Do You Know Your Team’s Threshold? 

Robyn Reis, Dental Practice Coach 

While visiting a dental practice that had amazing hospitality and incredible relationships with its patients, I observed a doctor’s presentation to a patient who was in his forties and who had been saving for a smile makeover for a long time. The doctor did an amazing job with his presentation of what was possible and the phases of treatment. The patient was very excited, even teary-eyed.  

The patient wanted to get started and asked about the cost. The doctor said, “You know what? My team at the front are experts in figuring that out.” So, the patient was taken to the front and handed over beautifully. In a few minutes, he was presented with the treatment plan on paper with the approximate dollar amounts. In phases, they would do the full mouth. All seemed to be going well until it wasn’t. 

Intrinsically, everyone has a monetary threshold that up to a certain point, you have no problem with the amount. It’s something within your range of expectations and easy to say yes. When you cross that threshold, anxiety may creep in and for sure, you become uncomfortable.  This is what I witnessed in a matter of moments. 

I observed the front office team member look uncomfortable after glancing at the paperwork, despite being experienced with treatment presentations. The clinical assistant who had been part of the diagnosis and treatment planning process, would also help with scheduling and any questions. 

Together, they gave the patient the opportunity to ask questions after reviewing the plan again. The full mouth restoration was going to be in the neighborhood of $25,000. The first phase would be about $18,000. They offered CareCredit financing. The patient said, “It’s only $25,000 and I have $20,000 saved. This is wonderful! I don’t know how I will pay the other $5,000, but I know I have the means. It’s only $25,000.”  

The team appeared somewhat shocked because they were obviously uncomfortable with quoting that amount. This treatment plan crossed their personal thresholds. They suggested the patient go home and sleep on it “because this was a big investment.” The patient was so committed to moving forward that, despite their advice, he scheduled his first appointment. He would call them back once he figured out how to pay the remaining balance, knowing insurance would contribute very little. 

What I also found interesting was that neither team member asked for a deposit. No money was exchanged to reserve an extended appointment. The patient could back out and the doctor’s time spent on the case work-up would be uncompensated. In my experience, making a signed financial agreement would be the responsible step to take at this stage.  

This example illustrates the discomfort many dental teams feel about asking for a deposit if the treatment estimate crosses their personal threshold. Of course, dental teams will want to explain what can be done to make treatment more affordable and the financing options that are available. But it is beneficial for team members to understand their personal threshold and to become comfortable saying, “Grab your checkbook or pull out your credit card, Mr. Jones. Here’s what your investment is going to be to get started.”  

What’s your threshold? This is a great team exercise you can do at your next meeting because a patient might ask anyone they interact with about the cost of dentistry, and what options you offer for the dentistry they want.  Every team member will benefit from considering their personal threshold and discussing it — even role-playing — to become comfortable with the best ways to manage these questions. Depending on the situation, it could be referring the patient to the treatment coordinator or to the financial administrator to have a comfortable conversation. 

It is my belief that when patients are excited about what the treatment results will be and they want to move forward, it’s the right time to ask the patient to make a financial commitment to get the process started. 

As I’ve been giving presentations about business systems to dentists, I’ve discovered that there are six prevalent myths surrounding 401k retirement plans. In Parts 1 and 2 of this series, I hope to help dentists who are also small business owners develop a better understanding of what is possible.

Myth 4: It’s Possible for a 401(k) Plan to Be Free

The reality is that a 401(k) plan is never free. Equitable, for example, has a specific retirement plan for dentists. They claim to have a plan with no direct costs for dentists. What they do is take a part of the participants’ total investment to cover the costs. In most cases, the person paying the highest percentage of the fee is the dentist because the dentist puts the largest amount into the fund. As a dental practice owner, I don’t want the costs to come from my account. Instead, I want my business to cover the costs because the fees are tax deductible for the business and my retirement funds accumulate to their greatest potential.

When someone is marketing a free plan, be aware that there is no free plan and the costs are going to come out of your account, just as much or more as any participant’s account in the plan and those costs are not going to be tax deductible on personal taxes. In the case of Equitable, about 20% of your earnings are being siphoned off for fees and this has a significant drag on your net accumulation.

Myth 5: Being a 401(k) Fiduciary Is Risky

The first responsibility of being a plan sponsor is that you have the fiduciary responsibility. No one else can assume that responsibility. I believe you can meet your fiduciary responsibilities rather simply by doing the following.

