April 2023 – Your Financial Pharmacist

YFP 305: Understanding Annuities: A Primer for Pharmacists

Posted on by Tim U

In over 300 episodes of Your Financial Pharmacist, we haven’t covered much about annuities and today, Tim Baker, CFP®, RICP®, RLP® joins Tim Ulbrich, PharmD to do just that. On this episode, sponsored by First Horizon, you’ll hear all about what annuities are, the main types and how they differ, common misunderstandings, fees associated with annuities, and how they can assist with building a retirement paycheck through the flooring strategy.

Episode Summary

This week on the YFP Podcast, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, is joined by YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP®, RICP®, to discuss annuities.

Tim Baker explains what an annuity is, the main types of annuities, key terms and concepts to understand when evaluating annuity options, fees associated with annuities, and how annuities fit into the broader retirement income planning strategy.

During the second half of the episode, Tim and Tim discuss how annuities may fit into the flooring strategy of retirement income planning.

Key Points From the Episode

How common annuities are and Tim Baker’s high-level thoughts around them.
The importance of viewing annuities from the lens of building a retirement paycheck.
Tim Baker explains longevity risk and how annuities address it.
What exactly an annuity is and the two phases of an annuity.
Tim Baker delves into the main types of annuities and how they differ in structure and features.
How the appeal for annuities has increased due to human psychology.
Including annuities as part of retirement income strategy, the four ‘Ls’, and the flooring approach.
Why the psychological aspect of annuities is underrated.
The biggest con of annuities: fees.
How the tax treatment of annuities differs depending on the type of annuity and how it’s funded.

Episode Highlights

“We kind of shy away from [annuities] as a tool to be used in retirement.” — @TimBakerCFP [0:05:34]

“An annuity refers to an insurance contract where you give the insurance company money, typically in the form of a premium, and they invest the funds – with the idea of paying you back an income stream in the future.” — @TimBakerCFP [0:09:16]

“I’m less worried about legacy and I’m more worried about can my money sustain me?” — @TimBakerCFP [0:29:19]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here. And thank you for listening to the YFP podcast, where each week we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, YFP co-founder and Director of Financial Planning, Tim Baker, joins me to talk about annuities. During the show, we discuss what an annuity is. The main types of products available. Key terms and concepts to understand when evaluating annuity options. How the fees are associated with these products? And how annuities may fit into the broader retirement income strategy?

Before we jump into today’s topic of annuities, I recognize that many listeners may not be aware of what our team of certified financial planners do working one-on-one with more than 280 households in 40+ plus states.

Our team offers fee-only high-touch financial planning that is customized to the pharmacy professional. Whether you’re a new practitioner, in the middle of your career, or nearing retirement, we have you covered. To learn more about how our financial planning services can help you live a rich life today while planning for the future, book a free discovery call at yfpplanning.com.

Whether or not YFP planning, financial planning services, are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

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To check out the requirements for First Horizon’s pharmacist home loan and to start the pre-approved process, visit yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

[EPISODE]

[00:02:30] TU: Tim Baker, welcome back. What’s the good news?

[00:02:33] TB: Not much, Tim. Just kind of hopefully whining tax season down here shortly. The team is frantically at work crunching through tax returns. That’s really the theme of the next few weeks here. Excited for the deadline to be here and gone.

[00:02:49] TU: Yeah, shout out to the tax team. As you mentioned, Tim, hard at work. This season is intense. And we’re really looking forward to doing more year-round tax planning with these individuals. And if they’re listening, which I suspect the tax team is not, since they’re in the weeds right now, but grateful for all their contributions and the value they’re providing to clients and others in the YFP community. So, huge shout out to them.

Tim, annuities. It’s hard to believe in 300+ episodes now the podcasts that we’ve done that we’ve really covered very little around annuities. I think we had an Ask a YFP CPF a while back that we touched on it briefly.

And I’ll be honest, Tim, this is an area of the plan that I underestimated just how big it can be both in the volume of people that are purchasing annuities, the questions that are around the annuities, and how they can build under the retirement plan.

One report from LIMRA was at over $310 billion dollars’ worth of annuities that were sold in 2022. And that was a 22% increase from 2021. Just a big area of the plan. I’m curious to hear at a high level your thoughts around annuities and how common they are as you hear those statistics. And maybe just as surprised as I am that we haven’t dabbled into this more yet.

[00:04:07] TB: I think it depends who you talk to. I talk to some advisors that use them as part of their practice. I talk to a lot of advisors that I trust and that have looked on them that don’t necessarily use it as part of their practice. I think it’s going to be dependent on kind of the market and where we’re at.

Annuities, kind of like long-term care insurance, Tim, kind of get a little bit of a bad rap. And rightfully so, in some instances. And we’ll kind of talk through that. But I think a lot of people, at the end of the day, it’s an insurance product at heart. But you can intertwine in investment products. That’s typically what a variable annuity is or like an index annuity is with this.

But just like insurance, any other type of insurance, we don’t really like to give up our money in the form of a premium for coverage that we may or may not need. I think annuity is a little bit of a different breed. But there seems to be, again, some negative connotations around annuities mainly because like I got to give up my money for something that’s kind of nebulous in exchange.

