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  • #16
    Originally posted by Anne View Post
    Your math is fine but who knows how far your assumptions will be off from reality. You can’t really make a solid plan with hard numbers that you can’t control (e.g. real rate of return) for 20 years in the future. If you are planning on not saving anything else for retirement already in your early 30s and just letting the 720k grow, I think that’s the wrong decision unless you really have some compelling reason you can’t save more and are willing to take the risk of your return being much lower than projected. I would save as much as you comfortably can for the next 5 or so years, reassess and see where you are, whether you think it’s time to spend more/save less or vice versa, and repeat every few years. It’s a lot easier to realize in your 40s that you are way ahead of schedule and have multiple options to spend more/work less/plan for a more extravagant retirement than be in your 40s wishing you had saved more in your 30s.
    Thanks for your input Anne. I do fully intend to continue funding retirement and brokerage accounts (~$100k/year).

    I was wary of my calculations because when I read some of these posts on WCI, people are dumping in hundreds of thousands of dollars every year for retirement and I'm not in the position to do that. I guess these other guys are looking to amass a fortune well above $10-15mil.

    It's nice to know that ~$100k a year in savings can make you a multi-millionaire.


    • #17
      Unless I missed it above, I don’t see where you listed your annual income and what percent of that annual income you’re setting aside towards retirement every year. Don’t just list your W-2 income, also add in draws or distributions from the business plus expenses paid for your benefit through the business. You need to set aside at least 20% of this gross income amount towards retirement every year.

      It’s good that you’re able to own the building where you practice despite being in a high cost of living location. Nevertheless, don’t be one of those dentists whose retirement plan is to sell the practice at the end of your career. Profits from the sale of your practice should be icing on the cake, not your main plan to roll the dice and see whether you have enough to live off of in retirement.

      It sounds like you have one location. How many operatories? Any associates? How many hygienists? Room to expand? Any plans to bring on a partner and sell part of the business (even if you don’t sell part of the real estate)?

      I don’t mean to be all doom and gloom, but what happens to your wife and kids if you get hit by a bus or drop dead from a massive MI prior to enjoying retirement? The value of a practice drops precipitously, week by week, especially if the sole owner dentist was the only doc in the practice. Does your spouse have the dental industry experience and wherewithal to sell this practice for top dollar if you drop dead prior to practice sale? Even if your spouse could manage the practice sale under regular circumstances, considering how awesome and irreplaceable you are, would a grieving spouse be in the best position to sell the practice quickly dealing with funeral arrangements, childcare, will, tax, and estate issues?

      None of this is an argument to buy massive amounts of whole life or something. (Though you should have sufficient term life and disability insurance.). Rather, it’s an argument to have enough in investments outside of the practice that you and your family will be fine with or without the practice. Work through the process of how to sell your practice quickly and for an appropriate sum with your spouse, especially with an eye to having a written plan for practice sale and transition post mortem. Role play or do a table top exercise with your spouse and your accountant and attorney. Acting quickly vs. dithering around for a month or two could make a half million dollar or more difference in the sale of the practice. If you have at least one associate in place, you can fill chairs and not bleed massive amounts of money each week until the practice sale goes through.

      I’m a big fan of having plenty of money in qualified funds and a taxable account in addition to a growing, successful practice. That said, the highest ROI investment you can make might be a CE course to add a profitable procedure that interests you and adds CDT codes you aren’t already doing in your practice. If you have an interest in orthodontics, implants, molar endo, airway and sleep apnea, or something else, take a good quality class and add something you’re passionate about to your practice. A onetime cost of $20-30K for something that can add $200K in practice revenue every year is a great investment. (For tax purposes, that CE course is a current year expense.)

      Be proud of your business, grow your practice, but don’t put all of your eggs in one basket. Maximize the profit share for your 401(k), not just the employee contribution and required employer match. You may be too young now, but seriously consider a cash balance pension plan when you get older. Make sure you’re saving at least 20% of gross towards retirement and don’t count practice equity as part of your family’s minimum retirement goal. Go through the exercise with your spouse and professional advisors of how to sell your practice in the event of your untimely demise. It probably won’t happen, but I’ve seen survivors screw it up. (The results aren’t pretty, though it could be a good deal for the dentist who eventually buys the practice three or six months down the road.)

