It’s never too early to prepare for retirement. In fact, the earlier, the better!
Retiring can be a smooth and enjoyable process, or stressful and nerve-racking. Depending on your financial situation, you might even discover that retirement isn’t as close as you thought—news no one ever wants to hear.
Luckily, there are several ways dentists can prepare to leave their practice, and have a smooth-sailing transition from business owner to retiree.
1. Invest in Real Estate
Making smart investments is a superb way to make passive income, but it can also act as a safety net for when you retire.
Real estate is one of the most popular types of investments, and you can take a piece of the pie using a variety of methods. For example, you can buy and rent out properties, or flip low-quality homes and sell them for their new values.
What’s more, plenty of people are already achieving success with real estate investing—which means there are plenty of opportunities for you to pick their brains. So consider taking a look at a few real estate investor websites before getting started.
2. Diversify Your Portfolio
It’s likely you already have some foothold in the stock market. It’s a proven way to increase your income before — and during — retirement.
If you haven’t developed a portfolio yet, don’t worry. It’s never too late to get started. Stocks and bonds are the two most popular choices. Stocks are typically riskier due to their higher volatility, but can yield ROI (return on investment) rather quickly. Bonds, on the other hand, are less risky but take longer to make money from.
Ideally, stock and bond investing should be a long-term strategy. It’s very rare that stocks make a person rich overnight. Plus, taking too much risk means you might lose more money than you can afford.
3. Contribute More to Your Savings Account
According to the Federal Reserve, 71% of Americans have a savings account. However, 39% don’t have enough money to take out $400 in case of an emergency.
While having a savings account is a smart move, it won’t serve its purpose unless you contribute a fair amount to it.
According to TIAA, at least 20% of your income should go toward savings. What’s more, 50% should contribute to necessities while 30% to all other expenditures.
4. Build a Retirement Plan
Most people assume they’ll one day retire, especially when they’re young. But when the age of retirement finally comes, some are surprised that they can’t yet afford it.
Fortunately, this can be avoided by creating and sticking to a retirement plan.
The good news is, retirement plans can be relatively simple to build. Principal recommends doing these five tasks to get started:
- Determine how much money you need to retire
- Save and invest
- Find out how social security fits into your retirement plan
- Decide how to make more money if you’re coming up short
- Review and check up on your 401(k) plan and IRA 1-2 times per year
5. Make a Debt Reduction Strategy
The PEW Charitable Trusts reports that 80% of Americans are caught up in debt. Depending on how big the debt is, its impact on your retirement plans can be detrimental.
To escape debt, be able to retire, and sleep easy knowing you can afford to, consider making a debt reduction strategy.
It’s exactly what it sounds like—a plan to lower your debt. Credit Card Insider offers several ways to pay off debt, such as through personal loans, balance transfers, the “avalanche method,” and more.
6. Create an Exit Plan
Leaving your dental practice involves a lot of steps and people, so it’s best to develop an exit plan years before you plan to retire. You’ll likely need to assemble a lawyer, CPA, practice broker, insurance advisor, investment advisor, and practice consultant.
These professionals determine the resources you need to successfully leave your practice and help you set an exit date, among other goals.
You’ll also need to protect your assets and ensure your practice keeps its value. Your plan will also detail if you’re going to sell the practice to an outsider and develop a contingency plan.
7. Prepare to Sell Your Dental Practice
When the time comes, use your exit plan to prepare to sell your practice. When selling, you have two options:
- Sell to a private practice
- Sell to a DSO (Dental Support Organization)
When selling to a private practice, you’ll need to plan the sale 3-5 years in advance. This gives you enough time to assemble the right team and increase the practice’s sales value.
Selling to a DSO, on the other hand, often means you’ll need to stay on for a small period of time to ensure the ownership transfer goes smoothly. In most cases, selling to a DSO means your practice keeps the same patients and employees—which is why many dentists prefer this method.
Retiring from any profession requires a lot of planning, but retiring from a profession like dentistry can involve even more preparation. Using these tips above and hiring competent experts to guide you through the transition, you can enter retirement with the peace of mind and financial stability you need to enjoy your golden years.