And I think for those reasons, it’s kind of more psychological that people are like, “Hmm, I’m going to stick to I have a million. It’s a 4% withdrawal rate. It’s $40,000 a year. Couple that with social security. I’m good.”

And for a lot of reasons, maybe not so much. That 4% rule, I think a lot of people are looking at that and saying, “Hmm, going forward, I don’t know. That’s not necessarily the best rule of thumb to be using.”

I think for all of those reasons and probably others that I didn’t mention, that we kind of shy away from this as a tool to be used in retirement. And again, I think that – I think everything should be on the table more or less. And biases aside to see, okay, what are the goals of the client? What’s the balance sheet look like? And then move from there.

[00:05:51] TU: Yeah. And Tim, before we even jump into what is an annuity at a high level, what are the types of products that are out there? Advantages? Disadvantages. We’re going to get into that in more detail. But I think it’s important to take a step back and view this from the lens of building a retirement paycheque, right?

We talked about that previously on the podcast. We’ll link to that episode in the show notes. But here, what we’re talking about is a sliver, apart, perhaps an important part, annuities, that are a broader part of how we’re going to build a retirement income stream. How we’re going to replace what was our paycheque and build that retirement income? I think it’s important that we lay that framework as we get into the weeds on the annuities.

[00:06:34] TB: Yeah. I mean, I think, at the end of the day, when we are thinking about a financial plan, a lot of roads point to, “Can I accumulate enough assets to then not have to rely on a pay cheque and can kind of live my life?” And this topic is – a lot of us, we focus more so just on the accumulation phase and like save and invest, save and invest. But then when we get to the end of it, it’s like, “All right, how do we actually turn this into a sustainable paycheque for the rest of our lives with that timeline being unknown?” And that’s one of the things that annuities address. Because it’s unknown, the payment for a lot of these annuities can go out to the rest of your life. It addresses some longevity risk.

It’s a crucial part of this discussion. And that’s why we’ve been big proponents of Social Security claiming strategy. It’s one of the most important decisions that you make in retirement. And this type of discussion around annuities and longevity risk is right there.

I think it’s something that we should definitely bring to the top of the fold and make sure that we are situating this in a way that it goes back to kind of that retirement paycheck. And how does this all fit together?

[00:07:49] TB: Yeah. And speaking of longevity risk, I pitched a question out there on LinkedIn to say, “Hey, Tim and I are going to be talking about annuities on the podcast. What questions do you have? Would love to hear from the community.” And one of the things that Bryce on LinkedIn said, to your point about longevity risk, is frame it as like the opposite of life insurance. You’re ensuring the risk of living longer than expected instead of shorter than expected. Tim, what are your thoughts on that viewpoint? And I guess, as a part of that, just what is an annuity and how does it work?

[00:08:17] TU: I think it’s dead on. I think what Bryce said is when you think about longevity risk, that’s the risk that people are living longer than they expect, right? I can go on to socialsecurity.gov, put in my gender and my birthday, and says, “Okay, based on all of the data that they’ve collected since the beginning of time or for as long social security has been around, you’re going to live to 88.6-years-old.”

But, Tim, I’m not going out like that. I’m going to be here until 95, 105. I’m going to be here for a while. That means that I potentially have 10, 15, maybe 20 years that, according to my plan – again, we as planners, we go out a little bit further to kind of model that. But think about having a decade worth of expenses. Probably a lot of medical expenses that aren’t accounted for. That’s what longevity risk is. That, to me, is one of the things that an annuity addresses.

An annuity refers to an insurance contract where you give the insurance company money, typically in the form of a premium, and they invest the funds either very, very conservatively or could be more aggressively with the idea of paying you back an income stream in the future. That could be a fixed income stream. That could be a variable income stream. There’re so many different flavors of ice cream when it comes to annuities, Tim. That’s the basic concept.

Typically, you really have two phases in annuity. You have what’s called the accumulation phase, where this is the annuities being funded. And it’s before the payouts begin. Any money in the annuity kind of grows on a tax-deferred basis during this stage. And then the second phase is the annuitization phase, where you say, “Hey, either I have the option or per the contract that I set up five years ago. It was a deferred annuity for five years.” Now these payments start and they are X based on the underlying performance of the investments or just what you agreed to five years ago. Again, there’re lots of different types of variation here. But essentially, that’s it.

It’s kind of like Social Security, but not Social Security. The big difference is that Social Security, even with all the negative headlines, it’s still backed by the US government. There’re lots of fears there that benefits will be changed in the future. I think they will be to kind of keep it solvent. It’ll still be there. This is kind of like private Social Security in a sense where you say, “Hey, not US government.” But, “Hey, insurance company, here’s money either all at once or over whatever premium schedule that you set up. And then give me that money back in the form of an income stream.”

