Citing statistics from the U.S. Department of Health and Human Services, the article states, "Most dentists retire between the ages of 60 and 69, which means that during their years of practicing dentistry, dentists must save enough income to support up to 20 or more years of retirement."

The conclusion is obvious -- since dentists don't save enough during their careers, they may have to compromise their lifestyle during their retirement, the golden years. This doesn't seem right. It's not what we were led to believe when we started out in dentistry. It's not what we told ourselves while we struggled over that broken root tip on Friday afternoon. We thought that if we worked hard enough, long enough, our golden years would be just that -- golden. That's why, before voluntarily retiring, a complete analysis should be performed by either yourself or a professional.

The analysis should carefully list all your expenses, including not only the obvious, but also vacations, new car expenditures, gifts for the grandchildren, etc. You should then compare this not so much to your savings, but more importantly to your projected passive income during your life expectancy in retirement. This should include interest income, stock dividends, Social Security benefits, and Pension payouts.

A vital addition to this formula is the sale of your dental practice. After evaluating both your expenses and income, a determination should be made as to what reasonable price could be expected from the sale of your practice. One of the most common situations we encounter when talking with dentists contemplating retirement is that of the dentist attaching too high a value to his or her dental practice. Typically, the dentist will say, "I thought I could get one year's gross for my practice." By this the dentist means he has equated one year's production with his selling price. When we tell him this is no longer valid, he responds, "Has the value of my practice decreased in the last 20 years?" The answer is No . . . and, Yes.

The "No" explanation is that practices are not -- or at least shouldn't be -- appraised solely on gross production. In the old days, most practices had close to the same overhead and thus the same net, so that gross production was an accurate barometer of net income. However, today's world of dentistry is vastly different, with the advent of PPO's, Closed Panel Plans, Managed Care, etc. Overheads in offices vary from 45% to 80% and to equate production with selling price is foolish. Practices have to be appraised on their net income -- using a gross multiplier that varies depending on many variables unique to that practice.

The "Yes" explanation is that in fact, dental practices have declined in value over the last twenty years, especially the last 5 - 7 years. Where once you could get one year's gross, that figure is now closer to 60% of one year's gross, and all indications are that the percentage will continue to drop. Now you're probably saying, "Wait -- you just said not to appraise a practice based on gross production!" And you're right. The best indicator is still net income. And indeed, that figure has dropped as well. The doctor who thought he could get one year's gross was actually hoping to get anywhere from 2 to 2.5 times net income. That is way off base in today's marketplace -- in some instances twice as high.

Does this mean that all is lost? That years of hard work have been wasted? No, of course not. But it does mean that now, more than ever, it is vital to carefully plan your retirement and include realistic data concerning the value of your dental practice. It is imperative that you get an accurate and fair appraisal with which to plan for the future before the future has arrived.

It's a big mistake to overestimate the value of your practice. It's worth spending a few dollars to get an accurate appraisal from a qualified broker. Try to use a broker who is actively selling practices in your area. Unfortunately, we've seen some out of state appraisers value the practice way out of line -- by as much as 25% too high. A determination should then be made as to whether you should receive all cash and invest that money, or whether you should receive a down payment and take back a note for the balance. In today's market of low interest rates, the latter could potentially provide a much higher rate of return.