Ask most people how they plan to spend their retirement years and they will probably tell you they plan to relax, travel and maybe volunteer. Ask them how they plan to survive financially, however, and there’s a good chance they have little or no idea.
Retirement is something most workers look forward to, so you would think planning for it would be a top priority. But that’s generally not the case, financial experts say. In fact, many working Americans who think they will have enough money saved for a financially secure retirement are operating under faulty assumptions.
Darleen M. Gilmore, CFP, a certified financial planner in Austin, Texas, believes retirement planning may be even more important for nurses than for people in other professions. That’s because nurses tend to retire earlier than other professionals and therefore may have less time to plan for it.
“My perception is that their career life tends to be a little shorter, because it’s a very high-stress profession,” says Gilmore, whose stepmother is a nurse.
Compared to the majority population, Gilmore says, many Americans of color are at a disadvantage when it comes to retirement planning because their parents didn’t know enough about financial planning to pass that knowledge on to their children. Therefore, they lack the knowledge and confidence to plan retirement investments and are more likely to need education about the basics of investing.
For many Hispanics, the lack of financial planning education is compounded by the need—or the preference—to receive educational materials in Spanish, says Theresa Cruz-Myers, associate vice president of marketing and education for Nationwide Retirement Planning. “The lack of access to [bilingual information] and to advisors they can trust has a significant impact overall on [Hispanics’] participation [in company 401(k) plans],” she adds.
A survey conducted by the Employee Benefit Research Institute in 2005 found that Hispanic workers have the lowest rate of participation in their employers’ 401(k) plans. Although participation rates increased with income, they never reached the levels of their Caucasian and African American counterparts.
“I think for Hispanics, as well as other minority groups, having a trusting relationship with a financial advisor is very important,” Cruz-Myers continues. “Especially in the Hispanic community, they want that education face-to-face.”
Mellody Hobson, president of Ariel Capital Management, says the African American community has similar concerns. “We [black Americans] want a personal relationship with whoever has our money, so we don’t like investing through the Internet,” she explains. “We like bank tellers as opposed to ATM machines. When it comes to investing, we want someone to sit down and be very patient with us and [educate us] as opposed to giving someone our money and putting it on autopilot.”
Making Retirement a Priority
Another challenge for minority nurses, according to Hobson and other minority financial experts, is that their ability to save for retirement is more likely to be restricted by the need to provide financial assistance to family members. Caring for elders, giving or loaning money to adult children and, in the case of immigrant nurses, sending money to relatives in another country can all make it more difficult for nurses of color to “put themselves first” and set aside money for their own retirement.
“[In the minority community], saving for retirement is often seen as selfish,” says Cruz-Myers. “They might have other priorities, like saving for their kids’ college or taking care of elderly parents who live with them.” Yet on the other hand, you need to ask yourself: “How will I be able to continue helping my family when I am no longer working?”
According to Denise Murray, director of investor education programs at the Investment Company Institute Education Foundation in Washington, D.C.—which has partnered with the National Urban League and the Hispanic College Fund to create “Investing for Success,” an award-winning financial education program for African Americans and Hispanics—many African Americans save for college before saving for retirement. Financial planners caution against this, she says, pointing out that your children can get scholarships, grants and loans to pay for college but no such options are available to fund your retirement.
Mario Yngerto, CFP, ChFC, a financial planner in Plano, Texas, says it’s common for Hispanic immigrants from countries like Mexico and Cuba to send money and medicine home to relatives in their country of origin, leaving less money for everything else, including retirement. The Pew Hispanic Center estimates that six million Latin American immigrants send money to family members back home on a regular basis. The total of those remittances, as the practice is called, from the U.S. to Latin America and the Caribbean is estimated to be close to $30 billion a year.
When it comes to employer-sponsored retirement benefits, once again the playing field is not always level for Americans of color. For example, many African Americans rely on pensions—as opposed to a 401(k) plan—to fund their retirement, because they are much more likely to work for an organization that offers a traditional pension plan.
