist’s best use of extra funds is often paying down higher interest rate debt (e.g., any debt with an interest rate more than 6%).
Once higher interest debt is paid off, and pretax retirement vehicles are fully funded, the additional savings for retirement should go to an investment account to make up the annual funding goal of at least 15 percent. It is best to set this up as a monthly withdrawal from a checking account into the investment account, so saving for retirement will happen effortlessly and automatically each month.
Mid-career doctors are often balancing saving or funding college for children while continuing to save aggressively for retirement. During the college funding years, it is important that dentists continue to devote at least 15 percent of income â but ideally 20 percent or more â towards retirement savings. Doing so ensures you stay on track to retire at a reasonable age.
For later career dentists, priorities often turn to catch-up retirement vehicles such as expanding the practice’s 401(k) plan to include profit sharing or even cash balance provisions. These vehicles allow pretax savings of $50,000, $100,000, or more to be saved pretax for retirement.
The other priority at this stage of life should be paying off any remaining debt, including your mortgage. It is critical to go into retirement without a mortgage. This will lower your fixed monthly expenses and greatly reduce fixed spending. With a majority of spending being discretionary, you gain the flexibility to reduce spending if needed, such as should the portfolio decline in a bad market.
Saving 15 percent or more of your income while paying down debt early in one’s career or paying for college in mid-career may seem daunting. However, as a majority of my dentist clients are demonstrating, it is doable. The secret is to live below one’s means and the rest falls into place with sensible financial planning.
NOTE: This communication is strictly intended for individuals residing in the states of CA, FL, IL, MN, NJ, NY, OH, OR, PA, SD, TX, WI. No offers may be made or accepted from any resident outside these states due to various state requirements and registration requirements regarding investment products and services.
Securities and advisory services offered through Commonwealth Financial Network, www.FINRA.org/www.SIPC.org, a Registered Investment Adviser. Fixed insurance products and services offered by Greenwald Wealth Management, 1660 South Highway 100, Suite 270, St. Louis Park, MN. 952. 641.7595.