A global pandemic is a wake-up call. A call to prioritizing health, both physically and mentally. A call to engage with the people we care about through virtual connection. And, maybe brought to our attention most rapidly, a call to be in tune with our financial health. When the American Dental Association announced its recommendation for dentists to postpone elective procedures on March 16, 2020, dental hygienists were advised to do something most never imagined doing in their health-care careers—file for unemployment.
Hygienists had to quickly navigate the unknown of unemployment benefits. If we weren’t budgeting before, we were forced to do so with our new form of income. Now that 2020 is in the past, dental offices have reopened and hygienists are working more regular hours. Paychecks have steadied, and it’s time to take what we’ve learned from 2020 and plan for our financial future.
As a student or recent graduate, the last thing we may be thinking about is retirement. But the reality is successful financial planning starts early. Most dental hygienists are hourly employees, may be considered part time, and may not be offered benefits, including retirement. A 2020 survey completed by DentalPost and RDH magazine reported only “38% [of dental professionals] are happy with their overall employee benefits.”1 Understanding the basics of retirement savings options will ensure your financial security to actually put down the scalers and retire one day!
Basic retirement terminology
There are four basic terms to understand before investing in your future: 401(k) vs IRA, and traditional vs Roth. Simply put, a 401(k) is a retirement account that is offered through your employer. An IRA, standing for Individual Retirement Account, is an account you can open independent of your employer. Both a 401(k) and an IRA can be either traditional or Roth. A traditional account means the money put into the account is pre-tax dollars. You will save on income taxes now, and the earnings in the account will grow tax deferred. But, when you retire and withdraw money from your account, you will owe taxes upon withdrawal. A Roth account means the money put into the account is already taxed before depositing the money and will grow tax free. When you withdraw money from a Roth account at retirement, you will not owe any additional taxes.2
Where to start as a student
If you are still a student and already thinking about your future beyond board exams in the spring, you should consider a Roth IRA. To qualify for a Roth, you must have earned income, such as income earned from a part-time job. The next step is to choose an investment house where you will deposit your money. That may sound intimidating, but there are some key qualities to look for to narrow your options.
The first important quality to be aware of is account minimums, meaning the minimum amount of money you must deposit in order to open a Roth IRA. There are several investment houses that have a zero account minimum requirement. So if you have even $50 of Christmas money, and have at least that much earned income, you may be eligible to open a Roth IRA.
The second quality to look for is the expense ratio. The expense ratio refers to the fees the investment house will charge you to allocate your money in portfolios for you. Expense ratios can range anywhere from 0%, to .20% to .85% and beyond. Seeking very low expense ratios is a quality to look for in an investment house.
Finally, pursuing a target date retirement fund is the best “set it and forget it” retirement strategy for students and recent graduates just starting to think about retirement savings. Target date retirement funds are portfolios, or mixes of stocks and bonds, that help balance risk, that become more conservative over time as you get closer to retirement. For example, a 25-year-old dental hygienist anticipates retiring at the age of 65. Her target retirement year is 2060, so she will select a target retirement account with the year 2060. Her target date retirement fund automatically adjusts the balance of stocks and bonds in her portfolio to reduce risk of losing value as she approaches retirement and prepares to withdraw money.
Investment houses to have on your radar
There are at least three reputable investment houses that meet the requirements of low minimum deposits, low expense ratios, and offer target date retirement funds. Here are the basics to get you started:
- Target retirement funds
- Minimum deposit of $1
- Average Expense Ratio of .08% (as of December 2020)3
- Freedom target retirement funds
- Minimum deposit of $1
- Average expense ratio of .75% (as of December 2020)4
- Target retirement funds
- Minimum deposit of $1,000
- Average expense ratio of .10% (as of December 2020)5
Where to start as a dental hygienist
If you are already saving smiles but want to start saving for retirement, the first step is to talk to your employer. Questions to ask an employer include:
- Am I eligible for a 401(k) retirement account? If so, is it a Roth or traditional 401(k)? If you have the option, choose Roth!
- Does the employer offer a company match? If so, what percentage is the match? If your employer offers a match, try to deposit enough money to at least obtain the company match—a match is essentially free money!
- Can I select the funds my 401(k) is being put into? If so, select funds with the lowest expense ratio to save you money!
Although benefits are often tied to employment, unfortunately that is not the case for many dental hygienists. If your employer does not offer any retirement options, refer to the investment house guide above on opening your own Roth IRA.
2020 was full of uncertainty, but saving for retirement does not have to be! We are experts in evaluating oral health. Let's become educated in evaluating our own financial health, discovering comfort in taking control of our retirement savings. We must use our hands for more than scaling and harness our financial future for the day we can scale no longer!
- Dental hygienist salary survey "2020 results." DentalPost. Published 2020. Accessed December 13, 2020. https://www.dentalpost.net/salary-survey/dental-hygienist-results/
- Traditional and Roth IRAs. US Internal Revenue Service. Published November 10, 2020. Accessed December 13, 2020. https://www.irs.gov/retirement-plans/traditional-and-roth-iras
- Schwab Target Funds. Charles Schwab. Accessed December 13, 2020. https://www.schwab.com/mutual-funds/mutual-fund-portfolio/target-funds
- Fidelity Freedom Funds. Fidelity. Accessed December 13, 2020. https://fundresearch.fidelity.com/mutual-funds/summary/315793851
- Vanguard Target Retirement Funds. Vanguard. Accessed December 13, 2020. https://investor.vanguard.com/mutual-funds/target-retirement/#/
Dara McConnell, MBA, RDH, is a practicing dental hygienist and digital media marketer. Active in the fitness community from obstacle course racing to American Ninja Warrior, Dara loves relating oral health to overall health and wellness. She uses her digital media platform to connect with current dental hygiene students and recent graduates, providing quick tips to ensure clinical success. She also likes to apply the financial principles from her master’s degree to personal money management, especially for other dental professionals.