What you’re doing is you’re increasing guaranteed income. Really, the only guaranteed income that most people will have, because pensions have really kind of gone away, is social security. What you’re trying to do is increase guaranteed income. And again, one of the things you have to look at is how is the insurance company rated? Are they rated well or not? Because there is risk of failure there and we’ve seen some bank failures that have, I think, shocked some people. That’s one of the things that you have to make sure that you are in tune with. But that’s essentially the broad strokes of an annuity.

[00:11:36] TU: And, Tim, great point about the comparison to Social Security. It obviously operates very different. But we’ll come back here in a little bit about the concept of a flooring strategy. But essentially, if we think about, again, replacing our paycheck with a retirement income stream. For most folks, even with the negative press around on Social Security, it may be that, hey, from Social Security, and then plus or minus an annuity, we’re going to have some type of – let’s call it base income, right? Oversimplifying a little bit because of how those can fluctuate and be variable in the different products. But drawing on some type of base. And then we can talk about how to make up the rest of the paycheck from there.

Types of annuities. Tim, I know this is a lot to cover in a short episode where we’re really focusing on some of the basics and we’re going to come back to this topic more in the future. But what are the main types of annuities. And how do they differ in terms of the structure and features?

[00:12:28] TB: I’m going to rattle off a bunch of different types of annuities. You have the immediate annuities, immediate fixed annuities, immediate variable annuities, deferred annuities, deferred income annuities, fixed deferred annuities, indexed annuities, variable deferred annuities. There’s –

[00:12:41] TU: Really easy to shop for, right? Is what you’re saying?

[00:12:44] TB: Yeah. Yeah. Super straightforward. We’ll put these in two kind of macro categories. You have kind of immediate versus is deferred. An immediate annuity is just that let’s say you’re retiring and you have a $2 portfolio. And you say, “Hey, I want to take some money off the table in terms of like my traditional portfolio. The market is blah-blah-blah. The volatility. I’m going to put a quarter million dollars into an immediate annuity.”

That means that I give the insurance company $250,000. And then within, I think, 13 months is what is considered an immediate annuity, you start receiving payments. A deferred annuity, the only difference is, is that you give that money today. And then 13-plus months later you get – there’s some growth there. Straight up, like if you do an immediate annuity today and you get that payment next month, the payment might be a little bit less. Versus if you wait 14 months, it might be a little bit more. That’s really the big difference.

One of the big products that’s out there that’s an immediate annuity is called a single premium immediate income annuity, a SPIA. These are contracts. Generally, start in providing income before 13 months after the date of deposit. They’re typically bought as a period certain.

One of the strategies that you could use – we just talked about social security and how powerful that could be. You could say, “Hey, I’m retiring at 65. I want to defer and get as many deferral credits for social security as possible. I’m going to buy a period certain of five years to get me to 70 so I can then claim Social Security.” That might be a way to kind of bridge the gap between that.

And I think that’s a viable strategy, Tim, which people don’t think of. They might say, ” I’m just going to draw down my traditional portfolio.” You can buy it for a single life. So, just me. Or you and a spouse. A joint life.

Obviously, the more people – typically, if it’s single life, and you are a guy, you are going to get paid higher. Versus a single life and you are female. Because females typically live longer. Single life versus joint life, if there’s two people, typically that payout is going to be less than a single life. Because there’s two basically occurrences for that annuity to kind of go away.

The SPIAs are typically lifetime income vehicles. You must be paid at least 12 months substantially in equal payments. But it can be not just monthly. It can be quarterly, semi-annual, or even annual payments.

Many SPIAs can accommodate a death benefit, which means that after you die, a lot of people – this is one of the misconceptions. A lot of people say, “All right if I give quarter million dollars to your insurance contract and I get one payment and then I keel over and die, I lose all that money.” And there are lots of ways to structure that to protect. It could be return of premium. It could be to pay it out for five or ten years. These are all kind of riders that you put on the annuity.

And then you have a deferred annuity, which is basically the same thing again. But it’s like 13-plus months later. The other macro category, Tim, that I would talk to is the fixed versus variable annuity. Fixed annuities provide regular periodic payments to the annuity. They’re fixed. They’re the same. Just like a mortgage. You pay the same, I guess if your taxes go up a little bit. But you pay the same thing month after month.

The variable annuity is based on the underlining performance of the funds that you kind of select. This is where the investment part comes in. You typically get a higher payment if the market does well and a lower payment if they don’t.

The big problem that I have with variable annuities is the commissions and fees associated with it. I’d almost – just like we talk about, buy term life insurance, invest the difference. Anytime you mix these products and there’s complexity upon complexity, typically means that the fees are going to go up.

But I would say the main types, immediate versus deferred, which is more about time-in. Fixed versus variable, which is more about the amount of payment that you’re going to receive connect it to whatever underlying investment that’s there.

Now if you do a fixed, the insurance company is going to invest it. They’re just going to invest it very safely and typically not necessarily tied to market. Maybe treasuries or bonds, things like that.

[00:17:04] TU: Tim, perhaps an oversimplification, but I would assume. I’m just thinking about this from why do these products exist. Obviously, they have to have viability from the person selling the policy, right? Just like a life insurance policy. And it feels like, while different based on variable or fix, that obviously they may be taking a larger lump sum of money investing and growing that at a greater return. Depending on the type of product and what you’re putting that money into. And then whatever they’re paying you out, in theory, their goal is to pay you out less so that they can make some money on the upside of that.

