Investing for Retirement While Travel Nursing
Updated: Nov 13, 2021
Finance Tips for Travel Nurses
As a travel allied health professional, your weekly wages and tax free stipends are only one part of your total compensation. Believe it or not employee benefits like insurance, vendor discounts and your 401k all make up the total value of your compensation and it only makes sense that you take advantage of everything that is owed you.
What’s unique about travel healthcare is that every 13 weeks, more or less, you might find yourself employed by a different placement agency with their own set of wages and employee benefits. So how do you navigate your employee benefits and more importantly, what should you do with your 401k after you’re no longer with a certain agency?
In this article I’m going to share with you how you should approach investing, I’ll teach you the “order of operations” you should be using when saving for retirement, and I’ll show you what you should do with your 401k after you’re no longer with an employer.
How to Invest For Retirement As A Travel Nurse
Obviously, the reason why we invest is because we want to turn our money today into more money tomorrow. However, a massive trap when choosing investments is to simply look for funds that post large returns and call it a day.
Without getting overly academic with economics, I believe one of the most important concepts for you to internalize is the concept of OPPORTUNITY COST. Every decision you make with your money will have a direct, sometimes equal, but always an opposite reaction to your action. For example, if you decide to invest, the opportunity cost is that you have less money today to spend because you put it away and vice versa.
The reason I’m saying this is because investments that claim larger returns almost always have proportionally higher management fees. After subtracting management fees from your investment returns, you may find that you actually earn below the average of other investments.
There are three factors you should consider when investing:
The projected return
Assumed risk level
Always be aware of what you have to give up to earn. Then, mathematically decide if it is worth the opportunity cost.
Achieve Financial Fitness with These 5 Tips for Travel Nurses
Understanding your retirement savings order of operations is priceless because there are trade-offs for where you choose to put your retirement savings. So here is the order
If your company offers a match, contribute to your 401k up to the match offered because free money is good! It should be noted that there are two drawbacks with investing in your 401k. The administration fees in your 401k plans are significantly higher than what you would find in an individual retirement account; and those fees eat away at your investment returns. The second drawback is that 401ks typically have limited investment options; which means you may miss out on investment options that could provide you with higher returns. That said, free money is free money and you shouldn’t let your agency off the hook because it’s part of your compensation package. But once you’ve contributed up to the match amount, move on to step two.
If you’ve contributed up to your match amount and you still have money you want to put away for retirement, contribute to an IRA. There are a lot of long-term tax and liquidity benefits of specifically contributing to a Roth IRA, but depending on your income you might not be able to directly contribute the full amount or even any at all. That being said, there are ways around that challenge, but for the sake of this article contribute up to your IRA limits and move on to step three.
If you still have funds left over after maxing out your IRA and you want to continue saving, go back to your 401k and max out your contributions even if there is no match. The reason being a 401k currently allows the largest annual contributions for tax advantaged investing ($19,500 per individual to be exact).
Now let’s say after maxing out your IRAs and 401k you still have more you’d like to stash away in a tax advantaged account, I strongly recommend that you look at a Health Savings Account (HSA). The HSA is probably the most underutilized tax advantaged savings account and it’s the most tax efficient one that exists! Money placed in an HSA goes in pre-tax, grows tax-free and can be withdrawn tax-free (if used for qualified medical expenses). It’s the only savings account that has triple tax protection. Now you may feel less than excited that the money has to be used for qualified medical expenses to enjoy the triple tax protection, but the facts are that medical expenses is the number one factor that eats away at your savings in retirement, so consider it money already spent.
If after all of that you still have money that you want to put away in some tax sheltered account, I would explore permanent life insurance that has a cash savings vehicle attached to it. This is a very inefficient and expensive way to save money and should not be a primary, secondary or tertiary method to saving money. I would only recommend this if you’re dripping with cash and you simply don’t want that money included in your adjusted gross income. A lot of life insurance agents will try to convince you that life insurance is an ideal primary investment tool, but that is simply mathematically incorrect. Don’t fall for it.
I just went over retirement savings order of operations but the truth is that you should never have all your long-term investments in tax sheltered accounts because you have less control over when and how you access that money. It makes more sense to have three long-term savings buckets: Roth IRA, 401k/Traditional IRA and Brokerage Account. Having this three bucket approach allows you to withdraw your money in retirement in the most tax efficient way. And we all know that less taxes mean more money!
What to do with your 401k after you’ve left that employer
In the beginning of this article I mentioned that a drawback with 401ks were the high administration fees and limited investment options, and the reason why we contribute to them anyway is because of the employer match (free money) and the high annual contribution limit (more tax protection). That said, when you’re no longer with an employer you no longer have the advantage of the match, and you can’t continue adding to the account, so you’re left with the high fees and limited investment options. Sounds like a bad deal to me.
The best option is for you to open up an IRA account at a custodian like Fidelity, Schwab or Vanguard and roll over your 401k balance to that account. It’s very important that you DO NOT withdraw your money from your 401k or else you’ll be taxed on the entire balance as well as slapped with a 10% penalty for early withdrawal if you’re under retirement age.
I’ve given you a lot of information and I’ve tried to break it down as simply as possible. But the truth is that a lot goes into creating a plan for your finances and retirement. A good financial strategy has its roots in the knowledge of accounting, investments and law. If I know anything about travel healthcare professionals, I know that time is simply not on your side to become experts at all of this and manage your day-to-day lives. So consider working with a trusted professional to make sure you get it right the first time around.
I hope this article was helpful to you. Please feel free to contact me with any questions you have.
Marlon is a licensed financial advisor at weshfinancial.com and is known as "The Travel Nurse Financial Advisor". Marlon specializes in helping travel nurses crush their financial goals by helping them optimize taxes, accelerate retirement savings, and maximize their investments.