CFP advises that Tim Walz's $135,000 early withdrawal from a retirement account is generally a "lose-lose situation."

Examining a political candidate's record on fiscal issues and the impact of their policies on their constituents' finances is important. However, it's also crucial to consider the candidate's personal finances.

The Wall Street Journal shared documents revealing that Minnesota governor and vice-presidential candidate Tim Walz and his wife Gwen earned about $300,000 in 2023. In contrast, Walz's Republican rival, Senator J.D. Vance, disclosed 2022 income between $1.2 and $1.3 million.

Last year, Walz withdrew approximately $135,000 from his workplace retirement account to finance his daughter's college education, a decision that financial advisors generally advise against.

"Gerika Espinosa, a certified financial planner with DMBA in Salt Lake City, Utah, advises against investing excessively in the stock market, as it often leads to a loss of retirement funds."

Walz is in an unusual situation

The Wall Street Journal estimates the Walzes' retirement savings at more than $1 million, meaning that the early withdrawal likely represented a small fraction of the retirement fund.

Unlike most Americans, Walz has a secure financial future due to his various careers as a teacher, national guardsman, and politician. He is already receiving some of his pension income and expects to receive more in the future. Of his and his wife's estimated $300,000 in 2023 income, approximately $135,000 comes from pensions or annuities.

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According to Jamie Bosse, a certified financial planner and senior advisor at CGN Advisors in Manhattan Kansas, Walz's retirement picture resembles a throwback due to his work history.

"Financial planning initially taught us that retirement spending is a three-legged stool, consisting of pensions, Social Security, and personal savings," she explains.

With many pension plans frozen or eliminated and concerns about the future stability of Social Security, Bosse says that your future financial independence is directly related to your ability to save a portion of your income for retirement.

The move of Walz isn't suitable for anyone, but it poses a significant risk to the majority of Americans who will heavily depend on their investments to fund their retirement.

Why you to avoid early withdrawals

An early withdrawal from a retirement plan can be a risky move for most people. Withdrawing money from a retirement account means that it won't have the chance to grow at a compounding rate. Even if it represented a significant portion of the Walzes' income, that $135,000 is money that isn't contributing to their retirement savings.

"Withdrawing funds from retirement accounts for other purposes means that the money will not be available for retirement, as defined by Yusuf Abugideiri, a CFP and chief investment officer at Yeske Buie in Vienna, Virginia. This puts individuals in a difficult position."

Withdrawing money from a 401(k)-type account is expensive as it is taxed as regular income. Additionally, if you withdraw the money before age 59½, you will incur a tax penalty on whatever you withdraw.

While funding a child's education may seem like a pressing need, it can limit your financial flexibility, says Bosse.

"While there are various ways to pay for college, such as working or applying for tuition aid, there are limited options for retired individuals who may run out of funds. Retired individuals may not be eligible for loans for retirement."

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