Retirement planning is something many dentists put off. With a busy practice to run, staff to manage and patients to look after, it’s something to think about later. But the sooner you start managing your money for retirement the better your financial future will look. Whether you’re an associate or a practice owner taking control of your retirement planning now can mean the difference between a comfortable retirement and one full of financial worries. Understanding the importance of guaranteed income such as through annuities can provide a consistent and reliable source of funds in retirement.
The unique financial challenges dentists face
Dentists have specific financial challenges when it comes to retirement planning. Unlike employees in other sectors many dentists are self employed or business owners and don’t have access to a workplace pension scheme with employer contributions. Instead they must take full responsibility for building their pension pot. Other factors that complicate retirement planning include:
- Irregular income – Earnings can fluctuate especially for those who own their own practice.
- Tax efficiency – Dentists need to make sure their retirement savings are structured in the most tax efficient way.
- Practice sale – For practice owners the sale of a dental practice is often a key part of their retirement fund but it’s not always as straightforward as expected.
- NHS vs private work – NHS dentists have different pension arrangements to those working privately which affects their retirement planning strategies.
- Challenges with NHS patients – Providing care to NHS patients presents unique financial challenges. Many dentists are frustrated with the NHS contract structure which often leads to financial strain. In some areas like north Wales there is severe shortages of NHS dental services and long waiting times which further complicates the situation. Some practitioners feel financially compelled to stop treating NHS patients altogether.
Understanding your retirement income is key to planning a comfortable and sustainable retirement. Your retirement income can come from various sources including your pension pot, state pension and other investments. You need to estimate your retirement income to know how much you’ll need to live comfortably in retirement.Start with a pension calculator to estimate your retirement income based on your pension pot and other income. This will give you a clear picture of your financial future and help you make informed decisions. Also consider getting financial advice to get personalised advice on your retirement income. They can give you tailored strategies to maximise your income and financial stability.
Check your state pension entitlement and other benefits to make sure you’re getting the maximum amount. This is crucial as it can make a big difference to your overall retirement income. Diversifying your income streams is also important to reduce your reliance on one source of income. By having multiple income streams you can mitigate risk and have a more secure financial future.
How much do dentists need for retirement? Use a pension calculator to find out.
The amount needed for retirement depends on lifestyle expectations and current financial obligations. The Pensions and Lifetime Savings Association (PLSA) estimates that for a ‘moderate’ retirement a single person in the UK needs about £23,300 per year and a couple needs £34,000 per year. For a more ‘comfortable’ retirement the figures are £37,300 per year for a single person and £54,500 per year for a couple.
Planning for when dentists retire is key as it involves estimating income needs and making informed financial decisions. Understanding the options available for accessing pension funds and the implications of those choices will make a big difference to their financial stability post retirement.
For dentists these figures may be higher especially if they want to maintain a lifestyle similar to their working years. With the cost of living increasing and inflation ensuring enough is saved to last 20-30 years post retirement is essential.
Pension options for dentists
Dentists have several options to build their retirement savings:
To ensure a comfortable retirement dentists should carefully consider how much they need to pay into their pensions.
1. NHS pension scheme
For NHS dentists the NHS Pension Scheme provides a defined benefit pension meaning retirement income is based on career earnings rather than investment performance. The scheme is attractive as it offers inflation linked benefits and survivor benefits. However changes to pension taxation rules have made it essential to review NHS pension benefits regularly to avoid unexpected tax charges.
2. Private and self-invested personal pensions (SIPPs)
For dentists not in the NHS scheme or who want additional retirement savings a private pension or SIPP is a good option. These allow for more flexible investments including stocks, bonds and commercial property. Contributions get tax relief at the marginal rate so higher rate taxpayers get 40% relief on contributions up to the annual allowance.
3. Lifetime ISAs (LISAs)
A Lifetime ISA (LISA) allows you to save up to £4,000 per year with a 25% government bonus. Although primarily aimed at first-time homebuyers LISAs can be used for retirement savings and accessed tax-free from age 60.
