PSA: Don't forget to invest!
Americans are facing a crisis: They are not saving enough for retirement. Don't become a part of the crowd! Invest in your future.
I guess this is more of a public service announcement/reminder...
I was talking to a bunch of coworkers and became deeply disturbed by a certain trend: many Americans are completely ignorant in regards to retirement planning and investing and too many are not saving enough for their golden years. Some fear the stock market and refuse to participate in it, others feel that social security will take care of them (ha ha), while a decent amount stick their heads in the sand.
This post isn't directed to those who are living in destitute and can't afford to save anything. Obviously, not everyone will be able to put forth anything in an IRA or 403b. This is more towards those who are living above their means and/or aren't adequately saving for retirement: don't forget to invest for your future!
Unfortunately, many hospitals and other facilities are cutting back on retirement benefits. Defined benefit pensions are disappearing, and some employers do not contribute anything to their workers' retirement plans at all; my employer has reduced its 403b matching savings for new hires while keeping wages stagnant.
While I realize that some people are scared of the market (and that is completely justified) and find investing confusing, understand that historically, the stock market has always rebounded, with the S&P making average returns of 11%. And with feds keeping the interest rates low, it is even more crucial to involve oneself in the market, less one keeps real estate, wins the lottery or has a rich dead uncle somewhere.
What does this have to do with nursing, you may ask? Everything. Nurses have such a high rate of burnout and on-the-job, career-ending injuries that it is imperative that we save now so that we aren't suffering in our older age.
But how to get started in retirement planning? First, look to make sure that your employer has a retirement benefit. Most healthcare facilities should have a tax-deferred account, also known as a 401k or 403b (for the non-profit sector), available. In this year, anyone under the age of 50 can contribute 18k of pre-tax dollars, with people over the age of 50 being able to contribute an additional 6k per year. A 403b gives an advantage to workers by allowing them to save taxes upfront, letting their money grow, and then withdrawing the money presumably at a time when their tax liability is lower. Also, depending on certain circumstances, contributing to your 403b may not change you take-home pay. Awesome? I think so! When choosing investments, however, make sure you diversify (never put your eggs in one basket!) and check your 401k/403b expense ratios, as fees can erode your returns.
Don't have access to a 403b? NO EXCUSE. Low-fee brokerage companies offer individual retirement accounts, also known as IRAs. The max is lower (5500 for those under and 6500 for those over 50), but both the Roth and Traditional offer tax perks to those looking to invest in their future. Taxable accounts, though not as advantageous as Roth or Traditional accounts, also provide avenues for those looking to participate in the market.
And don't feel as though investing is an all-or-nothing. Most people who participate in their company program cannot afford to or don't max out their accounts and still manage to save enough to meet their post-work needs. The key is to start early, save often and be consistent. Start by getting enough to capture your employer's match (if they offer one)...NEVER leave "free" money on the table! Once you have an emergency of six or so months of living expenses and have all high-interest debt paid off, work up to at least saving 15% of your income, the percent that many financial experts agree will help you exit the workforce at the traditional retirement age...more if you started later and maybe less if you started saving early.
Above all else, just save. The sooner you start, the more your money can compound and work for you!Last edit by Joe V on Jun 14, '18
Poll: Are you saving for retirement?
I am using real estate/other income streams for retirement
I am saving for retirement, but not "enough"
I am right on track
I am ahead of the pack
I will die working
About ThePrincessBride, BSN, RN
Joined: Jun '10; Posts: 2,266; Likes: 6,558
Specialty: 3 year(s) of experience in Med-Surg, NICUOct 1, '16We also have to bear in mind that many saw that having stock or 401k/403b wasn't foolproof when the recession hit, making people more gun shy in investing.
Keeping things diversified-meaning not just stock, but also having government issue bonds are also a way to save.
I am not only relying on my 401k as a resource, but using real estate as a way to generate passive income and will help now and when I semi-retire; my goal by the end of this year, and the beginning of next year is to undergo obtaining more property.
Having a house is debt; having property is wealth.Oct 1, '16Don't forget about using your flexible spending account (FSA) or health savings account (HSA) to increase your savings.
You pay no income tax on money put into either an FSA or HSA.
That means if you put $1,000 in your FSA or HSA and you are in a 25% tax bracket, you reduce your income tax by $250. Another way to look at it is that it only costs you $750 to put $1,000 aside for your medical expenses!
Money put into an FSA has to be used to pay for qualified medical expenses in the year in which you put the money into the FSA. You can only roll over $500 to the next year.
Money put into an HSA does not have to be used within the year. It rolls over year to year.
HSA money can be invested in stocks, bonds, or mutual funds.
You can withdraw money from your HSA at any time tax free to pay for qualified medical expenses.
You do not pay taxes on the interest, dividends, or capital gain.
The HSA gives you the tax deduction benefit of a Traditional IRA with the tax-free growth benefit of a Roth IRA.
Starting at age 65, you can take withdrawals from your HSA without penalty. If the withdrawal is for qualified medical expenses, it is tax-free. If not for medical expenses, you pay income tax on the withdrawal. In other words it works like a Roth IRA if you use it for medical expenses and like a Traditional IRA if you use it for anything else.
There are limits on how much you can put into an IRA or 401K/403b.
HSAs give you another tax-advantaged way to save/invest for your future when you have maxed out your IRA, 401K, 403b.
For 2017 the max an individual can contribute to an HSA is $3,400. ($4,400 if over 50).