The 6 Fiduciary Responsibilities Are to:

1. Meet financial investment responsibilities.
2. Meeting administrative responsibilities.
3. Pay only reasonable expenses from plan assets.
4. Deposit employee contributions timely.
5. Maintain adequate ERISA fidelity bond coverage.
6. Select and monitor 401(k) service providers.

You do need to maintain fidelity bond coverage, and $50,000 to $100,000 of bond coverage costs $200 to $300 per year. I do not think this is expensive and I think it is not difficult to fulfill your fiduciary responsibilities.

Myth 6: Switching to a Low Cost 401(k) Provider Is Difficult

An existing 401(k) plan cannot be simply terminated and then you start a new one. You must go through the following four steps, but this is easy to do.

The 4 Steps in the Conversion Process Are:

1. Asset transfer
2. Document preparation
3. Investment selection
4. Participant enrollment

Here are two examples of vetted companies that I believe provide low-cost plans with robust features. The first is 401Go.com. It provides advisor-led retirement plans for small businesses. This company is very easy to work with, has payroll integration, and you can set convert your plan quickly.

The second company is EmployeeFiduciary.com. This company has incredibly low establishment and conversion fees—some of the lowest in the industry. With Employee Fiduciary, you have access to 30,000 share classes and 377 fund families. These include low-cost options like Vanguard, Fidelity, and Schwab index and exchange-traded funds. You can also elect to include a self-directed brokerage account from TD Ameritrade, which allows you to invest in any fund on the market.

I hope this instills some curiosity in understanding your existing 401(k) plan. Examine your fees and your options if you were to convert your plan. I encourage you to do this because fees can significantly drag down your investment accumulation over time.

If you are interested in taking a deeper dive into financial freedom, I highly encourage you to sign up for Mastering Business Essentials. This course is the blueprint for running a dental practice with long-term growth.

Stocks and bonds have both fallen in 2022, taking down portfolio balances. Meanwhile, inflation has shot up, tying the hands of many investors—retirees and others, who might otherwise be inclined to reduce spending in periods when our portfolios have lost money.

What Can We Control?

As long-term investors, some of us have experienced these moments before. One of the best ways to minimize worry in a volatile, uncertain market environment is to focus on what we can control.

What we can control is:

• our savings rate,
• our spending plan, and
• our spending rate

In retirement, the spending rate is often referred to as the burn rate.

We can use all three of these levers throughout our lives. Often, these levers influence long-term outcomes more than investment selection or even asset allocation. These three levers are often the main determinant of whether our plan sinks or swims.

We Can Invest More

Increasing our savings rate in down markets allows us an opportunity to invest more when markets are off 10%, 20%, 30%, or more. The process of buying more shares at a lower price point weekly, bi-monthly, or monthly allows us to lower our average cost per share. (This is Dr. L. D. Pankey’s Rule of “7’s” in A Philosophy of the Practice of Dentistry.)

Many investors in accumulation mode prioritize “maxing out” their contributions to tax-sheltered retirement savings vehicles—IRAs, 401(k)s, and more recently, health savings accounts. Yet another type of tax-advantaged contribution has been seeing an increased uptake: after-tax 401(K) contributions.

My recommendation is that you talk seriously with your business accountant to determine if your current business cash flow will support more contributions to your retirement plan, savings, and/or possible after-tax investments.

Consider After-Tax 401(k) Contributions

If there is a knock against after-tax 401(k) plans, it is that many people who have access to them are not using them! They have much to offer.

Plans that offer after-tax contributions, allow investors to stash a full $61,000 in a 401(k) ($67,500 for people over 50), including pretax or Roth contributions, employer matching funds, and after-tax 401(k) contributions.

Assuming the 401(k) is a high-quality one, after-tax contributions tend to beat investing in a taxable brokerage account on an after-tax basis. That’s especially true if the plan offers automatic in-plan conversions. These plans are especially appropriate for high-income, heavy savers, who have access to them.

Required Minimum Distributions Can Be Reinvested in an After-Tax Account

For those already retired, our main lever for the health of our plan is how much we withdraw from our portfolio. If we can find a way to take a bit less when our portfolio is down, we will leave more of our portfolio in place to recover when the market goes back up. One question that inevitably crops up in the realm of portfolio withdrawals is the role of required minimum distributions (RMD’s) and whether they could cause us to prematurely deplete our assets.

The short answer is no! It is always appropriate to evaluate the amount of the RMD, and realize we are not required to spend it all. We can reinvest it in an after-tax  investment account and/or increase our Emergency Fund, as a cushion for future unknown events of which persistent inflation could be one example.

