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What don’t payroll stats tell you about a dentist’s income?
It’s been a while since the last Q&A episode of the Dentist Money™ Show and there’s a lot on our listener’s minds. You’ll get the scoop on how much typical dentists really earn. Plus, you’ll want to hear the lively discussion between Reese and Ryan on when it’s time to move from a Simple IRA to a 401(k).
And there’s even more, like “What does it really mean to invest back in your practice?” in this information-packed episode of the Dentist Money™ Show.
Reese Harper: Hey Dentist Money Show listeners. It’s Reese Harper here. Today’s episode is the listener Q and A, one of our favorites. We’re able to dive really deep today into a lot of areas inside of your practice. We talked a lot about strategy, talked a lot about which direction to go with reinvesting into your practice to maximize the growth. Talked about which business model might make sense for you with certain investments that you make. Talked about retirement plans, the most important retirement plans to put into place in your situation, and the difference between simple IRAs and 401k efficiencies. We also covered one of the most important questions that young dentists are asking, “How much money can I really make as a dentist, and can I really afford to pay off these student loans?” So tune in to all these questions and more, on today’s listener Q and A episode. Thanks again for tuning in.
Speaker: Consult an advisor or conduct your own due diligence when making financial decisions. General principals discuss during this program do not constitute personal advice. This program is furnished by dentist advisors or registered investment advisor. This is Dentist Money. Now, here’s your host, Reese Harper.
Reese Harper: And welcome to the Dentist Money Show, where we help dentists make smart financial decisions. I’m your host Reese Harper, here with my trusty old cohost, Sir Ryan Issac.
Ryan Isaac: Yes. Thank you for having me on the trusty old show.
Reese Harper: I pulled a-
Ryan Isaac: Wait, hold on. Do you know, people refer to me as trusty now? The other day in our Facebook forum, shout out to the Facebook group-
Reese Harper: I saw that.
Ryan Isaac: Someone said, “My trusty all advisor.”
Reese Harper: Yeah, I saw it. It was Reed.
Ryan Isaac: It’s Reed. Shout out to Reed.
Reese Harper: Shout out to Reed. He said, “Trusty old Ryan, Isaac.”
Ryan Isaac: Where does this come from?
Reese Harper: I’m like, “He’s not that trusty.”
Ryan Isaac: I’m not that-
Reese Harper: Because, you’re-
Ryan Isaac: No, let’s go with not that old. Come on.
Reese Harper: Well, I think Reed’s question. He acknowledged-
Ryan Isaac: I’m fairly trusty but not that old.
Reese Harper: Well he acknowledged that you’re trusty, but he still wanted a second opinion from the group.
Ryan Isaac: Would love to hear the group, and which I think is very smart. I love that, good-
Reese Harper: I’m like, good for Reed.
Ryan Isaac: … strong. Yeah, strong showing.
Reese Harper: And, more of you should do that. And we love it too because, that’s pretty much the… that’s how we created the Facebook group. So that when your advisor gives you advice, you can go to the Facebook group and just get a second opinion from all the other advisors in the firm just to make sure, yours is like thinking straight and it works out great.
Ryan Isaac: This guy, out of his mind.
Reese Harper: Ryan told me this, “Is this right?” And everyone’s like, “He’s not called trustee, Ryan Isaac, for just any old reason. He’s literally the most trusty.”
Ryan Isaac: Maybe one of those titles is off.
Reese Harper: So anyway, I pulled the Sir Ryan Isaac move this morning.
Ryan Isaac: Oh.
Reese Harper: And I’m still hungry so you can kind of hear, the occasional chomp of food.
Ryan Isaac: Oh, you’re eating.
Reese Harper: I’m not going to do that, the whole podcast. But, they only give me-
Ryan Isaac: We’ll try to cut it but-
Reese Harper: … a very limited schedule. And, Podcast has to happen right now, but lunch needed to happen. And currently for those of you who know, do not know, we are recording at 3:30 PM, lunch was not at 3:30. It should have been earlier. And today, was a day where I pulled the Sir Ryan Issac early in the morning. I did like a 20 mile, bike ride at like 4:30 AM.
Ryan Isaac: That’s me? No.
Reese Harper: But then I had a, workout session with, Matt, my personal, trainer slash weightlifter, extraordinaire, right after my bike ride.
Ryan Isaac: A little cardio into the weightlifting, always feels good.
Reese Harper: Yeah.
Ryan Isaac: Body’s ready.
Reese Harper: I don’t know if that’s advisable or not, but, I was loose and ready to roll in the weight training.
Ryan Isaac: You’re only supposed to do very technical and heavy lifts after a lot of cardio. That’s it. That’s the only [crosstalk 00:03:48].
Reese Harper: It really advisable. But anyway, I was about to pass out here, we’re going to get the best of me.
Ryan Isaac: Well, eat while we go. Let’s just say who’s the show, unofficially sponsored by, right now then according to your food. Let’s just say that there are the unofficial sponsors, which are?
