Written By Jolene Latimer
If you’re a nurse, you’ve dedicated your working years to helping others live fulfilling and healthy lives. When it comes to a nurse’s retirement, however, you don’t want to shortchange yourself by not planning ahead.
Although outstanding student loan debt is the reality for many nurses, you don’t have to sacrifice retirement planning while you’re paying student loans. In fact, you can do both at the same time.
Paying nursing student loans while saving for retirement
Between living expenses, paying off student debts and putting money aside for retirement, you have to stretch your paycheck a long way. It is possible, however, to repay your nursing school loans and save for retirement at the same time.
You can prioritize which loans to put more money toward after making payments on your existing monthly expenses, including your retirement savings. Contributing any amount to your retirement plan, even $20 or less a month, will eventually add up into a nest egg that can ease your financial burdens during retirement.
Not sure how to start creating your nurse retirement plan? Here are six options nurses have when it comes to saving for retirement.
6 ways nurses with student loans can save for retirement
Nurse retirement plan options include unique programs that are specific to your field. Here’s a breakdown of different ways to pay off your student debt and start saving for retirement.
1. 401(k) or 401(a) plan
A 401(k) and 401(a) are two similar nurse retirement plans determined by your employer and the healthcare system at your work. The main difference between them is 401(k) plans are offered by for-profit institutions, whereas 401(a) plans can only be offered by nonprofit organizations.
Pros:
- Both 401(k) and 401(a) plans are pre-tax investments, meaning your taxable income for the year will be less.
- Employers often offer to match your annual contributions as part of an employee benefits package.
- You could be eligible to make a hardship withdrawal if you find yourself in significant financial need.
Cons:
- If you try to take out money before the required age of 59 1/2, you’ll be subject to hefty penalty fees. It’s best to contribute to your 401(k) while also setting aside funds in savings to get by in the meantime.
- An employer match from your workplace may only be offered after a certain length of employment.
- Once you reach 70 and a half, you can no longer contribute to your plan. Though many people are already collecting their 401(k) at that age, others might find the forced withdrawal to be a downside.
2. 403(b) plan
This type of retirement account functions similarly to a 401(k), but is specifically for nurses and employees of tax-exempt organizations such as public school employees, ministers or healthcare professionals. These plans are also known as tax-sheltered annuity plans, or TSA plans.
Pros:
- Any earnings on your 403(b) plan will be deferred from taxation until you withdraw.
- Some of these plans offer immediate vesting of funds, which isn’t guaranteed in other retirement plans.
- If your 403(b) plan is Employee Retirement Income Security Act (ERISA) compliant, you will likely be eligible for employer-matching contributions to your savings.
Cons:
- You cannot make your own contributions to a 403(b) plan. If it is not offered through your employer, then it’s not an option.
- The promise of no fees usually only applies to upfront fees. If you want to withdraw money from your account, you can only withdraw a small percentage without paying a surrender charge.
- If you’re not earning a lot of money and don’t need the tax break on your present-day income taxes, other plans may be more optimal for retirement savings.
3. Robo-advisers
Robo-advisers automate financial advising by providing an online service to help you invest for retirement by using algorithms. The lower fees, compared to traditional financial advisors, makes robo-advisers an attractive option for many nurse retirement plans.
Betterment is an example of a robo-adviser, allowing users to invest their money in a smart and secure fashion. If budgeting isn’t one of your strengths, consider opening an account.
Pros:
- You can access financial planning resources at a lower cost than some in-person financial planners.
- Financial advice is based on mathematical equations and data sets.
- Some robo-adviser platforms have streamlined tools to help you stay organized and plan for financial goals.
Cons:
- Not having a person to talk to could leave you with unanswered questions about how to plan for your retirement.
- If you have a complicated tax situation or need in-depth help planning your estate, that’s beyond the scope of what a robo-adviser can handle.
- Robo-advisers are typically not equipped to deal with financial emergencies.
4. Roth IRA
A Roth IRA is a tax savings plan that you contribute to directly without an employer. You contribute post-tax dollars to a Roth IRA, meaning you’ve already paid tax on your income. The money you withdraw from it in retirement is tax-free.
Pros:
- If you’re not earning a lot of money and don’t need the tax break now, contributing to a Roth IRA could mean a more advantageous tax break later.
- You can make contributions without an employer.
- You can withdraw contributions without having to pay any set fees.
Cons:
- Withdrawals before the age of 59 1/2 could incur an early withdrawal tax.
- The maximum contribution is much lower than for the 401(k).
- Having to set up and fund your own Roth IRA each year may be confusing.
5. Traditional IRA
The Traditional IRA retirement savings plan is the most common. It allows you to make individual, tax-deductible contributions into a tax-deferred retirement plan.
Pros:
- You get a tax deduction on your contributions in the year you make them.
- It’s not necessary to have a workplace plan to contribute.
Cons:
- There are contribution limits. You can’t contribute more than your taxable compensation for one year to a Traditional IRA plan. Contributions usually cap at $6,000 to $7,000 annually and can be impacted by deductions from 401(k) plans, as well.
- A traditional IRA retirement plan charges a 10% tax for any withdrawals before the age of 59 1/2.
6. Pensions
Nurse pension plans are offered by some employers that ensure employees will continue to receive income into their retirement. It is a benefit offered by some large companies and government organizations.
Pros:
- You receive reliable income into retirement.
- It reduces the worry that you might outlive your assets.
- You are not dependent on your investments for income in retirement.
Cons:
- Pension plans don’t necessarily transfer to your spouse in the event of your death the way an asset or investment might. Unless you’ve chosen a survivor benefit option, the pension could disappear after you die.
- Inflation could outpace your pension income if cost-of-living increases are not factored into it.
- You cannot control how the pension fund is invested.
When should nurses start saving for retirement?
Even though it might feel like you can’t afford to save for retirement while you’re paying off student loans, it’s wise to begin making contributions as early as possible in your career because compound interest on some of your investments will build up significantly.
Small contributions with every paycheck are still helpful. Start saving for retirement now to set yourself up for financial success.
