Around 23% of RNs in outpatient, ambulatory, and clinical settings have retired or plan to retire over the next five years, according to the American Association of Colleges of Nursing.
In 2024, an estimated 4.1 million Americans will turn age 65. As healthcare continues to evolve, so do the benefits for those entering retirement. One question that sometimes surfaces is whether nurses still receive pensions as part of their retirement package.
While pensions were once a standard in many fields, including healthcare, the outlook of retirement benefits has shifted. Today, pensions aren’t as common, but nurses still have various retirement options available to secure their financial future.
What is a pension?
A pension is a type of retirement plan that provides permanent, often lifetime, monthly payments to retiring employees. The allotted payment is typically a certain percentage of the employee's salary based on their length of employment, according to the Pension Benefit Guaranty Corporation (PBGC).
In traditional plans, both the employer and the employee contribute; however, the employer manages the funds and ensures the promised benefits are paid out. These defined benefit plans were widely popular in the mid-20th century, especially in fields such as teaching, government positions, or the military.
Do nurses still get pensions?
Whether or not a nurse receives a pension depends largely on their workplace. Pensions were formerly a common feature for nurses working in settings, such as government-run hospitals or agencies, Veterans Health Administration facilities, the military, and some nonprofit organizations. These nurses are more likely to receive a defined benefit pension as part of their overall compensation package.
In addition, nursing professionals who are part of a strong union may also have access to pensions. Unions can often negotiate pension plans as part of their contracts, ensuring that nurses are guaranteed a steady income once they retire. However, many private hospitals and healthcare facilities now favor defined contribution plans like 401(k) plans, which give employees more responsibility for managing their retirement savings. Because some healthcare systems and other organizations may want to reduce costs and manage long-term financial liabilities, pensions are becoming less common, particularly in for-profit healthcare organizations.
While rare, some nonprofit healthcare organizations may still offer pension plans. These organizations tend to prioritize employee welfare, including long-term financial security.
Alternatives to pensions: What are the options?
For nurses who do not have access to pensions, other retirement savings options can help ensure financial stability. Here’s a look at the most common alternatives available.
401(k) and 403(b) plans
In recent years, defined contribution plans like the 401(k) and 403(b) have become the norm. A 401(k) is typically offered by for-profit healthcare organizations, while the 403(b) is designed for nonprofit organizations, such as hospitals, churches, or public schools.
Both plan options allow nurses to put an amount of their pre-tax salary into an investment account. Certain employers may be willing to match contributions, where they’ll add a certain percentage to your savings based on what you contribute. In these accounts, funds will continue to grow tax deferred until retirement, at which point they’ll be taxed at withdrawal.
Benefits:
- Flexibility: Choose how much you’d like to contribute and how to invest your funds based on your risk tolerance and retirement goals.
- Employer match: Some employers offer a match, providing additional savings.
- Tax advantages: Because these contributions are made pre-tax, it can lower your taxable income.
Individual retirement accounts
Opening an individual retirement account (IRA) is another potential option for nurses who may not have access to an employer-sponsored retirement plan or want to diversify their savings.
There are two primary types of IRAs: traditional and Roth. In a traditional IRA, contributions are tax deductible, but withdrawals are taxed. In a Roth plan, contributions are rendered with funds you’ve already paid taxes on, but qualified withdrawals are tax free at retirement.
Benefits:
- Tax flexibility: At retirement, Roth IRAs provide tax-free income, and traditional IRAs offer tax deductions up front.
- Control over investments: Choose how to invest your funds with options, including stocks, bonds, and mutual funds.
Pension-like hybrid plans
Some employers have adopted hybrid plans, known as cash balance plans, that combine the features of a standard pension with those of a 401(k)-style account.
According to the Department of Labor, these plans involve the employer crediting a set percentage of your salary to a retirement account, and the balance earns interest based on a predefined formula. These plans provide more predictability than a 401(k) but are still less common than pensions.
Benefits:
- Employer-funded: These plans do not require employee contributions, although they allow for them.
- Guaranteed growth: The account grows based on a guaranteed interest rate, providing more stability compared to market-based accounts.
Deferred compensation plans
Some nurses, particularly those in leadership or specialized roles, may have access to deferred compensation plans. According to the Internal Revenue Service (IRS), these are also known as 457(b) plans. These plans allow a portion of salary to be set aside and taxed at a later date, usually during retirement when the nurse is in a lower tax bracket.
Benefits:
- Tax deferral: This plan reduces current taxable income.
- Potential for high earners: This is particularly useful for nurses earning higher wages who may want to spread their deferred salary over time.
Social Security benefits
For most individuals at retirement age, Social Security provides a source of income based on earnings over the years. And though it may not cover all living expenses, it can be a valuable supplement to other retirement savings.
Benefits:
- Guaranteed income: This provides a steady income based on lifetime earnings.
- Survivor and disability benefits: Social Security also offers benefits for spouses and family members.
With fewer pensions today, it's important to take an active role in planning for retirement. Nurses dedicate their lives to taking care of others, and planning for retirement is a way to take care of themselves.