And that’s not a bad thing, right? I mean, in terms of if we want some stability – and we’ll talk about the flooring here in a moment. That’s what we’re willing to potentially give up is some of that higher upside. And obviously, we’re putting floor on some of the downside as well depending on the type of product. But is that generally how these products work from the institution standpoint of how they’re making money off of them?

[00:17:58] TB: Yeah. You know, no free lunch, right? In exchange for guaranteed income, I’m going to pull my money with other annuitants. And essentially, they’re playing the game of what do the morbidity table say? And can we still turn a profit?

But I think of it as I put in a quarter million, Tim. You put in a quarter million. Joe Schmo puts in a quarter million. And we’re all drawing on those funds. But Joe Schmo might die at age 75. You might live to age 105 and I might be somewhere in the middle.

But at the end of the day, you take a lot of maybe stress or some other things that are more soft, like more the human element, off the table. Because those checks are rolling in. I don’t have to worry about the markets as much. I mean, you still do. Because unless – we’ll talk about the flooring strategy.

But like one of the things that I think can stretch out retirees, especially in markets like this where it’s really volatile, they’re up and down, they’ll be kind of trending down over the last couple years, is that, “Hey, I started with a million bucks. I’m four years into retirement and I have $750,000. Or I have –” That’s because of what I’ve taken out. Because of losses. The annuity kind of addresses some of those things where it’s like, yeah, you might take a haircut at the start. But for that haircut, you’re getting $1,000, $1,500 on top of that Social Security that you have kind of rolling in.

[00:19:24] TU: And the emotional side.

[00:19:25] TB: Yeah.

[00:19:26] TU: Yeah. I mean, we haven’t talked a lot about that. Obviously, there’s a risk tolerance question here. But there’s also a peace of mind aspect to this as well in terms of building some of that base.

And I think Tim, what you just shared there in terms of the market changes are probably why we have seen such a strong uptick in the purchase. I shared those stats early on in the episode, right?

I mean, prior to that, we really were on this – what, 12, 14-year run of markets constantly going up. And obviously, we’ve had more volatility. And it would feel, like in a greater volatility or down market, the interests and annuities goes up. I mean, I think that would be human psychology, right?

[00:20:02] TB: You’re looking for more safety. And I would say that annuities typically are going to be – I think of myself as having more of an appetite for risk. But when I think about myself when I’m making these decisions in retirement, I feel like there’s a lot of appeal for this.

It’s like, “Okay, can I peel off a percentage of my traditional portfolio to turn that into an income stream that’s matched with my social security?” That like, at the end of the day, like everything could fall apart. But I still have enough to pay for my living expenses. Like all that kind of stuff. And I think that’s a big deal.

[00:20:41] TU: Tim, I have this visual of like you and I in our 80s like sitting on our rockers, like drawing on the annuities. And like I’m still waiting for the Bills to win a Super Bowl. You’re still waiting for the Sixers process to work out that’s taken forever.

[00:20:54] TB: Yeah. Yeah.

[00:20:55] TU: We’ll see where that goes.

[00:20:55] TB: Yeah, it’s going to happen. I think that the Sixers are good for a run.

[00:20:58] TU: This is the year. This is the year.

[00:21:00] TB: This is the year.

[00:21:01] TU: We’ll see yeah so let’s talk about how annuities fit into the broader income strategy. We’ve danced around this a couple times now with the flooring strategy. We’ve talked about that previously on an episode that we covered Social Security. We’ll link to that in the show notes. But talk to us about annuities as part of the retirement income strategy and creating that floor.

[00:21:19] TB: Yes. Again, I think when we’re looking at this, essentially, we’re trying to address kind of the four ‘Ls’ of retirement. It would be longevity. Do we have enough money to sustain us throughout lifestyle? Are we living the lifestyle that we want to live? Or do we have to adapt that because we didn’t plan enough, or we didn’t save enough, or whatever that looks like? Legacy. What do we leave behind to heirs? Or what are the things that are important to us that we want to make sure that we’re focusing on? And finally, liquidity. Do we have enough money that we can you know pull for those discretionary things?

To me, we’re kind of looking at – with an annuity, we’re trying to address I would say like three major – actually, probably four major risks in retirement. One is the longevity risk, which we’ve talked about. One is excess withdrawal risk, which means that if we’re trying to build a paycheck, there is a risk that we’re going to be pulling too much, especially in the early years. Maybe we’re pulling 5%, 6%, 7% early on. And then later on, we have to pull a lot less because we just pulled too much early on. Or the market is wonky, which is probably the third risk, which is market risk. We want to, with annuity, try to eliminate the volatility.

And probably the other one that’s maybe not necessarily talked about is like early loss of spouse. If you have social security, you and a spouse potentially could be pulling in two checks. But then when that spouse dies, now you have one. Annuity can help that as well, where you still have the dollars coming in.

