Top considerations for associate dentists to secure their financial future

For many associate dentists, the focus during the first few years from qualifying is becoming clinically confident, building experience and increasing your income. In addition to these goals, long-term financial security requires long-term financial planning.

Whether you’re newly qualified or several years into your career, taking control of your finances now can have a significant impact on your future.

Here are some important steps to consider as an associate dentist to build long-term financial security.

Protecting Your Income

Your earning potential is your greatest asset for financial freedom. An illness or injury that prevents you from practicing could impact your finance and long-term financial security. Dentistry is physically demanding and relies on fine motor sills, eyesight and your overall health. A hand injury, chronic back pain or a serious illness could prevent you from working for months, or worse, permanently.

It would be important to consider the following key protection policies.

Income protection insurance

Income protection insurance is often considered one of the most important policies for dentists. If you’re unable to work due to illness or injury it provides a regular monthly income until you’re able to return to work, or until the policy ends – depending on the terms.

Income protection for self-employed dentists can help cover essential living costs, especially for those doing private dentistry, as they will not be entitled to any sick pay.

Critical illness cover

Critical illness insurance provides a tax-free lump sum if you’re diagnosed with a specified critical illness covered by the policy, such as certain cancers, heart attacks and strokes.

You can choose to spend the money however you wish, including but not limited to:

Life insurance

Life insurance will help those who depend on your income if you passed away. The policy would pay a lump sum in the event of your death to your beneficiaries. This money can be used to repay outstanding debt, provide financial security for your family, leave a lump sum for your dependents and provide a replacement income.

Reviewing your protection

Your protection needs will change throughout your career. As your income grows, you buy a home, start a family or potentially move into practice ownership. It’s important to review your cover regularly to make sure it still reflects your circumstances.

A policy that was set up as a newly-qualified associate may no longer provide adequate protection several years later.

Start Investing

Some associates delay investing because they feel they want to wait until they’re earning more, although this could become one of the most expensive decisions. Even modest monthly investments can grow substantially over decades due to compound interest. The earlier you begin, the less you typically need to invest to reach your long-term goals.

Utilising your tax-free allowances is a good place to start; you’re able to contribute up to £20,000 a year in a stocks and shares ISA, which benefits from tax-free growth.

Pension Planning

Pension planning remains one of the most effective ways for associate dentists to build long-term wealth.

Many associates focus on increasing retirement income through ISAs, which overlooks the significant tax advantages that a pension can offer. Pensions can help reduce your tax bill, whilst funding retirement provision.

One of the biggest benefits of pension contributions is tax relief; as a sole trader for every contribution you make, the government adds tax relief based on your rate of income tax. If you’re a higher rate taxpayer, the net cost of a pension contribution is significantly reduced through the tax relief. If you’re a limited company, your ‘employer’ can make the pension contribution on your behalf, minimising the income hitting your personal tax regime. These contributions could also a valid business expense, reducing your corporation tax.

Whilst the NHS pension scheme is valuable, the retirement age for the 2015 pension scheme is in line with state pension age (this is currently 68 and increasing). This means that having a private pension in place as well, can help meet your retirement needs.

By protecting your income, investing early and tax planning effectively can create a long term financial strategy. The best time to start planning was when you first qualified and the second-best time is today.