Doctor and RN Retirement: Top 3 Financial Pitfalls
Merriam Webster defines a pitfall as, “a hidden or not easily recognized danger or difficulty.” Physical pitfalls can make a hiker twist an ankle. Similarly, retirement pitfalls can twist retirement plans! There are three main financial dangers that all healthcare professionals face in retirement. Although everyone’s situation is different, handling these concerns is crucial. 124 nurses (age 45 and older) replied to a retirement questionnaire. Of those 124 nurses, 71% planned on retiring before they were 60. However, only 24% of those nurses had done a significant amount of planning. Rn retirement isn’t one-size-fits-all.. Now is the time to take initiative and join that 24% of nurses who are insulating themselves against the three most common financial pitfalls: properly handling your social security benefits, working wisely while you’re over 65, and accessing your retirement accounts efficiently and effectively.
Social Security for Healthcare Professionals
Most people do not realize the myriad of ways in which they can take their Social Security benefits. They assume that they will either take it at age 62 or wait until full retirement age. Door number one or door number two, right? This could not be further from the truth. If you are married, there are over 80 combinations of ways for you and your spouse to take your Social Security benefits. How you make that decision depends on a multitude of variables, and if you don’t take all of them into consideration, you may leave money on the table.
One such variable is additional income, whether received through a pension, investments, or work. How much of your retirement income will your Social Security provide? Will you need more? How much? Family history is an important matter to acknowledge and plan for as well. Do you have family members that have lived into their 90’s? Have all of the males in your family passed away before their 70th birthday? We can’t predict the future, but we can and should make an educated decision as when the “smartest” time to take Social Security should be.
Semi Retired: Working Wisely While Over Age 65
There are some really common questions when it comes to his topic: Can I work and collect Social Security? How much can I make on Social Security? There are a few reasons why so many healthcare professionals still work while they are of retirement age, which makes these questions incredibly important for a retired RN or a retired Physician. We all know of colleagues who “should have” retired, but for some reason, they just can’t leave! The work is gratifying, they have worked hard to get the education necessary to practice, and the compensation level is generally good.
That being said, it’s no surprise that 28% of physicians in Michigan are 60+, and 38% of RNs in Michigan are 55+. My father told me that if you love what you do, you never work a day in your life. Now that doesn’t mean every day is a walk in the park, after all, it takes all kinds! In that sense, it is wonderful to see such a large percentage of healthcare professionals enjoy what they’re doing enough to continue to do it when it is no longer a necessity. Surely there couldn’t be any financial downside to working, right?
Unfortunately this is not always the case.
First of all, between the ages of 62 and full retirement age, if one decides to take social security, there are earnings limitations. What does this mean? For the year 2021, the limit on earned income is $18,960 ($1,580 per month). Your Social Security benefits will be reduced by $1 for every $2 you earn over the limit. Even if you are of full retirement age, depending on your income level, up to 85% of your Social Security wages may be taxable. Because of the compensation of most healthcare workers, this is something that should be considered.
Retired Healthcare Workers: Accessing Your Retirement Accounts
When most healthcare professionals retire, there is a large shift in their financial strategy. This means that you will no longer be contributing to your employer-sponsored retirement account(s), as well as any retirement accounts that you have established. Eventually, you will take withdrawals to supplement your retirement.
Even for retired healthcare workers who do not want to take any distributions, there is a required minimum distribution amount that they must begin to take once they are 70 ½(If you’ve reached age 70 ½ by 2019), or 72(If you’ve reached age 70 ½ after 2019). It is extremely important to have processes in place for how you will draw from your portfolio. You leave yourself open to large tax consequences if you draw too much, too little, or if you do not draw in the correct way. Depending on the performance of the market, and what kind of account you are drawing from, there is also the potential for sequence-of-return risk. This risk is something that can erode even the most established retirement accounts with just a bit of bad timing.
Accessing retirement accounts incorrectly can be the largest pitfall facing healthcare professionals in retirement, but there are ways to guard against it.
No two people’s situations are the same, but the obstacles faced in retirement are challenges that can be planned for. It is important to choose a professional who is best suited to help you in this endeavor. For example, if you had complicated heart problems, you would meet with your cardiologist, not a general practitioner. In the same way, meeting with a financial advisor well versed in dealing with healthcare professionals in retirement could be more beneficial for you and your family. I am a “nurse husband” and I have chosen to devote my career to educating healthcare professionals as they approach retirement. Your situation is unique, but you can take comfort in knowing that you are not alone in the process.
If you would like further information on planning for or re-evaluating your retirement, or simply want to chat, give us a call at our Traverse City office at 231-421-7391. If you’d rather look into it on your own for now, feel free to check out our Ultimate Retirement Guide.
Marc Hudson, Tim Alfieri, John Kohout, and Sara Hornick, investment advisor representatives of, and securities and advisory services are offered through, USA Financial Securities Corp., Member FINRA/SIPC. A Registered Investment Advisor located at 6020 E. Fulton St., Ada, MI 49301. Hudson Wealth Management is not affiliated with USA Financial Securities.