When we look at it from a flooring approach, the flooring approach is probably the most conservative approach to building a retirement paycheck. The flooring approach calls for special products to be used, a la annuities, to set the floor. What we essentially are trying to do is establish what are the essential spending amounts that we need? And then what are the discretionary amounts that we need? The basic needs would be food, shelter, clothing, transportation, insurance premiums, and health expenses.

The main tools to kind of basically set that floor is going to be social security. Pensions, if you got them. Could be things like a bond ladder or TIPS and I bonds. And probably the last one is the annuity with fixed terms that have fixed terms or fixed payments. Or typically lifetime income streams.

To kind of walk through an example here, is that I might sit down with a client and say, “All right. We have between house and food, gas, utilities, maybe some debt still, medical insurance, that’s going to be $5,400 a month.” And then if we add up all the discretionary between travel, gifts, dining out, entertainment, hobbies, maybe that’s another 2,000. I’m really going to look at that as two separate buckets. We’ll say 5,400 for essential and 2000 for discretionary.

When I try to line up those income streams of like how are we going to cover the essential expenses? I know that this particular client, their benefit from Social Security is going to be $3,000 per month. I know that I have about a 2,400 gap. We’ll round it up to 2,500. About a 2,500 gap for those essential expenses.

What most people do is that that’s when they typically say, “Hey, 4% rule. Draw down the portfolio.” What the flooring strategy says is, “Okay, we have 3,000. We want to get to, say, 5,500 for the essentials. Let’s go out and peel off part of the traditional portfolio and have an annuity fill in that 2,400, 2,500 per month gap.”

So now, we go out, we say, “Okay, we’re going to take X from the traditional portfolio and we’re going to have a $3,000 check coming in for Social Security and then a $2,500 check coming in for the annuity.” That $5,500 meets the floor of those basic essential expenses. And then the remainder of the traditional portfolio, the 401K, the IRA, the simple IRA, the TSP, for those $2,000 for discretionary, we’re going to pull from the retirement portfolio. It could also be for part-time work, consultant work, or whatever.

But that’s the idea, is that create the floor with – if the wheels come off, we have to pay these no matter what. And then the rest, kind of the fund money, comes from the traditional portfolio.

For a lot of people, it’s just too conservative because they’re like, “I don’t want to give up X amount of my traditional portfolio for that $2,500 payment.” I was messing around with the immediate annuities.com. And you can put in a lot of different information to get a quote.

Just give you an example, Tim. I put in my information as if I was 65 and Shea was 60. And I said, “All right, I’m going to put in $250,000.” Let’s pretend I have a $2 million portfolio. I’m going to basically spend that down essentially to 1.75. That $250,000, if I were to basically buy an immediate life annuity, this would cover my life and her life. Would basically pay me out $1,308 for the rest of my life.”

[00:26:38] TU: Per month.

[00:26:38] TB: Per month.

[00:26:39] TU: Yeah.

[00:26:40] TB: If you do life plus 10 years certain. This would be – if I buy this annuity at 65, and then I die at 67 and she dies at – she’s five years younger, 65 herself. It would pay out to the beneficiaries 10 years. There’s also one. That would go down a little bit. That’s 1,299.

[00:27:00] TU: Which makes sense, because you’re getting that additional benefit. Yeah.

[00:27:04] TB: If it’s life with a cash refund – this is like the whole, “Hey if I give the insurance money and I get two payments, do I not get my money back?” Life with a cash refund. Basically, what’s left there, that payment goes down to 1,267.

And then it shows like five-year period certain. This was that whole idea of like, “Hey, if I want to extend Social Security or wait to do that,” if I do $250,000 for five years, you get 4,584 for those five years. 10-year period certain, 2,528. There are so many different variations of this in terms of how you purchase.

[00:27:39] TU: I’m curious. Like 250k, let’s just look at that more simple kind of straight option. 250k that you’re giving up of a nest egg of whatever, $2 million, $3 million, that you’re going to get about $1,300 per month and that was going to cover you and Shea. What are your thoughts on that, right? Because I hear that, I kind of feel the emotional tug in my brain, right? There’s the safety security side that’s like, “Oh, man. I know a check’s coming in every month for 1,300 a month.”

Assuming that I’ve saved enough for that 250k, isn’t going to be a massive percentage of the nest egg? I like that security. And then the other side, I’m like, “Geez! That’s only – what? 13,000, 14,000 a year.

When you look at kind of floor income, I too think of myself as being a little bit more aggressive. And what could that 250 be worth if it grows? You start to get into risk tolerance and some of the analytical side. What’s your gut reaction when you hear 250k to 1,300?

[00:28:35] TB: I don’t know. I mean, again, I think about in the context of like $2 million portfolio, peel off a quarter million. Basically, a quarter million turns into 1,300. For whatever reason, I don’t hate that. I think that like, again, our strategy probably is going to be for us to defer Social Security and wait as long as possible. That payment is going to be pretty substantial.

And then if you pepper in what you can get to at least reach that floor, I think that like just like any time you get like an insurance policy or your estate plan is set, I think there’s a could be like a feeling of like maybe you give up some upside. But like – I don’t know. I mean, I think like if I look at the worries that I would have in retirement, I’m less worried about legacy and I’m more worried about can my money sustain me?

