Pacific Coast Society of Orthodontists Bulletin Spring 2014 - (Page 41)

ANNUAL SESSION SUMMARY Achieving Financial Independence Presented by John McGill, CEO, McGill and Hill Group, at the PCSO Annual Session, October 19, 2013. Summarized by Dr. Shahram Nabipour, PCSO Bulletin Northern Region Editor. A New and Younger Members Featured Lecture How much will you need in order to retire? The answer to this question depends on many factors, including life expectancy, spending habits, tax rates, and investment returns. For example, if you plan to spend $10K per month (after taxes) on living expenses, you would need to have about $160,000 per year in pre-tax income, based on an average tax rate of 25%. F ewer than 25% of orthodontists have enough funds to retire at age 65 and maintain the standard of living of their working years. Seventy is the new 65: many docs are practicing later because they have to. Mr. McGill If your practice provides health insurance to staff members, be sure to look up IRS Form 8941, which is the Small Business Health Insurance tax credit. This begs the question: which would you rather have, a tax credit or a tax deduction? A tax credit is a dollar-for-dollar reduction in your tax liability, whereas a deduction is based on your tax bracket: if you are in the 45% tax bracket, a $1,000 deduction saves you $450, but if you have a tax credit of $1,000, that saves you $1,000. About 50% of the doctors who are eligible for this credit are not taking advantage of it, either because their CPAs are not aware of it or because it has not been done correctly. The good news is that you can file an amended return, and go as far back as 2010 to file this form. Also, you should be deducting medical insurance premiums from your practice's tax return. This can be done for 2014 and 2015, but after 2015 new nondiscrimination rules will kick in as part of the Affordable Care Act. However, these rules haven't been written yet, so no one knows what they will consist of. Why do orthodontists fail to reach their financial goals? * Overhead: The average overhead rate in an orthodontic practice is around 70%. A good practice should be in 40% to 45% profit margin, but many are not in that range. * High debt level: This is a particular problem for those orthodontists who bought real estate and were caught up in the 2008 financial and housing meltdown. * High taxes: The average orthodontist's taxes will go up about $20K per year unless action is taken. * Lavish personal lifestyle and no savings. SPRING 2014 * PCSO BULLETIN The goal is to figure out where you are now, and to determine the specific "number" that will help you reach your financial goals. The first step is to find out how much you spend per month. The best way to track your personal living expenses is by using financial software such as Quicken or Quickbooks. allows you to see an aggregate of your bank and credit card accounts, all in one place. In terms of saving, the time at which an individual starts saving is more important than the amount contributed. The earlier in life you start saving, the better. Where should you put your money? It's always a good idea to save money toward retirement. Many young doctors make the mistake of paying off a mortgage or student loans before they start saving. Mr. McGill recommends that student loans be consolidated and then paid at their current term. As far as other debt is concerned, he recommends that high-interest debt be paid off first, before investing or saving. FOUR RETIREMENT STRATEGIES * Simple IRA: This is a low-cost, simple option. The maximum amount to match for staff is 3%. Mr. McGill recommends contributing about $30K per year. * 401(k): One must pay to set up and maintain this account. It's a good option if you have about $50K per year to put away. * HSA (Health Savings Account): This device is best used if you have a high-deductible health insurance plan. Money set aside in this account is used toward health-related expenses without a tax penalty. The other advantage of an HSA is that you can continue to put money in the account and use it as a second retirement plan. Unlike an FSA, where you can contribute a maximum of $2,500 toward health expenses but lose any money that is not used by the 41

Table of Contents for the Digital Edition of Pacific Coast Society of Orthodontists Bulletin Spring 2014

A Magical, Spooky, International, Educational Time in Anaheim
New Columns
View From The Top: President’s Perspective
AAO Council on Scientific Affairs (COSA) Report
AAO Trustee Report
ABO Update
How To Save a PCSO Bulletin Article as a .PDF File
The Importance of Healing
Incoming and Outgoing Radiographs
Resident Spotlight: A.T. Still University, Arizona School of Dentistry & Oral Health Postgraduate Orthodontic Program
Use of the XBOW™ Appliance Vs. the FORSUS™ Appliance for Class II Correction
Advanced Research Avenues at the Roseman University of Health Sciences Orthodontic Program
Dr. Gerald Nelson
The Interdisciplinary Team: Managing Patients with Impacted or Ectopically Positioned Teeth
Miniplate Anchorage for Midface Protraction in Class III Patients and Molar Distalization in Class II Malocclusions
Achieving Financial Independence: A New and Younger Members Featured Lecture
The Role of Orthodontics in Trauma Management
Converting a Tube

Pacific Coast Society of Orthodontists Bulletin Spring 2014