Will It Be Enough?
When planning your retirement, where does your practice sale come in? You’ve worked your whole life building it. Now that you’re ready to walk away, how much is it worth? Will it be enough to retire? Let’s use an example and find out.
Assume you are 65 and want to retire immediately, and you have zero retirement savings:
- Current Annual Income = $140,000
- Inflation = 3% (Including Salary Growth)
- Investment Return = 8.0%
- Includes Social Security
- Desired post-income = 80% of current salary
As shown below, after allowing for social security, you will need $75,000 annually to meet your goals?
- $140,000 X 80% = $112,000
- $112,000 – $38,000 (Social Security) = $75,000
Let’s also assume you will put the money from the sale of the practice in a retirement account, and withdraw 4.0% each year from this account, which is a common recommendation of money managers.
Taking social security into account, your retirement account would need $1.9 Million in your retirement account to be able to pull out the desired $75,000 each year.
- $1.9 Million X 4.0% = $75,000
In Order To Meet Your Goal
That would be nice, but also pretty unlikely. An optometry practice sells for a median value of 60% of gross sales. Taxes typically run about 25%. In order to meet your goal, your practice would need to gross $4.2 Million!
- $4.2 Million X 60% = $2.53 Million
- $2.53 Million – $633,333 (taxes) = $1.9 Million
If your practice is grossing $4.2 Million, congratulations, and you can stop now. Otherwise, start saving now!