Reese Harper: Well, my favorite thing I’m drinking is this like yellow… it’s like some Stevia based drink that I got from-
Ryan Isaac: Hold it up there [crosstalk 00:04:14].
Reese Harper: Core life eatery, Stevia.
Ryan Isaac: Oh, Core life. Yeah. Shout out, okay.
Reese Harper: It’s supposed to be a lemonade, but it’s not really, it doesn’t taste like it, it taste more like glycerin and, Stevia or some water.
Ryan Isaac: Is it Stevia or Stevia?
Reese Harper: I’d say Stevia.
Ryan Isaac: That’s the first listener question. Today’s Q and A by the way, for everyone tuning in. Thanks for being here. We’re glad you’re with us. We are going to hit, questions that you’ve submitted through the podcast, the website. We’ve been doing-
Reese Harper: Kind of excited about this.
Ryan Isaac: … some centers lately in different cities and, we’ve got-
Reese Harper: We got some good questions.
Ryan Isaac: … ton of good questions. But, maybe the first one should be, is it Stevia or Stevia? Can someone jump into the Facebook forum and tell us?
Reese Harper: I’ve never heard anyone say Stevia.
Ryan Isaac: Really?
Reese Harper: You’re one of the… you and your friends.
Ryan Isaac: Me and my kind?
Reese Harper: Your immediate circle. That’s probably informed your pronunciation of that word, but I wouldn’t know, because I’ve only heard it the other way, but-
Ryan Isaac: Stevia.
Reese Harper: … could mean that my circle, is the awkward group.
Ryan Isaac: You might be the ones that are, all right. Let’s just-
Reese Harper: I would trust my wife’s opinion of the pronunciation of that word.
Ryan Isaac: I would too actually. She knows. Okay.
Reese Harper: Not mine.
Ryan Isaac: Question number one. We’ve heard this recently, usually from younger, new grads, D4 students, that are trying to figure out, where they go in the future with all the debt load and all the stuff they’re going to do. The question is, how much can a dentist earn?
Reese Harper: Oh.
Ryan Isaac: And it’s usually followed. I’ve seen this like twice lately in the last week. It’s usually followed by the payroll statistics, that are publicly made available, that list the highest paying occupations in the country. So how about we start there? What is that list? You’ve mentioned it in a few of your presentations before. What’s that list? What’s the flow with the list? What’s your take on that list? And then let’s get to the question. How much can a dentist earn?
Reese Harper: Well, it depends on, a… I just got off the phone with a dentist that’s earning, like $10 million a year. So, you can do that.
Ryan Isaac: You could do that. There you go. Let’s just move on. Question number two. So, the really question isn’t how much can a dentist earn? Because you can earn a lot as a dentist. You just have to get out of dentistry and start a technology business.
Reese Harper: Yeah, no. Okay.
Ryan Isaac: We’ll go.
Reese Harper: Just kidding.
Ryan Isaac: Go back to the list though.
Reese Harper: Just kidding. Okay? That’s a joke.
Ryan Isaac: Answer the list first. What’s the list, know you. That’s true. We’ve seen that multiple times. It’s actually true.
Reese Harper: So, the first thing is like, what is the income bell, like in statistics, you have a curve. It’s like a shape, a scatter plot where they poke all of these little dots on a screen of an X and Y axis. And it shows you, where the most, peoples’ dots are located. What’s the center line or the mean of this curve. And, the center line, depending on this, the statistics that you are… what the source of the data is, it could range anywhere from probably, the average would show like, 185, maybe on the… that’d be more credible, bad data. But that comes from a credible source, still. And then, the reason I’m saying bad data is, the majority of the dental population, doesn’t report all of their income through payroll.
So there a lot of, salaries, that dentists are paying themselves, are not showing up, as… their total income does not show up, just their salary or the payroll amount that they’re paying is showing up. So, if you’re a dentist, owns your own practice, you’re usually trying with your CPA to bring your income down as low as you can make it, your salary as low as you could make it, so that then your payroll taxes are lower, but your profits in the business make up the majority of your income. And so, the data’s always skewed for dentists at the lower end of the surveys cause they’re just pulling for the Bureau of labor statistics, the department of labor, and that is always payroll data and it just skews to a lower amount than really the average actually is.
Ryan Isaac: Yeah.
Reese Harper: Now if you say, “What’s the average associate, on payroll making?” That’s probably closer to the, average income that is reported for all dentists.
Ryan Isaac: That feels right.
Reese Harper: That feels [crosstalk 00:08:39] right.
Ryan Isaac: Yeah, that’d be the right question. What can I make as an associate? You go, “Well, look at the payroll data. That’s probably close.”
Reese Harper: Yup. That’s close. And then, you could look at US news, and world reports, career, survey this year. They did what the best jobs in the country are, and they did what the average… the best paying jobs. Those are separate surveys. The best jobs list always includes dentists and specialists. OS, ortho, PIDS, Gipis, like they’re almost always in the top 10. And they break out the jobs too. By specialty, and a lot of them are in the top 10 in terms of life balance, satisfaction, career balance, happiness levels, career mobility, portability of the career. It’s like an awesome job. But then the income statistics usually have dentists like in around… if you do OS or ortho, the averages higher and it rivals surgeons. But surgeons are sometimes at the top. They don’t break apart surgeons, they just say all surgeons.
