The short answer: There is no single retirement number that works for every optometrist. An optometry practice owner needs sufficient income-producing assets and reliable income sources to support their desired lifestyle after they stop practicing, while accounting for taxes, inflation, healthcare costs, longevity, and the practice’s net value.
The right number is not based on your salary alone. It begins with the income you want in retirement and works backward from there. If you’re not sure what that number is for you don’t worry, that’s what Econologics is here for. We can help you identify your personal retirement goals and craft a plan to get there.
Why a Simple Salary Multiple Falls Short for Optometry Practice Owners
You may have heard that you should save a certain multiple of your salary or plan to replace 70% to 80% of your current income in retirement. Those shortcuts may provide a starting point for an employee with a predictable paycheck, but they often miss important parts of an optometry practice owner’s financial picture.
Your current income may include salary, owner distributions, and practice profits. Your wealth may be spread across retirement accounts, personal investments, practice equity, real estate, and other assets. Your expenses may also change significantly after you leave the practice.
Instead of asking, “What multiple of my salary do I need?” ask:
How much monthly income will I want after I leave the practice, and which assets will reliably produce it?
How Can an Optometrist Calculate a Retirement Number?
Start by identifying your Desired Monthly Minimum Income, or DMMI: the monthly income you want available to support your lifestyle after you are no longer practicing full time.
Then follow these four steps.
1. Estimate Your Desired Annual Retirement Income
List the expenses and goals you expect your retirement income to support, including:
- Housing and everyday living expenses
- Travel, hobbies, and family support
- Healthcare and long-term care costs
- Taxes
- Charitable giving
- Major purchases and home improvements
- A margin for unexpected expenses
Do not automatically assume you will spend less in retirement. Some work-related expenses may disappear, but travel, healthcare, and other priorities may increase.
2. Subtract Reliable Income You Expect to Receive
Estimate the income that may continue without relying on withdrawals from your investment portfolio. Depending on your situation, that may include:
- Social Security
- Pension income
- Rental income
- Ongoing practice payments or retained ownership income
- Other predictable income sources
The Social Security Administration provides tools to estimate future retirement benefits. Use personalized estimates rather than assumptions based on someone else’s benefit.
3. Calculate the Remaining Annual Income Gap
Use this basic formula:
Desired annual retirement income − reliable annual income = annual income gap
For example, assume an optometrist wants $20,000 per month, or $240,000 per year, to support their desired lifestyle. If Social Security, rental income, and other reliable sources are expected to provide $60,000 per year, the remaining annual income gap is $180,000.
The amount of assets needed to support that gap will depend on investment returns, withdrawal strategy, taxes, inflation, lifespan, and how much principal the owner is willing to spend. At a purely hypothetical 4% annual withdrawal rate, a $180,000 income gap would correspond to $4.5 million in invested assets. At 5%, it would correspond to $3.6 million.
Those figures are illustrations, not recommendations or guarantees. A sustainable plan should be tested against multiple market, tax, inflation, and longevity scenarios.
4. Compare the Target with the Assets You Expect to Have
Next, take inventory of the resources that may help fund retirement:
- 401(k), IRA, profit-sharing, cash balance, and other retirement accounts
- Taxable investments and cash reserves
- Net proceeds from selling the optometry practice
- Practice or investment real estate
- Other income-producing assets
The IRS outlines several retirement-plan options for small businesses. The right structure depends on the practice, its employees, cash flow, tax situation, and the owner’s goals.
Once you compare your projected assets with the amount needed to support your desired income, you can identify your wealth gap: the difference between where you are projected to be and where you want to be.
Should the Value of an Optometry Practice Be Included?
Yes, but carefully.
Your optometry practice may be one of your largest assets, so its value belongs in the retirement conversation. However, the practice’s estimated sale price is not the same as the amount you will have available to fund retirement.
Your plan should consider:
- The practice’s current market value
- How dependent the practice is on your personal production
- Outstanding practice debt
- Taxes and transaction costs associated with a sale
- The timing and terms of payment
- Whether you own the practice real estate
- What happens if the practice sells for less or later than expected
Use realistic estimated net proceeds, not a hoped-for headline sale price. Your retirement plan should also be able to withstand a different sale price or timeline.
What If Your Retirement Number Feels Too High?
A large target does not automatically mean retirement is out of reach. It means you need a clearer plan for closing the gap.
An optometry practice owner may have several levers available:
- Increase practice profitability
- Improve the practice’s transferable value
- Build more personal wealth outside the practice
- Review the practice’s retirement-plan design
- Reduce unnecessary debt
- Adjust the transition timeline
- Develop income sources that do not depend on clinical production
- Refine the desired retirement lifestyle or spending plan
The earlier you know the size of the gap, the more choices you have. Waiting until you are ready to sell the practice can leave too little time to improve its value or build assets elsewhere. The Econologics Financial Advisors team can help you chart the best path to achieving your retirement goals as an optometry practice owner.
Frequently Asked Questions
Is $1 million enough for an optometrist to retire?
It may be enough for one optometrist and insufficient for another. The answer depends on the owner’s desired spending, retirement age, other income, taxes, healthcare costs, investment strategy, lifespan, debt, and net practice-sale proceeds. A retirement number should be calculated from the income the owner wants, not chosen as a round-number goal.
How much monthly income does an optometrist need in retirement?
An optometrist should target enough monthly income to support their desired lifestyle after leaving the practice. Begin with expected housing, healthcare, travel, family, tax, and discretionary costs, then add a margin for unexpected expenses. EFA refers to this target as Desired Monthly Minimum Income.
Can selling an optometry practice fund retirement?
It can fund part of, or in some cases much of, retirement, but a sale should not be treated as a guaranteed solution. Debt, taxes, fees, buyer demand, deal structure, and practice performance can all affect the timing and net proceeds. Practice equity should be coordinated with personal assets and other retirement income.
When should an optometrist start planning for retirement?
Ideally, retirement and transition planning begin years before the owner wants to step away. More time creates more opportunity to increase practice value, reduce owner dependence, build wealth outside the practice, and test the plan against different outcomes. Don’t delay planning; reach out to Econologics Financial Advisors today to establish your financial plan and work on a plan to help you achieve your retirement goals.
What is the first step in retirement planning for an optometry owner?
Define the monthly income you want after leaving the practice. Then estimate reliable future income, calculate the remaining gap, inventory personal and business assets, and determine whether those resources are likely to support the goal.
Your Retirement Number Should Connect the Practice and the Household
For an optometry practice owner, retirement planning is not just an investment-account exercise. The practice, household, taxes, debt, insurance, investments, real estate, and eventual transition all affect the answer.
That is why the most useful retirement number is not a generic benchmark. It is a personalized target supported by a coordinated plan.
Can you clearly state the monthly income you want in retirement, what your practice may contribute, and the gap that remains?
If not, that is exactly what a conversation with Econologics Financial Advisors can help you clarify. Schedule a complimentary consultation to begin connecting your practice success with your personal financial future.
