Can I "Pull the Plug"?

[George123]

I am a 62 year old dentist. After 35 years, I would like to hang it up. Believe it or not, dentistry is an extremely stressful occupation, and the rewards are diminishing as the costs of running a practice are escalating, and insurance companies are beginning to control office fees. My net worth is $4M. Of the $4M, $1.5M is in an IRA. Portfolio: Mutual Funds 45%, Real Estate 15% (excluding residence), Gold 5%, Intermediate Term Bonds 15%, dental practice 10%, CD's 10%. I fired my FP 10 years ago when he had me purchase an annuity, and placed the annuity in my IRA. Vanguard and I are getting along fine together! We hope to have an annual income of $100,000 a year in retirement, and leave $1M to our children. The wild card: Medical.
Does anyone see any problem with the plan? I would appreciate your input.
-- Paul in Oregon

 

[travelover]

Welcome George. May I suggest that you run FIRECalc. Link is at the bottom of this page.

At first blush, it would seem that you are fine, especially if you can get the value from your practice..

 

[pb4uski]

Have you been through the financial planning process with Vanguard? It would be free given your level of assets and would probably give you some peace of mind. Also, check out Vanguard's link to Financial Engines and FireCalc as travelover suggests. but in short it would seem likely that your portfolio could support $100k in annual withdrawals (less SS once you start drawing that).

 

[Animorph]

Depends on how much of that net worth is invested for retirement. If that's the portfolio value then you are in good shape.

 

[MasterBlaster]

A $4MM portfolio using a 4% safe withdrawal rate brings in $160k per year. I assume that you'll also qualify for Social Security towards the upper end of the payment levels.

By the way some recommend that for a 62 year old holding an age appropriate balanced portfolio you can (safely) draw around 5.3 % (variable rate) a year from the portfolio. That would give you an income of around $212k plus Social Security. The withdrawals in this case would fluctuate with the markets but almost certainly will provide a greater income than the 4% SWR that goes up every year with inflation.

It seems that you are in fine shape given spending needs of only $100k.

many live on much less than that.

 

[Finance Dave]

I agree it seems you are in great shape. You'll want to investigate some tax-efficient methods of withdrawing your wealth....as you'll be in a relatively high tax bracket even in retirement. Congrats!

As an aside, can you educate me on whether you are eligible for SS? In other words, do most private practice professionals such as doctors/lawyers/dentists deduct SS from their own salary and send it to the gov't? I'm sure you do it for your employees...but do you do it for yourself? Are you required by law to do so?

 

[haha]

I can answer that as I worked independently most of my working life. You are either incorporated, or unincorporated. If incorporated, your corporation treats the employer part of SS tax just as it would for any other employee. If not incorporated, you fill out form SE, and in effect pay both the employer's and employee's share of tax. In this case it is all lumped together and called self employment tax.

I am not sure in the case of a professional corporation, as it may be different from a C-corp.

Ha

 

[Purron]

I am a 62 year old dentist. After 35 years, I would like to hang it up. Believe it or not, dentistry is an extremely stressful occupation, and the rewards are diminishing as the costs of running a practice are escalating, and insurance companies are beginning to control office fees. My net worth is $4M. Of the $4M, $1.5M is in an IRA. Portfolio: Mutual Funds 45%, Real Estate 15% (excluding residence), Gold 5%, Intermediate Term Bonds 15%, dental practice 10%, CD's 10%. I fired my FP 10 years ago when he had me purchase an annuity, and placed the annuity in my IRA. Vanguard and I are getting along fine together! We hope to have an annual income of $100,000 a year in retirement, and leave $1M to our children. The wild card: Medical.
Does anyone see any problem with the plan? I would appreciate your input.
-- Paul in Oregon

Medical is often the wild card. What options have you explored to cover you until Medicare kicks in? If you search this site, you'll find lots of discussion on medical coverage issues. Otherwise, you're far ahead most of us (me at least) in having sufficient net worth to cover your desired retirement.

 

[haha]

If this Dude can't retire, I don't know who can other than 1%ers. This board is littered with people who are retired, with less money, without medical, at an earlier age than he is.

Ha

 

[chris2008]

Income 100.000 expenses 110.000, result misery
Income 100.000, expenses 99.000, result happy life.

Take a deep look into your expenses. Track for at least 6 months in great detail. You need to know where your money goes to today.
Then anticipate with DW how the expenses would change in retirement.
More or less eating out? More travel? Which style? Moving to a less expensive location? Buy a smaller house?

Did you run firecalc and/or the retirement calculator at http://www.i-orp.com?
It helps a lot.

 

[Lazarus]

Taking 100K from a 4 Million portfolio seems reasonable to me. Just make sure that 100K is all you are spending.

 

[67walkon]

Yes, professionals get SS.

Part of the $4M is an interest in a professional practice that may or may not be something one can covert to cash. If there are others in the practice, you could maybe get a buyout or trade your interest for continued medical coverage.

If the interest in the practice isn't liquid, then you're looking at a portfolio of around $3.6M, with $1.5 in the IRA and about $2M in taxable accounts. If you could put off SS until age 70, you'll likely get around $40,000 a year; if you are married and she/he can get half, that would be another $20,000. If you get to the point where you have either $40,000 or $60,000 from SS, and ignoring inflation, you will need another $60,000 or so to meet your expenses. That should be easy, peasy.

