7 Mistakes Dentists Make After Retirement
So you want to know the 7 mistakes dentists make after retirement?
Before I go into them there’s something you need to know (and I’m sure you’ll be seeing this amongst your peers)… more and more dentists in the UK are retiring before the age of 60!
Since the further reduction to the pensions lifetime allowance from £1.25 million to £1 million in 2016, our experience is that many more dentists with healthy NHS and private pensions are considering ‘hanging up’ their dental drills in their 50s.
Any dentist with a pension pot over and above this amount now faces up to a whopping 55% punitive tax bill on the excess. Whilst £1 million might sound like a huge amount of money, and indeed it is, a dentist whose NHS pension (1995 scheme) is worth more than £43,478 per year will exceed the threshold limit (assuming they don’t have any form of pensions protection in place).
So, whilst early retirement may initially be greeted with a certain sense of freedom, the fact is that the choices and actions a dental professional takes after the event can have a serious impact on the rest of their lives. With this in mind, let’s dive in and, in no particular order, take a look at the 7 mistakes dentists make post retirement.
Mistake 1 – Failure to make sufficient lifestyle changes
In 2017, according to the Office of National Statistics the average life expectancy in the UK is now 79.4 years for males and 83.1 years for females. This means that a dentist who retires, at say 58, might have to support themself financially for a further 21 years or more. This could mean introducing a few lifestyle changes to ensure that the ‘well doesn’t run dry‘.
The problem is that personal spending habits are a lot like other habits in that they can build slowly over a period of time and are tough to break. As is generally the case, the more you earn, the more you might be tempted to spend.
Whilst that’s okay when any money spent can be replenished through working, it’s a whole different ball game when retired. Going into retirement without making any necessary lifestyle changes is a common mistake that some dentists fall into, and one that they needn’t and shouldn’t make.
One tip is to track your spending, either by using a programme like excel or a software package like You Need A Budget (I’ve used this for a few years now and highly recommend it).
Mistake 2 – Investing in ‘non-mainstream’ investments
We’ve come across instances where some dentists, who have invested in what we refer to as mainstream investments such as ISAs and pensions throughout their careers, make the decision to invest in non-mainstream alternatives when they’re looking for a home for their business sale proceeds.
When dentists retire, especially those that retire early, they quite rightly feel the need to be actively putting the sale proceeds (and any other cash they have) to work.
Unfortunately, we’ve seen instances where some dentists sink their money into speculative ventures.
A word of warning though – the regulator, the Financial Conduct Authority (FCA), believe all investors should be wary of unregulated collective investment schemes (UCIS), which are a form of speculative investment.
There are many types of collective investment scheme available to investors. The FCA regulate these schemes, including authorised UK schemes (such as pensions and ISAs) and ‘recognised’ schemes from other countries.
In a nutshell, if a collective investment scheme is not authorised or recognised it’s considered to be a UCIS. Unregulated collective investment schemes are not subject to the same restrictions in terms of their investment powers and how they are run.
The FCA advises that if you are considering investing in a UCIS, make sure you read all available information, ensuring you understand and accept the risk that you may lose some or all of your investments.
Don’t forget, if it sounds too good to be true…(you know the rest!).
Mistake 3 – Not laying down a retirement strategy
Out of the 7 mistakes dentists make after retirement, this is arguably the most common. If you want your cash to outlast you, then you really should look to lay down a retirement strategy and long term financial plan. Look at what you need to spend each year on living essentials and take into account things like:
- A rise in living expenses over the next few decades
- Your ongoing longevity – You could live longer than expected
- Potential long-term care costs as you get older
- Whether you want to pass over any money to family, children etc.
In doing so, you’ll have a better understanding of the true amount you’ll need to cover all these eventualities.
So how much do you need a year roughly?
Well, according to a recent study by consumer website Which, who conducted research into how much retirees need to live on to continue a good standard of living, it’s £26,000 per year. This rises to £39,000 if you want to include things like long-haul holidays, new cars, etc.
Our experience over the last 20 + years helping dentists plan their long term futures, is that an average of £4,000 per month/£48,000 per annum after tax is needed.
As highlighted in Mistake 1, you can itemise your own current and likely future expenditure to determine your own figure.
Mistake 4 – Not taking financial advice
One trend that the FCA is concerned about is the number of individuals who are not taking financial advice when deciding to take withdrawals from their personal pensions via pension drawdown.
The FCA’s interim findings in the Retirement Outcomes Review found that:
- Consumers who access their pots early without taking advice typically follow the ‘path of least resistance’, accepting drawdown from their current pension provider without shopping around; and
- Consumers are increasingly accessing drawdown without taking advice. Before the freedoms, 5% of drawdown was bought without advice compared to 30% now. The FCA believe that drawdown is complex and these consumers may need more support and protection
Dentists should also note that they will be liable for additional income tax if they withdraw large amounts that add up to more than their personal income tax allowance. This is often paid at a higher rate and, in addition, they may find themselves owing extra tax at the end of the financial year.
Ultimately, a badly advised dentist could end up paying way more tax than they need to. Finding the most cost efficient way of being taxed when in retirement can be a complicated matter and for this reason, you may want to seek advice from an experienced financial planner who can help.
Mistake 5 – Having too much personal protection cover
Whilst we wouldn’t ever advocate being under-insured, insurance cover (life assurance, income protection, critical illness cover to name a few) that you may have needed during your working life, might not be needed now.
Aside from spending money on unnecessary insurance protection, the more you save (or you may decide to spend it instead), the more your wealth increases and along with it, the dwindling need for certain types of protection.
For these reasons it’s well worth analysing what insurance you do have and where you can cut back if necessary. Remember, being smart with your cash in your retirement is the name of the game!
Mistake 6 – Imbalanced debt reduction
This is not so much a mistake to avoid after retirement, but one that dentists should definitely adhere to before they retire. Nevertheless it impacts heavily on life after retirement, so I’m going to mention it anyway.
Dentists can accumulate a lot of debt – fact!
There’s the training, the buying of a practice, the constant need for new equipment plus regular practice overhauls to ensure patients receive the very best care. This can easily add up to hundreds of thousands of pounds.
The need to pay it off fast might be seen as a priority; however paying it off too quickly could inadvertently result in you not setting aside enough into alternative investment vehicles (for example ISAs, pensions).
Mistake 7 – Not having the right retirement mindset
With the increase in regulation in the dental world, it could be easy to feel bogged down as you approach retirement.
The good news is that the outlook is indeed very rosy for those dentists that have made adequate plans for their retirement. Having helped many dentists achieve their retirement goals, our experience is that Principal dentists feel a great weight lifted from their shoulders once they sell up, even if they are planning to continue working in some capacity for a few years.
There’s definitely a world out there that you may simply be unaware of (you don’t know what you don’t know), so we encourage you to see retirement as a new chapter, an adventure, and a chance to do things that couldn’t have been done before.
So let me ask you…what does a life well-lived look like for you?
There are definitely other mistakes that we’ve seen dentists making along their retirement journey and I’m sure you’ve either made some yourself or have heard of ones your peers have made.
However, seeing as you could live longer in retirement than you actually practised dentistry, the key is to be proactive today and take control of your own situation before it’s too late.