Tips for Growing & Conserving Personal Wealth in 2022

July 18, 2022 Richard Green DDS MBA

Stocks and bonds have both fallen in 2022, taking down portfolio balances. Meanwhile, inflation has shot up, tying the hands of many investors—retirees and others, who might otherwise be inclined to reduce spending in periods when our portfolios have lost money.

What Can We Control?

As long-term investors, some of us have experienced these moments before. One of the best ways to minimize worry in a volatile, uncertain market environment is to focus on what we can control.

What we can control is:

  • our savings rate,
  • our spending plan, and
  • our spending rate

In retirement, the spending rate is often referred to as the burn rate.

We can use all three of these levers throughout our lives. Often, these levers influence long-term outcomes more than investment selection or even asset allocation. These three levers are often the main determinant of whether our plan sinks or swims.

We Can Invest More

Increasing our savings rate in down markets allows us an opportunity to invest more when markets are off 10%, 20%, 30%, or more. The process of buying more shares at a lower price point weekly, bi-monthly, or monthly allows us to lower our average cost per share. (This is Dr. L. D. Pankey’s Rule of “7’s” in A Philosophy of the Practice of Dentistry.)

Many investors in accumulation mode prioritize “maxing out” their contributions to tax-sheltered retirement savings vehicles—IRAs, 401(k)s, and more recently, health savings accounts. Yet another type of tax-advantaged contribution has been seeing an increased uptake: after-tax 401(K) contributions.

My recommendation is that you talk seriously with your business accountant to determine if your current business cash flow will support more contributions to your retirement plan, savings, and/or possible after-tax investments.

Consider After-Tax 401(k) Contributions

If there is a knock against after-tax 401(k) plans, it is that many people who have access to them are not using them! They have much to offer.

Plans that offer after-tax contributions, allow investors to stash a full $61,000 in a 401(k) ($67,500 for people over 50), including pretax or Roth contributions, employer matching funds, and after-tax 401(k) contributions.

Assuming the 401(k) is a high-quality one, after-tax contributions tend to beat investing in a taxable brokerage account on an after-tax basis. That’s especially true if the plan offers automatic in-plan conversions. These plans are especially appropriate for high-income, heavy savers, who have access to them.

Required Minimum Distributions Can Be Reinvested in an After-Tax Account

For those already retired, our main lever for the health of our plan is how much we withdraw from our portfolio. If we can find a way to take a bit less when our portfolio is down, we will leave more of our portfolio in place to recover when the market goes back up. One question that inevitably crops up in the realm of portfolio withdrawals is the role of required minimum distributions (RMD’s) and whether they could cause us to prematurely deplete our assets.

The short answer is no! It is always appropriate to evaluate the amount of the RMD, and realize we are not required to spend it all. We can reinvest it in an after-tax  investment account and/or increase our Emergency Fund, as a cushion for future unknown events of which persistent inflation could be one example.

Take a Long-Term Perspective

Focusing on what we can control—especially our savings and spending rate, can provide peace of mind in volatile times, and so can taking a long-term view. Learning more about the history of the stock market and the detailed history of stock market declines, broadens our understanding and can minimize the noise.

The dominant long-term trend is up, and the periodic bear markets, even bad ones like 2007-2009, have been fairly modest blips along the way. It can be easy to lose sight of that long-term view when the market logs one bad day after another.

It is worth training our gaze on the long-term and what we can control by:

  • living on less than we make,
  • saving a greater percentage of our compensation, and
  • becoming more aware of controlling our spending plan and burn rate

To learn more about personal finance, I invite you to sign up for the Pankey Institute course titled Creating More Financial Freedom which will be held March 30 – April 1, 2023.

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Richard Green DDS MBA

Rich Green, D.D.S., M.B.A. is the founder and Director Emeritus of The Pankey Institute Business Systems Development program. He retired from The Pankey Institute in 2004. He has created Evergreen Consulting Group, Inc. www.evergreenconsultinggroup.com, to continue his work encouraging and assisting dentists in making the personal choices that will shape their practices according to their personal vision of success to achieve their preferred future in dentistry. Rich Green received his dental degree from Northwestern University in 1966. He was a early colleague and student of Bob Barkley in Illinois. He had frequent contact with Bob Barkley because of his interest in the behavioral aspects of dentistry. Rich Green has been associated with The Pankey Institute since its inception, first as a student, then as a Visiting Faculty member beginning in 1974, and finally joining the Institute full time in 1994. While maintaining his practice in Hinsdale, IL, Rich Green became involved in the management aspects of dentistry and, in 1981, joined Selection Research Corporation (an affiliate of The Gallup Organization) as an associate. This relationship and his interest in management led to his graduation in 1992 with a Masters in Business Administration from the Keller Graduate School in Chicago.