[00:29:24] TU: Which is interesting part of the plan, right? And that to me speaks to the value of, like we say all the time, not looking at this in a silo. Even what you just raise, where does someone sit in terms of their feelings around legacy and maybe leaving money to family or leaving big philanthropic gifts? Or is there risk or concern on the longevity side? Those bigger questions have to be discussed and answered before we can determine what’s the pathway that we’re going to take in purchasing annuity.

[00:29:55] TB: If you look at it from the insurance perspective. If I’m 65 and I live to 95, that’s 30 years of $1,300 payments per month. When you multiply that out, that’s like $471,000. That I’m giving 250, I’m getting 2 – is there a risk that I die before that? Yeah. But you can also put those writers in that say, “Okay, you can get your premium back or a period certain.”

What would that 250 do outside of it? To me, it’s like when you get – I think my approach to this is like I want to be as aggressive and pedal to the metal. But then when I get to like decision time right as I’m setting up my paycheck, I want – and that’s why we talk about like Social Security. I want as much guaranteed income as I can get with reason, right?

I don’t know. Is it a quarter million? Is that half a million? Is it a hundred thousand? And again, like a quarter million out of a $1 million portfolio is a lot different animal. I want to make sure that I don’t have a $2 million portfolio. I have a $4 million, $5 million, $6 million portfolio that I can then look at this.

It’s an exercise in kind of a little bit of the what-ifs. But like what do you value? For me, again, if we put ourselves back on the beach and I’m complaining about the six years and you’re complaining about the bills, the checks are rolling in. Social Security, the annuity check. I guess what I would argue is I’m less concerned about the markets, which my dad, every time I talk to him, maybe because I’m a financial planner. He’s like, “Oh, the market. Blah-blah-blah. My socks.” And I’m like, “Cool.”

[00:31:29] TU: What?

[00:31:30] TB: Yeah. Like, how are those word searches going? But like I think the other argument that you can make is that you can afford more risk in a portfolio. Now the regulars might disagree with this. But this is something that the RICP was saying, is like, “If you can show in the grand scheme of things that you have two clients. One client that is straight, systemic withdrawal, 4% rule, blah-blah-blah.” Like, as you go through the eye of the storm, which is plus or minus five or ten years before and after retirement, you have to be super conservative. But if I can make the case that this client has what they need, then I don’t necessarily have to be as conservative. And I can still let the market do what it does over long periods of time, which is return 10%, 7% as we adjust down for inflation.

[00:32:17] TU: That was my thought. As a piece of this we haven’t talked about, what you’re alluding to right now, is for those folks that have a sizable nest egg. Let’s say that the math shows they need three, but they’ve saved five or six. That’s a very different conversation than someone that maybe, “Hey, I needed two and I’m at 1.2.”

Because it opens up. Again, depending on someone’s goal of risk tolerance, all the factors we need to discuss. If someone has a nest egg of five and the math says they needed three, if there’re other things they want to take more risk with, whether it’s in a traditional portfolio, whether, “Hey, I want to start a business. I want to start a foundation. I want to do X, Y, or Z.” This, to me, is very intriguing that you can write a check for an annuity that doesn’t have as big of an impact on percentage of the overall nest egg. And gives you some of that freedom and capacity not only mathematically, but mentally, to take some of that other risk.

[00:33:11] TB: Yeah. And I think that’s one of the things I think is underrated and all this. It’s just the mental, the psychological aspect of it. Because, again, many retirees, they have social security. But a lot of their paycheck is based on their portfolio. You’re spending that down. Whereas I would make the argument, you have a big chunk that comes out with like the flooring strategy. But then you’re spending that down a lot less comparison.

It’s a little bit of – for me personally if you check most of the boxes, I’m like risky, risky, risky. But then like I’m thinking about this in the context of like, me personally, I’m like, “I don’t know. That sounds pretty good.” If I can convert some chunk of my traditional portfolio to a lifetime income payment and not have to worry as much about a lot of these external factors that we have no control over.

[00:33:58] TU: Which, let me get on the soapbox here for a minute, Tim. This, to me, is such a great example of why having a partner, a planner, a coach in your corner is so valuable. We talk about this at length on the show. But especially in products like this. The same can be said for a long-term disability policy. The same could be said for purchasing a home. Because of how these are marketed, it takes us down a pathway of making a decision on a singular part of the plan, right?

And this is such a great example where we’re really talking about much broader issues, which is, “Hey, an annuity is one part of the retirement income strategy,” which we got to know what else is going on in the rest of the financial plan to be able to know where are we at in terms of building that retirement paycheck, which that information is needed to then determine what we may or may not need in an annuity. And then, obviously, the nuances within the annuity options.

But behind all of that is what’s the point? What’s the purpose? What do I want to accomplish? What’s the risk? What’s the goals? And this is the behavioral part of the plan that I know, Tim, I fall victim to. Like I’m punching numbers in the calculator. And I’m on the website you’re on and I’m like, “Ah. I love it. I don’t love it.” And I quickly lose sight of, “All right. Step back. What’s the purpose? What’s the plan? What are we trying to accomplish? What are we trying to achieve?” And where does this one important but very small part fit within the context of everything else we’re trying to do?

