Retirement may seem like something that you have plenty of time to plan for, but every new dentist should prepare for their financial future as soon as possible. Part of that financial plan should be establishing savings and investments for your eventual retirement. It's never too early to start with the help of professionals such as your accountant or financial advisor.
A retirement plan is a special account where you can set aside money you earn as savings for your retirement. In most cases, you invest the money in this account with the goal of increasing the total amount over time. The major advantage of most retirement accounts is that you don't have to pay taxes on the money you invest until you withdraw the funds at retirement age. This is known as tax deferred growth – and it can help you save more money for retirement than you might otherwise.
As a small business owner, you may want to consider offering a retirement plan for your employees. This benefit can be one more way to maintain long-term staff relationships. In a competitive job market, benefits may be the incentive that allows you to attract and retain quality employees for your practice.
There are many different retirement plans from which to choose, but the bottom line is to start early. The advantages of compound interest can work wonderfully for you and your family's future benefit if you start putting aside even small amounts during your first years in practice.
To illustrate the advantages of starting early, assume at age 21 you started investing $1,000 each year and the investment earned an 8% return. If after 15 years you stop investing and just let the money grow, at age 65 the investment would total $295,000 – even though you only invested $15,000.
By contrast, if you wait until age 36 to get started and invest $1,000 a year and earn 8% for the next 30 years, the investment total would only be $122,000, less than half of what it would have been if you had started at age 21, and you would have invested $30,000 rather than $15,000.
Start planning early for retirement by choosing a plan that fits your situation and developing the discipline to invest in you and your employees' future.
The plan to fit you and your practice will depend on a number of variables such as whether it is designed for you alone or will include employees. In the case of a corporation, the plan could be even more complex.
There are a number of retirement programs that provide tax advantages to both employers and employees. Because the tax benefits as well as the plans themselves can change frequently, check into the latest plan details and comparisons by going to the IRS's website or the Department of Labor's website.
Since all retirement plans are governed by tax and other laws, consult with members of your practice support team, such as your financial advisor, accountant or attorney.
In addition to financial planning and investments, your retirement plan should also address estate planning. Your plan should include a will and specify what will happen to the practice when you retire or die. An estate plan should address a succession plan for an associate, possible sale of the practice and/or merger into another practice, as well as how these transitions will occur, how payment will be made for taxes and assessment of the practice's cash value.