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Financial Literacy Series: CPI Personal Inflation Early Retirement 

December 20, 2021 Richard Green DDS MBA

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Comments by the Fed – FMOC: Suggest the Fed is trying to gently convince their adoring public that inflation may actually turn out to be “a little stronger than they forecast for a little longer than they forecast.”

Grant Williams’ notes in Things That Make You Go Hmmm:

We may be facing demand-driven inflation as a consequence of misguided monetary policy and misdirected fiscal stimulus. Monetary stimulus had some effect, of course, and the latest growth forecasts suggest, it is already dissipating. The Fed has done so much, so fast, it produced a self-limiting recovery in which supply – chain inflation (caused by all the container ships anchored / waiting in Los Angeles / Long Beach) tend to cap potential growth. The trucking industry may also be a part of the log-jam, backing up deliveries.

5.9% Announcement by Social Security

That is the increase that retirees receiving Social Security will pick up next year to account for inflation. It is the biggest jump in 39 years and captures what consumers have been feeling acutely over the past year: Stuff is getting more expensive.

The fact that Social Security payouts will reflect higher costs is certainly a plus for that portion of retirees’ income streams. Inflation may prove fleeting, a short-term blip resulting from pent-up pandemic demand and snarled supply chains, or it could persist. Or, it could be that the medical premium portion of Social Security could be increased and consume much of the 5.9% announced increase. No one has said much yet, other than the increase of 5.9%.

Dentist’s and Retirees Take Note

I believe all dentists and retirees can learn to think about inflation more individually and holistically. We can start with taking stock of our own rate of inflation, which is not a standard CPI. We can look at the details of our Personal Spending Plans (Budgets); a function of what we spend our money on and how much inflation we are seeing in those outlays. Inflation considerations also extend to our portfolio; think about our withdrawal or “burn” rate, if retired, as well as what kind of inflation protection to embed in our portfolio’s. (more on this below)

We can also look at, and think about inflation today, examine our own personal inflation rate, and safeguard against inflation’s corrosive effect on our investments and our Economic Engine. For most dentist’s, our Economic Engine is our dental practice. We can study our line items on our Profit and Loss Statements and/or our Management Income Statements (MIS), year-over-year or twelve month roll, looking for inflation creep in line items like; consumable dental supplies, laboratory costs, salary and benefits (hygiene, clinical, and administrative teams), occupancy total costs, administrative supplies and services, notice the rise in dental equipment cost (replacement costs), along with financing costs. All of the above will combine into our Personal CPI, which may well require an adjustment in our dental fees.

Calculating Our Own

As we collect our personal and practice inflation data, be willing to ask a question; what are we discovering? If looking at the FOMC CPI weightings and they look nothing like our own, when considering our increased household and practice spending, we are most likely on the right track. Our outlays for housing may diverge significantly from the CPI percentages, especially if we live in a paid-off home. We will still have costs for upkeep, insurance, and property taxes, which are also included in Housing Costs.

By doing the above exercises, we can learn to tweak inflation expectations, pro-actively while attempting to keep then in-line for each of line items, and incorporating our own experiences and discoveries. At the same time, it is important to not come away with a false sense of precision with respect to inflation. For one thing, inflation statistics can vary by section of our country, state, and even town by town. Moreover, a number that can bear paying attention, is the trend in our actual, all-in spending, which depends on a few key variables: our fixed and discretionary expenses, as well as, what is going on with inflation in each of the spending categories. Ultimately, our aggregate household and practice spending trend matters more because we exert a level of control over some of our spending, where the overall inflation rate is out of our hands.

Early Retirement

Is early retirement is on your radar? Data suggests that the case for a growing share of workers, inflation protection is an even bigger hurdle. That is because we will be using our retirement dollars, and spending them over a longer time horizon, when starting early. This increases the odds that inflation could flare up sometime during our drawdown period: pay attention to withdrawal rates, portfolio construction, and Social Security adjustments.

Investment returns over the next decade might not be so great, some experts warn. Be prepared to rein in our spending in case a lousy market materializes. A threat of experiencing big portfolio losses early on in retirement, when our portfolio value is at its highest, is one of the key threats to the durability of any retirement plan. And sequencing risk looms particularly large in environments like the current one, when bond yields are low and equity valuations are on the high side. If market returns are indeed lower than our two decade averages, in the first few years of retirement, our best defense is to cut our spending. For younger dentists reading this a lesson to be learned is “keep shoveling it in” and increase the percentage of present income earmarked for saving and investment; over time, through compounding, this will ease your worries and provide a greater measure of choice in financial decision making.

