That’s what the average dentist needs in their bank to retire with the same income as they are earning now.
The average dentist in Australia earns between $175-$200K gross. To achieve the same amount of cash at retirement, and based on today’s interest rates of 3% (long-term deposits), you would need to have at least $7M in cash, offering a gross pre-tax yield of $210,000, after-tax and other charges removed the net proceeds could be as low as approximately $125,000 depending on your circumstances.
Scary as it might seem, saving that money over your lifetime is virtually impossible, especially if you start with a young family and work as an associate dentist for private or corporate practice.
So how, then?
Income-producing assets and non-clinical income or Passive income
It is imperative to create non-clinical income.
Wikipedia “Earnings that require little or no effort to earn and maintain.
The tax department divides income into active income, passive income, and portfolio income. Passive income is a type of unearned income that is acquired automatically with minimal labour to earn or maintain. It is often combined with their mainstream income and another source of income, such as a side hustle. Passive income, as an acquired income, is the result of capital growth or is related to the tax deduction mechanism and is taxable later. https://en.wikipedia.org/wiki/Passive_income#:~:text=Passive%20income%20is%20a%20type,passive%20income%2C%20and%20portfolio%20income.
So how do savvy dentists achieve such options from the get-go
Ninety-five per cent of the dentists I meet have accumulated enough to retire by the time they are ready to sell their practice, and when we look into where and how they have achieved such wealth, it’s normally the same story
- They have become self-employed within the first four years of practice.
- Purchased the clinic property as soon as possible or moved to their own premises, thus removing rent.
- Invested heavily in their dental practice equipment
- Purchased second and third dental practices
- Purchased other income-producing property outside of the dental industry
- Split their earning power between partners and other income-producing investments like stocks and shares, short and long-term bank investments, mezzanine finance, and other non-risk investments.
- Taken advantage of Superannuation contributions, and other tax deductions
- Offering equity partnerships to long-standing associates as part of the long-term exit strategy and insurance should something untoward happen along the way (This strategy guarantees the practice’s future and solves good associates walking down the track.
One upcoming popular investment is purchasing in other practices whereby the principal takes up to 49% equity in a smaller clinic.
Depending on the principal’s skill set, the new clinic can expand into a wider range of services, increasing revenue in both clinics while giving greater long-term security for both owners and returning greater value and net profit to both practices.
Another advantage offers greater long-term benefits to all staff, including associates, therapists and OHTs. Staff can be shared between the locations, saving on expensive locums and temp staff when needed while giving greater buying power over suppliers, labs etc.
Savvy dentists have many opportunities to plan for their eventual exit from dentistry. Even if you are beginning your journey, this is the best time to start planning. You will be surprised how much you can get done early.
If you are interested in learning more, I have several well-qualified consultants in my advisor’s panel who are only too willing to help.
Click below for a complimentary consult with one of my panel