We get it. As a healthcare professional you are busy. Whether you are on call or working a double, very few of you have the time or desire to manage your retirement and investments.
Sometimes you need to check your own vital signs.
You spend your entire life serving others. What about serving your personal finances? When was the last time you had a retirement “check-up”? Many nurses I help rely on us as their “Primary Caregiver” for their family’s financial planning.
My goal of this article is to share with you the three common mistakes I see nurses make regarding their retirement and investment planning. If you do not have your retirement plan in order or are unsure if you are doing the right things, this article is for you.
Throughout this article you can learn about these mistakes and most importantly avoid them. As an independent CERTIFIED FINANCIAL PLANNER™ I serve nurses across the country to secure their financial goals.
We are familiar with the various employer benefits including but not limited to:
- VA Hospitals (Hines, Jesse Brown, Lovell) – TSP, FERS Pension
- Fresenius Medical Care – Wells Fargo 401k
- Advocate Health Care – ADP 401k & Pension
- AMITA Health – Charles Schwab 401k
- Cook County – Nationwide 457(b) plan
- UIC Chicago - SURS
- Edwards Hospital – Fidelity 401k
Summary of Mistakes:
- Being a “Copycat” For Your 403(b)/401(k)
- Leaving “Free Money” on the Table
- Praying for the Best
1. Being a “Copycat” For Your 403(b)/401(k)
I see this too often. When I ask a nurse how they chose the funds
inside their employer 403(b), the usual answer – “I picked what my friend at work did.”
It may seem like the easy choice at the time but this decision can cost you in the long run.
Think about it. There is a very low chance your co-worker has the same tolerance for risk as you, the same age, number of kids, retirement goals, you name it.
Most nurses are unsure what to pick and they figure investing the same as others at work makes it okay. This “copycat” philosophy for your 403(b) usually happens in the nurse lounge over lunch or during occasional down time when the census is low.
More often than not, this same logic is what nurses resort to when it comes to making key decisions on other benefits such as health insurance, amount of disability coverage and even pension options.
All benefit decisions should be reviewed carefully and personalized to you and your situation, not picked randomly based on what others are doing.
I have seen a 30-year-old nurse put 100% of their 403(b) in cash because their 60-year-old co-worker chose the same in anticipation of retiring the following year.
This mistake may cost the younger nurse tens of thousands of dollars in potential gains inside their retirement plan.
Historically, the U.S. stock market (S&P 500 Index) has returned 9.8% over the last 90 years says CNBC, past performance of course does not predict future returns. And since the market bottom in March of 2009, according to Investopedia.com the market has more than tripled to 326% as of January 2018.
Know your specific situation, there is no one size fits all approach to investing and choosing benefits.
There are typically over 20-30 investment funds to carefully review inside your 403(b) or 401(k).
However, be cautious of selecting the “target-date” funds or “year-based” funds, these are the funds with a year next to them. For example, Fidelity Freedom 2040 fund. This fund assumes you plan to retire in the year 2040 and automatically shifts more money to bonds each year.
The danger in using this “auto-pilot” type fund is that it only takes into account the year you plan to retire based on your current age. These “target-date” funds fail to factor in your tolerance for risk, investment preferences and the current stock market or economic trends.
In addition, some of these “target-date” funds may carry higher fees with an added wrapper fee to the mutual funds they invest in.
If you do not have the time or expertise to research each fund and build your own portfolio, defer to a financial professional who is knowledgeable on your plan to save you time.
Chances are if you are a healthcare professional in Chicagoland, we are already familiar with your retirement benefits from start to finish.
If not, our team will carefully analyze each fund available to you within your 403(b) and rank funds based on the fund manager track record, past performance and current fees. Funds change frequently within your plan and it is our job to stay up to date on all changes to make sure you are properly diversified.
2. Leaving “Free Money” on the Table
Money that your employer adds into your retirement account is “free money.”
This is technically called an employer match. A huge benefit, yet a huge mistake if you fail to take advantage of.
If a match is offered at your work, as long as the nurse contributes a certain percentage of their paycheck, your employer will match your contribution and add money into your retirement account.
The only “catch” is some employers enforce a vesting schedule to the matched money. This means a nurse must meet employer service requirements and work a certain number of years before owning the matched funds outright.
All too often, nurses are unaware of what their employer match is. Your Human Resources (HR) department can tell you or if you are a nurse in Chicagoland we likely have the answer as well.
Consulting with your HR department on benefit questions is usually a good idea, however, keep in mind HR staff are not qualified Certified Financial Planners and are legally not able to advise you on benefit selection.
The common mistake of contributing below your employer match can cost a nurse tens of thousands of dollars over the course of their career.
For example, take a CRNA working at an Advocate Medical Group hospital, the 401(k) match is up to 6%. Advocate will contribute 50 cents on the dollar, essentially a 3% match which is close to average.
If this CRNA earns a base $150,000 salary and declines all contributions into their 401(k) for just ten years. He/she would miss up to $4,500 per YEAR in free employer matched funds. That is $45,000 over the course of a decade. Add the lost potential growth of this money invested and you can be missing out on huge sums at retirement.
Bottom-line, save at least up to your employer match.
Try not to rationalize with yourself that you cannot afford to save the extra few dollars from your paycheck. Remember this retirement bucket of money will be something you need. There are no loans in retirement that you can take, the alternative is working longer than you desire.
