8 Critical Things All Nurses Must Know Before They Retire!

In her book, "Top Five Request of the Dying", Bonnie Ware writes about her experiences working in palliative care, and how the most common regret amongst her patients was " I wish I'd had the courage to live a life true to myself, not the life others expected of me. On average, most of us will spend 90,000 hours at work over our lifetime.

With this fact in mind, it’s quite easy to understand why people view retirement as the freedom to live life truer to themselves, and to break free from the expectations and the demands that Is often required of nurses, and to spend time how they want. A lot of my clients view retirement as a way to pursue their dreams and spend more quality time with the people they love.

There is no right time to retire for everyone, but there is a right way to plan for it. This is especially true for nurses who operate in stressful environments, and often experience high rates of burnout and PTSD. In the following pages I will discuss how you can position yourself to retire on your own terms, so that you can spend more time with the people you love.

1. TRACK EVERY SINGLE DOLLAR

When it comes to financial planning and meeting the financial goals that you have laid out, there are only two options available to achieve them.

1. Earn More Money
2. Save More Money

As a nurse there are several options available that may provide a means to put extra money in your pocket. Typically this can be done through obtaining further certifications, or picking up additional shifts that aren't required. However, additional education may not be accessible to everyone as there are several hurdles that can stand in the way such as the cost, and the time that is required. As far as picking up additional shifts, it can increase the occurrence of burnout, and takes away precious time that you can spend with family, resting and recharging, before you must clock back in.

It becomes readily apparent that controlling expenses is an important aspect of obtaining financial freedom. Therefore, this is where most nurses should focus when planning for retirement.

However, the unfortunate truth is that most people live beyond their means. According to the Federal Reserve, the average American family carries $137,063 in debt. Even for those between the ages of 65 to 74, which represents the most common retiring ages, 42% of them carry a debt of around $42,000.

Debt, when not controlled, significantly impacts your ability to retire on your own terms and may mean working longer than you had originally planned. That's why it is so important to live within your means. In order to increase your probability of living the life you want to in retirement, you should start controlling your expenses. You can accomplish this by first analyzing your bank statements, and tracking where every dollar is going. After identifying where your money is going, you can then start to eliminate or reduce the things that don't add value to your life. Then move to your non-discretionary expenses such as your mortgage, car note, insurance policies, etc. Can any of them be reduced? You can often call into these companies and negotiate lower payments or take advantage of promotions that lower your bill by moving to another supplier. You can also take advantage of low interest rates and refinance your mortgage.

2. SET A SAVINGS GOAL!

While pensions used to be a common benefit, fewer and fewer nurses have access to a pension plan and are now responsible for saving for their own retirement.

The primary means for accomplishing this is through employer-sponsored plans, such as a 401(k) or 403(b). In order to derive the most of these plans, it is imperative that nurses create a savings goal, and that they stay consistent in meeting it. In general, it is recommended that most people should be saving 10%-15% of their paychecks, to include any employer match. One of the most Important things that a nurse can do beyond setting a savings goal is to start saving as early as possible to take advantage of compound interest! The power of compound interest is best illustrated by Warren Buffett, who was very vocal about this principle in his early partnership letters. Here's what he said on the topic:

"One story stands out. This of course, is the saga of trading acumen etched into history by the Manhattan Indians when they unloaded their island to that notorious spendthrift, Peter Minuit, In 1626. My understanding is that they received $24 net. For this, Minuit received 22.3 square miles which works out to be about 621,688,320 square feet. While based on comparable sales, it is difficult to arrive at a precise appraisal, a $20 per square foot estimate seems reasonable giving a current land value for the island of $12,433,766,400 ($12.5 billion). To the novice, perhaps this sounds like a decent deal. However, the Indians have only had to achieve a 6.5% return to obtain the last laugh on Minuit. At 6.5%, $24 because $42 billion In 338 years, and if they managed to squeeze out an extra half point to get to 7%, the present value becomes $205 billion." This is the reason why Albert Einstein stated that, "Compound Interest is the eighth wonder of the world".

The lesson of all of this is simple: Start saving as early as you can! If you start late or fall behind, you may have to increase your contribution rate to catch up. Fortunately, at age 50, you qualify for catch-up contributions, an extra amount up to $6500 (2020) that you're legally allowed to contribute to your employer retirement accounts. You can also save an additional $1000 In an IRA. The other, less ideal, options are to work longer or consider living on less in retirement.

