As we get older, life seems to pass by faster than ever, especially for CRNAs with busy work schedules. You may be amazed to realize that retirement is just a decade away. If you’re approaching the ten year countdown, consider taking these five actions to help you prepare for a smoother transition.
1. Take Your Retirement Income for a Test Drive
Whether you choose to continue working during retirement or not, you’ll likely rely on a retirement income generated from several different sources, including Social Security, employer-sponsored retirement plans, personal retirement plans, and other savings and investment programs. Over the course of your working years, you’ve likely been contributing money to these accounts, so you’ll have a consistent income in retirement. But, how do you know if it’s enough money?
One way is to test it out. While it’s generally recommended to assume you’ll need 80% of your current income in retirement, you and your family may need more or less. For a few months, test drive a reduced budget. To start, try living on 80% of what you currently receive. Do you find yourself pinching pennies or did you find ways to cut back?
If you’re having trouble making ends meet, speak with your financial advisor to evaluate opportunities to increase your retirement income or reevaluate your budget.
2. Pay Off Debt Aggressively
You don’t want creditors to be draining your nest egg in retirement. By eliminating consumer debt prior to retirement, you will lower your monthly expenses, enabling your savings to last and grow longer.
For most CRNAs, their income allows them to aggressively tackle credit card and student loan debt. If you’ve already paid off these debts, you’re off to a great start. If you haven’t, consider making larger monthly payments.
If you are close to having your mortgage paid off, this is a great pre-retirement goal. Not having a mortgage in retirement could reduce your monthly expenses by up to a third and make a significant impact on how slowly you deplete your savings.
3. Start Saving More
The closer you get to retirement, the more you should aim to save. Cut back on expenses, channel any raises and bonuses directly to savings, and automate savings increases of 1% every few months.
Your increased savings can be invested into your company 401(k) or 403(b) plan or your personal IRA. If you are over 50, you can invest an extra $1,000 a year into an IRA for a total of $6,500 for 2017. At $6,000, the catch-up contribution for those over 50 is even greater for 401(k) and 403(b) plans, allowing a total annual contribution limit of $24,000.
If your income is higher than the cutoff amounts for a Roth IRA, which is often the case for CRNAs, there are still a few ways you can contribute to a Roth IRA. One option is a backdoor Roth transaction. You first contribute to a traditional nondeductible IRA, which is available regardless of income, and then convert it to a Roth IRA. The IRS also allows you to convert after-tax contributions from a 401(k) into a Roth IRA.
If you have maxed out your workplace retirement plan and IRA, but still aren’t saving enough, you may consider opening a taxable brokerage account for your additional savings.
4. Prep Your Retirement Home
According to studies by the Employee Benefit Research Institute, housing expenses account for an overwhelming 43% of spending for those age 75 and older — even more than healthcare. (1) As you approach retirement, think through where you’re going to live and how much you’ll spend on housing costs in retirement.
If you plan on relocating to a new destination in retirement, spend four seasons there to ensure you enjoy the climate. Visiting an exotic island in winter may seem like a dream, but you may find the summer humidity too hot to handle. Wherever you intend to live, spend several weeks each season to make sure it’s where you want to put down retirement roots.
If your plan includes staying in your current home, ask yourself what modifications it will need to accommodate aging? Plan to make any expensive adjustments and repairs now before you’re living on a tighter budget.
5. Pay Close Attention to Your Investments
We generally recommend that CRNAs review their investment portfolio at least annually or semi-annually. The ten year pre-retirement mark is one particularly appropriate time to adjust your portfolio’s allocations. Meet with your financial advisor to review your current lineup and determine whether your risk tolerance should change.
Along with reallocating your investments, you’ll want to consider how the sequence of returns could impact your portfolio’s value over time. In the simplest of terms, sequence of returns refers to the risk of receiving lower or negative returns early in a period when you’re making withdrawals from your investments. If your retirement date correlates with the onset of a bear market, your savings can be depleted quickly as you withdraw from your portfolio. With a smaller investment base, you’ll have less wealth remaining to benefit from a future market upswing.
To mitigate the risk of sequence of returns ruining your retirement portfolio, work with your advisor to take the appropriate steps, such as reducing volatility, examining your withdrawal strategy, and finding different market options to protect your money.
Next Steps to Take
There are a number of actions to consider taking when you’re within ten years of retirement. If you encounter questions as you implement some of these steps, don’t hesitate to reach out to me. I’d be happy to help you review these actions or offer guidance. You can call our office at 855.304.3748 or email [email protected].
About Jeremy Stanley
Jeremy Stanley is the president and founder of CRNA Financial Planning®. 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.
Jeremy Stanley is a financial professional with and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and CRNA Financial Planning® are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific financial or tax advice or recommendations for any individual.
(1) “How Does Household Expenditure Change With Age for Older Americans?” Employee Benefit Research Institute. September 2014. https://www.ebri.org/pdf/notespdf/EBRI_Notes_09_Sept-14_OldrAms-WBS.pdf