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J Am Dent Assoc, Vol 131, No 12, 1693-1698.
© 2000 American Dental Association |  |
COVER STORY |
ARE THERE PROBLEMS AHEAD?
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ABSTRACT |
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 TOP ABSTRACT METHODSRESULTSDISCUSSIONCONCLUSIONSREFERENCES |
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Methods. To address the first question, the authors estimated the number of retirees using 62 years as retirement age, and they projected the number of graduates using current trends of first-year enrollments. To address the second question, the authors used the ADA’s 1995 Survey of Current Issues in Dentistry, which addressed dentists’ retirement savings.
Results. The annual rate of dentists’ retiring is projected to be 2.1 percent compared with 1 percent among dentists projected to graduate during the period of 2001–2020. Although dental practice value is 40 percent or more of practioners’ reported retirement savings, the majority of dentists report that they do not depend on the sale of their practices to finance their retirement.
Conclusions. In the next 20 years, the number of retirees will grow faster than the number of graduates, exerting a downward pressure on the value of dental practices.
Practice Implications. To successfully plan for retirement, dentists need to carefully assess their target levels of retirement savings, the time of their retirement and their dependence on the sales of their practices.
The median age of dentists now in practice is approximately 49 years and is projected to increase to 54 years by 2004.1 This increase is the result of a 37 percent decrease in the number of students entering dental school between 1978 and 1990.2 As fewer dentists are entering practice, the average age of practitioners is rising.
As a result of the maturing work force, large numbers of dentists are projected to retire from practice during the next 10 to 15 years. For most self-employed private practitioners, the decision to retire will be based, in part, on their financial resources. To maintain their current standard of living for 20 years after retirement, dentists will need to generate 70 to 80 percent of their current income from pension plans, investment income, Social Security payments and proceeds from the sale of their practices.
In this article, we consider two questions: "Will demographic trends in the numbers of dentists leaving and entering practice place additional downward pressure on the value of dental practices?" and "How important is the sale of practices for retirement income?"
The supply and demand for dental practices depends on the number of dentists leaving and entering practices, with other things being equal. If more dentists leave than enter practices, there will be fewer buyers and, in turn, a downward pressure on the value of practices. On the supply side, we estimated the potential number of dentists retiring after being in practice for 25, 30, 35 and 40 years for the years 2001–2020. We based our estimations on the number of dentists graduated each year from 1959 to 1999.2,4
On the demand side, we estimated the expected number of dental school graduates from 2001 to 2020 using the average annual growth rate of 1 percent, based on regression analysis of first-year enrollments from the 1989–1990 school year to the 1998–1999 school year.2,4
We derived information on the retirement resources of private practice dentists and on the perceived importance of the practice sale to retirement resources from a 1995 ADA mail survey of a random sample of 4,681 dentists. The mailing generated responses from 2,025 practitioners for a 46.4 percent adjusted response rate.5
METHODS
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ABSTRACT
METHODS
RESULTS
DISCUSSION
CONCLUSIONS
REFERENCES
There are limited data available on the average age of dentists at retirement. Using data from a 1985 American Dental Association survey (the latest available data) and national data on the average age of retirement, we estimated that 85 percent of dentists retire when they are between 55 and 65 years of age and that the average age of retirement is 62 years.3
RESULTS
TOP
ABSTRACT
METHODS
RESULTS
DISCUSSION
CONCLUSIONS
REFERENCES
In Table 1
, we present the estimated number of dentists retiring each year from 2001 to 2020, assuming that 20, 50, 20 and 10 percent of dentists retire after 40, 35, 30 and 25 years in practice, respectively, and that the average age at retirement is 62 years. We overestimated the figures, because an unknown number of these dentists may die or change careers before being in practice 25 years or may never own a practice. Although the exact number of dentists retiring each year cannot be predicted, the important issue is the relative number of potential retirees each year. In this respect, the data clearly show that the potential number of retirees will increase from 2001 to 2016. For the period 2001–2020, the average annual rate of growth of retirees is 2.1 percent.
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also indicates that the number of dentists entering practice will increase from 2001 through 2020 but at a much lower growth rate compared with that of retirees (1.0 percent per year for graduates vs. 2.1 percent per year for retirees). Again, this is not an exact number, as some of these graduates will not enter practice. These data indicate a growing disparity between the estimated number of retirees and graduates. In 2001, there are estimated to be 544 more graduates than retirees, but in 2008, there are estimated to be 62 more retirees than graduates. The excess of retirees compared with graduates is predicted to continue through 2020, peaking at 512 in 2011.
Table 2 presents the results of a 1995 ADA survey on dentists’ retirement income for age groups younger than 35 years through 70 years and older.5 The total average retirement savings of dentists include profit-sharing plans, money purchase pension, defined benefit pension, simplified employee pension plan, 401(k) plan, individual retirement accounts, non–tax-deferred personal investments and annuities. From ages 50 to 54 years, dentists had an average of $249,085 in retirement plans; dentists 55 to 59 years of age had an average of $413,660 in retirement plans. The value of investments and other funds then declined to $136,466 for those 70 years of age and older as more dentists retired and drew on their retirement savings.
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presents dentists’ reliance on the sales of their practices to finance their retirement. Approximately 64 percent of dentists did not depend at all (23.8 percent) or depended only a little (40.0 percent) on the sale of their practices. The remaining 36.2 percent were moderately (27.9 percent), heavily (7.4 percent) or exclusively (0.9 percent) dependent on the sale of their practices to finance retirement.
