How to Protect Your Retirement Plans
As a dedicated and motivated CRNA, you have spent your entire career being an advocate for your patients in the operating room. You’ve put in countless hours, either as a W-2 employee or as a locum contractor, in a fast-paced career that can eventually afford you the freedom to retire comfortably.
Whether retirement means a period when you can drift off into travel, pursue philanthropy, work on the occasional home renovation project, or begin a new chapter by turning your side interests into a small business venture, retirement to you has always meant a period of joy and exciting adventures.
Because of that, you’ve most likely never had to consider your retirement assets working AGAINST you, or not having the financial independence you’ve always expected given your hard work and savvy saving skills.
Even in normal times before the 2020 Pandemic, anyone who was planning for retirement or was already retired knew the heavy reliance on the longevity of their assets for the financial independence they envisioned.
But we’re not living in normal times. Turn on the news and you will see headline after headline discussing the concern that the tremendous amount of money in our economy will potentially result in significant inflation, eating away at the value of assets on which you are counting for retirement.
So how should you plan for the unexpected impact of possible inflation? It’s important to factor inflation into your retirement savings plan to ensure you have enough assets to last through your retirement years.
In this article, we will give a bit of a background on inflation, and explain our views at CRNA Advisors on how you can hedge your portfolio against it.
What is Inflation?
Inflation is the loss of buying power a currency (in our case the U.S dollar) has over time due to the rising cost of goods and services. In other words, “it is the decline of purchasing power of a given currency over time.” The U.S rate of inflation is calculated by the U. S. Bureau of Labor Statistics and tracks the price increase of a collection of goods and services.
There are a number of prominent economic theories that offer insight into how inflation occurs. The Demand - Pull Theory believes that higher consumer demand for products leads to a rise in prices to maintain inventory. It starts with an increase in consumer demand. But when additional supply is unavailable, sellers raise their prices.
Cost - Push Theory states that inflation occurs when overall prices rise due to increases in the cost of wages and raw materials. Higher costs of production can decrease the aggregate supply (the amount of total production) in the economy. Since the demand for goods hasn't changed, the increased production costs are passed onto consumers creating cost-push inflation.
No matter what causes inflation, the corrosive effect it has on personal wealth is multifaceted and challenging to navigate. This can be problematic for CRNAs planning on a fulfilling retirement, if the assets at hand may have less value in the foreseeable future.
Why Should You Pay Attention Now?
Since the global financial crisis of 2008, now more than a decade ago, the U.S. economy hasn’t seen much in the way of surging prices or inflation. If anything, investors and economists alike have wondered why prices for many goods weren’t climbing even faster!
Now, with the U.S. government adding trillions of dollars to the deficit in the wake of the COVID 19 pandemic, everyone is heavily concerned about inflation.
Just take a look at what is happening around you. You may have started to look for a new home to buy, only to find the home you liked sold for 10-15% higher than the listing price. According to government data, we’re also seeing significant price increases affecting used cars, medical care, appliances, energy, food and cigarettes in recent months.
How Can Inflation Impact You?
Inflation affects each CRNA’s wealth differently depending on several factors:
Wages - Average wages have increased in times of expected inflation, but if there is a spike in inflation rates, salaries will cover less and less of the cost of living. Contract CRNAs and freelancers who earn at a fixed rate will feel the price crunch even more.
Savings - How effectively a savings account protects you financially depends on how much it earns year over year. If your account doesn’t grow faster than the rate of inflation, your savings could actually lose you money in the future.
Investments and assets - The type of assets you own will either appreciate or stagnate in times of inflation.
For example, typically, investors buy fixed income securities such as bonds and treasuries because they want a stable flow of income. However, since the rate of interest remains the same on most fixed income securities until maturity, the purchasing power of the interest payments declines as inflation rises. As a result, historically bond prices tend to fall when inflation is increasing.
On the other hand, if there is inflation, theoretically a company’s revenues and earnings should increase at a similar pace as inflation. This means the price of your stocks should rise along with the general prices of consumer and producer goods.
What Can You Do to Protect Your Retirement Assets?
While you may be tempted to stop saving, it’s important to have (and follow) a long term financial plan. One of the best strategies to hedge against inflation is to make sure your portfolio is diversified with a good mix of stocks, bonds, real estate, commodities and other investments that combat inflation yet work toward your goals and time horizon.
All CRNAs should have a healthy emergency savings plan (enough to cover six months of living expenses), but during times of growing inflation, don’t let your excess cash sit on the sidelines. In today’s economic climate, low interest savings accounts and CDs can’t keep pace with inflation. Rather than erode your purchasing power, think about other investment opportunities for the cash above and beyond your safety net.
This can also be the perfect time to review your debt! Take advantage of the low interest rates by looking into refinance options for your mortgage. Have credit card or other debt? There may be other less expensive options for these as well. With today’s low rates, you may save more by locking in a fixed interest rate rather than a rate that is adjustable.
At CRNA Advisors®, we can help you evaluate your investments, financial plan and determine appropriate tax minimization strategies to help you save more of your hard earned money. To learn more, contact our office at 855.304.3748, firstname.lastname@example.org, or schedule a free introductory phone call to discuss your current situation and needs.
About Jeremy Stanley
Jeremy Stanley, EA, CFP®, AIF®, is the founder of CRNA Advisors®, CRNA Financial Planning® and CRNA Tax Associates®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists 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.
Investment advice offered through Private Advisor Group, a registered investment advisor.
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.