[00:35:24] TB: A lot of these things all fit together. Another thing that we’ve never talked about, which I think has a pretty nasty reputation, is even like things like reverse mortgages. And like how does that fit with this? Yeah, it’s multi-factor – like there’re just so many things to consider.

And I think a lot of people, one, they want to know, are they okay? Are they crazy? And I think pharmacists in particular, they want to know that like the math kind of supports that.

The cool thing about like what we can do is we can model all of these things out and say like, “Okay, this is how it affects you.” You know, the bottom line at the end of the day. And I think that this is another vote in the annuity corner, is I feel like sometimes, in retirement, people, they get so preoccupied with their money and with what the market is doing.

And part of it is like you’re not – your day-to-day, especially early in retirement, there’s this kind of like, “All right, I reached the finish line. My identity has been I’m a pharmacist.” Like a lot of that’s tied up. And like, you know you try to fill. And a lot of it goes to things like finances and the markets and things like that.

But when you look at your goals, like it’s typically not what you really want to do or enjoy doing. Some people do. But I think if you can take some of that stress out and really focus on what matters most, which might be volunteering, or traveling and things like that, and not have to worry about that. I mean, I think that’s a huge benefit.

One of the things we haven’t talked about, there are lots of cons to annuities as well. There’re pros. But there’re cons as well that you have to be kind of aware of and before you make that decision. Because it’s a decision that you can’t really reverse.

[00:37:05] TU: Let’s jump into one of those cons, Tim, which I often hear about. And before I started to dive more into this topic, I certainly had that talking point, which was fees, fees, fees, right? Annuities equals fees. And we probably underestimate the impact of those fees on the overall value of the product. Talk to us more objectively about the fees. How they work on these products? And what we should be considering?

[00:37:27] TB: Yeah. When you think about the costs, the fees, related fees, obviously, you have the premiums. That’s what you give the insurance company for that income stream. But I remember when I got into financial planning, Tim, when I worked in the broker-dealer world, one of the things that I heard was like sell variable annuities. And I’m like, “Why?” And like because they pay 6% to 8% commission. And it was like just talked about like that.

[00:37:53] TU: Do the math on that, right? A couple hundred thousand dollars.

[00:37:56] TB: Yeah. And I’m like, “Okay, the ones that have the higher commissions are – they have the longer surrender period.” Their surrender period, or their surrender charge, is where annuitants cannot make withdrawals during like a period of time or they get penalized. They pay a surrender charge or a fee. And these typically can last five, six, seven eight years. That’s involved.

There are annuities that will work with like the fee-only community like us, where they’re commission-free. But they still have to make money somewhere. It could be where they have admin fees. I wouldn’t make money as an advisor because I get paid differently. But there are still admin fees. Could be a mortality expense. This is the compensation that the insurance company basically earns for taking a risk of like you outliving that amount of money that you give them.

It could be if it is investment, like a variable annuity or an index annuity that there’s the expense ratio that you pay for those investments. And then all those riders. You know, you can have a rider for long-term care insurance that you can access your policy for long-term care. I should say, it could be a rider for return a premium. Or there’s lots of different writers that you can kind of tack on.

That’s one of the things that, regardless of the annuity that you elect to purchase, you’ll likely have to pay at least administrative and mortality expenses. Again, some will not have surrender. Some will not have commissions. And the ones that I typically like, which are typically like the SPIA. Keep it simple stupid. Those are going to be the cheapest for that.

But again, if I pay 1% or 2% to get a lifetime income, I’m willing to have that conversation. Versus I don’t know if I’m going to have that conversation at 6%, 7%, 8%.

[00:39:47] TU: Yeah. Tim, I’m not ashamed about the bias I’m going to have here and saying what I say because we’re proud of the value of fee-only fiduciary advice. This is an example where separating the advice from the purchasing of the policy is really valuable, right?

[00:40:02] TB: Totally.

[00:40:02] TU: If I’m totally in an annuity and I’m trying to understand the nuances. What do I need? What do I not need? Not only does a good-fee only planner able to see the rest of the plan and help us advise it. But when we’re in that purchase decision, which is true with any other insurance policy as well. And that insurance policy is tied to a commission, separating the advice from the commission of the policy can be really valuable.

We’re looking at two, three, four options. Understanding what we do or don’t need. Doesn’t mean people that are selling annuities are bad. But just understanding where the conflicts may arise. And then how do we mitigate those so we can ensure we get what we do need and don’t get what we don’t want?

[00:40:40] TB: Yeah. Tim, variable annuities, and non-traded REITs. Back in the day, those were like sell those. And it was because of those commissions were just ridiculously high. And again, I think most people are inherently good and they want to do right by the client.

But also, if you’re in that system, like you don’t really bat an eye at that. Where I’m like, “Geez.” I was new. I was like that doesn’t seem like something that we should just – I don’t want to say flaunt. But it didn’t sit well with me.

