Financial Planning for the Next Decade, and Beyond

Happy New Year! Now that 2020 has arrived, it is a perfect time to reflect on the highlights of the past decade and plan for the future. I realize that planning is likely low on the list of fun things to do but, before you turn on that Netflix series, know that the effort spent on this exercise will reward you many times over.

To help kick-start this endeavour, here is my top ten list of financial planning actions:

1. List your Top 5 Life Goals – The Bucket List
Planning never starts with a spreadsheet. The ultimate goal of getting your finances in order is to fund the things that are most important to you. It may be as diverse as “retiring by age 60” or “climbing Mt. Kilimanjaro” or “making sure my special needs child is cared for”. Whatever the goals, putting the things you value most on paper solidifies the intent and allows for active preparation. Once it is out in the open, then you can start to make it happen.

2. Do a Holistic Financial Review
In many cases, dentists are just trying to get through one day and onto the next. Over time, we fall into easy habits that can be detrimental to our financial well-being. By sitting down with your financial planner and looking at your overall picture, you can often uncover numerous small actions that can benefit you and your family. Here are some of the more common things that we see:

Many people have very little idea of how much they need to fund their life goals. An analysis can help define a number and put you on course to achieve this.
Paying too much to service debt. Reorganize to reduce personal debt in favour of tax-deductible debt, or simply renegotiate a better rate.
Not updating disability and life insurance to meet your changing needs. Some people have too little insurance to cover the risk to their families while others hold onto insurance (and pay premiums) even when the risk is no longer there.
Savings are in the wrong silos. We still see dentists hold personal, non-registered investments but have never opened a TFSA. Or they hold lightly taxed investments in registered accounts (where it is wasted) while holding heavily taxed investments inside non-registered accounts.
Letting business expenses get out of control. A comparison of dental benchmarks will quickly show if your expenses are in line with the rest of the profession.
No tax planning. Often, the CRA is one of your biggest expenses. Your tax advisors can help decrease or defer your tax bill through timely preparation – especially if you run your practice through a professional corporation.

3. Commit … and Diversity
When I first started investing 30 years ago, my financial advisor would transfer us from one fund to the next, chasing the “big” theme of the day, and incurring fees along the way. Needless to say we were always behind the curve. It was an expensive and valuable lesson that has shaped my investment philosophy ever since.

Work with a financial advisor that has a clear investment process and strong reasoning on how to manage money, then check to see if they have a history of practicing what they preach. There are many successful ways to manage investments, the more important attribute is consistency and conviction to a process.
Sticking to a thoughtful strategy is important, but we all have seen outside forces derail our best-laid plans. Government policies – such as stricter mortgage stress tests, tax legislation – such as the recent federal corporate tax changes, and professional regulations – such as more onerous compliance rules in running dental practices, have all affected our financial position. In today’s world, it is critical to spread our investments into different baskets. Locking all of your net worth into one stream may be a recipe for disappointment.
For dental practice owners, their most significant investment is likely their practice(s). On top of this, diversifying to liquid investments such as stocks and bonds, tangible investments such as real estate, and alternative tax-efficient investments such as insurance vehicles should be considered.

4. Concentrate on Dentistry
Simply put, dentists generate a majority of their wealth through the practice of dentistry – it is an area where they have unparalleled expertise and ultimate control. Investing in yourself and your practice has always been a good venture. One way to do this is to identify three areas to improve your dentistry/dental practice. Here are some common themes:

Continuing education is vital. Confidently adding marketable skillsets to your repertoire can help your patients and provide untapped revenue streams. With the growth of hands-on courses, study clubs and mini-residencies, expert knowledge in virtually all disciplines are available to general practitioners. However, consider focusing your energies to match your patient base. There is little advantage to extensive orthodontic courses if the majority of your patients are seniors. Conversely, a concentration on implants and prosthodontics could be very valuable.
Hygiene is the foundation of your dental practice. A strong hygiene program provides continuing care for your patients, a stable source of revenue (similar to an annuity), and it is highly valued at time of sale. However, many dentists never work to improve this area. Time spent with your hygienists to standardize care, setting up protocols to assess treatment results, and improving preventive patient education can not only help your clinical outcomes, but also your bottom line.
Dentistry is now a service industry where there is fierce competition and consumers have numerous choices. It is not enough just to be an accomplished and caring clinical dentist. One way to gauge your level of service is to follow your typical office protocol, from start to finish, through the eyes of a patient.

– Are patient phone calls answered? Are they kept on hold?
– Are they being greeted by name on arrival? Are all team members familiar with the scheduled appointments?
– Is there flexibility to accommodate patients on different schedules?
– Are they being seen on time?
– Do they feel that their questions are being answered?
– Do they feel rushed through the procedures?
– Are payment options available?
– Do you follow up to make sure they are doing well post-operatively?
– Can they depend on you in an emergency?

5. Automate Your Savings
Once you establish a savings target to fund future life goals, the next step is to stick to the schedule. The best way to do this is to make it automatic. Setting up pre-authorized monthly contributions to your accounts is beneficial in a number of ways.

Smaller regular contributions tend to be easier on your cash flow. It’s always hard to find $40 – $50K at the end of the year to put in as a lump sum.
It takes away the urge to spend the money now and then catch up later. A savings discipline will improve your outcome over time.
We all know that stock markets do well over time but rarely walks in a straight line. Invariably, there will be peaks and valleys over the short term. By making regular contributions and buying at different points, it tends to smooth out the volatility of the markets.