Well, it’s like some surgeons are… surgeons on average make a great living and probably similar to oral surgeons and similar to most orthodontics, orthodontic specialists across the country. But Gipis [inaudible 00:10:00] rank in the top 10 even on bad data, examples of national income surveys. I would think that, the real… I would say the real… my feeling of the anecdotally hundreds of dentists, lots of sample points, lots of conversations. Most of people’s income concerns are happening in their first, three to five years of their career.
Ryan Isaac: Yeah.
Reese Harper: Because they really aren’t making, very much money at that point and they just got done with a huge student loan balance. And that to me though isn’t a reflection of, where they will be, at year, five or year eight or your 10. It’s like if you get out of school and you’re like, “I just got out of school and I, have 500,000 in student loan debt and I’m only making 150,000 a year. Like this wasn’t good.” It’s like, yeah, that wouldn’t be good if that were your, end game.
Ryan Isaac: The next 30 years of your life. Yeah.
Reese Harper: That would be a bad thing.
Ryan Isaac: Yeah.
Reese Harper: So what are you going to do to make that not be, a bad decision, is the real question. And there’s a lot of things you can go. So what does a dentist make? I would say, it’s probably… for me, the average GP is probably, still in the 200,000 range, on average. Now, we don’t work with the average. Typically work with the above average. People tend to seek out financial advice. They tend to like be more proactive about getting help. So the income averages that we have are significantly higher than what I think the national average would be. But I would guess the national average is probably… if you take all practice owners and associates into account. I still think it’s in the probably mid twos to, little bit higher than mid 200,000 range. So, even though the data would say like 180 or 170.
Ryan Isaac: Yeah, I think it’s fair. I think when, people will ask you, “Is it hard to make in the three hundreds, as a dentist?” And, I mean, again, anecdotally, just experience, talking to people. I don’t think that’s tough. That feels, pretty normal to get to that point as an owner. I guess that’s the distinction we’re making as a[crosstalk 00:12:00].
Reese Harper: I don’t think it’s hard to make it as an associate.
Ryan Isaac: Associate either. No, I’d agree with that. Well, you and I have known associates getting paid well into the three hundreds. It’s pretty a smooth game.
Reese Harper: I’ve met associates in the five hundreds, in the last month.
Ryan Isaac: Oh yeah.
Reese Harper: It’s all about hand speed. It’s all about productivity.
Ryan Isaac: Where you live, man.
Reese Harper: It’s about… it has to do with your production capacity, like what can you produce? And that’s really driving income.
Ryan Isaac: Yeah.
Reese Harper: So.
Ryan Isaac: I think one way to think about this that… because people have to think about… they have to think through, what they’re willing to do to get the income though to, like you said, half jokingly, but it’s serious. Like you, dentists making millions of dollars, we have those clients and, a lot of them are doing it in dentistry. You kind of joked, some people did go start a side tech business that raised a lot of money. That did happen a few times. We’ve also seen it go wrong the other way, but there a lot of people making seven figures in dentistry. But it kind of just-
Reese Harper: Oh yeah.
Ryan Isaac: You have to back into that, and go, “What am I willing to do?” So if you just said… you could back into it this way, you could go, let’s just say the average profitability in my career is going to be, we’ll call it short. We’re going to like short changes. We’re going to say like, “I’m going to get 35% of everything I collect, in the business I own.” Which, you should be higher. All right? But let’s just be conservative. You can start backing into there and be like, all right, if I want, 300 grand, then, just divide 300 grand by 0.35 and that’s the amount of collections you got to do. And then you can ask yourself, “Is that a practice I could build? Can I build a practice that does one and change in collections every year?”
And if you wanna make 500, divide that by 0.35 and go, “Can I build a practice that’s doing, that much? Can I do a $2 million practice, a $3 million practice? Is that going to be multiple providers? Do I got to work six days a week for the first few years? Do I have to have multiple locations?”
Reese Harper: Yeah.
Ryan Isaac: You can start backing into the decisions that you’re willing to make and not willing to make and then settle on something that feels comfortable. Maybe you’re not willing to have four locations, so you’ve got a scratch off the list, some of your upper end income goals, but you can back into it that way.
Reese Harper: Yeah, I just think, you’re hitting on the right things. Dentistry is… the cost and the barrier to entry into dentistry is based on, the fact that there is a chance to go really big. And the fact… anytime you have… Why a student loan cost so much? Well it’s because the income disparity in dentistry is so great. If you say, all right, what can a primary care physician make? Well it’s a very tight range. You’ll find it very small number of million dollar primary care physicians, in the country. You’ll find more, million dollar, income dentists, and you’ll find more… the bigger the opportunity, the higher the cost of entry, the higher the barrier to entry, in student loans and equipment.