Take a Long-Term Perspective

Focusing on what we can control—especially our savings and spending rate, can provide peace of mind in volatile times, and so can taking a long-term view. Learning more about the history of the stock market and the detailed history of stock market declines, broadens our understanding and can minimize the noise.

The dominant long-term trend is up, and the periodic bear markets, even bad ones like 2007-2009, have been fairly modest blips along the way. It can be easy to lose sight of that long-term view when the market logs one bad day after another.

It is worth training our gaze on the long-term and what we can control by:

• living on less than we make,
• saving a greater percentage of our compensation, and
• becoming more aware of controlling our spending plan and burn rate

To learn more about personal finance, I invite you to sign up for the Pankey Institute course titled Creating More Financial Freedom which will be held March 30 – April 1, 2023.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Comments by the Fed – FMOC: Suggest the Fed is trying to gently convince their adoring public that inflation may actually turn out to be “a little stronger than they forecast for a little longer than they forecast.”

Grant Williams’ notes in Things That Make You Go Hmmm:

We may be facing demand-driven inflation as a consequence of misguided monetary policy and misdirected fiscal stimulus. Monetary stimulus had some effect, of course, and the latest growth forecasts suggest, it is already dissipating. The Fed has done so much, so fast, it produced a self-limiting recovery in which supply – chain inflation (caused by all the container ships anchored / waiting in Los Angeles / Long Beach) tend to cap potential growth. The trucking industry may also be a part of the log-jam, backing up deliveries.

5.9% Announcement by Social Security

That is the increase that retirees receiving Social Security will pick up next year to account for inflation. It is the biggest jump in 39 years and captures what consumers have been feeling acutely over the past year: Stuff is getting more expensive.

The fact that Social Security payouts will reflect higher costs is certainly a plus for that portion of retirees’ income streams. Inflation may prove fleeting, a short-term blip resulting from pent-up pandemic demand and snarled supply chains, or it could persist. Or, it could be that the medical premium portion of Social Security could be increased and consume much of the 5.9% announced increase. No one has said much yet, other than the increase of 5.9%.

Dentist’s and Retirees Take Note

I believe all dentists and retirees can learn to think about inflation more individually and holistically. We can start with taking stock of our own rate of inflation, which is not a standard CPI. We can look at the details of our Personal Spending Plans (Budgets); a function of what we spend our money on and how much inflation we are seeing in those outlays. Inflation considerations also extend to our portfolio; think about our withdrawal or “burn” rate, if retired, as well as what kind of inflation protection to embed in our portfolio’s. (more on this below)

We can also look at, and think about inflation today, examine our own personal inflation rate, and safeguard against inflation’s corrosive effect on our investments and our Economic Engine. For most dentist’s, our Economic Engine is our dental practice. We can study our line items on our Profit and Loss Statements and/or our Management Income Statements (MIS), year-over-year or twelve month roll, looking for inflation creep in line items like; consumable dental supplies, laboratory costs, salary and benefits (hygiene, clinical, and administrative teams), occupancy total costs, administrative supplies and services, notice the rise in dental equipment cost (replacement costs), along with financing costs. All of the above will combine into our Personal CPI, which may well require an adjustment in our dental fees.

Calculating Our Own

As we collect our personal and practice inflation data, be willing to ask a question; what are we discovering? If looking at the FOMC CPI weightings and they look nothing like our own, when considering our increased household and practice spending, we are most likely on the right track. Our outlays for housing may diverge significantly from the CPI percentages, especially if we live in a paid-off home. We will still have costs for upkeep, insurance, and property taxes, which are also included in Housing Costs.

By doing the above exercises, we can learn to tweak inflation expectations, pro-actively while attempting to keep then in-line for each of line items, and incorporating our own experiences and discoveries. At the same time, it is important to not come away with a false sense of precision with respect to inflation. For one thing, inflation statistics can vary by section of our country, state, and even town by town. Moreover, a number that can bear paying attention, is the trend in our actual, all-in spending, which depends on a few key variables: our fixed and discretionary expenses, as well as, what is going on with inflation in each of the spending categories. Ultimately, our aggregate household and practice spending trend matters more because we exert a level of control over some of our spending, where the overall inflation rate is out of our hands.

Early Retirement

Is early retirement is on your radar? Data suggests that the case for a growing share of workers, inflation protection is an even bigger hurdle. That is because we will be using our retirement dollars, and spending them over a longer time horizon, when starting early. This increases the odds that inflation could flare up sometime during our drawdown period: pay attention to withdrawal rates, portfolio construction, and Social Security adjustments.

