Financial Planning

Why Most Dentists Won’t Achieve Their Retirement Goal


Mark McNulty


June 17, 2014

June 17, 2014

Based on my experience, I estimate that over 70 per cent of the dentists practicing today will not achieve their financial goals. This belief comes from 18 years of conversations with dentists about their finances, as well as information from files my firm collected the decade before that. What makes this situation even worse? This was during a period when things were good – dentists were scarce and patients plentiful. That is not the case today in most of Ontario.

Most people have a goal to retire one day. I do not know a single person who wants to spend less when they reach this all important milestone. The average dentist I know spends $150,000 per year after-tax ($12,500 per month) in retirement. This means if you want to retire by age 62, you will need $3.8 million in savings. Most dentists don’t reach this target.

WHY WILL MOST FAIL?• As many people do, dentists spend a lot of money when compared to what they earn. Overspending is undeniably the main reason most dentists will not achieve their financial goals. It is also the most neglected. If you want to achieve your financial goals it is actually quite simple – track your personal spending and spend less than you make.

• Their goals are not clear. If you don’t have a target you are working towards, how can you know if you are making forward financial progress?

• They do not take the time necessary to properly manage their practice and personal affairs. The majority of people (dentists included) run their lives looking backwards. Around April when they receive their taxreturn from their accountant, they realize what happened the previous year. Unfortunately, when the year is complete you cannot make any changes.

• They rely on disjointed advice from advisors. Many advisors have great ideas, but because they are not focusing on your big picture they are limited in their understanding of how their idea will impact the other areas of your financial plan.

• They purchase financial products that do not deliver on their promises, and are sold by commissioned salespeople with obvious conflicts of interest. A big part of the financial industry is just a marketing machine. They figure out what your needs and concerns are, then develop products that, on paper, fulfill your need or address your concern with little or no work on your part. A proper financial plan is a model – it is not a product.

• They treat each aspect of their practice and personal financial affairs separately. You are your practice and your practice is you. If your practice is making less money than last year, then you need to spend less money personally.

WHAT IS THE SOLUTION?We have seen and used many different models of financial management for dentists over the past thirty years. The one that works the best integrates all your practice and personal resources and focuses them on your financial goals. We call this a Big Picture Game Plan.

STEP ONE:  ESTABLISH YOUR STARTING POINTWhere are you today in a financial sense? This includes a calculation of your practice and personal cash flow, and a statement of your Net Worth.

STEP TWO: QUANTIFY YOUR GOALSIdentify the size of the nest egg needed to fund your future, and by when you need to reach it. It is your eventual target or destination.


Once we have a good idea of your Starting Point (where you are today in a financial sense), we need to overlay strategies to see if they bring you closer to your goals. These strategies might include incorporation, cash flow tracking, risk management in your investments, tax planning, etc. STEP FOUR: MONITOR AND UPDATEWe recommend you set up systems to provide ongoing reporting on your progress against the plan. You should have a quarterly statement that shows you more than how your investments performed or how your practice did. This single report should tell you how all the key indicators in your financial plan operated, and illustrate how you made forward financial progress in that quarter.

I realize this seems like a great deal of work, and you should be focusing on doing what you do best—dentistry. If you cannot find sufficient time to complete these four steps, I encourage you to surround yourself with a team who can. Remember, sound financial planning is five per cent planning and 95 per cent implementation. You don’t just need to develop a plan, you need to live your plan.