      Overall, keep doing excellent dentistry, keep growing the practice, but don’t count chickens when it comes to practice valuation towards retirement.


      • #18
        Originally posted by CoastalDDS View Post

        It's nice to know that ~$100k a year in savings can make you a multi-millionaire.
        It's even simpler. If you do the math and max out your 401k and your Roth IRA (or heck, even just your 401k) from age 22-65 (traditional working years after college) you will become a multi-millionnaire. That assumes 6% growth and you put away $20k/yr (WAY less than $100k). I put that into my calculator and just got nearly $4m by age 65.


        • #19
          Using a TVM calculator (easy to find online nowadays) and since you've estimated your inflation adjusted financial goal.....

          If you have 720k invested now while planning to add 100k per year, and want to reach 6.5M in 19 years then you would need an annual nominal investment return of 7.18% (This ignores any value/growth of Practice and Real Estate)

          If your goal is 2M (subtracting 4.5M from 6.5M do to your estimated Practice and Real Estate 2040 value) and you have 720K invested now, and plan to add 100k yearly to investments then you would need an annual nominal investment return of -2.4%.

          7.18% to - 2.4% return needed depending on if or how much the Practice/Building value may be overestimated in 2040 (of course it could also be worth more).

          sorry, I took a break from doing calculations for myself and saw your post and maybe got carried away


          • #20
            Hi Hank - thanks for probing and poking holes in my post. I went back to the sticky and filled out the requested info.

            To clarify, my wife is also a dentist and she currently has her own practice a couple miles away. We currently both run solo practices with a healthy hygiene department. The plan is to merge the offices in the next 18-24 months. Between our two offices, we currently have 7 ops. Once we merge, we’ll have 9-10 ops. Allowing us to bring in specialists and/or associate(s).

            Before house/kids we had a lower income and higher savings rate

            We bought a house and had 2 kids in 2 years (income went up, but savings rate went down)

            Wife bought her practice in Q4 2019, you know what happened in Q1 2020. We live well below our means, and my income was able to support all of our expenses + save.

            Our savings rate has fluctuated between 25-40%

            Barring another historic event our combined income should grow from $500k. Looking forward to getting our savings rate back to 30%+.

            Stage of Life: 10 years since graduation

            Social Situation: married, both working. 2 young kids

            Annual Income: has varied from $200k-$500k

            Net Worth: $1.5m (not including practice/commercial property)

            Tax Bracket: 33.3% (fed-24%, state-9.3%)

            State of residence: CA

            Insurance Policies:
            • Him: Term Life $1mil (2043), $500k (2047)
              • Disability $10k/month
            • Her: Term Life $1.25mil (2047)
              • Disability $1500/month
            • Appropriate malpractice coverage for both

            Debts ($725k):
            • Mortgage - $680k at 2.9%
            • Student Loans - $45k at 3%

            Debt not included in net worth:
            • Total office/building debt - $2.4mil varies from 3.15-3.75%

            Assets ($700k):
            • Total 401(k) - $350k
            • Total Roth IRA - $120k
            • HSA - $50k
            • Private Equity - $150k
            • 529s - $30k

            Assets not included in net worth ($1mil):
            • His practice (if sold today, after debt/broker paid): $400k
            • Her practice (see above): $100k
            • Commercial property (see above): $550k

            *numbers may vary due to rounding

            Goal is to pay off all debt by 2040.

            Advice on current insurance coverage (life, disability, lack of umbrella?). I am contemplating another $500k-1mil 20 year term policy for myself. Wife disability is low because we feel my income will suffice if she can't work. Need to get umbrella, but not sure how to gauge amount needed.

            Thanks also to JBME and wfpbFI (can't link for some reason, Mod help?). Good to know even without practice/building and putting away $100k for 19 years will set me up for success.

            I'm glad to have posted, I've received quite a bit of great advice so far. Looking forward to your comments on my insurance situation.


            • #21
              CoastalDDS Great reply! Fills in most of the blanks and eliminates most of the concerns or pitfalls I assumed earlier. As a dentist with her own practice, your wife knows the business and can cover for you and supervise a temp or associate dentist if something happened to you.

