A guide to dentists’ finances, part four
Part 4: Pre-retirement
Exit strategy and business continuity / succession planning
As many dentists are also business owners, it’s important they plan how they are going to retire from the practice before they stop working.
Much of the exit strategy and business continuity may already be written into the practice agreement. For example, the other partners may be given first refusal on the retiring partner’s share in the practice.
This isn’t something that should be left until the last minute. As soon as a retirement date is decided, plans should be implemented to ensure the handover and succession is as smooth as possible.
Life insurance policies can pay out a lump sum and / or regular payments on the policyholder’s death. If you have existing life insurance, check it to ensure it covers everything you want it to, particularly providing enough financial support for your loved ones.
Investments and changing attitudes to risk
Earlier in your career you may have been prepared to take more risk with your money in the hope of securing better returns. Now you may want to take less risk to ensure the funds you have already accumulated are there waiting for you when you stop working. This could include taking your money out of stocks and shares based savings, which can be more volatile and are at the mercy of external economic issues, and putting them into cash-based investments or bonds which are generally more stable.
Planning your Retirement
If you are a member of the NHS Pension Scheme (NHSPS), the good news is that it is protected against inflation and will rise annually in line with the Consumer Price Index (CPI), which is the government’s preferred measure of inflation.
If you have investments and other private pension arrangements, as well as membership of the NHSPS, you should review these with a financial adviser to ensure you have a clear understanding of what you will receive in retirement and when, along with the various options available to you.
It is also possible that you may not want to completely retire, but instead wind down by working part time. In this instance your salary will be reduced and you may want to receive your pension or make withdrawals from your investments if they have matured, to maintain your previous level of income.
Unlocking your income
When planning your retirement all sources of potential income should be assessed, along with consideration of when you may need to release money at different times. It’s not just your day-to-day living costs that you need to consider but the desire to provide for children and grandchildren, and further down the line you may need to pay for long-term care.
Talk to a financial adviser who will be able to explain the various pension options and how to ensure any investments you have come to maturity at the right time.
Inheritance Tax (IHT) is one of the few taxes you can prepare for. With some careful planning you can help your loved ones avoid a sizeable tax bill and ensure your legacy benefits those you care for, and not the government.
IHT is payable if your estate, which includes property, savings and investments, is valued over the current Inheritance Tax nil rate band threshold, which is £325,000, which is expected to remain at this level until 2015. IHT is payable at 40% on anything over this amount.
Transfers between spouses and civil partners are exempt from Inheritance Tax on the first death. This means that all of the nil rate band of the first to die can be transferred to the surviving partner on their death, effectively increasing their IHT threshold to £650,000.
Inheritance tax can be a complex area so taking expert advice is essential to ensure you make the right decisions.
The above information does not constitute financial advice. If you would like more information or need specialist financial advice call Wesleyan Medical Sickness, which specialises in financial services and products for dentists, on 0800 980 5462 or visit the website at www.wesleyan.co.uk/dentists.