By Ross Martin, Accountancy Director at Hive Business
It was never supposed to happen. The most affluent generation this country has ever produced is going to start running out of money in retirement.
Tata, the steel maker with a £700m shaped hole in its pension fund, is just the beginning — the Pension Protection Fund expects 600 funds to collapse in the next decade and the man investigating BHS says the wider system is “creaking from rising life expectancy and record low returns”.
Why? There are plenty of structural reasons I won’t bore you with, but two big ones are longer life spans and low returns through low or negative interest rates. One good thing as a dentist is you don’t have to trust anyone else with your money. That doesn’t mean you’re immune from the same basic forces.
I find it really strange therefore that dentists don’t plan for retirement. Most seem to rely on the notion that they will sell their practice when they retire and everything will be fine.
Some have small buy-to-let portfolios, but generally there’s an alarming lack of strategy. Dentists are almost universally ambivalent about building up shares portfolios and they only tend to go near pensions if they want to fund a flexible pension to buy their practice freehold.
In the old days if you could retire with £1m you might have expected to get a 5% or 6% yield. Now the yields aren’t that high. For example, rental income isn’t really 5% when you’ve factored in all the costs.
So someone approaching retirement with a £1m property portfolio might only get £25k a year rather than £50k. That’s a significant difference in standard of living, and I do wonder whether people will reconsider what to do with their assets in light of it. For example, another option would be to spend through your capital rather than living off the yield.
I’m not sure why dentists have an aversion to looking at options like this. Could it be to do with the way principals are used to having to take responsibility for everything in their practice? Perhaps they don’t like breaking convention.
Among our clients I could count the number of people on one hand who are really dedicated to financially mature retirement planning. I mention it a lot and people nod and say “yes” but it tends to stop there.
The average age of our dental clients is 40 to 45 and I understand that baby boomers can be quite fixed in their notions of what they want to do in life and how. A lot of dentists want to retire by 55. And why not? Presumably, though, you don’t want to run out of money, least of all when you’re likely to experience health problems and find it harder to create wealth. So why leave it to chance?
You improve your chance of success if you plan maturely and so the sooner you look at your retirement plan the better. I’d be happy to go through your options with you. Call 01872 300232 or email us at hello@hivebusiness.co.uk.
