Where is your retirement income going to come from?
The ADA survey says we will need funds from four different sources to retire. Make sure you have enough before you quit your day job.
The ADA is a great source of information about dental practices in the U.S.
On the ADA website there is a big section on research about fees, number of dentists in age brackets, and what income and expenses are in the different regions of the country.
One of the things that jumped out at me was the statistics on income, savings, and retirement expectations and realities. I got a late start saving for retirement, so this was interesting to me. A lot of the statistics are from 2009-2011, but I also know that income has been dropping each year since this period, so it probably gives a more optimistic look than the reality.
Some of the raw stats are: in 2009, the average net income of an independently owned practice owner was $192,680. Out of 186,000 actively practicing dentists in the U.S. 72.5 percent, or 170,000, were in private practice. Of that number about 74 percent were male, 26 percent female.
Now the stats become more interesting. In 2010, a survey showed that the mean age dentists planned to retire was 65.5. Dentists under 40 being more optimistic, coming in at a plan for age 60.8, with dentists over 40 planning to retire at 66.9. What I draw from that stat is that if a dentist hasn’t started a strong fund they realize the mountain they have to climb. If I am a good example, when I was approaching 40 I was more concerned with the approaching college funding and buying a nicer home. The reality of retirement was still a distant, vague thought. At that age, you do not realize how fast the years go by, and possibly defer thoughts of retirement.
As a dentist’s practice matures, the average income raises to around $200,000, plus or minus a few thousand, with the peak average of around $222,000 at age 50-54.
The survey also shows that dentists expect to live on $127,000/year when they go into retirement. Their expected sources of income in retirement are:
Private savings such as IRA, SEP or 401K funds = 62.4%.
Social Security = 13.4%
Sale of Practice = 12.7%
Other = 12.5%
I will start explaining this, last one first.
Other—What is your other? Property rental, passive income from other sources, other businesses. Do you have an other, or do other areas make up for this percentage?
Sale of practice—Do you have a practice to sell? If not, then what?
Social Security—This is the most straight forward unless, of course, the government fails. This is a set amount you have no control over once you start the draw. There is a little increase from year to year, but Congress, in their wisdom, gave themselves a raise this year, but not us.
Private savings—Here is where you have to do the most figuring. If you need to get 62.5 percent of your retirement funding from this pot, you need to figure how much you need to fill that pot. With the current return on most investments, it is a lot!