And, if you want to get, to be a highly productive, profitable business owner, you just got to get over your ego, outsource a lot of stuff and get the right people on your team, and then let them do their job, and you go focus on what you do. You focus on, maintaining excellent patient relationships, high quality of care, clinical competency, build the right team, just be engaged in your community and you’ll be in awesome shape. Where people get hurt is, they go into practice ownership and they try to retain all of the, ancillary tasks on their plate, because they’re trying to save money and just drives their income down. They’re not focused on the right things. And so-
Ryan Isaac: Mm-hmm (affirmative).
Reese Harper: Anyway.
Ryan Isaac: Yeah, well you’re talking about being in an industry where you can be literally worth thousands of dollars per hour. The funny kind of trade off to that is, the smarter a dentist gets and the more successful, and the more capable they become, the fewer things they should be doing per day. You just saying, you don’t see a lot of people doing that. You see people retaining all those jobs and it just makes that potential of being worth, a thousand bucks or more, an hour, less and less likely if you got too many things on your plate.
Reese Harper: Anyway, trying to get an answer-
Ryan Isaac: You’re also talking about the Dunning Kruger effect, that the smarter someone gets at something, the more they realize that they don’t, know as much as they should and they outsource to other people. They look to other experts and the less someone knows about something, the more they feel like they’re an expert on the subject.
Reese Harper: Yeah. My like, stupid comment was actually not that. It can be misinterpreted.
Ryan Isaac: I interpreted it loud and clear.
Reese Harper: All right.
Ryan Isaac: Okay, so let’s, between these questions, what’s the invitation then if someone’s like at that point in their career where they’re like, “All right, I’ve been at this for a little while. Income’s rising, but so is… income’s rising and my time available is going down, and I need people to help.” The invitation would be, just give us a call, let’s chat, maybe we can help take some things off your plate.
Reese Harper: Yeah, we can help. A lot of people couldn’t help you, but we can definitely help. And if you’re asking yourself that question a lot. You’re asking the wrong question. The money will come if you focus on the right things, and the right thing is not that, because, there’s an industry waiting for you. The top 20 percentile, top 30 percentile, like a big portion of this distribution curve that we talked about at the beginning. Makes, a lot of money and so you will be that person if you start asking the right questions, surround yourself with the right team and focus on the right things.
Ryan Isaac: Focus, focus, narrow your focus. Okay. Let’s pause there for a, quick break. When we come back we will hit a couple more questions, from, dentists about their businesses and their practices.
Reese Harper: Financial planning is really about getting a lot of jobs done. Some of those jobs are just a pain and they take a lot of, I recommend getting a buddy involved. One of my favorite songs from back in the 90s, is My Buddy. And I’m going to sing it to you now. My buddy, my buddy, my buddy, my buddy, my buddy and me. That is what happens when you hire a dentist advisor. Go to dentistadvisors.com, click the book free consultation button and get a buddy.
Okay, we’re back. Reese-
Ryan Isaac: Question number two.
Reese Harper: … sir Ryan Issac.
Ryan Isaac: Trusty old sir Ryan Issac. All right. This is an awesome question. This was in our forum a couple of weeks back. Someone had listened to, an episode where we talked about, investing back into the practice as a priority. But, they were wondering what does that really mean to invest in the practice? I think someone who… and what they were saying is, a lot of people hear that and they just think, should I just go buy more equipment? Like is that how I invest in a practice? I just go buy more equipment or do I just get a bigger building, like a newer place? Is that how you invest in a practice?
Reese Harper: Yeah.
Ryan Isaac: So, question was, [crosstalk 00:19:01]-
Reese Harper: What would you say, what’s your first place you would put it? Looks like you’re saying, what’s your number one thing?
Ryan Isaac: Yeah. Well, I think it depends what you want to build. So let’s just take a scenario. Let’s say, there’s a single location practice, it’s doing well, and the goal is to just make that practice. Just maximize, the space we’ve got, the hours we could produce, and we’re not necessarily looking for more locations, and they’re saying, “I want to invest in my practice. I don’t want another practice, but I want to invest in the current one. I’ve got my tech, like what do I do?” I would say, I would invest in… there is a few places I think are, awesome.
Reese Harper: You only get a one, you only get to pick one.
Ryan Isaac: Okay.
Reese Harper: You don’t get to steal my thunder.
Ryan Isaac: Oh, you got thunder, you’re coming to thunder.
Reese Harper: You pick one. I pick one.
Ryan Isaac: All right. First place I’m going to go is-
Reese Harper: Got to isolate it.
Ryan Isaac: … often overlooked is, growth through, your fee schedule and the insurances that you take and bill.
Reese Harper: Okay.
Ryan Isaac: I would invest in someone who’s smart to look at that and go, “You take 12 insurances and you should only be taking nine, and here’s what your fee should be. And we could renegotiate a few things and you should only be doing, these certain procedures because you’re worth more in your time and your associates should be doing these ones.”
Reese Harper: Oh, but you assume we have an associate in that model so-
Ryan Isaac: Or they need to… okay.You need to get one, but, you should focus, your focus. Mr Focus.
