If you read five articles on retirement planning, chances are you’ll read five different recommendations. Financial planning and saving for retirement can be very subjective, making it difficult to know exactly how much you need to save to reach your vision of a comfortable retirement.
We’ve previously shared the value of a 50/30/20 budget, where you save 20% of your earnings. However, if it’s recommended to save at least 15% for retirement, you may find it difficult reaching your other financial goals—sending your child to college, buying a second home, paying off your mortgage—if you’re only putting away 5% towards those needs.
The question then is, could 10%, instead of 15%, be enough for a comfortable retirement?
The Criticism of the 10% Rule
Particularly due to the financial crisis, the disappearance of the pension your parents relied on, and the uncertainty of Social Security’s future, financial pundits and critics alike have said that one must save at least 15%, if not more, in order to retire on schedule and with enough money to last.
However, a recent 2017 report, “Life-Cycle Earnings Curves and Safe Savings Rates,” (1) found that prior studies that claimed a 10% savings rate was too low were based on assumptions that were not accurate, specifically in terms of the earnings individuals experience over the course of their career.
Critics who claim one must save more than 10% assume that individuals experience a constant, inflation-adjusted paycheck throughout their career. However, research shows that people experience high levels of inflation-adjusted earnings growth early in their career, with a decline in earnings near retirement. (2)
The 2017 report accounted for these dynamics and found that a savings rate of 10% is considered “safe” for everyone except the highest earners over a 40-year savings period (based on historical market returns and Social Security income). For earners at the 90th percentile, which may include some CRNAs, a safe savings rate was determined to be 13.1%.
The Caveat
Before you get too excited over a potentially lower retirement savings rate, keep in mind that this is also based on how much time you have left to save. Many CRNAs, due to their extensive education, get started saving for retirement and earning a significant income at a later age. As a result, they may need to save more in order to catch up.
In the report, analysis shows that when the savings time frame drops from 40 to 30 years, the savings rate for the wealthiest increases from 13.1% to 15%, and to 25% for a 20-year horizon. This serves as a reminder on how helpful it is to start saving as early as possible.
What’s Your Ideal Savings Rate?
Ultimately, while this report sheds light on retirement savings, it mainly goes to show that there isn’t a general recommended rule that can apply to everyone. Each person’s situation is unique, and therefore requires a unique retirement strategy.
Rather than jump in blindly and start saving 10%, 15%, or 25%, working with a trained and competent financial professional is a great place to start. It’s important to work with a CERTIFIED FINANCIAL PLANNER™ practitioner who specializes in serving the unique needs and circumstances of CRNAs.
At CRNA Financial Planning®, we specialize in helping CRNAs, like you, work toward retirement. To find out whether you’re on track, let’s meet to discuss your plans and how we may be able to help. Call our office at 855.304.3748 or email inquiry@crnafinancialplanning.com.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning® as well as CRNA Tax Associates®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNAs) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients.
Jeremy is also the author of The Wealthy CRNA and A CRNA’s Life After Anesthesia. The Wealthy CRNA features insights into becoming a financially successful CRNA and how to start planning for your financial future, and has been prior approved for up to 4 Class A CE credits by the AANA. A CRNA’s Life After Anesthesia serves as your financial roadmap for a smooth emergence into retirement. It reviews recent changes in the CRNA industry along with the new rules of retirement and the final steps of legacy planning. This book has been prior approved by the AANA for up to 2 Class A CE credits.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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(1) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3003301
(2) https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr710.pdf