The question is how to get to 70 if you delay SS that long. If I were in your situation, I would start the first year by withdrawing $100,000 from the $2M taxable accounts and see how it goes. If you're a little off on your expenses, you will be fine. At the end of the year, I would re-balance everything, figure out how close you were on the $100,000, and withdraw whatever you need for the next year from the taxable accounts. Meanwhile, your IRA can continue to grow for another 7 or 8 years. With any luck at all, when you hit 70 and take your SS, your IRA will be worth over $2M, your taxable accounts will still be worth close to or more than $2M and you won't be able to figure out what to do with all the money.

So, yes, if you are close on your expenses, you can retire, live well and spend the rest of your life figuring out if you want to make your kids rich when you die or give some to charity.

 

[MasterBlaster]

if you are married and she/he can get half, that would be another $20,000.

As I understand things, the SS spousal benefit is based on the FRA retirement benefit amount not the benefit deferred to 70 years old. So perhaps the wife would get $15-16k maximum provided she waits to collect until her own FRA and the primary starts collecting SS benefits at age of 70.

However the spousal survivors benefit would be the full $40k that the primary received by deferring to age 70.

 

[67walkon]

Master might be right, I don't know. But it would still be a significant amount. I thought, and could be wrong, that a spouse could take his/her benefit or half of the other's benefit. The reduction would be if the lower earning spouse took before reaching FRA. Whether it is limited to half of the higher earner's benefit at FRA is something I don't know.

 

[Midpack]

Welcome George. May I suggest that you run FIRECalc. Link is at the bottom of this page.

+1, FIRECalc: A different kind of retirement calculator would be a good place to start.

 

[ducky911]

seems on the face of it you are fine.

A couple things to check.

Make sure your holdings have low expense percentages. I lower mine from around an average of 1% to about .25%...on let say 2 million of holdings thats 15k to YOU.

Make sure that your portfollio has the right assets in each of your accounts ( tax free vs taxed)....boggleheads web site has an great artical on this in the library....basically you want bonds and reits in your IRA as they are not tax efficent

 

[Finance Dave]

I can answer that as I worked independently most of my working life. You are either incorporated, or unincorporated. If incorporated, your corporation treats the employer part of SS tax just as it would for any other employee. If not incorporated, you fill out form SE, and in effect pay both the employer's and employee's share of tax. In this case it is all lumped together and called self employment tax.

I am not sure in the case of a professional corporation, as it may be different from a C-corp.

Ha

Thanks! What about LLCs? I suppose that would be "unincorporated", so I'd not have to do this? I just opened a new LLC and will have "active income" under that LLC in the near future.

 

[Richard4444]

Paul ... YES you can ! Imagine not having those daily stresses any more as well - your staff battles, checking your day sheet for cancellations, being "on stage" all day. You just might get a bit healthier without these.
I know - I've lived it <-- 62 y o (retired) dentist

 

[Purron]

Paul ... YES you can ! Imagine not having those daily stresses any more as well - your staff battles, checking your day sheet for cancellations, being "on stage" all day. You just might get a bit healthier without these.
I know - I've lived it <-- 62 y o (retired) dentist

I now have a much deeper appreciation for my dentist. He's a great guy and has run his own practice for over 30 years.

 

[obgyn65]

I agree with others here. You are in good shape.

 

[pb4uski]

Thanks! What about LLCs? I suppose that would be "unincorporated", so I'd not have to do this? I just opened a new LLC and will have "active income" under that LLC in the near future.

See below. So for SS/self-employment tax purposes a sole proprietor LLC would be reported by the owner on the owner's Schedule C subject to SE tax and a multiple owner LLC might pay salaries which would be subject to SS withholding and payment and/or make distributions reported on Schedule K-1 that would also be subject to self employment tax unless the recipient does not participate in the management and control of the partnership.

Reporting LLC Income, Losses and Expenses

Most owners of a one-owner LLC must fill out Form 1040 Schedule C. Business Income and Expenses. If the business is farming, then Form 1040 Schedule F, Farm Income, must be completed. If the business deals with real estate or rental properties, then Form 1040 Schedule E, Supplemental Income must be completed. The amounts from these forms are then transferred to the appropriate location on the owner's Form 1040.

Members of a multiple-owner LLC receive a Schedule K-1 from the LLC. The members must take the information that was supplied to them on Schedule K-1 and transfer it to Part II of Schedule E and to other forms as indicated on the Schedule K-1. These forms are then filed with the Form 1040.

A multiple-member LLC also must file a partnership information return, Form 1065, which shows how the money came in and was distributed to members, but no entity-level taxes are imposed. "Salary" to the owner of an LLC is really just a way of dividing profits, or an owner's withdrawal in a one-owner LLC.

 

[fanmail]

There's a very good chance you can draw 100k from your portfolio every year and not reduce the principal at all during the rest of your life. Congrats and well done.

 

[BigE]

I love my dentist and drive 50 miles for cleaning because he and staff are so awesome. He is also a good friend...and it IS a stressful field. Dentists and physicians definitely pay into SS and after 35 years, you've paid in a great deal and are just a few short years away from collecting. Obgyn 65 is about to pay in his 40 quarters so he will be eligible. At your SS level, this should provide a significant chunk of the desired 100k. I would get on the SS website and check our your numbers. Also, is this 100k before or after taxes? If you are interested in leaving some monies to children, you might start converting some traditional IRA's to Roth category and you can also do any type of paid part time work and continue to fund a Roth if you are serious about leaving something for heirs. The bridge to medicare for you brings into the question of wife's age and ability to use Cobra if you can hold out until 18 months before 65. Good luck.