Investment returns over the next decade might not be so great, some experts warn. Be prepared to rein in our spending in case a lousy market materializes. A threat of experiencing big portfolio losses early on in retirement, when our portfolio value is at its highest, is one of the key threats to the durability of any retirement plan. And sequencing risk looms particularly large in environments like the current one, when bond yields are low and equity valuations are on the high side. If market returns are indeed lower than our two decade averages, in the first few years of retirement, our best defense is to cut our spending. For younger dentists reading this a lesson to be learned is “keep shoveling it in” and increase the percentage of present income earmarked for saving and investment; over time, through compounding, this will ease your worries and provide a greater measure of choice in financial decision making.

What we may want to discussed, in this context, is the other side of the same coin. Yes, today’s retirees can become more conservative on the withdrawal rate, and use a safer withdrawal rate closer to 3% than 4%. What may matter more is the dollar amount we can pull out, not the percentage. Thanks to elevated portfolio balances, a 3% withdrawal of a larger portfolio may translate into a withdrawal that is every bit as large as 4% on that same portfolio ten years ago. In addition to balances being larger, retirees can enlarge their lifetime portfolio withdrawals by employing a flexible withdrawal approach rather than taking fixed amount withdrawals; helping to reduce portfolio demands and a requirement for bonds with minuscule yields.

It is good to remember to continue to use and learn from the Financial Tools, which have always been available to us: Personal Spending Plan, Personal Net Worth Statement, Potential Cash Flow Analysis from All Cash Flow Streams (Dental Practice, Tax-Deferred Portfolio, Personal After-Tax Portfolio, Investment Real Estate, and other holdings. It is a good thing most of us have been given enough years to layer our financial learning, with intention!

Keep a Moving Target Orientation!

Invest in Yourself
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Creating More Financial Freedom / Mastering Business Essentials

Father of Index Funds

John Bogle has many books to his credit. We all may benefit from reading one or more of them as a part of a New Years Resolution focused on Raising Our Financial Literacy! A perfect Stocking Stuffer, with a future focus in mind! John C. Bogle, the founder of Vanguard, changed investing forever for ordinary Americans, and wrote a dozen books over his lifetime, selling over 1.1 million copies worldwide.

An editor that worked with Bogle said, “I don’t think there’s an author who spent greater care on the words he chose,” and, “when he did a book, he was so meticulous; he’d rewrite and rewrite. He always went the extra mile to make sure there wasn’t a single person who could not understand what he was saying.”

“Jack,” as he was referred to by many, made it his mission to educate people about the benefits of index funds and not paying high fees to mutual fund managers. Below are some of the best books he authored:

1. Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor

The first edition of this classic was published in 1999, and Bogle wrote a completely updated second edition a decade later to help investors understand mutual funds and how his simple and low cost investing strategy can be used to outperform stock pickers.

2. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

This 304-page hardcover book is one of Wiley Publishing’s Little Book investing series and has proven to be an incredibly popular tool for investors. In this investing bible, Bogle presents his ideas succinctly for the layman.

• Warren Buffett advised in his 2014 letter to shareholders that rather than listen to the “siren songs” of advisors, “investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing.”
• Bogle said even he needed to be reminded of his own advice in trying times. “How do I feel when the market goes down 50%?” he continued. “Honestly, I feel miserable. I get knots in my stomach. So what do I do? I get out a couple of my books on ‘staying the course’ and reread them!”

3. The Battle for the Soul of Capitalism

John Bogle was a vocal critic of Wall Street and the American financial system, and in this book the insider revealed what he knew about the unethical practices of money managers and corporate executives, which add costs to millions of small investors.

• The New York Times called it “yet another important contribution in an illustrious career,” and it was long listed for the Financial Times and McKinsey’s Business Book of the Year Award in 2005.

4. John Bogle on Investing: The First 50 Years

Bogle’s senior thesis at Princeton University was titled “The Economic Role of the Investment Company,” and it contained the very ideas that Vanguard would be built on. It is included in this compilation of his best speeches.

5. Stay the Course: The Story of Vanguard and the Index Revolution

At the time of publication, Vanguard had more $5 trillion in assets under management, and the road to that number wasn’t easy. Early on it was dubbed “un-American” and mocked by Wall Street professionals.

• Named after his most iconic piece of advice, Bogle’s last book is a memoir that traces the history of the Vanguard Group and provides new details. He addresses his critics, his regrets and even his Vanguard successors.

Sign-up for Courses to Continue Advancing Your Financial Literacy
Courses to Consider: Creating More Financial Freedom / Mastering Business Essentials