6. Timing Your Generosity
After working with your advisors and generating conservative projections, if you are fortunate enough to have excess savings, you may wish to consider gifting to your family now rather than through your estate. Direct gifting to adult children and grandchildren has perhaps more impact than leaving them with an inheritance since you can help during the times of most need. Many adult children could benefit from a head start when they are establishing their professions and when they have young children. On top of that, you are around to see the benefits of your assistance.

Consider the following:

Especially in major cities, the cost of housing has put major financial strains on millennials and younger generations. Helping children with housing costs such as onerous down payments can ease their stress. Of course, a gift is final. If you are concerned about poor decisions or marital breakdowns, ask your advisors about strategies to provide funds while mitigating the risks.
For grandchildren, establishing RESPs to fund future education is a popular action plan that is both timely and worthwhile.

7. Plan Early for a Dental Transition
If you are within 5 years of retiring from dentistry, then an active plan is absolutely necessary. There are numerous moving parts in a transition and virtually all have a time limit. The first order of business is to sit down with your financial planner to determine whether your assets can sustain your future goals. From there, most dental accountants will quarterback the transition and advise input from various professionals. If you plan on selling a practice(s), there are a number of points to consider:

How can you improve your practice in the next few years to maximize value?
Do your employees have enforceable contracts?
Do you own the dental building? If not, is your lease amenable to a sale?
Have you had a dental valuation? Are there recommendations to enhance practice value?
Will you sell shares of your dental corporation or dental assets? Know the implications of each.
If you run your practice through a professional corporation, how do you purify your corporation to prepare for a sale?
How will you prepare your staff for a transition?
How long and in what capacity will you stay to transition the patients to a new owner?
What are the pros and cons of a corporate buyer vs. an individual buyer?
What are the tax implications on a sale?

8. Outline a Retirement Cash Flow Strategy
If retirement is rapidly approaching, you need to get ready for a shift in thinking. For many retirees, the lack of a regular paycheque can be an overwhelming source of stress. You are now dependent on your savings to generate income for 30+ years of retirement. To prepare, work with your advisor to set out a regimented approach to draw income.

One way is to build your own annuity. Set up enough “guaranteed” income through predictable sources such as CPP, a dividend generating stock portfolio, or rental income. This should at least cover your fixed expenses. From there, you can tap into your savings for your non-essential spending. In years where investments are doing well, you can draw more income.
Another option is to set aside 3-5 years of spending in very safe, predictable investments and structure the rest of your portfolio for growth. In this way, if the markets are down, you can draw from the safe funds. When the markets are doing well, you can then replenish the safe funds from the growth source. In effect, you are preventing the erosion of your assets by selling when the markets are positive.

Setting up a predictable withdrawal plan with your advisor alleviates the anxiety of watching daily market gyrations.

9. Get Your Will and Powers of Attorney in Order
Our future health, our cognitive abilities and our lifespan are all unknowns. Although our decline and death are uncomfortable subjects, it is imperative to plan for the future. By doing so, we are able to define our own wishes and provide clear guidance to those managing our affairs. Paying attention to the following can ease a difficult process.

A Will is a legal document that outlines your final wishes. It will help determine how you would like to distribute property and pay debts but will also provide direction on care – such as guardianship of young children if you should pass away.
An executor (sometimes known as estate trustee) should be named in the Will. This is an individual who you trust to carry out the dictates of the Will after your death. Anyone can be named executor but it certainly helps if they are younger than you and have experience dealing with the CRA, your advisors and other professionals. Know that the executor has responsibilities and potential liabilities under the law – so it is not something to be taken lightly. Make sure your executor understands the duties and is willing to help. It is good practice to also name a contingent executor in case the primary is unable or unwilling to take on the role.
If you are having a hard time finding an appropriate executor, most trust companies have estate management services for a fee.
A power of attorney is named to manage your affairs if you are alive but not available or not able to make decisions on your own. There is a separate power of attorney designation for personal care and for property (money, real estate, etc.).
Many people will choose trusted family members to act as power of attorney. It is important to discuss with them your wishes in the event of incapacitation.
We have found that many banks and financial institutions have their own rules when it comes to accepting a power of attorney designation. It is always a good idea to contact your bank/brokerage to ask what they require to set up a POA. Early planning is key since there may be delays getting banks and other institutions on board, even if you have all of the correct documentation.
Contact a lawyer with experience in Wills and estates to begin the process. There are a number of standard Will and POA services online that you can use but the value of an experienced lawyer is hard to beat. They will be able to walk you through the process, identify the pitfalls, make sure that all parties will be treated fairly, and that there is appropriate language and safeguards in the documentation.

10. Think about the Final Years
When we think about retirement, images of holidays and leisure come to mind but we rarely think about the final years. There are financial considerations associated with assisted living, medication and healthcare costs, and long term care. More importantly, thought should be given to where you would like to live (close to family, healthcare, etc), whether you would like to stay in your own home and what type of care arrangements would suit you. In reality, these choices could affect your decision to downsize or modify your home, set aside money for care, and to plan for caregivers. We all hope to enjoy our family and friends but never to burden them with the pressure of continuing care. Communicating your thoughts with loved ones will greatly ease this weight.

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Dr. Wilson Chen, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.

About the Author

Dr. Wilson Chen BSc., DDS, CFP, FMA received his DDS from Western University in 1992 and, for over 20 years, built a family dental practice in Hamilton. In 2014, he sold his practice to take a more active financial management and business advisory role for dentists and their families. Wilson is a partner at the Wyndham Group of Raymond James Ltd. He is the only practicing dentist in Canada to hold the Certified Financial Planner (CFP) and Financial Management Advisor (FMA) designations. Wilson can be reached at wilson.chen@raymondjames.ca or www.wyndham4dentists.ca