Dr. Michael Thompson spent over 35 years building a thriving dental practice. His patients trusted him, his team relied on him, and his community knew him as the go-to dentist. But when it came time to retire, he realized he had focused so much on patient care that he had neglected his own financial future. “I knew how to fix a smile, but I had no idea how to plan for life after dentistry,” he admitted.
Dr. Thompson’s experience is common among dentists. The transition from practice ownership to retirement requires strategic financial planning, investment decisions, and lifestyle adjustments. Whether you’re a few years away or just starting to consider selling your practice, this guide will help you navigate the process effectively. And with the expert guidance of DDSmatch Southwest, you don’t have to go through it alone.
Step 1: Preparing Financially Before Selling Your Practice
The financial foundation you set before selling your practice will determine the quality of your retirement. This step involves assessing your financial needs, obtaining a fair valuation for your practice, and making strategic financial decisions to maximize your post-sale wealth.
Determine Your Financial Freedom Number
Before selling your practice, assess how much money you need to retire comfortably. Financial experts recommend a mix of income sources, including savings, investments, and passive income. Consider these factors:
- Your expected retirement lifestyle (travel, hobbies, philanthropy, etc.)
- Current savings and investments
- Projected healthcare costs (dentists often need higher coverage due to prolonged careers)
- Inflation (estimated at 2-3% per year)
A general rule of thumb is to aim for 25 times your annual retirement expenses in savings and investments.
Get a Professional Practice Valuation
Your dental practice is likely one of your most valuable assets, and obtaining a professional valuation ensures you get a fair market price. This process considers various factors, such as revenue, profitability, and patient retention, to determine a reasonable selling price.
- Factors that influence valuation: Annual revenue, patient retention, technology, and location.
- Common valuation methods: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and percentage of annual revenue (typically 60-80% of collections).
- Hire a specialist: A dental CPA, like those we use at Blue & Co, can provide a thorough, accurate valuation that all parties appreciate.
DDSmatch Southwest specializes in dental practice transitions and can provide a professional valuation to ensure you receive the best possible return on your years of hard work.
Reduce Debt and Maximize Savings
Financially preparing for retirement also means reducing liabilities and strengthening your investment portfolio. Managing debts before selling your practice can prevent financial strain later on.
- Pay down high-interest debt: Reduce business and personal debt to lower your monthly expenses in retirement.
- Maximize retirement contributions: Contribute to tax-advantaged accounts like a 401(k), SEP IRA, or Cash Balance Plan while still earning income.
- Diversify investments: Ensure you’re not overly reliant on practice proceeds.
Step 2: Investment Strategies After Selling Your Practice
Once the sale is complete, the next challenge is managing your wealth effectively. Investing wisely ensures that your funds last throughout retirement, providing both security and growth opportunities.
Build a Balanced Portfolio
A well-structured investment portfolio is key to generating steady income while minimizing risk. Spreading your investments across different asset classes helps maintain financial stability. If you need help finding a trustworthy financial planner, we can help direct you to trustworthy options, too.
- Stocks & Bonds: A mix of equities (growth potential) and bonds (stability and income).
- Real Estate: Many dentists invest in real estate, either by retaining ownership of their practice’s building for rental income or purchasing additional properties.
- Dividend-Paying Stocks: Provide passive income in retirement.
- Annuities: Can provide guaranteed income, but research fees and payout structures carefully.
Tax-Efficient Withdrawal Strategies
Minimizing taxes on withdrawals can significantly impact your retirement income. Proper planning can help you retain more of your money over time.
- Withdraw from taxable accounts first to allow tax-advantaged accounts to grow.
- Use Roth IRAs strategically for tax-free income later in retirement.
- Consider capital gains tax planning when selling investments.
Step 3: Lifestyle Planning and Emotional Readiness
Retirement is more than just a financial shift—it’s a lifestyle transformation. Many dentists struggle with the emotional impact of leaving their careers behind. Planning for how you’ll spend your time can make the transition smoother and more fulfilling.
Defining Your Post-Retirement Purpose
Without the structure of daily practice, some retirees feel lost. Identifying new goals and passions can help maintain a sense of fulfillment.
- Part-time or volunteer dentistry: Teaching, mentoring young dentists, or working in underserved areas.
- Hobbies and passions: Golf, travel, writing, art, or community service.
- Starting a new business: Many dentists launch consulting firms or invest in new ventures.
Managing the Emotional Side of Selling
Selling a practice isn’t just a financial transaction—it’s an emotional one. Many dentists experience a sense of loss and uncertainty about the future.
- Loss of identity: Dentistry has been their purpose for decades.
- Fear of financial insecurity: Even with proper planning, adjusting to a fixed income can be challenging.
- Concerns for staff and patients: Ensuring a smooth transition is often a priority.
A support system—whether through family, financial advisors, or a peer network—can ease this transition.
Healthcare and Insurance Planning
Healthcare costs are a significant consideration for retiring dentists. Without employer-sponsored insurance, securing the right coverage is crucial.
- Medicare planning: Understand enrollment periods and supplemental coverage options.
- Long-term care insurance: Helps cover assisted living or nursing home expenses.
- Health Savings Accounts (HSAs): If eligible, continue contributing to HSAs before retiring for tax-free medical expense withdrawals.
Step 4: Creating a Legacy and Estate Plan
Leaving a financial legacy ensures that your wealth benefits future generations while honoring your values and goals. Proper estate planning can prevent legal complications and unnecessary taxes.
Estate Planning Basics
Ensure your wealth is distributed according to your wishes:
- Create or update your will to reflect post-sale assets.
- Establish a trust to minimize probate and protect assets.
- Assign power of attorney for financial and healthcare decisions.
Philanthropy and Giving Back
Many dentists want to leave a lasting impact beyond their practice. Options include:
- Setting up a charitable foundation
- Donating to dental schools or scholarships
- Volunteering dental services abroad
What’s Your Next Step?
Selling your dental practice is one of the most significant financial and emotional decisions of your career. By planning early, diversifying investments, and redefining your purpose, you can transition smoothly into a fulfilling and financially secure retirement.
If you’re considering selling your practice, DDSmatch Southwest can help guide you through every step of the process. From valuation to transition planning, they specialize in making dental practice sales smooth and successful. Start the conversation today and take control of your retirement future.