Financial Planning for Dentists

04.27.23 | Personal Finance

While dentistry can be an incredibly rewarding profession, dentists face a unique set of financial challenges that can make it difficult to plan for their future. Young dentists, in particular, are faced with a myriad of choices that can have a significant impact on their long-term personal and financial success. In this article, we will discuss a few of these challenges.


High Debt Levels

Many dentists graduate with a significant amount of student loan debt. According to the American Dental Association, in 2019 the average student loan debt for a recently graduated dental student was $292,169. The payments required to service student loans can make it challenging to accomplish other financial and lifestyle priorities, particularly early in a young dentist’s career. Personal goals like starting a family, purchasing a home, creating an emergency fund, or saving for children’s education often come into play while student loans are still outstanding. Combine that with the potential need or desire to purchase a practice and debt levels can very quickly reach seven figures.

Beyond the cash flow demands and risks that accompany carrying this level of debt, it is easy to see the very real emotional impact this can have on an individual or family. The decisions can become overwhelming. Which debt should be prioritized first? What personal sacrifices are required to make the necessary payments?

The initial reaction may be to attempt to tackle the debt as quickly as possible, perhaps at the expense of other goals. Generally, though, a more balanced approach will make the most sense. In addition to just paying down debt, early in a young dentist’s career they should make investments that will set them up to meet longer-term goals like retirement or children’s education. Starting these investments early gives them the longest potential time to compound and grow, often at rates well above the interest cost on debt. Using tax preferential vehicles, like qualified retirement plans or ROTH IRAs, further enhances the benefits of investing early vs. focusing only on debt reduction.

Liquidity should also be taken into consideration when allocating financial resources. Having ample emergency savings reduces financial risk and provides peace of mind. Beyond emergency savings, having readily accessible assets through savings or investment accounts provides flexibility and allows for practice enhancing investments or acquisitions without incurring additional debt. Banks also view dentists with liquidity outside their retirement accounts favorably, since qualified plan monies are protected in a bankruptcy situation. Having personal assets that are liquid can result in lower interest rates on loans or more favorable loan terms.

Purchasing and Running a Dental Practice

While dentists are clinicians first, they are often also business owners. The decision to purchase a practice is the largest decision a young dentist will make in their career. Weighing the various pros and cons of business ownership, while factoring in personality traits and lifestyle goals is a critical first step in the process. Joining a small practice will create a significantly different career path when compared to being part of a larger corporate entity. Purchasing a practice can be highly lucrative when done correctly. It can also take years of hard work to dig out from a purchase gone wrong. Gathering a team of experienced, capable professional advisors around a young dentist can help to ensure a successful purchase transaction.

Protecting Income and Assets

As dentists accumulate wealth (and debt) during their career they become increasingly susceptible to the risk of lawsuits, death or disability. It is essential to plan for the unexpected by employing various risk management strategies. Business, malpractice, and personal liability insurance policies are designed to protect assets. Life and disability policies can be purchased to protect both personal and business cash flow. These policies come in many different forms from many different carriers, so it is important to do a thorough analysis before purchasing. Having the second opinion of a professional not involved in the sale of the policies is a good idea, since there can be substantial commissions involved with the sale of these products.

Plan for a More Confident Financial Future

This is of course not a comprehensive list of the challenges facing dentists. While dentists are highly trained professionals, dental school does not necessarily prepare graduates to understand their finances or life as a business owner. The cost of learning financial lessons through poor decisions far outstrips the cost of hiring a professional adviser. At Midwest Capital Advisors, our mission is to “empower people to lead their best lives by helping them make informed financial decisions.” If you are interested in creating a financial plan and exploring how these strategies could fit, please contact us!  

Disclosure: Please note that you are advised to consult your tax professional for your individual tax situation. This information is designed to provide general information on the subject(s) covered and is not intended to be tax advice. This information cannot be used to avoid tax penalties or provide recommendations for any tax plan or arrangement.

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