You probably see headlines about retirement planning on every website and newspaper you read. Many of them all share one common tip: start as early as possible. Your accumulation years are the most important, as they set the tone and lifestyle standards for the rest of your life.
The typical bachelor’s degree graduate will make $60,000 per year when they reach career peak1. That may not sound like much, but if you assume a 20 year career with a $60,000 salary each year, you are looking at a cumulative earning potential of over a million dollars. With a much higher income, a CRNA who works 20 years at the industry average salary of $160,250 has the potential to earn over $3.2 million dollars by retirement2, giving you an even greater potential to become a millionaire by the time you reach retirement. But to do so, you’ll have to be strategic and committed.
Here are just five things that can help you save for retirement.
1. Save More Today
For every year you delay, you’ll have to contribute significantly more to reach your retirement goal, as you not only miss out on the contributions but also the compound interest. For example, if you are saving 8% of your income now at age 50, increasing to 10% would help you save an additional $32,000 over the course of 10 years (assuming an annual salary of $160,000).
As a CRNA, there’s a good chance you couldn’t save early, as you had a later start to the job market. This makes it even more important for you to start saving once you start earning an income. Whatever your age, there’s no time like the present to start putting back for retirement. Use a retirement savings calculator to start calculating how much you’d need to save each month to accumulate your desired amount by your ideal retirement age.
2. Max Out Your Retirement Plan
For many people, 401(k) and 403(b) plans offered through your employer can serve as the foundation for retirement savings. These plans are even stronger when an employer provides a match. The most common type of match is $0.50 per $1 up to 6% of pay. If you contributed 6%, your employer would contribute an additional 3%, allowing you to save 9% of your pay3. You can’t afford pass up this savings opportunity! For a CRNA earning $160,000, that’s $14,400 per year. Assuming a 7% return rate, even if you started saving at age 35, you could potentially save about $1.4 million by age 65. If you contributed the maximum allowable amount — currently $18,000 per year (2016) — that savings could reach $1.7 million, and if you increased you contributions to include the catch-up contribution of $6,000 from age 50 on, you could save even more.
3. Strategies to Consider for Saving on Taxes
With the high salary of a CRNA comes high taxes. Luckily, there are potential ways to mitigate your taxable income and reduce the amount of taxes you owe. For one, contributing to a 401(k) can help. If you’re in the 33% tax bracket — which many CRNAs can be — contributing just $5,000 to your 401(k) could save you $1,650 on your tax bill. Just remember, income tax will be due on your contribution when you withdraw it at retirement.
During tax season, don’t forget to search for deductions, which can help you reduce your taxable income. Even though itemizing can reduce what you owe, two-thirds of all tax returns use the standard deduction because many taxpayers aren’t familiar with this strategy4.
A few common tax deductions CRNAs may be eligible for include:
- Interest paid on a first mortgage for your main home, as well as a second home for up to $1 million in loans.
- Interest paid on second mortgages or home equity loans for your main home, as well as a second home for up to $100,000 in loans.
- Interest paid on student loans (depending on whether or not your income is within allowable limits).
- Investment losses.
- Medical expenses (including health insurance premiums).
- Professional fees exceeding 2% of your adjusted gross income (e.g. investment, financial planning, accounting, and legal fees).
Make sure you work with an experienced team of tax professionals and work with your advisor to verify that your tax team is optimizing your situation. Not all tax professionals are familiar with a CRNA’s unique situation.*
4. Don’t Stop at Tax-Qualified Accounts
As taxes are expected to increase in the future, after-tax accounts can be advantageous. Check and see if your employer offers a Roth provision for your 401(k) or consider adding a Roth IRA. Since you’ve already paid taxes on Roth contributions, withdrawals also won’t increase your taxable income. Roth IRAs also offer greater flexibility than other retirement plans, as they don’t have required minimum distributions (RMDs) during the lifetime of the original owner. If you don’t need your distributions for essential expenses, which can be the case for higher income earners like CRNAs, Roth IRAs will allow you to pass on more of your retirement savings to your heirs.
With a Roth IRA, you can contribute up to $5,500 (or $6,500 for those over the age of 50) annually, under the 2016 exemptions, if you earn less than $184,000 and are filing a joint return5. You can contribute to a Roth IRA whether or not you participate in another retirement plan through your business or employer.
5. Watch Your Spending
When you’re earning a high income, it’s hard not to fall prey to a high-consumption lifestyle. Avoid keeping up with the Joneses and try to stick to a budget. As the timeless book “The Millionaire Next Door” has taught us, most of the truly wealthy don’t live lavish lifestyles in mansion; they live like your neighbors.
A budget is one of the most practical and basic money management tools to help you avoid spending too much. One of the easiest ways to start a budget is to use the envelopes system, where you allocate specific amounts of money to different categories, such as groceries, entertainment, utilities, and loan payments. Multiple online programs, such as Mint, follow the basic envelope system but have modernized to connect directly with your bank accounts, credit cards, and loans. This gives you a comprehensive overview of where your money is going and may help you find areas you can reduce spending. There are plenty of other great online applications at your disposal, so spend some time researching and choosing which is best for you.
Despite potentially getting a late start to their accumulation years and the retirement planning game, CRNAs have great potential for saving a more than a million dollars by the time they reach retirement age. In the end, one of the best things you can do is stay consistent and committed to your financial goals and plans.
If you haven’t yet started planning for retirement, have questions about tax strategies, or just want to review your current financial situation and where you can expect to be when you reach retirement age, it’s time to talk to a financial advisor who specializes in the unique circumstances and needs of CRNAs. At CRNA Financial Planning®, we work with CRNAs every day from across the country, whether they’re just graduating from grad school or getting ready to retire. Wherever you are in your career, we are always available to meet for a complimentary consultation to review your situation. To get your questions answered, give us a call at 855.304.3748.
*Neither CRNA Financial Planning® nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
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.
1 Hamilton Project, “Major Decisions: What Graduates Earn Over Their Lifetimes.” September 29, 2014. http://www.hamiltonproject.org/papers/major_decisions_what_graduates_earn_over_their_lifetimes/
2 Bureau of Labor, “Occupational Employment and Wages, May 2015 29-1151 Nurse Anesthetists.” http://www.bls.gov/oes/current/oes291151.htm
3 401k Help Center, “Benchmark Your 401(k) Plan - 2015.” http://www.401khelpcenter.com/benchmarking.html#.V3BwxJMrKRs
4 USA Today, “Should I Bother to Itemize My Taxes?” March 14, 2015. http://www.usatoday.com/story/money/personalfinance/2015/03/14/irs-taxes-itemize/22869373/
5 “Retirement Topics - IRA Contribution Limits.” IRS. December 23, 2015. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits