KDA Today

KDA Today

For Immediate Release

Date: Dec 21st, 2021
Contact: Dr. Beverly Largent
Phone: 800-292-1855
Email: kda@kyda.org

Begin Purposeful Planning Early in Your Career to Ensure Those Retirement Years Are Truly Golden

Retirement is often looked upon as the “golden years”, where leisure and travel are the focus, and the health issues often associated with the mature individual are not an issue. Dentists who have practiced for 30-40 years may not have the same view of the Golden Years. Retirement may mean that the involvement with other individuals, the meaningful life established, and the fulfillment connected with service to others comes to a screeching halt. Six recently retired dentists, selected randomly, all report satisfaction with their decision to retire. Embarking on a new lifestyle requires preparation. Professional, spiritual, emotional, and financial factors determine a successful retirement.

The average age of a dentist in Kentucky ranges from 47.9 years to 50.1 years, depending on the region. Nationally, the average age for a dentist to retire is 68.8 years. (ADA.org) Obviously, there are a large number of dentists approaching retirement age, or at least an age where preparation for retirement should be high on the priority list. It is highly likely that the Pandemic has skewed the retirement age toward the younger practitioner, and it has definitely placed a focus on emergency exit plans. The number of baby boomers (born 1946-1964) retiring in 2020 surged nationally to three million, surpassing the average of two million from 2011 to 2019. (Pew Research Center, Nov 9, 2021, via Wall Street Journal)

Determining readiness for retirement is difficult and confusing. It requires planning and being honest about emotions surrounding an exit from the 9-5 work life. In her article, “Are you emotionally ready to retire? 8 questions to ask yourself” (WSJ, Nov. 2020) Maryanne Vandervelde offers guidance. The first question is about how you feel on Sunday evening about work on Monday. Is there a dread or a joy when considering going to work on Monday? Have you fully considered your financial future and expenses you are willing to cut if your investments do not produce as expected? What do your retired friends think and are you on the same page as your spouse about where to live and travel? Do you have hobbies or volunteer work to keep you happy once you retire? Do you want gradual retirement, or will you go cold turkey?

Dr. Larry Lynn, from the Kentucky Mountain Dental Society, retired in July 2020, at the height of the pandemic…

“A lot of different factors guided me to the decision. My age, medical condition, a downward spiral of my practice due to the area’s economic issues and dealing with the pandemic.

I had prepared for retirement for two years, but one day driving home from work I decided it was time. I came to peace with my decision and put everything into motion. Last, but not least, I prayed to God for guidance to let me know the timing was right. About two years before retirement, I sat down and went over my financial situation to see if it was feasible. Also, was I mentally ready for the step? Was my wife mentally ready? My biggest obstacle was what to do with my practices (owned two). Selling them was not an option because of the depressed economy in Eastern Kentucky. I decided to donate my equipment and then sold my building.

One glaring thing to remember in retirement is that it is not always by choice. Sometimes life tells us what to do. Be prepared for the curve balls that may come along. My biggest advice for a dentist in private practice is to begin a 401k as early in their career as possible. Retirement must be funded! No money, no retirement! When planning retirement, have multiple exit plans. The obvious does not always happen. Get as much advice from recently retired colleagues about timing of what to do when. Pick their brains and learn from their mistakes. Retirement is different for everyone. I personally love it! Fishing, gardening, and spending quality time with family, all the things that were put on the back burner the past 42 years. Lastly, do what is best for you and your family. Everyone is different with unique needs, but happiness supersedes everything!”

Not everyone who retires from dentistry walks away. Some use their skills in dentistry to help others. Dr. K. Wayne Lose, from the South Central Dental Society, has four to six international trips planned for when travel is, once again, safe. He teaches with (volunteers) mPOWER Approach out of Louisville. He has been with the organization nearly 15 years and has taken one to two trips per year to work in underserved countries.

He teaches in developing countries “where there are no or very few dentists, much like in Chad (Central Africa), which has over 11 million people and no dentists outside of the capital city. I did not believe you could teach lay people (native pastors) how to extract teeth. I had to see it with my own eyes before teaching. Most people in developing countries have no way to travel more than 10-30 miles from their homes, so if you can teach local pastors how to treat their own people, then some training is better than no training. We even teach giving local anesthetic. On the first night, they give injections to each other, then a day and half of lectures and three and a half days of clinics. No handpieces - they only use extraction instruments. Please don’t judge unless you go and see for yourself.”

Not all stories have planned endings. One retired Kentucky dentist suffered broken bones and cancer before fully retiring. He was working part time before the Pandemic, after a three-month absence for cancer treatment, and had no plans to fully retire. The curve ball of the Pandemic caused him to rethink working and he never re-opened after the statewide closure. He is enjoying not practicing and stays busy caring for his wife who has health problems as well.

Dentists usually have multiple options for their private practice at retirement time. Practices may be sold to large business organizations. This option may not be available to those in rural areas and requires long term negotiations. The dentist will likely be required to work for the buying organization for some years before full retirement is available. Hiring an associate with the hope or plan for buy in and eventual purchase is an option. This option requires a personal fit between the senior doctor and the associate. Most first-time associates end in failure, so this option requires planning, willingness to share power, and finding a person who shares practice philosophies. Dentists who walk away from their practices are often ones who are not willing to share power, who do not need the sale of their practices to fund retirement, and who are willing to significantly lower the price of the practice for a quick sale. Most successful retirees have a plan, including contingencies for the unexpected, and institute the plan well in advance of the retirement date.

Perhaps the best contingency plan for unexpected retirement is to NOT include the practice value in the overall retirement plan. Invest early, live below your means, and get out of debt as rapidly as possible. The eventual sale of the practice if that happens, will produce the proverbial golden egg. This lifestyle is also a hedge against the changing face of dental practice ownership.

Preparing early for an eventual practice sale may seem like an unnecessary bit of diligence if the sale of the practice and retirement are not on the immediate horizon. Most of the recommended metrics for practice evaluation are also helpful in determining practice growth and give the dentist/owner a playbook for the direction of the business. These metrics can easily be kept on a monthly or yearly basis.

The American Dental Association offers a comprehensive resource for practice transitions for the retiring dentist, and the new dentist. The following seven metrics are recommended for preparing for a practice evaluation.

1. Practice statistics, including patient flow, new and inactive patients, collections, and productions for 3-5 years is necessary. If kept on a monthly basis and adding in other metrics such as broken appointments, and the number of re-care patients, this information will produce seasonal flow for the practice, and point to areas for improvement. The accuracy of such a document cannot be disputed.
2. Equipment and fixtures, when purchased and condition. A log of information outside of the depreciation schedule, which may contain vague statements such as “equipment” can be invaluable. Armed with this information, most dental supply houses can make a reasonable estimate of equipment value without visiting the office. The brand of the equipment is also necessary when evaluating the value of the practice. This information is also a beneficial resource when dealing with supply houses in the case of equipment failure, when contemplating an upgrade and retiring or selling equipment.
3. Tax returns and financial statements for the past 3-5 years. This seems easy enough, but having it readily assessable is invaluable. This information is required if applying for a loan and revisiting the past 3-5 years of tax returns and financial statements on a yearly basis to include the most recent year is a useful tool. As the old saying goes, you cannot know where you are going if you do not know where you have been.
4. Employee list, including duties and compensation. Not only is this valuable for the potential buyer, but the duties and compensation list may be used when hiring a new employee. Creating this list is a helpful review for the doctor/owner for staff evaluations.
5. Insurance usage. Over the years this metric will change many times. It is not only good for the buyer, but valuable for an ongoing practice. The receptionist/bookkeeper may not have a perfect memory.
6. Mortgage or lease information.
7. Community demographics and Market. Collecting newspaper or internet articles about your community to confirm your beliefs is a valuable tool. Especially if using a national broker, the opinion of the doctor/owner is a personal belief if not substantiated.

With or without the use of a broker, metrics are necessary for a successful transition. It is also important to know how practices are evaluated. Again, ADA Transitions has a guide. There are three general ways to appraise a practice.

1. Asset approach—balance sheet focus, on assets and liabilities. Useful for selling the practice of a deceased dentist, or selling the patient list
2. Income approach—Discounted cash flow; useful for a practice in full production mode with a good track record, and a purposeful plan for the future, used to predict future cash flow
3. Market approach—valuation may be placed on a practice by comparing it to similar practices in the community. Traditionally, practices sell for 60-80% of annual collections.

ADA Practice Transitions is a useful tool for those purchasing a practice. Dr. Suzanne Ebert, VP Dental Practice and Relationship Management; New Dentist News, Jan 2020 wrote in her blog the Predictors of a Successful Practice Transition. They are included here:

1. Keep your options open. Your best path may not be the one you think it will be
2. Think about philosophy of care FIRST
3. Take the time to do it right the first time (and get it in writing!)
4. Listen closely (to yourself and others)
5. Owners: update your practice. Incoming dentists: look past the paint

From the beginning of practice to transitioning to retirement, the message is the same: keep your options open, listen to yourself and others, and do it right the first time.

See additional ADAPT insights in their accompanying article, What Buyers Want: 5 Ways to prepare for a Practice Sale.

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