Running start… to a great career: Saving for retirement

How early career psychologists can set aside money for the future, even with student loans.

By Rebecca A. Clay

Tyson Bailey, PsyDTyson Bailey, PsyD, a partner in Spectrum Psychological Associates in Lynnwood, Washington, is only too familiar with the kinds of financial pressures that early-career psychologists often face.

Bailey and his wife are expecting their second child next month. They’ve just bought a house. And between the two of them, they have a student debt load that is almost equivalent to the purchase price of their new home. Nonetheless, the couple still manages to save for retirement. Says Bailey, “We’re not doing nearly as much as either of us would like, but we save something for retirement every month.”

Brad Klontz, PsyD, CFP®That makes him a little unusual. A 2016 study in Training and Education in Professional Psychology® found that more than half of early career psychologists have put off retirement saving in the face of crippling student loan debt. But trying to pay off debt before starting to save is a mistake, says Brad Klontz, PsyD, CFP, an associate professor at Creighton University’s Heider College of Business. By waiting a decade or more to start, he says, you lose out on the most powerful component of retirement saving: time.

Try these tips so you can retire one day:

  • Start early. Klontz urges psychologists to start setting aside 20 percent of their income for retirement the day they get their first jobs. With grad school’s financial deprivations still fresh, he says, early career psychologists may feel rich no matter what their first-job income is. Establish a retirement savings habit from the get-go, he says. “It’s much harder a year or two later to take 20 percent you were using in another capacity and put it toward retirement,” he says.
  • Don’t miss out on opportunities. If you or your spouse are employees, see if your employers will match your contributions to a retirement account. “That’s basically free money,” says Bailey. “Why wouldn’t you do that?”
  • Embrace risk. Stockpiling cash isn’t the way to avoid risk, Klontz emphasizes. By doing so, he points out, you’re actually guaranteeing a 3 percent loss every year, thanks to inflation. Instead, invest in the stock market. “The best thing that could happen to early career psychologists is that the stock market collapses for the next 10 to 15 years while they continue to invest,” he says, explaining that with a technique known as dollar-cost averaging — putting aside a set amount each month — they’d be able to buy more, cheaper stocks.
  • Seek advice. In a 2015 study published in the Journal of Financial Therapy, Klontz and co-authors found that mental health professionals often have self-destructive beliefs about money, with potentially disastrous financial outcomes. To avoid such a scenario, he and Bailey both strongly recommend meeting with a certified financial planner. (Make sure the person is a “fiduciary,” who is required to put clients’ interests before their own, adds Klontz.) “As expensive as financial planners can be, it’s some of the best money I’ve spent,” says Bailey, whose planner charged in the $150 to $175 an hour range. “It’s an investment that has paid off in full.”

This column is geared toward early career psychologists working in practice settings. "Running start... to a great career" features topics typically not covered in graduate school and includes tips and advice from psychologists.