Just about everyone retires at some point, and dentists are no exception. According to the American Dental Association (ADA), 15 years ago most dentists retired between the ages of 60 and 69. Recent trends, however, have indicated that many dentists are retiring earlier these days. Factoring in ever-increasing life expectancies, if you hope to retire at a younger age, you must save enough during the practicing years to support yourself for 20 or more years of retirement-which is no small challenge.

LEVERAGING AN ASSET

A 1995 ADA survey asked dentists to indicate the degree to which they were relying on the sale of their existing practice to finance retirement. Among dentists whose primary occupation was a private practice that they owned, more than 40$ indicated that they were relying only a small amount on the sale of the practice to finance retirement. Perhaps even more surprising, more than 21% said they were not relying on the sale of their practice at all. "I'm surprised," says Dan Gustavson, DDS, president of the San Francisco Dental Society. "It's a significant amount of money."

According to Gustavson, dental practices are worth 65% of the value of their gross production. For example, if a dentist had a $1 million practice, it would be worth $650,000. "That's not small change," he notes. Still, according to the ADA survey, only 8.5% of dentists said they were relying heavily on the sale of their practice.

David Gage, PhD, founder and principal of BMC Associates, believes that the results of the ADA survey may be a reflection of the pessimism dentists are feeling in trying to find the right person to take the practice over. "It's only in the 'keeping it going' that it has much value," he says. "If you sell your practice to me and it dies, the practice is zero."

Gage may have a point. There are currently fewer new dentists coming out of dental school than the number of dentists retiring. When coupled with the educational loans many new dentists are saddled with, the prospects of buying a practice are greatly reduced. "When you look at your practice as part of your retirement package and there are fewer people out there with the funds to buy it, there is an impact on your retirement," says Ronald Lemmo, DDS, senior clinical instructor at the Case Western Reserve University School of Dentistry.

Organized dentistry, Lemmo says, has been working to come up with alternative methods for associate/buy-in opportunities. For example, the Ohio Dental Association has set up plans for dentists to be able to take on associates with the intention of having them purchase the practice over a period of time, enabling the dentist to realize the value of the practice.

RETIREMENT VEHICLE

According to the ADA survey, dentists whose primary occupation was private practice said they saved an average of 10.5% of their income for retirement. The percentage of income saved varied-ranging from 4.9% for dentists younger than age 30 to 11.4% for those aged 35 to 39. Dentists also indicated that they used a wide range of investment options. They had the greatest amount of money in non-tax-deferred investments, profit-sharing plans, and IRAs. Making decisions about retirement investments, however, hasn't been easy.

"I think a lot of us have found out that we really didn't get a lot of business courses in dental school," says Craig Costanza, DMD. "So we sit here saying 'I have some spare money. It would be nice to invest, but I don't know how.' Yet, dentistry isn't the way to make a great living the way it once was. You have to invest your money to do that."

So why are dentists retiring earlier? "Dentistry is a physically demanding profession," Gustavson says. "Dentists who are 55 years old and older find it difficult to continue working 5 days a week."

According to Lemmo, it's part of the cycle of dentistry. "Most dentists in the 45-to 50-year-old range begin cutting back, working a 3- or 4-day week," Lemmo explains. "They're working less, but producing less. So they assess the value of their practice and decide to take on an associate."

Finding a Replacement Key to Retiring

Years ago, a television commercial for a popular aspirin featured a memorable scene between a mother and a daughter. The mother is trying to lend a hand around the house. The daughter, bothered by a severe headache, shouts, "Mother, please, I'd rather do it myself."

For dentists, finding compatibility in working relationships can be just as stressful and can produce just as many headaches. David Gage, PhD, founder and principal of BMC Associates (703-790-2000) has been providing mediation services for partnerships for the past 8 years. He's well aware of the challenges. "Personality conflicts sink business partnerships more than anything else," he says.

Taking on a Partner

Many dentists look to take on a partner when they're contemplating retirement in about 5 years. "Dentists realize that they have a valuable asset in their practice," Gage says. "To get the most value, they need to find a good dentist to eventually take over the practice and retain the patients and staff. Bringing in the wrong person can sour a perfectly good practice."

Gage explains that transitioning a practice from one dentist to another is a gradual process. Given the period of overlap, he says, it's critical that the new dentist is a good fit with the current owner. If not, the owner may have to begin the procedure of finding a new partner all over again.

"It can take about a year to find someone, and a couple of years with them as an associate before they become an owner," Gage explains. "If it does not work, it takes about a year to unwind all of the legal arrangements and to find a new person."

Making the Assessment

Given the high stakes, Gage and his 12 associates conduct a litany of interviews and tests when searching for a good candidate. Too often, he says, people trust their instincts, then find out the hard way that using a "gut feeling" to make critical partner decisions is very risky business.

"We conduct a lot of interviews and tests by phone and mail," Gage says. "We don't just test candidates to be associates or partners. We look at the fit between practice owners and candidates. The fit between the personalities is one important element, and finding people with similar values is another. It's also important that the individual be a team player. Some people just aren't."

There are a number of drawbacks in trying to figure out if candidates are going to be a good fit, Gage adds. First, many people are not very good at describing themselves. In addition, many people make the mistake of thinking that individuals about whom they feel positive are like themselves, which may be a dangerous assumption. Lastly, during the courting stage, people are always trying to put their best foot forward.

"Certain qualities seem very attractive during a courting stage, but once you're working together, things look very different," Gage cautions. Qualities that made a candidate seem decisive, he says, eventually may make them appear dictatorial. Someone who seems flexible at first may actually turn out wishy-washy. The person who seemed spontaneous may appear totally disorganized.

As a result, Gage is a proponent of partnership charters; a form of prenuptial agreement that spells out what each partner expects of the other. There's too much at stake, says Gage, to not sort out things beforehand. "I think almost everyone can fit with somebody, but not with everybody," Gage says. "That's why it becomes very important to look at what makes a good partner."