What we may want to discussed, in this context, is the other side of the same coin. Yes, today’s retirees can become more conservative on the withdrawal rate, and use a safer withdrawal rate closer to 3% than 4%. What may matter more is the dollar amount we can pull out, not the percentage. Thanks to elevated portfolio balances, a 3% withdrawal of a larger portfolio may translate into a withdrawal that is every bit as large as 4% on that same portfolio ten years ago. In addition to balances being larger, retirees can enlarge their lifetime portfolio withdrawals by employing a flexible withdrawal approach rather than taking fixed amount withdrawals; helping to reduce portfolio demands and a requirement for bonds with minuscule yields.

It is good to remember to continue to use and learn from the Financial Tools, which have always been available to us: Personal Spending Plan, Personal Net Worth Statement, Potential Cash Flow Analysis from All Cash Flow Streams (Dental Practice, Tax-Deferred Portfolio, Personal After-Tax Portfolio, Investment Real Estate, and other holdings. It is a good thing most of us have been given enough years to layer our financial learning, with intention!

Keep a Moving Target Orientation!

Invest in Yourself
Sign-up for Courses to Continue Advancing Your Financial Literacy
Two Courses to Consider:
Creating More Financial Freedom / Mastering Business Essentials

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About Author

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Richard Green DDS MBA

Rich Green, D.D.S., M.B.A. is the founder and Director Emeritus of The Pankey Institute Business Systems Development program. He retired from The Pankey Institute in 2004. He has created Evergreen Consulting Group, Inc. www.evergreenconsultinggroup.com, to continue his work encouraging and assisting dentists in making the personal choices that will shape their practices according to their personal vision of success to achieve their preferred future in dentistry. Rich Green received his dental degree from Northwestern University in 1966. He was a early colleague and student of Bob Barkley in Illinois. He had frequent contact with Bob Barkley because of his interest in the behavioral aspects of dentistry. Rich Green has been associated with The Pankey Institute since its inception, first as a student, then as a Visiting Faculty member beginning in 1974, and finally joining the Institute full time in 1994. While maintaining his practice in Hinsdale, IL, Rich Green became involved in the management aspects of dentistry and, in 1981, joined Selection Research Corporation (an affiliate of The Gallup Organization) as an associate. This relationship and his interest in management led to his graduation in 1992 with a Masters in Business Administration from the Keller Graduate School in Chicago.

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2021 Financial Literacy

April 7, 2021 Richard Green DDS MBA

Financial literacy is the foundation of our relationship with money, and it is a life-long journey of learning. The earlier we start, the better off we will be, because education is the key to success when it comes to money, and our financial life is likely to become more complicated as we get older.

Becoming financially literate involves learning and practicing a variety of skills related to budgeting, managing, and paying off debts, and understanding credit and investment choices. Personally, we have more energy around creating an effective spending plan, than a budget! Basic steps to improve our personal finances include creating a spending plan, keeping track of expenses, being diligent about timely payments, being prudent about saving money, periodically checking our credit report, and investing for our future. Financial literacy is the ability to understand and effectively use various financial skills, tools, and processes; including personal and business financial management, spending plan creation, and investing, while learning to live on less than we make!

We believe financial literacy is one of the most important things we can learn and help others learn, and the learning never ends. We believe the subject qualifies as a mandatory part of primary education. Yet presently, it is only a required course in public schools in just 17 states in the USA.

Given that college students graduate with an average of $32,000 in debt due to student loans and credit card debt, and on average, a graduating dentist in 2020 reported close to $300,000, in dental school debt (ADA).

Therefore, we believe, it is imperative that young people learn the basics of credit, debt, spending plans, saving, and investing before they face that burden. It is never too late to become financially literate, and the earlier we start, the better.

We are adding some basic financial literacy lessons into the intentional design of our coursework. Come join us and devote appropriate time and energy to really getting on top of personal and practice finances.

2021 Pankey Financial Course Offerings:

Mastering Business Essentials (MBE) – April 29th – May 1st
Creating More Financial Freedom – August 20th – 21st

 

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About Author

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Richard Green DDS MBA

Rich Green, D.D.S., M.B.A. is the founder and Director Emeritus of The Pankey Institute Business Systems Development program. He retired from The Pankey Institute in 2004. He has created Evergreen Consulting Group, Inc. www.evergreenconsultinggroup.com, to continue his work encouraging and assisting dentists in making the personal choices that will shape their practices according to their personal vision of success to achieve their preferred future in dentistry. Rich Green received his dental degree from Northwestern University in 1966. He was a early colleague and student of Bob Barkley in Illinois. He had frequent contact with Bob Barkley because of his interest in the behavioral aspects of dentistry. Rich Green has been associated with The Pankey Institute since its inception, first as a student, then as a Visiting Faculty member beginning in 1974, and finally joining the Institute full time in 1994. While maintaining his practice in Hinsdale, IL, Rich Green became involved in the management aspects of dentistry and, in 1981, joined Selection Research Corporation (an affiliate of The Gallup Organization) as an associate. This relationship and his interest in management led to his graduation in 1992 with a Masters in Business Administration from the Keller Graduate School in Chicago.

