When NOT to put money into a retirement account

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You’ve probably heard that you need to start early when it comes to saving for retirement. You’ll have a lot to pay for with no income from employment, just look at these lakeside assisted living options for example.
I often get asked by dental residents (some of which have $450k of outstanding debt) if they should save for retirement while in residency. For your average resident and recent grad, there are some very good reasons NOT to put money into a retirement account. Here are a few:

  1. Most residents and recent grads don’t have a sufficient emergency fund – Your first goal from a financial-planning standpoint is to amass 3-6 months (I prefer 6) of your monthly expenses in cash. In other words, if you need $5,000 a month to pay your bills (rent/mortgage, food, etc.) then you should have 15-30k in an account that you can easily access. If you put money into a retirement account before you have this, you may end up in a situation where an unforeseen event or opportunity could cause you to withdraw money from that retirement account prior to age 59½ – and that usually equals taxes and penalties.
  1. Which are you more likely to do in the near future?
    1. Buy a car
    2. Pay for wedding
    3. Buy a house
    4. Buy a practice
    5. Have kids (those cost a fortune)
    6. Pay for kids’ college
    7. Pay loan forgiveness tax bill
    8. Retire

If you don’t have any other goals that require money besides retiring at age 60, then contributing to a retirement account is probably a good idea. You can put it towards those last minute cruises sydney instead.
But the reality for most residents and recent graduates is that they have lots of other financial goals besides retiring. And more often than not, if the only place you have money is in a retirement account, that money is in danger of getting withdrawn prematurely and generating taxes and penalties (and potentially locking in market losses).

  1. “But I can take some of the money out of my IRA for a first time home purchase.” Yes, this can be true. But realize that when you set up a retirement account it is done so with retirement in mind (30 years away). Typically, the portfolio is invested in aggressively for young people and there are fees, commissions or both, that you will pay. If you take the money out after just a few years, you could end up with a loss either from your investments being down or the commissions you paid.
  1. If you have outstanding debt (credit cards, student loans, etc.) that have an interest rate of, let’s say, 7%, you would need to earn 7% net in your retirement account to end up in a better situation. Net, as in, after you pay taxes and fees. While there are some good reasons not to pay off debt immediately, for many new grads and residents, they would grow their net worth faster by paying off their debt first rather than contributing to a retirement account.

I don’t mean to completely rip into retirement accounts. They can be a fantastic financial vehicle and I set them up for my clients all the time. Sometimes getting an employer match makes a retirement contribution a “must do.” It is also certainly true that the earlier you start, the better off you will be. But it does no good to put money into a retirement account only to pull it out at a loss a few years later because you hadn’t planned properly for the other financial demands in your life.

Also, keep in mind that just because you aren’t putting money in a retirement account (IRA, 401k,403b, etc),doesn’t mean you can’t save for retirement and get started early. It may be that you are just putting the money in other areas. The important part is to get in the habit of saving and avoid trying to fulfill your life with stuff. I also want to point out that this information is meant to be simply educational and to get you thinking about your future. It’s wise to consult an investment professional for advice specific to your unique situation and needs. Please let me know if you have questions.

~Ryan Schulte, financial advisor

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS).OSJ: 750 B Street #2740 San Diego, CA 92101 ,612-746-2200. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. WestPac Wealth Partners, LLC is not an affiliate or subsidiary of PAS or Guardian. CA Insurance Lic. #0F03557 | Guardian and its subsidiaries do not endorse or have any direct or indirect responsibility with respect to this activity | Pinpoint #2016-26545. This material contains the current opinions of Ryan Schulte but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

Ryan Schulte

Ryan Schulte is a financial advisor who focuses his practice on Dentists. He works with young dental professionals that are transitioning in their careers and helps them manage their student loans, understand the insurances they need and how to design them, how to investment money without speculating and gambling, what it means to be an independent contractor and a business owner, understand their tax situations and a variety of other issues unique to dentists. Ryan lives in the mountains near Yosemite with his wife and 5 boys on 4 acres that they affectionately refer to as the “The Schulte Farm.” Ryan serves on a community development council dedicated to redeveloping an industrial zone in Madera County. He also coaches little league and enjoys hiking, brewing beer, playing softball and soccer. His contact info can be found at

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