3. Praying for the Best
The reality is: having no plan is planning to fail.
Retirement is something many people look forward to, so you would think planning for it would be a top priority. From our firm’s experience, this is not the case.
Many will leave their retirement dreams to chance and pray for the best.
In a high stress profession, nurses cannot afford to wait and plan their retirement last minute.
By waiting this long, the damage will already have been done. There is no “CPR” to revive a retirement plan.
Some common problems we see when nurses address retirement late:
When leaving your old 403(b) or 401(k) plan at your former employer, this often leads to a string of different problems. If it has been over 2-3 years since you have “re-balanced” your portfolio of funds, chances are you overweight certain stock funds which may pose a risk if you are nearing retirement.
Another example is if your account is under $5,000 your old employer has the right to transfer these funds to an outside provider without your consent. Often times this leads to the former nurse scrambling to track down where their money was sent to.
You may have moved your 401(k) into all cash after the 2008 financial crisis, missing out on the stock market tripling since the market bottom of 2009. Making emotional decisions based on what the media or others say usually leads to ill-advised investment decisions.
Similar to your Social Security benefits, you only get once chance to make your election decision for your employer pension plan. Carefully weigh the pros and cons of each pension option for your family and choose wisely.
The list goes on of things to do and not do with key retirement decisions.
If you are in your 50’s or 60’s and planning to retire soon, it can be a scary thought not knowing what steps to take to protect your retirement goals.
If you believe that you’ll be okay in retirement with what you have saved in your 401(k) plus Social Security, I urge you to really dive deeper into your plan.
Let’s say you retire with an average balance of $200,000 inside your 401(k), financial planning statistics state that a “safe” withdrawal rate from your retirement account per year is 4%. This means you should not take more than 4% from your retirement portfolio each year in retirement otherwise you risk running out of money.
In this example 4% x $200,000 401(k) balance = $8,000 per year for living expenses not including the taxes due on this money.
Add your Social Security benefits of say $2,000 per month or $24,000 per year and you’re looking at retirement of barely $32,000 ($24,000 + $8,000) to live on each year of retirement, not including taxes taken out. This may come out to less than $2,000 a month after taxes.
Will that be enough?
Let’s add a pension to your situation, a great vehicle to have, your numbers will look better than those with just a 401(k), however keep in mind pension plans are rapidly disappearing. In fact, according to a New York Times article only 18% of private employees today have a pension compared to 48% of employees in 1978.
Many pension plans are becoming frozen with employers realizing the cost is too high to pay a monthly paycheck to former employees. Their thinking is why not put the investment risk on the employee in the form of a 401(k) or 403(b) plan where it is on the employee to select the mutual funds and bear the investment risk.
The onus is on the nurse to carefully use their employer retirement plan and additional savings to get them across the retirement finish line. We are coming to the point where gone are the days your employer will pay you a monthly pension check.
By speaking with a qualified CFP long before you retire, you will learn how to best use your retirement benefits and put yourself in a position to realistically retire when you want to.
What is the alternative?
Think about your co-workers and chances are you have a colleague that is forced to keep working. Not because they want to but because they are FORCED to. They need their paycheck to live on. Their monthly Social Security check is not enough to live off and pay the bills.
A Vanguard study conducted in 2014 stated that “advisors can potentially add about 3% of net returns” to a family’s investment portfolio. Key factors to this added return included behavior coaching, re-balancing portfolios, asset location, etc.
In our experience with financial planning we see many cookie-cutter type investment companies that will serve just about anyone with money to invest.
At Dean Johnson Advisory, we have a different philosophy.
We believe specializing in the healthcare profession brings more value to the professionals we help. What started as helping our own family and friends in healthcare has become our company purpose to serve other hard-working nurses across the nation.
For this reason, we do not have minimum investment requirements that may intimidate a nurse trying to better his/her finances, nor do we charge a fee for an initial meeting.
Familiarity with your job and the sacrifices you’ve made as a healthcare professional allows us to cater to your unique needs with customized solutions. We are proud to assist many healthcare professionals throughout the country.
As an independent CERTIFIED FINANCIAL PLANNER™ legally obligated to act for your best interest, we are happy to provide you that much needed second opinion. Contact us or read more about our firm at our website www.djavier.com.
More about the Author
As an independent CERTIFIED FINANCIAL PLANNER™ in Bartlett, IL (a western suburb of Chicago) my practice serves three specific professions:
Healthcare professionals, Business owners and Federal employees.
My team helps navigate both the wealth accumulation and retirement de-cumulation phases for these professionals. We do this through comprehensive financial planning which includes detailed analysis of your specific employer retirement benefits (403b, TSP, SEP IRA, etc), tax implications, RMDs and proper diversification among all investment accounts.
Our goal is to save you time, stress and your hard-earned money when it comes to your family’s retirement and/or college planning. Let our skilled team of experts, already familiar with your employer, optimize your job benefits toward your unique needs and goals and guide you toward better financial decisions.
Dustin Javier, CFP® AWMA®
CERTIFIED FINANCIAL PLANNER™
President | Dean Johnson Advisory, LLC
Securities and investment advisory services offered through Ausdal Financial Partners, Inc. Member FINRA/SIPC. 5187 Utica Ridge Rd., Davenport, IA 52807. (563) 326 2064. www.ausdal.com Dean Johnson Advisory and Ausdal Financial Partners are independently owned and operated.