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Plan the Exit Right for You

April 13, 2020 Drs. Christina & Bill Blatchford

More than 31% of solo practicing dentists today are 55 years or older. Since most dentists have traditionally retired between 60 and 69, retirement is a “hot” topic.

Future Financial Need

Goal setters who have planned for retirement since the beginning have accumulated five times what a non-planner has saved. Yet, baby boomers (now mid 60’s to 70’s) have reinvented each phase of their lives, never matching what has been customary. An ADA survey indicates dentists save 10.6% of their income which is below the federal limit of 15% contributions to a qualified pension fund.

Financial advisors think you will need from 70 to 90% of your current net income in retirement. The average dental net in 2019 was nearly $200K. In retirement planning, eighty percent of that is $160K, which is $13,350 a month. If you retire at age 60 and live another thirty years, you will need $4.8M from interest and savings.

Retirement Choices for Today’s Boomers

The figures are staggering for the slightly unprepared. What are the choices for today’s boomer dentist? Sale? Partnership? Associateship? Retire as you go? Or, will you up your game plan for 5 more years? Let’s investigate.

Sale: A sale is currently worth about 24 months of net income which is then taxed. Beware. A sale is final. You are no longer a dentist in that location. There is no going back. The book is closed.

Partnership: Partnerships in retirement have their own pros and cons. By reviewing what motivated you to enter the profession, you may find independence and freedom on your list. Selling half your practice to an unknown partner means you have surrendered your freedom and half your net income in exchange for about nine months of net income. The staff will still look to you for leadership.

Associateship: Becoming an associate after thirty years of private practice could be successful if you have the qualities to be an employee. Will you be happy doing dentistry for someone else? Do you have the qualities to be a team player under someone else’s leadership and rules?

Continue Your Own Practice by Retiring as You Go: Continuing to practice beyond the average retirement age is a viable alternative. The real advantages to keeping your own practice viable are the continued net income, ability to deduct expenses such as continuing education and a leased car, and the psychological rewards of feeling needed, serving others, and your earned status in the community.

Continuing your own practice can be done on your own terms. You can design your ideal practice days, plan your continuing education around travel adventures, and attract staff to work your schedule. You may want to work three days a week for three weeks and take the fourth week off. If you can continue to work on your own terms and have a substantial income that does not require using your retirement funds until you choose, count the advantages and your blessings.

Continue Your Own Practice by Upping Your Game: Another viable choice is to “Up Your Game” and actually make an extra $2M by increasing net in a five-year plan. This can cause a $900K increase in the eventual sale price. We have a number of very pleased retired dentists who upped their game in their 60’s. They can’t believe how much more enjoyable practice is again.

Upping your game means increasing your dental skills and your treatment offerings, installing strong systems of block booking to produce more in fewer days, solid sales conversations for an increased level of patient care, and having an accountable accomplished team marching with you. Because you have upped your skills and are focused, you can actually take more time away as you increase your net. 

Which Choice Is Right for You?

Examine your financial needs. Examine why you enjoy dental practice? Examine your options and spend time thinking about which retirement option feels most comfortable to you. We can help. Many of our clients have chosen to stay part of dentistry, and we have observed that when dentists keep up with continuing education and become skilled at working with new materials and techniques, they gain more than an enhanced income stream. They feel a rebirth and rejuvenation about their profession.

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Drs. Christina & Bill Blatchford

Dr. Christina Blatchford is a graduate of Oregon Health Sciences University, School of Dentistry and has her doctorate degree in medical dentistry. She practices family and general dentistry in Milwaukee, OR. With her father, Dr. Bill Blatchford, she is Co-CEO of Blatchford Solutions, coaching a maximum of 50 dentists each year to reach their goals. Bill has written two books: Playing You ‘A’ Game – Inspirational Coaching to Profitability and Blatchford Blueprints: The Art of Creating Dental Practice Success. He also writes a monthly column for Dental Economics, “Flourishing in Changing Times.” You may call 888-977-4600 to receive a free copy of their latest book, Seven Principles of Highly Profitable Dentists.

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