[Editor's Note: Doug Carlsen, DDS, is a dentist who retired at 53. He is a new columnist at The White Coat Investor. This is his second column. Let me know how you like his articles by email or in the comments section.]
In 2007, I wrote an article for Dental Economics titled “Retire by 50.” It described a small and quiet group of dentists who amass wealth early and then fall off the radar before the rest of us notice. They don’t feel their careers are unique, and they certainly are not flashy. Thus, they are difficult to find!
In the article, I followed a Dr. Howe (name changed to protect the innocent) of San Diego who was able to retire from active practice at age 43. Dr. Howe was able to pay off his practice loan in three and a half years and his personal residence in six years while saving an average of $120,000 per year for retirement.
Quotes from Dr. Howe on Dentist Retirement
“In your practice, don’t be a sucker for technology sold to you by someone seeking a high commission…Wait a few years and gather positive and negative information, especially in regard to your return on investment before purchasing anything new.
“Any decision to spend capital is a decision to work longer to pay for that decision. Your retirement age will be extended accordingly. Don’t get caught in the sizzle of the moment. People use shopping as a recreational activity. They become addicted to the next big ‘thrill’ purchase.”
The article then listed personal and practice traits that were found in a group of dentists who retired early. The trends found were much different than those heard at dental lectures and in the media. After the article was published, many more early retirees came forth with similar personal and practice traits. I now have a core group of well over 100 dentists who have had the choice to retire at the same level of consumption that they had while working. They all have been able to retire by age 55.
The Lindsey Interview
Several years after the article was published, Dr. Heather Lindsey (not her real name) offered additional insights in this interview.
Carlsen: You ran a private practice in the Los Angeles area for twenty years. What was your private practice vision?
Dr. Lindsey: Nothing! Upon further probing she relented, “To enjoy people and save money.”
Carlsen: Who was your guru for practice and personal advice?
Dr. Lindsey: “My husband and my kids.”
Carlsen: What was your practice like?
Lindsey: No high tech, no high production, no glitz. I had two employees with no hygienist. I rarely referred to specialists, and then primarily for orthodontics. If anything, I under-treated rather than over-treated; I never felt pressure to produce. The pride of my practice was that I had several four-generation families. My practice was geared toward relationships, honesty, and loyalty.
I employed simple practice systems. All finance (including billing and payroll) was done in-office, with a CPA monitoring once a year. My employees weren’t overachievers, rather the opposite. A big plus was that they were not highly paid.
Carlsen: What was the smartest financial move you made in your career?
Lindsey: Taking a low salary, at my associate level, for my entire private practice career. At the end of the year after paying all taxes (all monthly expenses were paid in full each month), I would bonus out my corporation.
For retirement, we set up a defined benefit pension and a profit sharing plan starting about 18-20 years ago. The rest was put into after-tax savings. Time was on our side for growth.
For college, I would first fund each kid’s account with a designated amount-usually 5-10 thousand, per year, per child— and invest it in zero coupon treasuries so we made sure the money would be there at age 18. Our investment advisor figured out a projection of college costs for four years at any university in the U.S. and we saved enough accordingly for each.
Carlsen: Do you have specific advice for young dental grads?
Dr. Lindsey: Get out of and stay out of debt. Pay off student loans as soon as possible, so it's not hanging over your head. Start fresh. Don't begin with your own practice, a new house, and loan debt all at once. Start a pension plan or IRA, even with minimum savings and contribute every year. Try not to get caught up in jealousy with friends who may already be in a house. Don't do it until you're ready. Don't buy anything other than a house on time—too much interest expense. Invest in your career experiences—take continuing education classes frequently and find a mentor. Other dentists are usually willing to help new grads learn techniques.
Characteristics of Early Dentist Retirees
- Few had more than three employees.
- Half did not employ a hygienist.
- Very few had a “high tech” office.
- Specialist referrals were rare.
- All had practice overhead under 60%.
- Most owned a practice in only one location for their entire career.
- Less than half had significant practice debt for more than five years.
- Most worked in offices of less than 2,000 square feet.
There was a small group that had 2,500+ square feet offices, more than six employees, and high tech features. These doctors employed practice management consultants on an ongoing basis, had sophisticated tracking and communication systems, had incomes of over $500K per year, and saved 20%+ per year.
- Most bought one home and stayed in it until retirement.
- All were consistent savers, averaging over 20% of net income per year.
- Most paid cash for cars, keeping for more than five years.
- 100% paid off any credit cards monthly.
- Investing: Here there were fewer similarities. Many used traditional brokers, although the trend in recent years has been to work with medical/dental -specific advisers that invest with a discount brokerage. A large group has invested on their own or through financial study clubs. Some have used active management, some passive. Very few were market-timers, having dodged the 2002 and 2008 debacles. The common trait was saving consistently every year.
Everyone interviewed saved substantially each year, averaging over 20% of net practice income. Few of the early retirees had what I call “sequel” loans. The norm was one home loan, one practice loan, and to always pay cash for cars. Any new home or anything expensive was normally purchased with cash the second and subsequent times. This was true before and after retirement.
Final Thoughts on Dentist Retirement
The characteristics of the early retirees may sound Spartan, yet these professionals had many of the characteristics of the millionaires interviewed in Stanley and Danko’s Millionaire Next Door series. Also, many live in larger, more expensive homes than when they practiced and now drive luxury autos. Please note that there are dentists that have made substantial fortunes with large offices and owning multiple practices. The important point is that one does not need to have a large high-tech office with many employees to generate the resources to retire at an early age.
What do you think? Are you a dentist planning to retire early? What do you see as the keys to getting there? Comment below!