This week’s Q&A is more in depth than usual and follows a ‘conversation’ style.
Q. I guess something I have been considering is my retirement from general dental practice at age 58-60 while I still enjoy it and before my health suffers. I am currently 52 (53 in May) and in good health. I will have an NHS pension of £30k at age 60 based on the latest valuation and contribute about £5k annually by monthly payments to an equity based pension scheme with Norwich Union.
I also try to use all my ISA allowances each year and the same for my wife who is 49 and ‘employed’ by me with a pension contribution of £300 pm. I run my practice as a sole trader. It grosses over £500k and I have two associates and a p/t hygienist. I own the building which may be worth £200k. There is a mortgage on it of about £68k. Taxable profits about £120k. The practice is 75% private or Denplan and 25% NHS. Personally I am 15% NHS. Associates won’t want to buy. I may want to continue working on a part time basis for a while after selling.
Looking ahead should I get an Associate in with a view to buying in perhaps gradually?
A. I guess the ideal option is to eventually sell to an Associate that is working within the Practice already. On the other hand, there are enough Associates out there that are buying-in from outside. Im dealing with a few right now. Then there are the corporates, although I hear they are pretty much cherry picking. Also, not all dentists want to sell to a corporate. Do you have the capacity to bring in another Associate?
Q. Should I wait until closer to the time and put the practice on the market?
A. The recommended timescale is 3 years from putting the business on the market. Id get 2-3 valuations as a starting point. Another option is to sell before 60. eg, if you sold in 2 years you could then work as an Associate for a few years. Then again, not being in control might drive you mad! Or sell at 58 and work for 2 more years, maybe p/t.
Q. Should I sell the practice and keep the building for rental income or sell both together?
A. The best way to work this out is to do a cashflow projection and plan for either scenario. Theres pros and cons to both options.
Q. If you have any pointers as to what criteria I might use to decide on a strategy I would be grateful.
A. The other things you should be looking at are:
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What after-tax income will you need when you eventually retire?
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What are your main goals?
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What will you do with your time when you finish work at 58/60?
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For your personal pension/ISA funds, are you taking the right amount of risk with the underlying investments? Many dentists I meet have their investments spread across a number of providers and funds. The problem they often face is that they do not know what risk they are taking (many have found out the hard way with the recent market falls). Ideally, you should have an investment portfolio, rather than a collection of funds. Generally, the closer you get to retirement the less risk you should take. By going through the cashflow projection, you will know whether you are investing too much/too little into your personal pensions/ISAs. The key here is that it will provide you with measurement and a strategic plan to follow.
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Lastly, do you have up to date wills? And powers of attorney?
I hope this helps!
