When we’re young and carefree we often don’t think about retirement and how to save for it. However, as we age, we begin to question if we can retire early. The grind of the daily workplace has gotten old. And although we may long to retire early, the question remains if we’re able to even retire at all.
I recently read an article about a 57-year-old nurse who was wanting to retire in 7 years. The problem was, she had absolutely no retirement savings. And although she had a lofty goal of accruing $400,000 by the time she retired, it seems to me that reaching this goal may be harder than it first appears.
One of the things I did appreciate was that she was working a hard job. She was a nurse manager making $80,000 per year and was mentally exhausted. And it’s definitely true: nursing is a tough job, one not fit for the weak of heart. It is both mentally and physically taxing.
I’ve been working in nursing now for over 25 years. That’s a long time for nursing. We all hear about those nurses who have worked 35 or 40 years and I applaud them. But the longer you work this job, pretty soon you see less and less those long-term nurses and only see co-workers who are younger and more agile than you are. And nursing years is a little like dog years. A year in nursing is not like a year in any other job. It is definitely taxing.
The other thing I appreciated about the article was that she was willing to commit half her salary to save for her future retirement (which was just around the corner). So my heart goes out to this nurse who is mentally burnt out and preparing for retirement. The problem is, she is 57-years-old with nothing prepared. And that’s a tough situation to be in.
The Shortfall of Retirement Accounts
In today’s age, the nursing profession is lacking in proper retirement teaching and retirement preparedness. Over the years I have encountered numerous (and I mean numerous) nurses who haven’t even considered their future retirement years. Many are often younger, recently employed and are enjoying the pay raise compared to a previous job. Others have been doing this a while but are enjoying some of life’s enjoyments (buying homes, travelling, buying a few nice toys). So they aren’t actively investing, or if they are they aren’t taking it seriously enough.
We are also inundated with meetings to attend, classes to get caught up on, CEs to complete. However, there is almost nothing required when it comes to our finances and how to handle them.
When I was first employed (long ago!) we had an annual “conference” that you could attend that was hosted by whoever controlled our 403(b) account. I think it started out with Vanguard and eventually moved on to Fidelity. It was like a luncheon where you could talk to an individual and ask questions and get answers. Nowadays, however, you “might” find a class mentioned online that you “could” attend if you wanted to. There is absolutely no push to further our financial education.
At one time, you also used to be able to go to work and appreciate being in a pension plan associated with your employer. It was a “defined benefit plan” where you could count on a lump-sum or monthly allotment based on a formula which depended on the employee’s history with the company. And the payouts were generally for life. The employer bore the burden of the funds’ performance and for taking care of your retirement.
No longer.
There are more and more places of employment that only offer an employee contribution plan (defined contribution plan) such as the 401(k) and the 403(b) for the non-profits like hospitals. You put money into these plans (and sometimes the employer kicks in a little bit as well), but you are responsible for picking the funds to invest in and you get all the responsibility of how well your money grows (or not grow). When the money runs out, well… your monthly income dries up.
We Misjudge How Much We’ll Need in Retirement
In the case with this nurse in the article, she was making $80,000 per year and was hopeful to save half her income.
Let me ask you a simple question: how many of you today are prepared to dedicate 50% of your income to savings/investing right now? Suddenly? I’m going to guess that not many of you can do this. Heck, if I asked you to dedicate another 10% you would still have a problem, correct?
So it’s the same with this nurse. Unless you are dedicated (and I mean willing to cut back and make this work) it’s hard to suddenly dedicate 50% of your income towards investing. Hopefully, she can.
But she wants to have $400,000 by the time she retires. The problem is, most Americans are living longer and longer and unless you have a large investment account or a great plan, money can run out long before you actually expire. This may not be enough!
One of the more popular financial advice is taking out no more than 4% of your investment (and adjust it for inflation) in any given year. This means she can take out no more than $16,000 per year. And unless she was aggressive enough in her financial education to pursue a Roth variety (no tax benefits when you contribute but tax-free when you withdraw) she will have to pay taxes on this withdrawal which might only leave her with a little over $1,000 to use. Sure, she can start collecting Social Security and possibly cover her living expenses but hopefully, you see that this isn’t a glamorous lifestyle. $400,000 may sound like a lot but unless you want to burn through your money quickly, it will only help you to survive.
We Misjudge How Much We Actually Have
We all do it. We misjudge our financial situations. We all dream (and believe) life will be golden in our Golden Years.
Let me ask you another simple question: how much money do you have as net worth and how much are you really going to have when you retire? Do you even have a plan or an idea? Some will, some won’t. I’m not here to be a critic, just to explain that we all misjudge this.
In this nurse’s case, she is hopeful to have $400,000 by retirement by 64 years old. Now, I’m not sure if she makes $80,000 pre-tax or after-tax. I’m assuming it’s pre-tax. Which means she lives on less when you subtract taxes. She could be bringing home around $5,800 per month. She has expenses of around $3,500 per month. So if she cut her expenses even more by getting rid of a $400 car payment and $5,000 in credit card debt she “could” be saving half her income towards investing.
Good job and that’s a great accomplishment!
The problem is we all misjudge (yet again) what the Stock Market may give us. The article points out that she would have to get nearly 10% return to achieve that $400,000. They don’t believe that’s reasonable. I tend to agree. My estimates are that she “could” grow her money to about $300,000 with everything being equal with a more reasonable 5% – 7% growth.
But the “markets” do what they want to do. They always do. Some years you may make 30% returns. The next four years could all be negative. We never know. So we can’t assume (or rely) on “10% average annual returns”. And as you get nearer to retirement, the traditional advice is to be more conservative which means protecting your money. Which means safer investments. This ultimately translates to lower returns.
What Hope is There?
One thing I liked about the article was that it pointed out that “all hope is not lost”. And this is true. It points out little secrets that can help us all: cut down on your expenses and start with reasonable savings goals. Get rid of debt. It also points out that she can continue to work longer which is definitely a reasonable option. And of course, as a nurse, there are many alternative pathways you can work to bring income in if you’re truly burnt out in your current position.
And in the case with this nurse manager, kudos to her for getting serious about investing. She has a goal of hundreds of thousands build up before she actually retires. And believe me, there are plenty of nurses out there who retire with not much.
So What Can We Do Better?
The simple answer is to start thinking of this sooner and to learn a little about financial education. With investing, time is on your side: the longer you have, the smaller, more consistent gains will really add up over the decades.
Plus, we have the options to start a side-hustle as an extra source of income.
We have to realize that no one will take care of us – we have to take care of ourselves and the first step to do that is recognizing this fact and planning accordingly. It’s never too late to start, even if you’re 57. Obviously, if this nurse was 27 there would be more options and an easier path.
So, if you want to retire early (or retire at all) you have to take this seriously.
Regardless, plan for your future retirement now. The sooner you start, the more financially secure you’ll be. The more you learn, the richer (hopefully) the rewards…
Latest posts by David the Wealthy RN (see all)
- Five Negative Aspects of the 401(k) - July 19, 2023
- How To Think About Bear Markets - April 8, 2023
- Live Paycheck to Paycheck the Right Way! - December 26, 2022