What it does
Independence is not a date. It is the day the practice becomes a choice. This page shows how money doubles, what you will have at the age you pick, the number you need to stop on your own terms, and the gap between the two in dollars a month. The assumptions are set for you and you can change every one.
The Rule of 72
Divide 72 by the return and you get the years it takes money to double. At 7 percent that is about 10 years. At 5 percent, 14. The same rule runs backwards on prices: at 3 percent inflation, what you spend today costs twice as much in 24 years, which is why the number you need keeps rising while you save.
The number you need
Take what you want to spend a year, in today's dollars, and divide by 4 percent. That is 25 times your spending. $200,000 a year is $5,000,000 today and about $8,500,000 at 60 for a 42 year old, because of the price doubling above. The 4 percent rule is the planning rule of thumb for a 30 year retirement; your plan will be built on more than a rule of thumb, but the rule gets the size of the number right.
The assumptions
- Return 7 percent, a balanced portfolio over long periods. Use 5 if you want to be careful.
- Inflation 3 percent.
- Withdrawal 4 percent.
- The practice sale counts once, at the finish line, after tax and debt. We never plan on it alone.
The three levers
- The practice retirement plan. A solo dentist can put away far more than the employee deferral once the plan is designed for the practice: profit sharing, a cash balance plan, the spouse on payroll.
- Overhead. Every point of overhead on a practice collecting five times what you want to spend is $10,000 a year that could be compounding.
- The date. Two more years at 7 percent is 15 percent more money and two fewer years to fund.
Want the three numbers that matter most in your practice, from your own figures? That is what a Snapshot is. See the Path.