The ninth annual Ariel/Schwab Black Investor Survey conducted earlier this year surveyed 500 African Americans and 500 Caucasians earning more than $50,000 a year. The results revealed that two-thirds of African Americans work for organizations that offer a traditional pension plan, compared with only 50% of whites. That’s because African Americans, the survey found, are far more likely than whites—44% versus 25%—to work for the government, which is more likely to offer pension plans.
The problem with relying on a pension, Hobson says, is that many corporate pension funds have been frozen and many government pension systems are not fully funded. The Pension Benefit Guaranty Corporation, which insures pension funds, is experiencing a $30 billion deficit because of bankruptcy bailouts such as Enron and United Airlines and has been forced to raise the premiums it charges companies.
“Because that premium is going up, a lot of companies are saying, ‘Why bother?’” Hobson adds. “That’s why a lot of employers have moved away from or frozen their defined benefit plan but opted instead to have an employer match in a 401(k) plan.”
Getting Started on Saving
Uncertainty over the future of Social Security makes saving for retirement in a 401(k) plan or Individual Retirement Account (IRA) even more important, financial planners advise. And the sooner you get started—no matter how small your initial contributions may be—the better prepared you’ll be for retirement.
“One of the things I see too often,” Gilmore says, “is that people won’t start contributing because they have the attitude of ‘I can only do a hundred a month.’ I always tell them: ‘Start with what you can do now and go from there.’ ”
Pamela Townsend, CFP, a financial planner in Rydal, Penn., points out that one of the most important components of saving and investing is time and the compounding effect that takes place over time. For example, someone who saves $200 a month from the age of 22 to the age of 67 will accumulate more than $1.6 million based on a 9% annual return, she says. Wait 10 years to begin investing $200 a month and, based on the same 9% annual return, the investor will accumulate only $650,000. Wait another 10 years and the amount drops to $250,000. “So you can see how important it is to have that time and to have those funds invested [as early as possible],” she emphasizes.
Townsend recommends reviewing your expenses to find ways to save money that can then be put into retirement investments. For instance, someone who drinks a $4 cup of Italian coffee at Starbucks every day could switch to regular coffee and save $2 a day. This adds up to more than $700 a year that, if invested from age 22 to 67 with a 9% annual return, would amount to $440,000 by the time you’re ready to retire.
“If you sit down and really analyze what it is you are earning and extract those necessities and monitor where those monies are going, you’ll find there usually is money there [to invest],” she says.
Karl L. Hicks, a certified financial planner in Riverside, Calif., says it’s important to get into the habit of saving by setting money aside on a regular basis. “Set up a savings account [that’s] not at your bank and not attached to your checking account,” he advises.
Making the Most of Your 401(k)
Nurses whose employers offer a 401(k) plan—or, as in many hospitals, a 403(b) plan—should participate to the fullest amount possible, financial planners recommend. Money that workers contribute to 401(k) plans isn’t taxed, Cruz-Myers says, so a $10 pre-tax contribution would result in only a $7 reduction in the employee’s net pay.
If you are lucky enough to have the type of 401(k) where your employer will match your contributions, says Yngerto, then you should at least contribute the amount needed to earn the maximum employer-matching amount, a practice referred to as “maxing the match.”
“It’s very disappointing when I see someone who has been working for an employer for 10 or 15 years and they didn’t max the match,” he adds. “They’re leaving tens of thousand of dollars on the table.”
Having an employer that contributes 25 cents for every dollar you contribute is the equivalent of receiving a 25% return on your money—an impressive amount considering that stocks have averaged a 10% annual return since 1926. So employees who don’t “max the match” not only miss out on receiving the employer match, they also miss out on the investment gains from that match.
One of the most basic rules of investing is that the higher (or lower) the risk associated with a particular investment, the higher (or lower) the potential return on the investment—and vice versa. Yngerto and other financial advisors agree that the younger a person is, the more risk they should be willing to take in exchange for a greater potential return. The idea is that someone in their 20s or 30s who is 30 years away from retirement has time to make up for any losses they might incur, while those who are closer to retirement age can’t afford to take that risk.
Federal legislation will eventually mandate that companies with 401(k) plans must automatically enroll their employees in the plan unless the employee chooses to opt out, Hobson believes. As it is now, employees have been required to “opt in” to participate.
