Retirement is a scary yet exciting leap for CRNAs. While there are countless pieces to the retirement planning puzzle, right now I want to focus on three of the biggest questions you’ll need to answer before retiring. All three of these are interconnected and will significantly impact your budget and lifestyle in retirement, and may even affect when you choose to retire.
How Will I Pay for Healthcare?
CRNAs know more than most how much the healthcare industry has changed over the past decade. According to Fidelity, a couple, both aged 65, can expect to spend $245,000 on healthcare costs alone throughout their retirement years. And this number is projected to rise due to inflation.1 On average, the annual Social Security cost-of-living adjustment is around 2% or 3%, yet medical and prescription costs are rising 5% to 7% each year.2
When you hit age 65, you can apply for Medicare. But as you review Plans A, B, C, and D, evaluate whether or not Medicare will be enough. Medicare does not include long-term care, dental and vision coverage, and several other services, so you may need to consider long-term care insurance and/or Medicare Supplement Insurance (also known as Medigap).
If you plan on retiring early, you’ll need to determine a private insurance option. As very few companies offer retiree health benefits to their employees and former employees, compare COBRA with private insurance policies.
Consider allocating your guaranteed income sources, such as your Social Security, to your healthcare costs, and using your savings and other sources of income for other expenses. As you continue working, consider opening a Health Savings Account (HSA). An HSA is a tax-exempt trust or custodial account that can be set up to pay for future medical expenses, serving as a potentially powerful tool for saving for future healthcare costs. HSAs offer several advantages, including tax-deductible contributions, tax-free interest and earnings growth, and tax-free distributions for qualifying medical expenses. To be eligible for an HSA, you must be covered by a high-deductible health plan.
When and How Will I Claim Social Security?
Today, Social Security benefits make up an average of 40% of a typical retiree’s income, so deciding when to claim is an important decision.3Social Security benefits can be claimed anytime between ages 62 and 70. However, when you choose to collect Social Security will impact the benefit payment you will receive. For example, while you can begin receiving benefits as early as age 62, if you elect to receive benefits any time before reaching your full retirement age (FRA), you will receive a reduced benefit. For those born in 1960 or later, FRA is age 67.
If you wait until you reach full retirement age to begin collecting your Social Security benefits, you will receive your full Primary Insurance Amount, which is the full benefit that you have earned. Here’s an example of what delaying your benefits by three years would look like:
If you continue working past your FRA or you don’t need your Social Security benefit to live on, you can delay receiving your benefits. For each year that you delay, your benefit will increase 8%, for a maximum possible increase of 32%. Your benefit only increases until you begin receiving it, or you turn 70, whichever happens first.
Beyond deciding when, you also need to decide how to claim your benefits. For couples claiming spousal benefits, the lower earning spouse may choose to begin collecting benefits early while the higher earning spouse aims to wait as long as possible. That way, a couple can make use of the lower benefit while maximizing the greater benefit. If the husband has the greater benefit, the woman may claim first. Because women tend to live longer than men, this strategy can not only maximize the husband’s retirement benefit for use while he is alive but can also maximize the wife’s survivor benefit when he passes away.
Deciding the best time for you to claim your Social Security depends on how you compare to the averages. As of today, a man and woman turning 65 are expected to live until ages 84.3 and 86.6 respectively. If based on your health and your family history of longevity, you believe you will live much longer than that, your overall lifetime benefit would be greater if you delay claiming your benefits to increase your benefit amount. If the opposite is true, and you see little chance of making it into your mid 80’s, you would receive a greater lifetime benefit by taking your Social Security sooner, even though it is a smaller monthly payment.
How Will I Maintain a Consistent Cash Flow in Retirement?
As stated earlier, Social Security covers, on average, 40% of one’s income in retirement. Where will the other 60% come from? There are a few potential sources of retirement income:
- Working part-time as a freelance CRNA
- Retirement accounts (401k, 403b, and IRAs)
- Fixed Annuities
- Other investments and accounts
- Miscellaneous savings
But will your income sources cover your needs? Start by creating a budget that includes your essential expenses (housing, healthcare, and food) and your discretionary expenses (such as traveling, entertainment, and dining out). With this list, match essential expenses with guaranteed income, such as setting aside your Social Security benefits to pay for your healthcare. Then, look at your other savings and income to cover your discretionary expenses.
If your projected expenses don’t match your income and savings, you’ll either need to reconsider your expenses or increase your retirement income. Consider working part-time, contributing more to your retirement accounts, and developing a strategy to generate more income from your retirement portfolio, such as ensuring your asset allocation still meets your risk tolerance and time horizon.
At CRNA Financial Planning®, we specialize in helping pre-retiree CRNAs plan for their ideal retirement. Whether you’re two or ten years away, we can help evaluate where you are in your current planning and if any adjustments need to be made prior to retiring. To get your questions answered, give us a call at 855.304.3748.
- Fidelity. (2015, October 7). Health Care Costs for Couples in Retirement Rise to an Estimated $245,000. Retrieved from https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise
- Christopher S. Girod, S. A. (2016, May 24). Milliman. Retrieved from http://www.milliman.com/mmi/
- Social Security Administration. (2016). Retrieved from https://www.ssa.gov/pubs/EN-05-10024.pdf
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance to 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.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.
Investing involves risk including loss of principal. No strategy assures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. The examples provided are hypothetical examples and is not representative of any specific situation. Your results may vary.