Making informed choices on investments as travel nurses often get overlooked.
Gypsy Nurses, your travel nursing career provides a tremendous amount of freedom and variety; you can explore new places, meet new co-workers, and control many aspects of your daily routine. However, as much as you may love being a Gypsy Nurse, that doesn’t mean you’ll want to do it forever.
Retirement goals are significant to travel nurses who look forward to spending more time with loved ones and a slower, more relaxing pace. So, you need to plan for retirement sooner rather than later to help ensure you get there and enjoy it!
Consistent Funding is KEY
Most retirement planners agree that it’s not the amount but regular, consistent funding that’s the key to successful retirement savings.
Some quick math: You might be surprised at just how much you can save with a steady plan.
For example: if you’re 25 years old and contribute $50 a paycheck with 26 paychecks per year, at a retirement age of 65, your retirement account balance could be worth $277,692. Increase that contribution to $60—that raises the potential balance to $333,231. These scenarios assume a very conservative 7% rate of return on your investment and are by no means a guarantee, but it’s important to understand the impact proper planning can have. While it’s certainly better to start saving early, understand that it’s also never too late to start saving for retirement – don’t give up if you’re an “older Gypsy” and haven’t started – now is the time!
Choosing the correct retirement vehicle is also critical in your planning.
With many agencies touting their 401(k) plans as retirement savings vehicles, you also need to take a hard look at what these plans can mean for you and your specific situation. The 401(k) plans the agencies are marketing often sound very attractive, yet if you take some time to read the fine print, the reality may surprise you.
In fact, after interviewing financial experts regarding 401(k) and IRAs as options for travel nurses, we found that a traditional IRA may be the smarter choice than a 401(k) for most travel nurses. Why? An IRA provides a convenient, effective, hassle-free way to manage your retirement account, regardless of who your employer is.
Here are some basic facts and realities of 401(k) and IRA plans we pulled together to help you sort through the noise out there:
Overview of IRAs and 401(k)s
Traditional IRA and 401(k) plans are the most popular types of retirement savings accounts that let the individual make “tax-deferred” contributions to the account. Tax-deferred means that you are not required to pay Federal income taxes on the money contributed to the savings account, but you’ll have to pay taxes on it later when you withdraw it upon retirement.
Investment companies typically administer these accounts so that the employee can invest the money in any number of available investment vehicles. All investment vehicles have some degree of risk associated with them and varying rates of return. Similar options are available for both 401(k)s and IRAs.
401(k) Matching Myths
Many travel nurse staffing firms often hype the “matching” component of the 401(k) plans they offer. This means the agency will match the contribution up to a predetermined amount, dollar for dollar. For example, the agency could contribute $1 for every $1 that the employee contributes, up to 3% of their annual salary.
Unfortunately, these firms rarely mention that most travel nurses don’t work at one agency long enough to meet the “vesting” requirements for matching funds. A “vesting period” is the period before the employer contributions are actually owned by the employee and can often be years long. For example, if the agency has a 2-year vesting period and you switch agencies after 1 year, you will forfeit the $1 for $1 employer’s match. These vesting periods are often unrealistic for travel nurses because they may change companies to secure specific job assignments.
Additionally, some agencies fail to make you aware that there is a “wait” period that requires some time frame of continuous employment before you can participate in the 401(k) program as well as any matching benefits. You may not even be permitted to take advantage of 30 – 90 days out, nearly the length of the assignment.
Retirement Plan Management 101
Since you may decide to switch agencies over the course of your career, you may quickly end up with several 401(k) accounts that require attention. Managing these diverse accounts can get cumbersome as well as expensive. All of them will have some administrative fee associated with them. You can “rollover” the previous 401(k) to the 401(k) of your new agency, and you can also cash out or transfer to a traditional IRA.
Many agencies don’t mention that additional fee are associated with certain actions that quickly lower your investment balance. For example, there are fees to transfer money out and taxes and penalties to cash out of your 401(k). The IRA for a retirement vehicle provides all the tax benefits of the 401(k) as well as the flexibility to fund it no matter which agency you work for or how many times you change; you carry it with you regardless of your employer or career choices. This means less paperwork, and it also avoids fees, both internal and external, for administration and transfer that are incurred if you have a 401(k).
Making Sense of Contribution Caps
There is an $18,000 annual contribution limit (note: some plans have a “catch up” component that enables those over 50 years of age to contribute more) to the amount of money you can contribute to a 401(k) plan. In addition, there will often be a limit to the amount an agency will match in their program that’s dramatically lower than $18,000. Furthermore, there are investment limits to an IRA account. This is based on several factors, including your income. In general, the limit for IRA contributions set by the IRS is $5,500 for the 2017 tax year, with an additional $1,000 contribution allowed if you’re over 50.
Data suggests that the IRA contribution caps do not impact most travel nurses. Most travel nurses don’t reach the maximum amount in their typical investment behavior. For example: using our $50 per paycheck example, this adds up to $1,300 for the year. It’s important to clearly understand if the cap is a practical issue before giving up all the benefits and flexibility of an IRA account.
The Gypsy Bottom Line – IRAs are a Better Choice for Most Travel Nurses
We hope you found this information helpful. The Gypsy Nurse welcomes your comments, insights, or experience with these retirement plan options. Please share your comments here below – we would love to hear from you!
NOTE: The Gypsy Nurse is committed to serving the needs of today’s travel nurses. Our goal is to provide topical information and general guidance to our community. This information is not intended to replace that of a trained financial advisor. We strongly suggest that you consult with a certified professional to discuss your specific circumstances, retirement goals, and options.