Some employers that offer 401(k) plans now offer their employees free financial planning advice from a qualified advisor, Cruz-Myers adds. “Once you get started [contributing to your 401(k)] and feel like you have the ability to save more and can start investing more, then take the next step and meet with a financial advisor,” she says.
Choosing a Financial Planner
What should you look for when selecting an investment professional to help you plan for your retirement? According to Murray, finding a culturally competent financial advisor involves much more than just looking for someone who is of the same race or ethnicity as you.
“The important thing is to find a person who understands your financial goals, understands your situation from a broader perspective, understands how you feel about risk, then recommends appropriate [investment] products to achieve your goals,” she emphasizes. “What we wouldn’t want [minority nurses] to do is to choose a minority advisor who may not be putting them in the appropriate investment.”
You can find a financial planner the way you would find a doctor or a dentist if you were to move to a new city, Hobson says. Ask for referrals and make sure you choose someone who is willing to educate as well as advise. Gilmore recommends using someone who is a certified financial planner (CFP), a designation given by the Financial Planning Association (FPA). To earn the CFP designation, a person must have at least three years of experience in financial planning and pass an exam covering six financial planning competencies. To maintain the designation, a CFP must complete 30 hours of continuing education courses every two years and pass another exam every 10 years.
An easy way to locate qualified CFPs in your area is to visit the FPA Web site, http://www.fpanet.org/, and click on “Find a Planner.” Once you’ve found some candidates, it’s important to meet and interview them before hiring them, Gilmore says.
“That’s one of the things that our [African American] culture doesn’t do very well,” she comments. “I’ve never been interviewed by an African American client, but I’ve had several Caucasian clients come in and interview me. And they interview three or four different advisors.”
Financial advisors fall into two basic categories, Hicks explains. The first, and most preferable type, is a fee-only financial planner who receives his or her income only from fees charged to clients. A fee-based financial planner, on the other hand, not only receives fees from clients but also referral fees and commissions on financial products sold to clients. As a result, their advice may be less impartial than that of fee-only planners. “Some [fee-based] planners may try to sell something to you, so you have to be careful,” he cautions.
Hicks, a fee-only planner, says he charges a flat fee for writing a financial plan. His fee for managing a client’s assets is based on a percentage of those assets beginning with 1.25% for the first $250,000.
Making Up for Lost Time
Financial planners say it’s never too late to start saving for retirement. However, people who start later rather than sooner will probably have to contribute more toward retirement, work longer or settle for a lower standard of living in their retirement years.
“There’s no magic bullet out there if you failed to plan for your retirement,” Townsend says.
Still, there are ways for late starters to make up for lost time. One option is to choose investment vehicles that have the potential to give you a greater return, Yngerto says. The downside is that the greater the return potential, the greater the chance that the investment will lose money—at least in the short term. “Certainly I’m not recommending that for everybody,” he adds, “but it’s on the table and some clients do want to do that.”
The African American community tends to be more conservative than Caucasians when it comes to investments, Hobson notes. “We favor real estate investments, we favor insurance products. Our white counterparts are more likely to favor the stock market. [African Americans] are less likely to have our money invested in the stock market, and yet the stock market has consistently out-performed all other investments.”
Recent changes in retirement laws allow people who are age 50 and older to contribute more money to 401(k) plans and IRAs than they were able to in the past, says Hicks. Workers in this age bracket can now place an additional $5,000 a year into a 401(k) account and an extra $1,000 per year in an IRA.
Saving for retirement involves looking into the future and determining how much it will cost to live. It’s important to keep in mind that medical expenses will rise, Townsend points out, and that long-term care facilities, more commonly known as nursing homes, are expensive. The average annual cost for a nursing home is now $60,000, says Townsend, who is certified in long-term care planning. Long-term care policies provide funds to cover the cost of either an assisted living facility or in-home care once a person is unable to adequately care for himself or herself, she explains.
Retirement planning requires looking at the big picture, setting priorities and goals, making choices and being willing to sacrifice some short-term comforts in exchange for a more secure future. “Sometimes that isn’t ‘sexy,’” says Murray. “But being old and poor is a lot less sexy.”
