Five mistakes to avoid on the way to retirement
No matter how much you love your job, you should have a solid retirement plan in place.
Avoid these five common mistakes to insure your retirement funds are adequate when the time comes.
1. Counting on your practice to make up the bulk of your nest egg
You invest a lot of time and money into your practice. This includes outfitting the office, purchasing all the necessary equipment, advertising, marketing and building a solid reputation in the community. It makes sense that this business will be worth a good sum to someone looking to take over. The catch? There’s no guarantee that you’ll find the right dentist to take the reins at the right time, especially if your practice is in a small market.
Consider the sale of your practice to be icing on the cake. Don’t count on the payoff as the lion’s share of what you’ll live off in retirement.
2. Paying off student loans too quickly
Owing more than a couple hundred thousand dollars in dental school debt is daunting, but don’t focus so heavily on paying it off early that you neglect to set aside a portion of income for retirement. Compounding returns on your retirement savings can outpace low student loan rates in the long haul.
Set aside a reasonable percentage of your income towards retirement savings before calculating how much extra you can afford to pay off on your loan.
Some dentists feel they “deserve” to live a good life in exchange for putting in the long years of education. They presume that they will be a hefty earner and so spend accordingly. However, the median salary for dentists in the US is about $150,000/year, a very good wage but not a ticket to unfettered spending.
It’s a good idea to set your spending limits according to what you earn now, not to what you hope to earn down the line. Look at the numbers and take emotions out of your budgeting process.
4. Weak business management
If you’re struggling with overhead, cashflow, payroll or any other financial metrics that matter to your business, get help.
The costs of hiring business consultants to address the situation can payoff many fold in the long run.
5. Taking losses in risky investments
Some high-earners to take a high-rolling approach to their investment portfolio. For example, it can be more exciting to invest in an up-and-coming business than in index fund…but it is risky.
It’s OK to invest some money in risky ventures with the potential for a big payoff. Just make sure that these types of investments are only a small fraction of your portfolio, with the rest comprised of safe, traditional investments such as mutual funds and publicly-traded stocks and bonds.