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Vet practice owners planning retirement need to be smart, otherwise they risk discovering when it’s time to bow out that the business they spent years building may not provide the financial security they expected. By Tracey Porter
After decades working as a financial adviser, Juanita Wrenn is expert in telling a veterinarian from a virologist simply by looking at their economic trajectory. Because while both may boast the title of doctor, only one has a distinct financial profile. “Vets [usually experience] a long and expensive path to qualification,” Wrenn, managing director of Queensland-based Hudson Financial Planning, states. “[They also have] high rates of practice ownership, irregular income in the early years and a genuine risk of burnout that shortens some careers earlier than people expect.”
For this reason, Wrenn recommends veterinary professionals start planning for their retirement in their late 20s, when they have a stable income and their HECS repayments and early career debt are under some control.
“[But] most people do not start until much later,” Wrenn concedes. “Compound growth needs time, not just money. Someone who starts building super and other investments in their early 30s instead of their late 40s gives themselves a decade or more of extra growth without needing to save any harder.”
The Association of Superannuation Funds of Australia’s (ASFA) benchmarks suggest that most Australians should aim for a total super balance of $150,000 to $200,000 by their mid-40s and considerably more by their mid-50s, though targets should be higher for anyone planning to retire before preservation age.
For vets who own a practice, however, super is only part of the picture. They also need to factor in wealth held outside the practice and their vulnerability should they reach retirement without a clear buyer or realistic understanding of what the practice is worth. “If more than half of their net wealth sits inside a business they don’t have a firm buyer for, that is a flag worth addressing well before retirement,” Wrenn cautions.
Buyer demand, corporate consolidator appetite, staffing, lease terms and the state of the industry at the time of sale all affect what a practice is worth.
It is common, Wrenn notes, for vets to have most of their wealth tied up in three things: the practice, the family home and one investment property. Retirement plans, however, work better with greater diversification so no single asset class or sale determines the outcome.
A practice sale can form an important part of a retirement strategy but relying on it creates unnecessary risk, warns Wrenn: “What happens if the practice sells for 30 per cent less than hoped? What happens if a health event or a shift in the local market forces a sale two years earlier than planned?”
Practice owners can make structural decisions during their working lives that may affect how effectively they build retirement wealth.
Salary-sacrificed and personal deductible super contributions can increase retirement savings, while practice structure can give business owners options unavailable to PAYG employees.
Using a company, for example, can provide greater flexibility around when income is drawn personally. In profitable years, some money can stay in the company and be taxed at the company tax rate, then paid out as dividends when personal income is lower.
The vets who end up with the best retirement outcomes are almost always the ones who started treating their personal finances as seriously as they treat their clinical practice, well before retirement was in sight.
Juanita Wrenn, managing director, Hudson Financial Planning
With the right share structure, dividends may also be paid to family members on lower tax rates, although strict tax rules apply.
“None of this replaces the basics—a debt-free home, a consistent savings rate, a buyer for the business—but layering the right structure over the top is usually where the bigger, compounding difference gets made,” Wrenn claims.
She insists that those who find themselves in a tight position 10 years or less before retirement still have options. The best place to start is with a full financial audit of every asset and debt, current superannuation balances, practice value, and income and expenses. From there, map out a realistic retirement age and income target, then work backwards to see what is achievable, Wrenn says.
“At 55, there is still meaningful time to make a difference, particularly through catch-up concessional contributions if unused cap has accrued in recent years, consolidating super, and, for owners, starting the practice sale planning clock rather than waiting until 60 or beyond.”
Those reliant on selling their practice to fund retirement should begin preparing at least three to five years out, she says. That window gives enough time to smooth earnings, reduce reliance on the owner, tidy staffing and leases, and let a genuine track record build under any changes made.
An independent practice valuation is also worthwhile, Wrenn advises. “It turns a vague sense that the practice will be worth something into an actual number, and that number changes the conversation. It usually prompts owners to start building wealth outside the business sooner, address issues that would otherwise erode the practice value and form a much more informed view of when they can genuinely afford to retire.”
Five years from retirement, the focus shifts again.
“This is where a plan shifts from building wealth to protecting and sequencing it,” Wrenn says. That means eliminating non-deductible debt, reassessing investment risk as the time to draw on the money gets closer and firming up exactly when and how superannuation moves from accumulation into a retirement income stream.
“For practice owners, this is also the window where the sale process itself needs to be running, alongside a clear-eyed view of what happens if settlement does not go to plan.”
Practice owners, with their financial adviser, should also review personal insurances since income protection typically becomes less relevant as retirement approaches.
Wrenn says this is also a good time to consider estate planning, confirm aged care and healthcare cost assumptions, and stress-test the plan against a market downturn in the early retirement years.
“The vets who end up with the best retirement outcomes are almost always the ones who started treating their personal finances as seriously as they treat their clinical practice, well before retirement was in sight.”