Reese Harper: Okay. I get it. When I say reinvest in the business, what I’m saying is, really clarify what you want to be and how big you want it to be. If you want it to be one location, that’s highly profitable and, a really high value operation. Your biggest investment is a highly paid, highly skilled, practice administrator of some kind. I mean, if I were a dentist and I were in a single location and, I were trying to like have, thousands of dollars an hour in productivity and a very lifestyle focused career? Man, my biggest investment would be, probably rivaling six figure, income for a practice administrator, type to take like a ton of… or higher. Like, I would tie that person to probably, some growth in the business. I’d tie them, I don’t need to own 100% of one location.
I would want my office manager, partner, business manager. I want someone, to manage all of this people, in my practice. I want someone to own the marketing. I want someone to really own the communication of all the humans that are there. And I don’t want to be the human communication person that… because I just want to come in and produce and leave. That’s if I wanted a lifestyle, single location practice, that’d be the one I would throw out there. I think people under invest in… they under invest in, their human capital. So, people is the number one place, I would say.
Ryan Isaac: kind of along those same lines is, it’s surprising how little information some dentists have about their own business, like their own business analytics, of all of the dozens and dozens of moving pieces every single day in our practice. It’s surprising how, often people don’t know some of those basics about their business. Like how many people have they, recommended certain treatment that isn’t back yet and, what’s hygiene doing and, how are patients interacting with insurances and with payments and all those kinds of things. I think having some really basic organization could be with your financial planner, with your CPA. It could be like a piece of software like dental Intel. Just having, more organization around the numbers and the moving pieces in the practice to see where you might be missing things.
So I’ve been surprised to see, how much revenue can be picked up by just getting more organized with the numbers of the practice and going, “Oh.” There’s a chunk of patients right there that already know us already trust us. If I’ve already received care in the past that we could just work a little harder to get them back in the office.
Reese Harper: Yeah.
Ryan Isaac: Instead of, we should get another building and then try to market for new people.
Reese Harper: Yeah.
Ryan Isaac: So.
Reese Harper: Let’s just rally off a couple more items. I think that’s really good insight. For me it would be people, but I would break people down by, if you want more productivity out of your team, you have to compensate more than the average. You can’t compensate at average compensation. And then, expect above average results. You can in some cases, but like, as tough, you got to be, prepared to actually invest in people that are higher. You don’t want to take average talent and then, over invest in that talent. You want to find the highest quality talent and try to attract them to your practice. And the only way you get that is through paying, above average wages. And so for me, that’s one area I would invest in an associate, if I was really trying to grow. When I say invest in your practice, I’m thinking, why not test your marketing, by getting production off your plate and continuing to try to, create scale in your area.
If you have enough population to support it, why not? So for me it would always be about associate front, that it would be consulting, in a ongoing basis, a commitment to, consulting arrangement with someone you trust that’s constantly forever trying to improve your practice and grow it. And not at a significant portion of your revenue, but, I mean, man a few thousand dollars a month can go a long, long way in making a practice go well above average. Practice analytics like you said. A better accounting partner who can help you understand your profitability. Another insurance reimbursement company like you were talking about membership programs. I would try to invest in deep and better digital marketing. I’d invest in, better traditional marketing. I would invest in client events and patient appreciation events. And, these are all the places I’m talking about when I’m saying investing, I’m not even thinking about equipment. I’m not even thinking about-
Ryan Isaac: I was just going to say, listen to that whole list that you’d not, one mentioned equipment or real estate.
Reese Harper: No, I don’t care if you own or lease and I don’t care what kind of equipment you practice with because, I still can’t, as a patient. I still can’t tell you what’s going on and I-
Ryan Isaac: It all scares me.
Reese Harper: It’s all just like-
Ryan Isaac: I got to get a cup on my head in that.
Reese Harper: Seriously. If I like you, and you don’t have a cone beam, I’m still going to let you place me [crosstalk 00:25:43].
Ryan Isaac: I like you. We’re doing business.
Reese Harper: I’ll steal at your place. If you don’t use a guide and you’re like literally just winging it, Placing my implant, and I like you, because we’re friends. I’ll trust you. I’ll be like, I just don’t have… I know that you probably want the equipment and you need it to do a great job and I’m grateful when you do invest in it. I’m just saying from a business perspective, what drives growth. Don’t let your equipment vendor convince you that that will drive the growth. It doesn’t drive the growth. Eventually every piece of equipment becomes status quo. And, not a differentiator at all. It just becomes the median required item. You have to have it, so, get what you need to be competitive. I don’t think… I’m not talking about location size.
Ryan Isaac: Yeah.
Reese Harper: I don’t know. I don’t think that’s the first place to go at least. I think it’s important, but I don’t think it’s the first place.
Ryan Isaac: Yeah, I’ll wrap up that topic, but I would just second people. I mean-
Reese Harper: It’s humans.