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. For those aged 50 to 54 years and 65 years and older, gross practice incomes were $471,740 and $225,650, respectively. Assuming an average sale price of 65 percent of gross revenues, practice values were $306,644 for the younger dentists and $146,672 for the older practitioners. Thus, the potential sale value of the practices represented 123 percent of the younger and 39 percent of the older dentists’ retirement savings.
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shows the percentage change in the value of practices, with the high at 50 to 54 years of age. Dentists who retired at 65 years of age or older lost 52.2 percent of the value of their practices.
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DISCUSSION |
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TOPABSTRACTMETHODSRESULTSDISCUSSIONCONCLUSIONSREFERENCES |
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Two factors, however, may alter this prediction. If dentists retire much earlier or later than predicted, this could change the time when the difference between those leaving and entering practice is greatest. To examine the impact of earlier or later retirement ages, we tested different models of age of retirement from 10 percent to 25 percent retiring after 25 years of practice to 10 percent to 25 percent retiring after 40 years. The analysis showed that varying the age of retirement makes only a two- to three-year difference in the year of the greatest surplus of retirees over graduates. That is, depending on the assumptions, the peak difference year varied from 2011 to 2016. This is not a large difference and does not change the basic findings of our study.
Major changes in the number of graduating students also could influence these results. With the large increase in dental school applicants seen between 1990 and 1996, some observers believe that dental schools eventually will increase enrollment at a rate faster than 1 percent. Recent information from the American Dental Education Association, however, indicates that the number of applicants actually declined between 1998 and 1999 (R. Weaver, American Dental Education Association, personal communication, 1999).4 Unless dental school enrollments increase substantially, the imbalance between retirees and graduates will not vary greatly from the estimates.
To account for the possibility of more graduates, we examined the impact of dental school enrollments increasing by 1.5 percent per year starting in 2004; this percentage is 50 percent more than the rate of increase for the past 10 years. Within the time frame of this study, we found that this rate of increase of graduates had minimal effect on the relative surplus of retirees over graduates and the peak year of difference. This is, in part, because of the long amounts of time students spend in dental school and graduate clinical training before entering practice.
Value of practice and savings. Although the evidence suggests that there will be downward pressure on the value of practices, not all practices will be affected equally. Offices located in highly desirable or fast-growing areas will retain their values better than practices in less desirable or slow-growing areas.
Also, dental specialists will have less difficulty selling their practices than will general dentists. The number of graduates from specialty training programs did not decline in the 1980s and 1990s. Only recently have a few specialty groups reduced the size of their training programs. As a result, we predict that the number of specialists leaving and entering practice will stay in general equilibrium for the foreseeable future.
It is important to note that other factors not addressed in this article also influence the value of practices.10–13 These include the local market business environment and personal financial, health and family circumstances. Certainly, the decision to buy or sell practices must take these factors into account.
The second major concern of this article is the relative importance of the sale of practices to finance retirement. It is important to note that the retirement savings and other assets of elderly dentists are quite high. For example, in 1993 the average elderly American had a median net wealth of $86,324.14 In contrast, in 1995 the average net wealth of elderly dentists’ was estimated to exceed $600,000.15 Approximately one-third of retirees’ net wealth was in retirement income, and the remainder was in fixed assets such as houses, household goods and cars.
The number of retirees is growing faster than the number of graduates, and the imbalance between these two groups will be relatively large in 2011.
While dentists are relatively wealthy, their average 1995 savings at retirement—50 years of age and older—was less than $500,000. The market value of their practices in 1995 was in the range of $150,000 for dentists 65 years of age and older to $300,000 for dentists 50 to 54 years of age, which is, respectively, 39 percent and 123 percent of their retirement savings. As such, it is difficult to understand why more than 60 percent of dentists reported that the sales of their practices had little or no importance for the financing of their retirement, especially when financial planners suggest that dentists will need to accumulate between $1.5 million and $2 million in retirement savings.16 Perhaps, dentists who do not depend on the sales of their practices have other sources of retirement income from, for example, a spouse, or plan to work on a part-time basis after they retire.
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CONCLUSIONS |
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TOPABSTRACTMETHODSRESULTSDISCUSSIONCONCLUSIONSREFERENCES |
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While the trends are clear, the implications for dentists who want to retire are not. For reasons that are not apparent, the majority of dentists reported that they do not depend on the sale of their practices to finance their retirement. Since the value of practices is 40 percent or more of the reported retirement savings of practitioners (depending on age at retirement), this finding is difficult to accept and suggests the need for more research.
The implications for dentists also are difficult to predict because the delivery of dental care is a local business and there are large differences in the value of practices depending on local market forces. Dentists who practice in desirable areas obviously are much better positioned to sell their practices for a premium price than are those practicing in less desirable locations.
Overall, our findings suggest that a majority of dentists may be significantly concerned about the sale price of their practices at retirement even as the number of retirees grow. Perhaps 50 percent of dentists planning retirement have adequate retirement savings, a significant percentage of dentists practice in desirable locations and will be able to sell their practices for full value, and the 20 percent of dental specialists will experience little change in the demand for their practices. However, a small but significant number of dentists are dependent on the sale of their practices to help finance their retirement, and these dentists should be concerned about the growing imbalance between retirees and graduates.
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FOOTNOTES |
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REFERENCES |
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This article has been cited by other articles:
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  M. McKinnon, G. Luke, J. Bresch, M. Moss, and R. W. Valachovic Emerging allied dental workforce models: considerations for academic dental institutions. J Dent Educ., November 1, 2007; 71(11): 1476 - 1491. [Abstract] [Full Text] [PDF]
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