Everyone should put at least what they would normally spend for healthcare during the year into either an FSA or HSA to take advantage of the tax savings. You are going to be spending that money anyway. Don't pay income tax on it!Oct 1, '16I started by withholding just what my employer would match, and then increased each step raise I got, and any COLA awarded. I hardly even noticed the change in my paycheck. I have since left industry and now receive teaching wages, so my withholding isn't as much, but I am still planning to retire early at 62, when our house is paid off.Oct 1, '16Quote from nursej22I did the same as you, and was able to retire at age 56 - earlier than I had planned. I was aiming for 62 also.I started by withholding just what my employer would match, and then increased each step raise I got, and any COLA awarded. I hardly even noticed the change in my paycheck. I have since left industry and now receive teaching wages, so my withholding isn't as much, but I am still planning to retire early at 62, when our house is paid off.
I hope you have the same good fortune.Oct 2, '16i dearly wanted to shake a nurse at work the other day, she is in her fifties and paying her daughter's tuition and has NOTHING in retirement NOTHING. i told her the old saw, there are NOfor retirement!!!!Oct 2, '16Quote from morteI have no words...i dearly wanted to shake a nurse at work the other day, she is in her fifties and paying her daughter's tuition and has NOTHING in retirement NOTHING. i told her the old saw, there are NOfor retirement!!!!Oct 2, '16If your employer offers a retirement account, use it. Even with no match (my last 3 employers didn't offer matching funds), it's tax-free income, and it will usually continue to accumulate value over time. If your employer doesn't offer a retirement account, open an IRA with a low-cost brokerage.Oct 3, '16And invest EARLY! Compounding interest is magic. If you invest $1k at age 25, it will be worth $11k at age 65 (assuming 6% average annual returns--not very hard to do with a low-cost, no-load index fund over 40 years). If you wait until you're 30 to invest that $1k, it's only going to be worth $8100. If you wait until you're 40, you're down to $4500. Don't assume that your wages will go up enough later in your career so you will be able to make up the difference... they won't. No one gets 6% raises every year for 40 years.Oct 3, '16I think an easy way to do it is to start off small, say 5% (just for an example). Then six months later, bump it up to 7%. Six months after that, if you're finances aren't too tight, try bumping it up again. You don't even necessarily have to use 6 month increments; you could do it annually.
That's how I did it, and before I knew it, I was up to 13%...then I had a career ending illness. I still managed to save a nice chunk, even though I frittered away a lot of my money until I was in my mid-40s. (Don't do that.)
If you're a new grad, it's imperative that you start planning for your retirement as soon as you get that first job. Time flies by, and before you know it, you'll be just a few years away from retirement. Don't be approaching those years with nothing to show for all of your hard work.Oct 3, '16I am very well situated for when my retirement comes, but continue to be shocked and alarmed when I look at trends and it shows i am in the top 2% nationally. It should not be that way. I am not wealthy nor do I have someone in the family guiding me nor do I feel like I worked harder than average to be in the savings situation I am in. It is shocking that others aren't in similar circumstances, particularly when so many live so high on the hog with fancy houses and cars and things.
We always live one pay raise behind. Meaning, when one or the other of us gets a raise, we do not absorb that money into our lifestyle. It automatically goes into investments. We don't raise how much we actually use day to day the second we get it.Oct 3, '16I've been saving since I started working at age 22. That's just the way I was raised.
But it shocks me (and angers me a bit) to see some of my co-workers saving so little. They'll be talking at lunch about buying this, and going places, and eating at restaurants, etc. and then talking about not having enough money to pay their bills. Sometimes I want to slap them! I think they expect savers like me to bail them out when they don't have enough money to retire on. That's when I get angry.Oct 4, '16Thanks for the replies, everyone!
I wish I had more space in the article to explain more ways to save. Yes, absolutely save in your HSA and FSA folks! HSAs (Health savings accounts) are great as the money is never taxed IF it is used for healthcare-related expenses and they roll over from year to year. FSAs (flexible spending accounts) are similar in that they are free of taxes but they have lower contribution maximums and don't roll over...you use it or lose it.
Also, I agree that even if your employer doesn't offer a match, it is still important to contribute as much as possible to a pre-tax retirement account as it lowers one's tax liability and allows the money to continue to grow in a tax-sheltered "bucket." The ONLY time I would be hesitant to contribute to a 401k/403b is if the funds offered have outrageous loading fees and expense ratios that will end up costing you more money than a taxable account.
OCNRN63, some employers have an automated annual increase program in which you can have your paychecks automatically increase the percent that goes to a retirement fund (ex. 1% per year starting on January 1st). A nice set-in-and-forget-it way to continue to ramp up retirement savings without any effort.
LadyFree28: Absolutely! One should invest in (government) bonds for some stability, but in order for a portfolio to grow and prevent its owner from outliving his/her funds, investing in stocks is imperative. Bond interest rates are extremely low and may not keep up with the rate of inflation, whereas certain stock index funds have on average, after adjusting for inflation, returned about 7-8%. I understand a lot of people are afraid of stocks, and I was too, but investing in the market should be seen as a long term gain. People close to retirement who lost so much were invested too heavily in the market when they should have been much more conservative with their funds (including a couple of years' worth of expenses in savings).
Some conservative financially gurus say have your age in bonds. A 25-year old should have 25% in bonds, 75% in stocks. Others are more aggressive and say have your age-10 years in bonds. So a more aggressive portfolio for a 25-year old will have 15% in bonds. I, on the other hand, am well over 90% in stocks, but I will gradually become more conservative.
For those of you who may think this is overwhelming, there are some great funds called "Target funds" where you can pick the fund closest to your desired retirement year and the fund will automatically start more aggressive and then become more conservative as you get closer to exiting the workforce.
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