Ryan Isaac: Humans, not only seeing, a lot of dental practice over the last decade, but, just our own business. I mean, going from like five to 10 people, was massive, going from 10 to 20. I mean, it changes things so much. So people in marketing, I mean, looking at our own business and then watching other people do it too. I think those are huge. Okay. Question number three. This might have also been from our forum. So basically if you want a question answered on the show and want some time dedicated, to the question from a trusty old person and a… if I’m trusting and all that, I don’t know what that makes you.
Reese Harper: Yeah-
Ryan Isaac: Something.
Reese Harper: Young and-
Ryan Isaac: Young and snakey.
Reese Harper: Snake oil salesman. That’s a young buck. You’re trusty and old.
Ryan Isaac: Do you want trusty and the old and young and snakey, then go to dentistadvisors.com/group, go in the group and post a question. So this one was, when do you know that it’s time to… when you got to buy something in the practice, how do you know if you should pay cash for it or finance it? Like what’s the line there when you’re telling someone like, “Just grab some cash out of the business.” or, “No, no, no. Go finance it.”
Reese Harper: I would look at their savings rate. For me, I would like say, “What amount of money consistently do you have left over every month right now?” So I’d look at their savings rate and I would look at their liquid term and depending, if they’re liquid term was, less than one, meaning you have less than one year’s worth of liquidity built up in your personal, wealth plan, then I definitely wouldn’t, I wouldn’t want to cash pay for anything. You’re not liquid enough yet. If you already are, well on your way to a 30 TT score by age 20, about 25 years out, we’ll say by age 65 and I know you’re going to get there and we’re fine and you just want to, not have a piece of equipment debt. I mean, all we have to do stop saving for three months to pay cash for this.
But if we’re going to stop saving for several years to pay for this piece of equipment, because it, represents a meaningful investment for you. The more it constrains your cash and the bigger pressure it puts on you, the less likely I am to pay cash for it. And, the more liquidity you have and the stronger your financial statement, the more likely I would be to pay cash for it. Because it doesn’t really affect your trajectory and your growth. There’s a lot of times once people… I’ll be like… early in people’s career, I’ll be like hyper defensive about protecting liquidity and getting ready for the future and saving for retirement and starting to build wealth. But then eventually, if they’ve done that and they followed that advice, they’ve got so much net worth compounding and their investment accounts are compounding so fast. It’s like, if you want to just pay cash for that, it’s not going to affect our growth anymore.
Ryan Isaac: Okay, let’s so say someone, is in a position where they have a lot of liquidity, good savings rate. They’re headed in a good, is there like a dollar amount to you, when you hear it, you’re just kind of like, “I don’t know, why would you get rid of that much cash to avoid paying like 4% to a bank for the next[crosstalk 00:29:52].”
Reese Harper: Yeah, anytime it’s six figures, I start wondering.
Ryan Isaac: Okay. That’s how I think about it too usually. Just kind of that threshold where you’re just like, it just hurts to part with that much cash. Even if you’ve got it. It’s just painful.
Reese Harper: Yeah. Well, I’m like, it’d be like, if it was only a one time thing, once I buy this machine-
Ryan Isaac: Never again.
Reese Harper: I won’t need to. I was like, “Well, you’re going to be coming back every five years doing the same thing.” So let’s just commit to, having a little bit of financing in our practice so that we can keep the thing healthy and vibrant.
Ryan Isaac: Okay. So let’s wrap this thing up by… we’re going to go full circle a little bit. In the beginning, we were talking about a question that was posted, from a client in the Facebook group. And, it’s kind of a broad question, so we’ll see if we can tackle some of this here. The question was, “When do I know it’s time to go from the office, simple IRA to the office, 401k?” What’s the trigger to switch from a simple to 401k?
Reese Harper: Man I just hashed this thing out like crazy, with Matt over lunch the other day.
Ryan Isaac: Well, we’re just going to go, all right. I have some thoughts of this, but, I was actually going to make a video to respond to this in the Facebook groups. I’m like, I can’t type all this. This is crazy. So I’d rather talk about it with you.
Reese Harper: Yeah.
Ryan Isaac: Now let’s post a link to it.
Reese Harper: Yeah. When it’s done.
Ryan Isaac: When this comes out. So you were just fighting with Matt, the mighty adviser. Matt the mighty.
Reese Harper: Matt [Moolcock 00:31:10] is a genius. And, we were at lunch. I went to this… I never go, to lunch based on a recruitment pitch or some kind of a like email this lunch. My point about this lunch was, it may be kind of, the more I just sit there and stewed on this and thought about it, I was like, “You know what? There is no world in which I support a simple IRA for a dentist. Anymore.” I’m getting to the point where I just don’t support it, mentally because I’m just, I used to be way behind it. Why? Because I was wanting to try to save them money by just saying-
Ryan Isaac: Yeah you can save like two grand a year. 2500 bucks a year.
Reese Harper: Yeah, you can save a couple grand a year, by just not doing a 401k plan. But then, the administrative burden of that and the amount of times I’ve seen people screw it up, and it’s just like-
Ryan Isaac: Hit the bell. Do you have the bell sited next to you? Because that should be ding, ding, ding.