Ask most people how they plan to spend their retirement years and they will probably tell you they plan to relax, travel and maybe volunteer. Ask them how they plan to survive financially, however, and there’s a good chance they have little or no idea.
Retirement is something most workers look forward to, so you would think planning for it would be a top priority. But that’s generally not the case, financial experts say. In fact, many working Americans who think they will have enough money saved for a financially secure retirement are operating under faulty assumptions.
Darleen M. Gilmore, CFP, a certified financial planner in Austin, Texas, believes retirement planning may be even more important for nurses than for people in other professions. That’s because nurses tend to retire earlier than other professionals and therefore may have less time to plan for it.
“My perception is that their career life tends to be a little shorter, because it’s a very high-stress profession,” says Gilmore, whose stepmother is a nurse.
Compared to the majority population, Gilmore says, many Americans of color are at a disadvantage when it comes to retirement planning because their parents didn’t know enough about financial planning to pass that knowledge on to their children. Therefore, they lack the knowledge and confidence to plan retirement investments and are more likely to need education about the basics of investing.
For many Hispanics, the lack of financial planning education is compounded by the need—or the preference—to receive educational materials in Spanish, says Theresa Cruz-Myers, associate vice president of marketing and education for Nationwide Retirement Planning. “The lack of access to [bilingual information] and to advisors they can trust has a significant impact overall on [Hispanics’] participation [in company 401(k) plans],” she adds.
A survey conducted by the Employee Benefit Research Institute in 2005 found that Hispanic workers have the lowest rate of participation in their employers’ 401(k) plans. Although participation rates increased with income, they never reached the levels of their Caucasian and African American counterparts.
“I think for Hispanics, as well as other minority groups, having a trusting relationship with a financial advisor is very important,” Cruz-Myers continues. “Especially in the Hispanic community, they want that education face-to-face.”
Mellody Hobson, president of Ariel Capital Management, says the African American community has similar concerns. “We [black Americans] want a personal relationship with whoever has our money, so we don’t like investing through the Internet,” she explains. “We like bank tellers as opposed to ATM machines. When it comes to investing, we want someone to sit down and be very patient with us and [educate us] as opposed to giving someone our money and putting it on autopilot.”
Making Retirement a Priority
Another challenge for minority nurses, according to Hobson and other minority financial experts, is that their ability to save for retirement is more likely to be restricted by the need to provide financial assistance to family members. Caring for elders, giving or loaning money to adult children and, in the case of immigrant nurses, sending money to relatives in another country can all make it more difficult for nurses of color to “put themselves first” and set aside money for their own retirement.
“[In the minority community], saving for retirement is often seen as selfish,” says Cruz-Myers. “They might have other priorities, like saving for their kids’ college or taking care of elderly parents who live with them.” Yet on the other hand, you need to ask yourself: “How will I be able to continue helping my family when I am no longer working?”
According to Denise Murray, director of investor education programs at the Investment Company Institute Education Foundation in Washington, D.C.—which has partnered with the National Urban League and the Hispanic College Fund to create “Investing for Success,” an award-winning financial education program for African Americans and Hispanics—many African Americans save for college before saving for retirement. Financial planners caution against this, she says, pointing out that your children can get scholarships, grants and loans to pay for college but no such options are available to fund your retirement.
Mario Yngerto, CFP, ChFC, a financial planner in Plano, Texas, says it’s common for Hispanic immigrants from countries like Mexico and Cuba to send money and medicine home to relatives in their country of origin, leaving less money for everything else, including retirement. The Pew Hispanic Center estimates that six million Latin American immigrants send money to family members back home on a regular basis. The total of those remittances, as the practice is called, from the U.S. to Latin America and the Caribbean is estimated to be close to $30 billion a year.
When it comes to employer-sponsored retirement benefits, once again the playing field is not always level for Americans of color. For example, many African Americans rely on pensions—as opposed to a 401(k) plan—to fund their retirement, because they are much more likely to work for an organization that offers a traditional pension plan.
