Whether retirement is far away, rapidly approaching, or already upon you, it is important to understand how an income stream from different sources may be created to cover your expenses. As you plan for your retirement, you’ll want to become familiar with the types of investment and savings vehicles as well as the tax treatment of each.
The New Retirement
Many CRNAs may consider ‘retirement’ in terms of financial independence, instead of permanently retiring from work. At CRNA Financial Planning, we find that more and more CRNA professionals are redefining what this life phase looks like. Financial independence might be defined as the point in time where you have enough income and assets working for you that continuing to work becomes optional.
Not all CRNAs will retire completely from their professions. Some will choose to keep working part time to stay on their toes, while others may choose volunteer medical service opportunities or other related work.
Whether you choose to continue working or not, the ultimate goal of a CRNA during retirement is often to generate income from different retirement income buckets including — Social Security, employer-sponsored retirement plans, personal retirement plans, and other savings and investment programs.
Potential Sources of Income
The way in which retirees withdraw funds will be based upon many factors including their retirement age, recent market performance, income requirements, legacy planning goals, and other factors. There are many sources of potential income during retirement planning, which may include:
Savings Accounts: Ordinary savings accounts, whereby gains are treated as ordinary income.
Municipal Bonds**: Bonds that are exempt from federal income taxes and typically issued by states and municipalities. Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free, but other state and local taxes may apply. If sold prior to maturity, capital gains taxes could apply.
Investments that Pay Dividends: Accounts positioned to pay ongoing dividends subject to a maximum tax rate of 15% under the current 2016 income tax laws. Payment of dividends is not guaranteed and companies may reduce or eliminate dividend payments at any time.
Appreciated Assets: Assets that have appreciated since they were acquired and thus will be subject to capital gains taxes upon liquidation.
Pre-Tax and Tax Deductible: Retirement accounts such as 401(k)s or IRAs. Upon withdrawal, these assets will be subject to ordinary income taxes after the age of 59½. Assets that are withdrawn prior to the age of 59½ may be subject to a 10% penalty.
After-Tax Contributions: After-tax contributions that have been made to qualified retirement accounts, non-qualified annuities, or non-deductible IRAs will be treated as ordinary income upon withdrawal of the assets. After-tax contributions are not taxed but the earnings are, and any potential restrictions where penalties on earnings withdrawn may exist.
Roth IRA: Roth IRA assets that have been held for more than five years and are withdrawn after the account owner is 59½ or older will not be subject to income taxes, and are otherwise considered tax-free withdrawals in retirement.
By working with an experienced financial advisor who can help you consider all potential income sources, you can begin planning to generate an income stream to last throughout retirement. Armed with this information, you may feel more comfortable as you navigate your way towards life after full-time work.
How to Learn More
At CRNA Financial Planning®, we specialize in helping CRNAs throughout their financial lives, from navigating their careers to retiring. While it’s never too early to start saving for retirement, it’s never too late to create a strategy. Whether you have a comprehensive retirement strategy in place or are just getting started, we are here to help you. If you have questions or concerns about your retirement, call us at 855.304.3748 or email [email protected].
*No strategy guarantees against loss nor ensures a profit. There is no guarantee any investment objective will be met. Consult with your financial professional to determine which types of investments, products, and strategies may be appropriate for you. Make certain that you understand the relationship between your investment objectives and the potential risks and returns on your investments, keeping in mind that every investment has some type and degree of risk. This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
**Municipal bonds are free of federal income tax. Municipal bonds also may be free of state and local income taxes for investors who live in the area where the bond was issued. If a bondholder purchases shares of a municipal bond fund that invests in bonds issued by other states, the bondholder may have to pay income taxes. It’s possible that the interest on certain municipal bonds may be determined to be taxable after purchase.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNA) 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 book “The Wealthy CRNA,” which lays out a foundational roadmap for CRNAs to help them plan their financial future.
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.