3. AIM TO REPLACE 100% OF YOUR PRE-RETIREMENT INCOME

Many financial professionals recommend that people aim to save enough to replace 70-90% of your pre-retirement Income. However, I often advise nurses that I work with to aim to replace 100% to create a buffer for unexpected expenses, such as healthcare. Targeting 100% of your pre-retirement income will also allow you the ability to retain the lifestyle that you've been accustomed to. A quick and easy way to determine your monthly pre-retirement income that you need to replace, is to look at the net-pay on your paycheck.

So now we know that we should be aiming to replace 100% of our pre-retirement income, but how do we get there? We know we have to save, but how much is enough? Typically, the earlier you start to save, the lower your yearly savings rate needs to be. If you started saving later in life, ensure that you're savings rate is efficient enough to generate the income that you will need in retirement.

If these savings rates seem impossible, take advantage of automatic escalation that most employee sponsored retirement plans offer to their employees. Automatic escalation is a plan feature that automatically increases your contribution amount. For instance, you can set the feature to increase employee contributions by 1% each year up to 10% or more. A 1% increase may not seem like much, but that's precisely the point. While you won't feel a major sting when you get your next paycheck, your investments will benefit over the long run. Check out the chart below to see how powerful an auto-escalation can be!



4. PAY ATTENTION TO YOUR ALLOCATION

Determining an adequate savings rate, and staying diligent and consistent with saving the proper amount is only half the battle. How you invest that money is also equally important. The biggest mistake that I see nurses make time and time again Is either taking on unnecessary risk, or not taking on enough. I have worked with nurses who have done an amazing job at saving for retirement but when I analyze their 401(k) statements, I see that they are only invested in a money market account, averaging around 1% a year.

If you do not have the time, or the motivation to carefully monitor your 401(k), you can look at Investing In target date funds. A target date fund Is based upon some date in the future, typically the year that will closely align with your calculated retirement date. As you move closer and closer to your retirement, the target date fund will become more conservative to act as a ballast against market drops. For example, if you planned on retiring in 2030, simply choose a 2030 target date fund. Whatever you decide, what mix Is right for you depends on personal factors, such as your age, Income and goals. Generally, a good rule of thumb is that you can invest more aggressively the younger you are, and as you near your target retirement age you can pare back risk.



The figure above shows the asset allocations that Vanguard uses for their target date retirement funds. As you can see, the portfolio’s allocation to U.S. stocks, international stocks, U.S. bonds, international bonds, and TIPS (inflation-hedged cash equivalents) changes as the investor draws closer to retirement. Self-directed investors often take a similar approach when managing their own portfolio asset allocations over time.

5. CONSOLIDATE YOUR RETIREMENT ACCOUNTS

According to a 2014 study In Policy, Politics, & Nursing 17.5% of new nurses leave their first nursing job within the first year, 33% leave within two years. Nurse turnover Is a common problem in many healthcare organizations, and over the course of a nurse’s career, they may end up having retirement accounts with several employers, as well as lump-sum pension payouts. Consolidating your assets into an IRA, gives you the ability to manage all your money from one place. In addition to this, an IRA gives you a much larger pool of Investments to choose from than is available in a typical employer-sponsored retirement plan.

However, there are certain cases where moving your money into an IRA may not make sense. If your previous employer has a good retirement plan, with investments that are suitable, and the fees are low, it may make sense to leave it there. Also, if you retire at 55 or older, you can make withdrawals from your 401(k) without Incurring any tax penalties.

6. PLAN FOR SOCIAL SECURITY

For many people, Social Security will represent a significant portion of their Income. You can collect your full benefit once you reach your Full Retirement Age, which depends on the year you were born. The full Retirement Age for most people working today Is age 66 or 67.

Although 66 or 67 represents Full Retirement Age, you can file for benefits as early as age 62. The drawback to taking your benefit early Is that you will permanently reduce It for each month taken before your FRA. Those who wait to file until age 70, receive a delayed credit per month (8% per year), for a larger benefit by up to 32% Deciding when to start your Social Security Benefits is a very important question, and delaying Social Security Isn't right for everyone. Factors such as work earnings, divorce, remarriage, the death of a spouse, disability and more can greatly Impact your benefit and claiming strategies. If you want to retire early, for example, you may want to consider taking It right way. But, if you want to work into your 70s or have enough assets to live off, then It may make sense to wait for the larger benefit.