The ninth annual Ariel/Schwab Black Investor Survey conducted earlier this year surveyed 500 African Americans and 500 Caucasians earning more than $50,000 a year. The results revealed that two-thirds of African Americans work for organizations that offer a traditional pension plan, compared with only 50% of whites. That’s because African Americans, the survey found, are far more likely than whites—44% versus 25%—to work for the government, which is more likely to offer pension plans.
The problem with relying on a pension, Hobson says, is that many corporate pension funds have been frozen and many government pension systems are not fully funded. The Pension Benefit Guaranty Corporation, which insures pension funds, is experiencing a $30 billion deficit because of bankruptcy bailouts such as Enron and United Airlines and has been forced to raise the premiums it charges companies.
“Because that premium is going up, a lot of companies are saying, ‘Why bother?’” Hobson adds. “That’s why a lot of employers have moved away from or frozen their defined benefit plan but opted instead to have an employer match in a 401(k) plan.”
Getting Started on Saving
Uncertainty over the future of Social Security makes saving for retirement in a 401(k) plan or Individual Retirement Account (IRA) even more important, financial planners advise. And the sooner you get started—no matter how small your initial contributions may be—the better prepared you’ll be for retirement.
“One of the things I see too often,” Gilmore says, “is that people won’t start contributing because they have the attitude of ‘I can only do a hundred a month.’ I always tell them: ‘Start with what you can do now and go from there.’ ”
Pamela Townsend, CFP, a financial planner in Rydal, Penn., points out that one of the most important components of saving and investing is time and the compounding effect that takes place over time. For example, someone who saves $200 a month from the age of 22 to the age of 67 will accumulate more than $1.6 million based on a 9% annual return, she says. Wait 10 years to begin investing $200 a month and, based on the same 9% annual return, the investor will accumulate only $650,000. Wait another 10 years and the amount drops to $250,000. “So you can see how important it is to have that time and to have those funds invested [as early as possible],” she emphasizes.
Townsend recommends reviewing your expenses to find ways to save money that can then be put into retirement investments. For instance, someone who drinks a $4 cup of Italian coffee at Starbucks every day could switch to regular coffee and save $2 a day. This adds up to more than $700 a year that, if invested from age 22 to 67 with a 9% annual return, would amount to $440,000 by the time you’re ready to retire.
“If you sit down and really analyze what it is you are earning and extract those necessities and monitor where those monies are going, you’ll find there usually is money there [to invest],” she says.
Karl L. Hicks, a certified financial planner in Riverside, Calif., says it’s important to get into the habit of saving by setting money aside on a regular basis. “Set up a savings account [that’s] not at your bank and not attached to your checking account,” he advises.
Making the Most of Your 401(k)
Nurses whose employers offer a 401(k) plan—or, as in many hospitals, a 403(b) plan—should participate to the fullest amount possible, financial planners recommend. Money that workers contribute to 401(k) plans isn’t taxed, Cruz-Myers says, so a $10 pre-tax contribution would result in only a $7 reduction in the employee’s net pay.
If you are lucky enough to have the type of 401(k) where your employer will match your contributions, says Yngerto, then you should at least contribute the amount needed to earn the maximum employer-matching amount, a practice referred to as “maxing the match.”
“It’s very disappointing when I see someone who has been working for an employer for 10 or 15 years and they didn’t max the match,” he adds. “They’re leaving tens of thousand of dollars on the table.”
Having an employer that contributes 25 cents for every dollar you contribute is the equivalent of receiving a 25% return on your money—an impressive amount considering that stocks have averaged a 10% annual return since 1926. So employees who don’t “max the match” not only miss out on receiving the employer match, they also miss out on the investment gains from that match.
One of the most basic rules of investing is that the higher (or lower) the risk associated with a particular investment, the higher (or lower) the potential return on the investment—and vice versa. Yngerto and other financial advisors agree that the younger a person is, the more risk they should be willing to take in exchange for a greater potential return. The idea is that someone in their 20s or 30s who is 30 years away from retirement has time to make up for any losses they might incur, while those who are closer to retirement age can’t afford to take that risk.
Federal legislation will eventually mandate that companies with 401(k) plans must automatically enroll their employees in the plan unless the employee chooses to opt out, Hobson believes. As it is now, employees have been required to “opt in” to participate.