4. Property investments
Many dentists invest in buy-to-let properties as a source of retirement income. While property can be a good long-term investment it comes with risks such as fluctuating house prices, tax changes and maintenance costs. New regulations for landlords and changes to mortgage interest relief have made this option less attractive than in previous years.
Creating a sustainable retirement plan
Creating a sustainable retirement plan involves considering several factors including your retirement income, expenses and lifestyle goals. A well-planned retirement will ensure a comfortable and fulfilling retirement.
Start by estimating your retirement expenses including living costs, healthcare and leisure activities. Understanding your financial needs will help you create a realistic budget. Consider your lifestyle goals such as travel, hobbies or spending time with family and friends. These goals will impact your retirement expenses and should be factored into your plan.
Develop a retirement income strategy that balances your income sources and expenses. This strategy should ensure your income covers your essential needs and allows for discretionary spending. Review and update your plan regularly to ensure you’re on track to meet your retirement goals. Life circumstances and financial markets can change, so adjusting your plan as needed is important to stay on course.
Tax efficiency in retirement savings
A good retirement plan is one that is tax-efficient. Dentists need to consider:
- Annual and lifetime allowances – The pension annual allowance is currently £60,000 (or lower for high earners) before tax charges apply. The lifetime allowance has been abolished from 6 April 2024 but lump sum tax charges still apply beyond a certain threshold.
- Tax-free cash – Up to 25% of pension savings can be taken tax-free at retirement, up to a maximum of £268,275.
- CGT planning – If selling a dental practice or property, CGT allowances should be considered to minimise tax liabilities.
- Business relief – Passing assets to family members tax-efficiently can reduce inheritance tax liabilities.
Selling a dental practice
For practice owners selling their dental practice is often part of their retirement plan. However it’s not always easy to sell quickly or at the expected value. Key points to consider:
- Valuation – A professional valuation will help set a realistic price.
- Timing – Selling at the right time, ideally during high demand, can increase sale value.
- Tax implications – Entrepreneurs’ relief (now called Business Asset Disposal Relief) can reduce capital gains tax to 10% on qualifying gains up to £1 million.
- Succession planning – A smooth transition for staff and patients will maintain goodwill and business stability.
Retirement mistakes to avoid
Avoiding common retirement mistakes will ensure a comfortable and sustainable retirement. Here are some common mistakes to avoid:
Not planning for retirement income: Not estimating your retirement income will lead to financial stress in retirement. You need to know your income sources and how much you’ll need to live comfortably.
Not diversifying your income streams: Relying on one source of income increases your risk of financial insecurity in retirement. Diversifying your income streams will provide a more secure financial future.
Not planning for care costs: Not planning for care costs will lead to financial stress and reduced quality of life. You need to consider potential healthcare expenses and include them in your retirement plan.
Not reviewing and updating your plan: Not reviewing and updating your retirement plan will lead to financial insecurity and reduced quality of life. Review your plan regularly to ensure it stays aligned with your goals and adapts to any changes in your circumstances.
By avoiding these mistakes you can have a more secure retirement.
When should dentists start planning for retirement?
The sooner the better. Dentists who start saving in their 30s or 40s will have more time to benefit from compound interest and tax advantages. But even those in their 50s or early 60s can make smart decisions to maximise their pension and investment returns.
What to do now:
- Review your pensions and investments – Check how much is already saved and whether contributions should be increased.
- Set your retirement goal – Define the age at which retirement is planned and estimate the required income.
- Maximise pension contributions – Use available tax relief and annual allowances to boost pension savings.
- Diversify your investments – Make sure you have a mix of pensions, ISAs, property and other assets to spread risk.
- Seek professional advice – A financial adviser or accountant can help with a tax-efficient retirement strategy.
Why professional advice matters
Retirement planning is not a one-size-fits-all process. Every dentist has different financial circumstances, income levels and retirement goals. Working with an accountant who understands the dental industry will help with tax efficiency, pension optimisation and a clear strategy for financial security in later life.
At Diamond Accounts we work with dentists to create bespoke retirement plans, so you can be financially secure for the future. Whether it’s pension contributions, tax planning or practice sales we can make the process simple and stress-free.
Get in touch to start today.