Navigating your retirement - Part One

Odoo • Image and Text

The reality

The day you stop flipping those lenses, life is going to become very different, physically, as well as financially. For starters, your daily activity won't be dished up for you in half-hour portions. All you had to do was work through the patient load, one after the other, and then the day was over. Suddenly you will have to time-manage your day, which may have far too many void spaces. If you are lucky enough to engage in another career or activity, you may struggle to organise the time in your day productively. It will take time, but you will get used to it. Financially things are likely to be very different as well. Should you find yourself short, it won’t be so easy to fix. The answer is to plan your exit well in advance. It is extremely unlikely that proceeds from the sale of your practice, annuities, and investments will provide the same lifestyle you enjoyed from a busy practice. If you have an exceptional nest egg, well then happy days.

Deciding when to retire is anybody's choice. However, planning for retirement is not optional but essential, and planning for it will take time. I once asked a good friend whether she had given any thought to planning her exit from practicing. The response was: “I don’t want to stop working yet”. That was not the response I was looking for! Planning one’s exit in my view can take ten years.

The big question everybody wants an answer to, is how much is enough to retire on? Well, that depends on how long you are going to live! For example, to put it into some perspective, if you have R10 000 000 to invest and you can get an annual return of 12% (not a given) with inflation at say at 6%, you will have 6% before tax to live on. That comes to R600 000 per year or R50 000 per month before tax. An average practice turning R450 000 per month or R5 400 000 pa., and netting 20% (as it should), comes to R1 080 000 pa. or RR90 000 pm. before tax. One gets the idea of how this can fall short. The obvious temptation will be to dig into the capital invested to make up the shortfall. Then it begs the question: "How long will I live".

What one must avoid

A solo practice – one optometrist over a long period – will make it much harder to find the ideal exit plan. This is even more so if this optometrist is a specialist in binocular vision, sports vision, low vision, or advanced contact lenses. It stands to reason that a newcomer will have to be able to step into these shoes to service the patient base. The only way to counter this is to employ a junior optometrist, with the view of a long-term relationship, even at the cost of making a financial sacrifice initially. This may be deemed unnecessary when retirement is not yet a pressing issue, but this is exactly when it should happen.

Another big negative is a descending turnover line. This is a sure sign that something is wrong or tired. This should send a “steer clear” signal to any prospective buyers.

What is good

A practice that can sustain two or more optometrists offers a much better option to shape an exit plan. The opportunity may present itself to a solo practitioner, to amalgamate with or take over an opposition practice in the same area. This may seem like an uncomfortable prospect for some, but believe me, in hindsight it would be far better than struggling financially in retirement.

From the first day you start to practice optometry you are beginning to make decisions that will influence how you will be able to exit into retirement. Truly a question of beginning with the end in mind. These decisions will dictate your lifestyle when retired and the last thing anybody wants is be a burden to your children in your old age.

In summary note these naked truths

  • The banks won’t finance the purchase of an optometric practice without brutish surety.

  • You won’t retire on the sale of your practice alone.

  • For the young optometrist, starting from scratch is dangerous and invariably requires more funding than what was available in the start-up plan.

These truths motivated me to come up with the Give and Take Method to exit, which offers a much better prospect than selling a practice outright and wandering off into retirement with not enough cash.

There are two sides to this exit plan. It would be of interest to those who are in the twilight of their careers, but also to the young upcoming optometrist. Why? Because the exit of a retiring optometrist also presents the opportunity for a young optometrist to trade hard work for equity.

Part two of this article will explain why it is far better to give away shares in your business as opposed to selling it outright – The Give and Take Method

For investment advice:

Riaan Marais
MEQ Capital