It is never too early in your career to start funding your retirement. You may only be one day out of school, but you should be thinking about and planning out a retirement fund.
We have found from our surveys that an ongoing decline of interest in practice ownership is making it increasingly difficult for practice owners to sell their practices, and this is causing many doctors to work in their practice years after they wanted to leave.
Unfortunately, less and less new graduates want to own a practice. More of them are looking to become associates in a practice, work 35–40 hours a week and start out with full benefits.
As part of my research, I recently spoke to a doctor in Ohio that was at retirement age. He had been in practice for over 38 years and was ready to retire. I asked him if he had adequately funded his retirement, and he told me that he had always thought that when the time came, he would sell his practice and have plenty to retire on. He found out that he was mistaken.
When I talked with him, his practice had been up for sale for over 3 years, and he couldn’t find a buyer. And of course, he was still working as he had not adequately funded his retirement outside of a practice sale. He was counting on the sale of the practice to handle his retirement. He found out, way too late, that such a plan is not always workable.
I’m hearing this story more and more from doctors all over the country.
Here are a few things that you can do to protect yourself from this situation:
- Place a portion of your monthly overhead into your retirement fund. Budget this in from the start. Retirement is something that needs to be figured into the overhead so that it is taken care of every month. Treat it as you would an equipment lease, a mortgage or employee salaries. Make it an ongoing expense.
- Find a financial planner that can properly advise you on what to do with the money that you set aside each month. Get a professional involved to help you find the best vehicle for your retirement plan.
- Own your practice real estate. This is a big one. Real estate is something that you can always fall back on. Even if you can’t find a buyer for your practice, you can sell real estate. If you own the building, and you find someone to buy the practice, you can lease the building to them and make a residual monthly income off the lease and have that extra income.
- Diversify. Do not put all of your money in one area. I have interviewed doctors from all over the country that told me horror story after horror story about the tens of thousands, even hundreds of thousands of dollars that they lost in the stock market crash. Many of them told me about how they had planned on retiring already, but due to the market crash, they were stuck working for several more years to recover what they had lost. On the other hand, some doctors that lost money when the market crashed fared well overall due to diversification in real estate, other businesses and their retirement funds. Don’t let a loss in one area ruin your plans.
- Have an exit strategy. Decide ahead of time how you want to transition out of your practice. Don’t wait; do it now. Having an actual plan and executing it is vital to you having the retirement future that you want. Of course, the type of practice you have will influence this greatly. A multiple partner practice can draw up a buyout agreement that guarantees each partner has the ability to walk away with an agreed upon amount that can, for example, be based on the yearly gross income of the previous five years. A solo practitioner could start bringing on associates to find a good match for the practice and structure a transition for them over a period of time. You could even offer to provide internships for local graduates that would give you access to possible associates that could eventually buy you out. The bottom line is that you need to have a clear-cut plan and act on it from the beginning. You don’t want to address this issue when you are ready to retire, you want the plan fully executed, so you can retire.
As mentioned above, it is absolutely VITAL to budget your retirement funding into your overhead. Additionally, you should budget a percentage of your monthly income to go to a reserve account every week or every month. This should be treated as an expense. DO NOT put yourself in the position of having to rely on credit cards for an emergency.
If you unexpectedly have a leaky roof, an older piece of equipment breaking down or a new piece of equipment that you need to buy, a built up reserve will help you to cover these situations without dipping into your retirement fund. If you don’t have to use some or all of your reserve, you will have more available for retirement.
The bottom line is that you need to be proactive with your finances to ensure a stable future for you, your practice, your staff and your family. Don’t assume it’ll all work out. It won’t unless you plan it out and make it happen.
If you feel you would benefit from a one on one consultation on any practice management questions or concerns, please fill out the form on this page and we would be more than willing to assist you.