              You’re right to look at insurance as something to address. I’d recommend $2M to $5M in umbrella. Increase your coverage and deductibles on home and auto to whatever you need to qualify for the umbrella policy. Consider adding another million or two in term for each of you. You could go with a shorter term of 20 or even 10 years for the additional coverage, since your existing policies go to 2043 and 2047.

              I’d really, really recommend increasing disability coverage for your wife. At least pay the premium out of pretax money so the benefit is tax free. The problem isn’t how much your wife or you need to live frugally. It’s if one of you becomes disabled and needs ongoing in home care. Running the practice, taking care of the kids, and taking care of a permanently disabled spouse are three separate full time jobs. $1,500 in monthly disability income (especially pre-tax in California) just isn’t going to cover it.

              Is your wife’s office an adopting employer for the 401(k)? It should be, especially with controller and affiliated service group considerations.

              As for merging the two locations, I know dentist married to dentist couples who work really well with two separate locations, others who work well in the same office at the same time, and others who split the time in the office so they each watch the kids, but at the cost of seeing each other less during the week. All three approaches can work well, but you need to consider what split of skills and procedures as well as clinical dentistry vs managing the business makes sense for the two of you. There are a lot of ways to make this work well. Check for some podcasts from couples who’ve made the transition to working together and consider getting a mentor or at lesser talking extensively with your wife about how you’re going to make working alongside each other work well for both of you.

              Get an associate sooner than later. You both are going to want to go on vacation with the kids, so that means you need staff and another doc or two you can trust when you’re out of the office. Plus you’d be surprised just how well things can work if you have your overhead under control, enough new patients, and more docs doing more work under your roof. Dropping a clinical day and focusing on working on the business instead of working in the business can reap big rewards.

              Are you guys looking at the one location long term, or expanding to multiple locations? I think one location with 9-10 ops makes more sense than a four op practice and another three op practice. (Bringing the specialists under your roof a few days a month makes plenty of sense too.). Do you sell her practice a couple miles down the street to a potential competitor, or are there so many other general dentists between your practice and hers that one more competitor just doesn’t matter?

              On the one hand, you might want to get as much in the asset sale for her practice as you can to fund the build out of your bigger combined office. But be careful with noncompete and non-solicitation provisions when you sell her practice. If patients and good staff members want to follow her to the new location, they should be free to do so. If that’s adequate disclosures and there’s no room for buyer’s remorse, then it’s fine if the practice asset sale goes for $100K or $150K less than what it would be without those limitations in place.


              • #22
                Hank Truly appreciate your in depth responses. I've been looking into it and if one of us has a true disability, needing home care, a nanny/driver, helper to prepare meals, etc will add up quickly. $5k/month (her) may not pay for all the additional expenses, but will definitely help.

                I've been considering the changes to my insurance plan as you mentioned for a while:
                Her disability: $1500 -> $5000/month (post-tax)
                Umbrella policy: $5mil (adjusted home/auto as necessary)
                His life: +$1mil 10-15 year term
                Her life: +$1mil 10-15 year term

                What do you mean by "Is your wife’s office an adopting employer for the 401(k)? It should be, especially with controller and affiliated service group considerations."

                Luckily, my wife has been working PT at my office for a few years so we use her pay to fund the 401(k). She doesn't have a 401(k) at her location yet, figured we wait until we merge.

                We've been practicing long enough to know what we each like/don't like. We *think* we know our strong suites when it comes to making business decisions. We'll definitely have to write down our roles in a merged office. At the moment, we're planning on having a staggered schedule to allow drop-off/pick-up for the kids. -- do you recommend a particular podcast/book/blog?

                Good point on associates, once we merge and our numbers are steady we'll feel more comfortable bringing on an associate and/or specialists.

                In our area, there are more dentists than Starbucks and everyone seems to be busy. Our current plan is to end our lease at her existing location and move the patients into our office. Big concern is patient's loyalty to my wife (only been their dentist for ~2 years). Fortunately, her front desk has been there for 20+ years. The patients love and trust her judgement. When we ran her practice stats, a large number only live 5 minutes from my location. We expect most of them to follow her to the new location.