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As a proud spouse of an amazing dentist, business owner, community leader, and mother, I have a unique perspective to the world of dentistry and how that world often carries over to family life. As a financial advisor running a business focused primarily on dentists and specialists, I have a unique perspective to the challenges dentists often encounter. The combination of these two worlds has led to the realization of consistent themes and issues that seem to pop up every time I meet with a dental family. Tackling these types of decisions as a team is ideal to ensuring a lifetime of financial well-being.
This article showcases the top 3 issues I’ve personally encountered in working with my many dental families the past 10+ years, as a financial advisor, as a former practicing CPA, and as a spouse and trusted colleague in this wonderful dental community. Whether business owner or associate, general or specialist, corporate or private practice, group or solo, new grad or established, these are issues most dental families must navigate throughout the course of their careers. This list is really only scratching the surface, and is designed to spark a conversation between all family and team members.
Whether the practicing spouse is about to retire or beginning a career, I want to stress the importance of protecting the practice, patients, income stream, staff, outside assets, and most importantly, your family.
For most dentists (especially those 45 years old and under), having a solid disability income insurance policy in place to protect future income is important. There are always exceptions, for instance, if you have a dual income family or if your health is such that you won’t get a reasonable offer. Be sure to find a reputable carrier for dentists, opting for, at a minimum, an own occupation rider and future increase option, especially for recent graduates or even while still in dental school or residency. For most dental families, one of the most valuable assets is future income potential.
Other topics relating to protection include life insurance (utilizing a cost-effective term life policy based on current and future liabilities, in my opinion, is usually the way to go, to at least help transfer the potential risk), estate planning (primarily wills and trusts), planned buy / sell agreement, catastrophic buy / sell agreement (in the case of death or permanent disability, your individual disability policy would not typically cover the sale of the practice).
Open communication regarding personal and business financial planning is paramount. Very often, the husband or wife in a dental family is often in the dark regarding their overall financial landscape. And it’s not always the dentist who is in the know and the spouse who isn’t. In my recent experiences, many spouses have begun taking the lead on financial planning while the dentist focuses on his or her bread and butter, which is treating patients properly and running an effective business. Each family has a unique situation, which again requires an open line of communication, in order to design and implement a plan that is fully customizable and always seeking improvement.
Other topics relating to communication include safekeeping of records and passwords, and where to find them, communication between owners and associates, current business partners, future business partners, specialists, and your own personal “board of directors”, which would typically include a financial advisor, CPA, and attorney at a minimum. Understanding that dentists have a very demanding workload that can be physically exhausting is key. Without the support of us spouses, it can be a very grueling ride.
It’s no surprise that most dental families are stuck in a high tax bracket. While it’s ideal to be making money, you definitely want to make sure you’re taking advantage of any tax and estate planning opportunities that may be available on your personal and business taxes.
While my clients overwhelming choose to adopt or participate in some sort of retirement plan at their practice, a cautionary tale about becoming “retirement plan poor”. Similar to the concept of being “house poor”, some have contributed the maximum amounts allowed since an early age, have allowed that to grow, and now want to retire at age 45 or 50…but they can’t touch those retirement savings until they hit their 60s. Just because you have the ability to sock away 50k or 200k each year in a tax-deferred account, doesn’t mean you should. There’s much more to the decision than maxing out your contributions because you can, which you should determine after discussing with both your CPA and financial advisor, ideally in a joint meeting or conference call.
Without a diversified approach to savings, you’re putting all your eggs in one basket that is totally illiquid until you hit a certain age, at least without paying a hefty penalty and tax bill on premature distributions. I’m a big proponent of having different buckets, including pre-tax retirement savings, post-tax retirement savings, rainy day funds, college savings, and potentially some sort of permanent life insurance in the right scenario. That way you can optimize your distributions in retirement to account for unknown tax changes and timing of paying those taxes.
Other topics relating to taxes include cost segregation studies, deductibility of good vs bad debt, accelerated depreciation, payroll tax management, gift planning, legal and tax entity selection, college savings, unrelated business ventures, etc.
Perhaps a teaser for future articles, the other two that round up the Top 5 list are Debt Management (student loan repayment, student loan refinancing options, practice loans, start-up / acquisition loans) and Wealth Management / Financial Planning.
I am honored to be a part of this alliance and aim to help any dental colleague who reaches out for guidance or advice, or maybe just confirmation that they’re on the right path.
Look forward to hearing your thoughts and comments, and ideally some real world experiences you have encountered.
Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC
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