Some employers that offer 401(k) plans now offer their employees free financial planning advice from a qualified advisor, Cruz-Myers adds. “Once you get started [contributing to your 401(k)] and feel like you have the ability to save more and can start investing more, then take the next step and meet with a financial advisor,” she says.
Choosing a Financial Planner
What should you look for when selecting an investment professional to help you plan for your retirement? According to Murray, finding a culturally competent financial advisor involves much more than just looking for someone who is of the same race or ethnicity as you.
“The important thing is to find a person who understands your financial goals, understands your situation from a broader perspective, understands how you feel about risk, then recommends appropriate [investment] products to achieve your goals,” she emphasizes. “What we wouldn’t want [minority nurses] to do is to choose a minority advisor who may not be putting them in the appropriate investment.”
You can find a financial planner the way you would find a doctor or a dentist if you were to move to a new city, Hobson says. Ask for referrals and make sure you choose someone who is willing to educate as well as advise. Gilmore recommends using someone who is a certified financial planner (CFP), a designation given by the Financial Planning Association (FPA). To earn the CFP designation, a person must have at least three years of experience in financial planning and pass an exam covering six financial planning competencies. To maintain the designation, a CFP must complete 30 hours of continuing education courses every two years and pass another exam every 10 years.
An easy way to locate qualified CFPs in your area is to visit the FPA Web site, http://www.fpanet.org/, and click on “Find a Planner.” Once you’ve found some candidates, it’s important to meet and interview them before hiring them, Gilmore says.
“That’s one of the things that our [African American] culture doesn’t do very well,” she comments. “I’ve never been interviewed by an African American client, but I’ve had several Caucasian clients come in and interview me. And they interview three or four different advisors.”
Financial advisors fall into two basic categories, Hicks explains. The first, and most preferable type, is a fee-only financial planner who receives his or her income only from fees charged to clients. A fee-based financial planner, on the other hand, not only receives fees from clients but also referral fees and commissions on financial products sold to clients. As a result, their advice may be less impartial than that of fee-only planners. “Some [fee-based] planners may try to sell something to you, so you have to be careful,” he cautions.
Hicks, a fee-only planner, says he charges a flat fee for writing a financial plan. His fee for managing a client’s assets is based on a percentage of those assets beginning with 1.25% for the first $250,000.
Making Up for Lost Time
Financial planners say it’s never too late to start saving for retirement. However, people who start later rather than sooner will probably have to contribute more toward retirement, work longer or settle for a lower standard of living in their retirement years.
“There’s no magic bullet out there if you failed to plan for your retirement,” Townsend says.
Still, there are ways for late starters to make up for lost time. One option is to choose investment vehicles that have the potential to give you a greater return, Yngerto says. The downside is that the greater the return potential, the greater the chance that the investment will lose money—at least in the short term. “Certainly I’m not recommending that for everybody,” he adds, “but it’s on the table and some clients do want to do that.”
The African American community tends to be more conservative than Caucasians when it comes to investments, Hobson notes. “We favor real estate investments, we favor insurance products. Our white counterparts are more likely to favor the stock market. [African Americans] are less likely to have our money invested in the stock market, and yet the stock market has consistently out-performed all other investments.”
Recent changes in retirement laws allow people who are age 50 and older to contribute more money to 401(k) plans and IRAs than they were able to in the past, says Hicks. Workers in this age bracket can now place an additional $5,000 a year into a 401(k) account and an extra $1,000 per year in an IRA.
Saving for retirement involves looking into the future and determining how much it will cost to live. It’s important to keep in mind that medical expenses will rise, Townsend points out, and that long-term care facilities, more commonly known as nursing homes, are expensive. The average annual cost for a nursing home is now $60,000, says Townsend, who is certified in long-term care planning. Long-term care policies provide funds to cover the cost of either an assisted living facility or in-home care once a person is unable to adequately care for himself or herself, she explains.
Retirement planning requires looking at the big picture, setting priorities and goals, making choices and being willing to sacrifice some short-term comforts in exchange for a more secure future. “Sometimes that isn’t ‘sexy,’” says Murray. “But being old and poor is a lot less sexy.”
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