Why is selecting a retirement date important?

by Brian Hufford, CPA, CFP®

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I have been intrigued by the inability of Americans (and American dentists) in this economic winter to imagine a compelling future. Recently a Sunday edition of The New York Times documented author Kevin Kelly's writings on the subject: "The near future – let's peg it as 2020 and beyond – is a blank because there is no version of a near future that seems both desirable and plausible." For dentists who are within two to 10 years of retirement, this desirability and plausibility problem screams the question:

Goals are funny things. In 2007, our firm conducted – in partnership with the Academy of General Dentistry – the only scientific survey ever completed of dentists' retirement preparedness. What we found is that the average desired retirement age for dentists is 62 (this was in 2007). But very few dentists who responded to the survey were actually saving and investing in alignment with their stated age-goal for retirement.

Suppose you are 52 years old and have a vague idea that you want to be in a position to retire at age 62. You think that you are behind in saving for retirement, but you are currently putting two children through college. Saving significant dollars for retirement seems out of the question.

Suppose you are 42, have a vague idea that you wish to retire at age 62, but think that first you want to eliminate some debt. You still have 20 years to address the retirement savings needed and will save more when you are out of debt.

What is needed is a whole new way to think about retirement and a retirement date. In actuality, your ultimate decision to retire will be dependent on only one of two things.

Either you will be unable to work because of illness or physical limitations, or you will have enough saved that you will have a choice to quit working. Ironically, neither is age dependent.

There are many 67-year-old dentists who are working right now with no confidence that savings will meet income needs. There are also a few 67-year-old dentists who are working even though they have sufficient savings because they love dentistry. Their savings have allowed them to orient their practices and time off in a way that makes each day and each year enjoyable.

So, again, why is selecting a retirement date important?

There are three areas that a dentist needs to address to have a choice to retire. We call these the Three Retirement Leadership Variables. They are retirement date, annual savings needed, and retirement income desired.

Each variable is dependent on the other two. Each variable is custom to each dentist. To have a choice to retire at age 62, you need to calculate and lead the creation of the annual savings to provide the retirement income goal.

Suppose you need to save $70,000 per year to achieve the possibility of retirement at age 62, and you are only saving $23,000 in a SIMPLE-IRA arrangement because you have children in college or you want to retire debt. The truth is you have not selected a retirement date. You have chosen to work indefinitely, if you are physically able. By not calculating or finding the needed annual savings, you will not have a choice to retire.

Don't let economic and investment uncertainty force you into a fallout shelter. Set a retirement date, estimate the income you will need, and create a plan to find the annual savings. When retirement savings are a priority, competing priorities – such as college for children or paying off debt rapidly or new equipment for the practice – will be managed in a way that will not sabotage the savings goal. You may need to use student loans for college, pay debt more slowly, or possibly use debt to finance new equipment – all with the determination to make the annual savings happen.

Have you set a retirement date or have you only set a retirement age?

Our survey indicates most dentists have identified an age when dentistry will become physically challenging; however, setting a retirement date means that you have a plan to address the Three Retirement Leadership Variables. Having a plan means that you know how much income you will need, are funding the annual savings goal, and have set the date for your retirement.

Brian Hufford, CPA, CFP®, is CEO of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. Contact Hufford at (888) 470-3064 or [email protected].