Retirement is something that most people look forward to—traveling, playing golf, moving to Florida, spending more time with grandchildren. But although many can immediately think of what they'd like to do when they retire from their jobs, many more haven't really given much thought to what they'll need financially to make that possible.
According to a March 2012 report from the Employee Benefit Research Institute, only about 14% of Americans are very confident that they will have enough money to be able to live comfortably when they retire. In addition, many respondents also reported that they have virtually no savings and investments.
“Retirement planning is certainly a concern for many people and something that a financial advisor will spend a significant amount of time working [on] with clients,” said Glenn Bianco, CFP, senior vice president, wealth management, in the Bianco-Daly Group at Morgan Stanley in Mount Kisco, New York. He spends a significant amount of his time helping people from various walks of life prepare to maintain the lifestyle they desire once they retire.
“In that process, we often find that there's not enough saved to fund their expectations,” Bianco said. “They must find a way to save more sometimes, later in life.” Many will have to work longer than they had expected to or adjust their expectations. And there are many other variables that can prove vexing, he says.
Unfortunately, many nurses meet this description. The 2013 Nurses Retirement Study, a report from Fidelity Investments, focuses on the saving habits of nurses. As the U.S. economy continues to move toward recovery, nurses have been increasingly adding to their retirement accounts, according to the report. About a quarter of nurses who have retirement plans through their employer have now amassed more than $100,000 in assets. The good news is that that's an increase from 18% in 2011. The bad news is that nearly three-quarters of nurses don't have adequate savings and may fall short when it's time to retire. In fact, according to the Fidelity report, even those who participate in their workplace plans save at a rate that's less than optimal. Almost two-thirds of nurses (62%) who participated in the survey acknowledged that their retirement savings were inadequate.
GENERATIONAL AND SEX DIFFERENCES
The Fidelity survey revealed some interesting differences among generations, according to Alexandra Taussig, senior vice president at Fidelity Investments. “The biggest surprise was the difference in demographics,” she said. “The boomer nurses are doing much better than Generation Y and Generation X nurses, as far as savings.”
Generation Y nurses, those born between 1979 and 1995, and Generation X nurses, who were born between 1965 and 1978, are saving an average of 5% or 6% of their income. But the baby boomer nurses, born between the end of World War II and 1964, are squirreling away retirement saving at almost twice that rate, which more closely resembles Fidelity's own recommendation of 10% to 15% of total income from both employers and their own sources.
This is the third time Fidelity has conducted the nursing survey, and Taussig points out that changes in the economy and the health care industry often occur at a rapid pace, and benefits are affected accordingly. For example, access to defined benefit plans has dropped. In the current survey, only 39% of nurses reported having such a plan, a decline from 48% in 2011.
“Clearly the earlier you begin to prepare for retirement the better,” said Bianco. With most young people, retirement is so far in the future that it doesn't seem as important as their current pressing financial obligations, he said, “such as buying a home and paying a mortgage, starting a family, paying for college, and the other priorities that put a strain on cash flow.”
Considering the low level of savings of many nurses, it's not surprising that a larger percentage of the surveyed nurses were concerned that they'll ever be able to retire. Fifty-five percent of Generation X nurses and 48% of Generation Y stated that they weren't confident they'll have enough money to retire, compared with 35% of boomers. In addition, three-quarters of Generation X nurses were concerned they'll never be able to retire.
“Our report showed that over half of the nurses said they feel overwhelmed by retirement planning,” said Taussig, “and that they wanted more help with it.”
“Nurses are in a caring profession, but they also need to be able to take care of themselves,” Taussig said. Nursing is a profession that's still dominated by a primarily female workforce, and although nurses aren't the only group struggling to save for retirement in a sluggish economy, Taussig points out that women are often less confident when it comes to financial issues. “We've done a lot of work with women and investing, and women are a lot less confident,” she said, although, she added, “when you look at the data, they are better investors than men.”
REVVING UP RETIREMENT SAVINGS
One popular option is the 401(k) plan, a tax-qualified, defined contribution pension account described in subsection 401(k) of the Internal Revenue Code. If it's offered to nurses by their employer, they should consider taking advantage of it, according to Bianco.
Contributions to the 401(k) are normally deducted from the employee's paycheck before taxes, so the taxes are deferred until the funds are withdrawn during retirement. Some employers match the employee contribution, which enhances the savings for the employee.
“The pretax nature of this plan allows for less impact on the [employee's] cash flow,” Bianco said. “Nurses can contribute as much as their budget allows. We recommend our clients maximize the contribution when the budget permits.”
Some employees also have the option of a Roth 401(k), in which employees voluntarily contribute funds into their account after paying taxes on them. Because the income is taxed in the year it's earned, the distribution in retirement will be greater than with the traditional 401(k).
Both plans may be offered, explained Bianco, and employees may be allowed to contribute to both of them. There are many rules and strategies accompanying these plans that will determine which type will best meet a nurse's specific needs, said Bianco. “Generally, although not exclusively, the Roth is a more advantageous vehicle for the younger person who is in a lower tax bracket now but expects to be in a higher bracket upon reaching retirement.”
Other plans, such as the traditional independent retirement account (IRA) and the Roth IRA, may also be viable options.
WHEN TO START SAVING
Bianco emphasized that it's best to begin saving for retirement as early as possible.
“The longer you wait, the more difficult the task and the riskier it can be, if other sufficient resources are not available as you near the target date,” he said, adding that options begin to diminish as you get older, and in most cases, Social Security won't be sufficient to meet anyone's total financial needs.
But it's never too late to start saving, and it's possible to save even if a nurse doesn't have a lot of money to put aside. Bianco recommends consulting a financial professional to assist in the planning process.
Many of those who wish to be able to retire completely find themselves working longer than expected, said Bianco, “working part-time and taking significant risks with their investments, which is a dangerous endeavor later in life. The worst thing of all is running out of money to cover one's lifestyle and health care.”
Of course, in addition to the tax-deferred retirement plans, the traditional IRA, and the Roth IRA, nurses can simply create a budget that incorporates the contribution of some portion of the family or individual income, no matter how small, to retirement savings.—Roxanne Nelson