The below chart shows the approximate percentage of your full benefits that you'll get if you start collecting at various ages and offers you a rough idea of the effect of waiting to start collecting benefits or starting early. As an example, if your full retirement age is 67 and you start collecting benefits at age 63, your checks will be 75% as big as they would have been had you waited until age 67 -- i.e., you would receive 75% of your full benefits. Meanwhile, if you waited until age 70, your checks would be 124% of what they would have been.

Remember that between age 63 and age 70 there are seven years that are made up of 84 months. That's 84 checks that you'll miss out on if you wait until age 70. That's why it can be a wash if you live a life of roughly average length.

7. WORK WITH A FINANCIAL ADVISOR

Choosing whether to work with a financial advisor is one of the single most important decisions that a nurse will make regarding their financial lives. As a nurse, you work long hours, and may not have the time to ensure that your financial house is in order. Even if you did, you'd probably want to allocate that time doing more of the things that you enjoy.

Nurses who work with financial advisors can add clarity to their financial goals, so they have better insight of where they are, and what they need to do to get to where they want to be.

Beyond this, a study done by Russell Investments concluded that an advisor offering relationship-oriented services adds 4.4% to a client's net return over their lifetime. This point is further illustrated in the graphic, produced by Blackrock, below. No matter how much we like to think that we are completely rational beings, the truth is we are sometimes driven by our emotional biases. Many people know the old adage " buy low, sell high", but put into practice, when the markets start getting volatile, people will let fear control them and sell at the bottom, and buy back in when the market has recovered.

Bottom Line: Investing and planning for retirement, without professional advice, can lead to many things going wrong. Wrong decisions can compound exponentially, and may result in you working longer, or spending less in retirement.

8. TAKE ADVANTAGE OF YOUR HSA

When you ask most Americans what the best tax-advantaged retirement account is, you're likely to hear answers such as "401(k)," "Roth IRA," or "Thrift Savings Plan."

While these are all excellent ways to save for retirement, one type of account that deserves to be a part of the conversation is the health savings account, or HSA.

On the surface, you may not think of the HSA as a retirement account. After all, the main purpose of the HSA is to allow people with high-deductible health insurance policies to save money for healthcare expenses. However, these accounts can also be excellent retirement savings vehicles.

If you're eligible for an HSA, you can contribute funds on a pre-tax basis, up to annual limits set by the IRS. You can invest that capital in a variety of mutual funds or other investment options, depending on your financial institution. Any withdrawals that you use to pay for qualified healthcare expenses are 100% tax-free, no matter how much your investments have earned. This double tax benefit is unheard of in other types of investment accounts.

Here's where the retirement aspect comes in. Money in an HSA carries over from year to year, meaning you don't have to spend the funds on healthcare expenses each year as you would with a flex spending account. Once you turn 65, you can use the money in the account for any purpose (including retirement income) without incurring a tax penalty. In a nutshell, an HSA combines the advantages of tax-deferred retirement investing with the added bonus of tax-free withdrawals for healthcare expenditures.

Let's look at an example of what this could mean to you if you have a high-deductible health plan and qualify for a HSA. We'll say you and your spouse are both covered under your plan, which makes the annual contribution limit $6,900 per year as of 2018. If you were to contribute this amount to an HSA each year for the 10 years leading up to your retirement and achieve 7% annualized investment returns, this could translate to an additional $95,334 in usable retirement savings.

Along the way, this would also have excluded $69,000 from your taxable income. If you're in the 22% marginal tax bracket, for example, this translates to $15,180 in pre-retirement tax savings. And here's the best part: If you choose to use the money in your HSA to cover out-of-pocket healthcare expenses in retirement -- which will cost the average retired couple $245,000 in today's dollars -- you won't be taxed on your withdrawals, either.

Assuming you're still in the 22% tax bracket after retirement, and you withdraw $10,000 from the account per year to cover healthcare expenses, the account would last for over 13 years (remember, your investments will still be generating returns), and resulting in tax savings in retirement of $29,597.

Original article by Joel Anderson, MBA, APMA on LinkedIn.