Reese Harper: Yeah, it’s just hard. And so-
Ryan Isaac: The same amount of times that you’ve seen someone screw up a simple IRA.
Reese Harper: Yes. And so, if they keep screwing it up, and they’re spending a ton of time on it, I’m like spend a little more to at least, have someone take over 90% of the pain, and then you still get a bigger deduction, which makes up for the fact probably that you were saving some money. I mean, here’s my point though, my broader point. So 401k is better than a simple, mostly because, simples can, eat your time up, or become worse. A nightmare that you’ve miss administered, but-
Ryan Isaac: Why is that though? Why is that, I don’t know if everyone understands that-
Reese Harper: So when you’re doing a 401k plan, you tell them, I’ve already been rambling. You tell them.
Ryan Isaac: You’re mad, you calm down and you can eat your bar, and, your lemonade, drink, your lemonade. It’s because when, the extra cost in a 401k is because now you enter the world of regulation in ERISA, E-R-I-S-A. So, the extra cost of a couple thousand or 2,500 bucks a year, it’s because you’re paying a company to babysit everything in the plan. The payroll-
Reese Harper: Or the cheapest plans-
Ryan Isaac: Or the cheapest plans[crosstalk 00:33:18].
Reese Harper: We’ve got an option that’s like, $250 a year but you won’t… it won’t service you like one that’s 2000. I’m just saying, we can get you a 401k also that’s free. I have a 401k plan, that’s free, just like a simple IRA is free. Okay.
Ryan Isaac: [crosstalk 00:33:38]
Reese Harper: It’s a template plan. You just type in the data, just don’t screw it up, put it into the website. And then there’s one for 250 bucks a year, and then there’s one for 500, another one for 750, there’s one for a thousand. If someone tells you they have the cheap 401k option and they cost 1500 a year or a thousand a year, that is not the cheap option. There are much cheaper options. If you want cheap to be your answer, you can do it free or 250 a month, like 250 is actually pretty decent.
Ryan Isaac: Yeah, a year.
Reese Harper: Gusto Payroll is interrelating with guideline right now and it’s not bad. I mean it’s like 250 bucks.
Ryan Isaac: And you give up, you give up a lot of flexibility investment.
Reese Harper: A ton.
Ryan Isaac: You give up a ton, and you have liability duties on your plate, but whatever. But the point is-
Reese Harper: If you’re cheap, you could get it cheap.
Ryan Isaac: You can get it cheap.
Reese Harper: The most expensive, you’re going to pay is probably like two grand to like Vanguard. Literally they’d have a flat fee. It was a flat fee, no basis point charge three grand a year. It was like three grand a year. Fixed costs up to 20 employees. I’m like, “That’s pretty good.”
Ryan Isaac: That’s fine. That’s fine.
Reese Harper: But like that’s where you’re going to be. And you’d be like, “Oh, I saved money. I got it for 2000.” Well if you have to lift your finger like 10 more times a year or, call the phone number three times or your office manager has to work for four hours a month on it. It wasn’t cheaper. What I’ve found is the more you spend, the more service you get on the 401k and so-
Ryan Isaac: Yup. Well we’ve got episodes on this, to dive into what to look for in a 401k service provider. You can find that on the website at dentistadvisors.com.
Reese Harper: What was the question again?
Ryan Isaac: The point is, when you hire someone to do a 401k, you’re paying for someone to babysit all the moving pieces and make sure nothing goes wrong.
Reese Harper: Yeah.
Ryan Isaac: That’s it. In a simple IRA, the difference is, it’s between you, the business owner and your bookkeeper or payroll person. And, over the 11 years that I’ve… because I used to be huge fan to have, I still have a spreadsheet on my desktop that compares the break even when a 401k no longer provides a tax benefit big enough to account for its fees. Right. And I was like, well, he should just do a simple, check out the math.
Reese Harper: Yeah.
Ryan Isaac: But, in 11 years, I’ve been watching people miscalculate or not pay any match, and were like, in June, and accounts will come back from the previous year like, “Oh, it looks like, the bookkeeper didn’t do the match correctly for the… we got to amend the returns now, to give that employee two grand and match that they miss last year.” Because all of the administration in a simple IRA comes onto the owner’s plate of the practice, and the bookkeeper.
Reese Harper: And the more you pay on [crosstalk 00:36:05]-
Ryan Isaac: And the financial advisor doesn’t babysit that and the custodian holds the money, doesn’t babysit it. It’s just you, the owner and the… I’m not a fan anymore. It bother me.
Reese Harper: If you do, the 401k. If you do the 401k and you pay enough to get a good record keeper and TPA, they’re not only going to do some of the stuff for you, but they eat the liability when they do it wrong. Like they actually own the responsibility of, doing it wrong. And so-
Ryan Isaac: If you paid enough for someone to do that.
Reese Harper: If you pay enough-
Ryan Isaac: Now you have a cheap 401k you don’t get the liability-
Reese Harper: No.
Ryan Isaac: It’s still on you.
Reese Harper: And it doesn’t matter.
Ryan Isaac: [crosstalk 00:36:40].
Reese Harper: Just know that it’s… equality [inaudible 00:36:44]. But I don’t [crosstalk 00:36:46].
Ryan Isaac: Yeah. I think we both kind of changed our tune over the years. I’d rather see someone just not have to screw something up, have something slightly more expensive. Do like one extra crowning than entire 12 months period.
Reese Harper: Well it’s funny because see, I used to be big into simple IRAs, and then I got anti, at the time I got anti, you got big into them. And then-
Ryan Isaac: That was [crosstalk 00:37:05].
Reese Harper: And then you got anti-
Ryan Isaac: [crosstalk 00:37:07] healthy dynamic though. We got a lot of push and pull.
Reese Harper: It is. So here’s the interesting part about it though, is what I see. People are anti, the 401k and pro simple when they, are focused on fees, that’s when you’re anti and you are being… and I was being protective of my client’s costs, by trying to recommend that they go with a simpler option, a less expensive option. If they don’t have the cash flow. I don’t want to make them incur cost. So here’s my better recommendation now knowing what I know. You shouldn’t set up any retirement plan, at all. And you should just do an IRA, and your brokerage accounts, until you’ve got enough to commit to a 401k, but don’t go the in between, simple-
Ryan Isaac: Two years.
Reese Harper: … or simple.
Ryan Isaac: Now here’s what’s cool though, is you’ll see this two. People who were in the first several years of practice, where they’ve owned and been an employee of their own entity for a couple of years before they open up shop and get employees. There is a three year rule on SEP-IRAs, that you can exclude people that haven’t worked there for three years on a SEP-IRA, and the SEP-IRAs, super easy. It’s got a huge limit and there’s no match. So, for, right off the bad people, I’ve got quite a few clients who are like, “Yeah, I qualify because I’ve been an employee of my entity for more than three years, but no employee has yet. So I run a SEP-IRA for the first, two to three years of opening up practice. And then I shuttered down to do a 401k.”
So that’s cool if that…
Reese Harper: Yeah.
Ryan Isaac: But that’s the downside to a simple IRA that just bothers me a little bit, is there’s just so much that falls back on the plate of, the owner and the bookkeeper. And, a lot of times we get emails from bookkeepers like, “How do we do this?”
Reese Harper: Yeah, exactly.
Ryan Isaac: I’m like, “I don’t run payroll.”
Reese Harper: Yeah.
Ryan Isaac: And TD Ameritrade that holds the money. They don’t separate the deposits into like, well, this was your match and this, is your deferral.
Reese Harper: No, you got to account for it. You’re a record keeper.
Ryan Isaac: Payroll accounts for it.
Reese Harper: Yeah.
Ryan Isaac: Yeah.
Reese Harper: So-
Ryan Isaac: Anyway-
Reese Harper: Bottom line is, there’s a lot going on here. I mean, I have tons of clients that make, a 401k profit sharing cash balance contributions that are saving. There are people that, we’re working with right now, are saving almost six figures in taxes from their, retirement plan contributions. That means, they’re contributing three times that in contributions. And that’s like a no brainer. You can’t do that without a 401k in place. I’m like, all I’m talking about is I’m cautioning the people at the median to below median income range to… Especially if you have a big equipment year or you have a year you already had a bunch of write-offs. Man, that year might’ve been free money anyway, just to put it into a brokerage account and not deduct it.
Ryan Isaac: Now Reese, are you paid more to make someone get a 401k than a simple IRA though? What changed? Who’s paying you?
Reese Harper: So here’s the story people, I’ve never been paid to sell this, a 401k but you will listen to some people in your life and throughout your social media and on your… you’ll get phone calls and people selling you 401ks. I promised that person is getting paid to sell you 401k, we get paid the same way. Whether your money goes into a 401k or a simple IRA or a SAP or… I mean, I just want you to have the most money at the end of your career. I want you to have the most money at the end of your career because, we do make money when you have more money, we make more money. And so, 401k is the best place to put it. I’d like to let you know that. I’m just concerned about the lower income group. It’s especially… it’s a problematic issue man. It’s a problematic issue for these young bucks.
Ryan Isaac: Look, as your… I hope this was helpful, but there’s a lot of moving pieces. So just do yourself a favor. Do what we were talking about earlier. Give us a call, have someone else run through this, have someone else take care of it, and it’ll be better for you, if you just get back to dentistry and don’t spend too many hours debating this question.
Reese Harper: You’re always better with a buddy.
Ryan Isaac: Better with a buddy. Appreciate it from a young guy and a supposedly a trusty guy. Thanks for listening. You can, talk to us anytime you want. You can call us (833) DDS plan. A lot of people, your peers, your friends, your trusted associates and colleagues. They like to just go on our website, and book a time to chat with us. So you can do that. Dentistadvisors.com, click the big green button that says, book free consultation. Let’s have a chat, and please go to our dentist advisors, Facebook group, post more questions for episodes like this in the future. Dentistadvisors.com/groups, thanks everyone. Until next time.
Reese Harper: Carry on.Income