[00:41:11] TU: Tim, last question I want to ask you before we wrap up here. Refers to the pre-tax, after-tax component. My understanding is that annuities can be purchased with both pre-tax and after-tax dollars. And so, how does the tax treatment of annuities differ depending on the type of annuity and how it’s funded?

[00:41:27] TB: Yeah. I think the tax treatment, I think the best way to understand it is that think of it as very similar to a pre-tax and an after-tax IRA. If you purchase – say, we use that example. Let’s say I have my $2 million portfolio but a million of that is from a traditional – a pre-tax IRA. And I’m going to peal the $250,000 for my SPIA out of my pre-tax IRA.

Essentially, the funding source is pre-tax. That annuity will be qualified. It’ll be funded with pre-tax money. Essentially, that means that when those payments start to come out, they are taxed as ordinary income just like it would be if I just withdrew it from the IRA.

[00:42:15] TU: To move down to Florida?

[00:42:17] TB: Yeah, exactly. Right. Exactly. I can void state Yeah. If I say, “Hey, on second thought, I want to fund my annuity with after-tax dollars.” Let’s say I use a Roth or it could be even let’s say a brokerage account. Those are post-tax dollars. You only pay taxes on the earnings or interest portion of the distribution but not the principal.

They look at the bulk of that payment come back as like a return in principle. think of it very similarly to how you would just distribute a traditional 401k or a Roth 401k. One of the things to call out is that annuities still have that 10%. If you do this before 59 and a half, you still have a 10 penalty on those qualified annuities.

I think there is – and don’t quote me on this. But I think if you say I’m 57, so I’m before 59 and a half, and I buy a SPIA and I knew – that means I basically annuitized that within 13 months. I think that circumvents that role because you’re basically drawing it out immediately. I think there are a little bit of like variations to the tax and the penalties. But pretty much I would say think of it as how you would distribute a pre-tax or an after-tax account.

[00:43:32] TU: Tim, great stuff. We’ve covered a lot. But we’re just dabbling into the topic of annuities. One that we’re going to be talking more about along with other topics, especially to those pharmacists that are in that mid-career, pre-retiree, retiree. Things that we know are top of mind as they evaluate that transition maybe soon or a little bit later into retirement.

And I really want to call out, as we wrap up here, our financial planning services offered by our five certified financial planners at YFP Planning. We work with pharmacists at all stages of their career. Whether you’re nearing retirement and you’re thinking about this decision on annuity. Whether you’re in the middle of your career. Or whether you’re a new practitioner, we have one-on-one comprehensive financial planning that is ready to meet your needs based on your goals and your stage of career.

For those that are new practitioners, we’ve got a foundational financial planning offering. For those that are more in the middle to later in their careers, we have a wealth management service. And I will link to in the show notes a link where you can book a free discovery call with Justin, pharmacist from our team, to learn more about those services and whether or not they’re a good fit for what you’re looking for.

Tim, thanks so much, as always. And looking forward to get back to it in the future.

[00:44:41] TB: You got it.

[OUTRO]

[00:44:43] TU: Before we wrap up today’s show, I want to again thank this week’s sponsor of the Your Financial Pharmacist podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home.

A lot of pharmacists and the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% down payment for a single-family home or townhome for first-time home buyers and has no PMI on a 30-year fixed-rate mortgage.

To learn more about the requirements for First Horizon’s pharmacist home loan and to get started with the pre-approval process, you can visit yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts, and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacists unless otherwise noted, and constitute judgments as of the date published. Such information may contain forward-looking statements are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacists.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacists podcast. Have a great rest of your week.

[END]

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YFP 304: How This Pharmacy Entrepreneur Helps Pharmacists Transition Into Their Careers in Canada

Posted on by Caitlin Boyle

Havalee Johnson, pharmacist and Founder of Immigrant PharmAssist, shares how and why she made the move from Jamaica to Canada, how her business helps immigrant pharmacists transition into their careers in Canada, and her business goals.

About Today’s Guest

Havalee is a Jamaican immigrant in Canada. She holds dual pharmacist registrations in both countries and has a combined 8 years of practice experience. Feeling the need for growth and expansion in her life and career, Havalee successfully pursued her pharmacist licensure in Canada, completely self-sponsored, and moved from Jamaica to Canada at the onset of the COVID-19 pandemic in early 2020. She seamlessly transitioned and integrated into the Alberta healthcare system where she practices as a clinical pharmacist. Havalee is people-centric and multi-passionate and loves to help, empower and inspire others. Noting the myriad of challenges encountered by pharmacists’ peers and colleagues who have been unsuccessful in their many attempts to transfer their licenses to Canada, Havalee is on a mission to support and assist as many immigrants as possible. Through her business Immigrant PharmAssist, she helps international pharmacist graduates (IPGs) successfully navigate and accelerate through the licensure process so that they can smoothly transition into their lives and careers while thriving as newcomers in Canada.

Episode Summary

Havalee Johnson is a pharmacist in Alberta, Canada, and her new company, Immigrant PharmAssist, focuses on helping fellow pharmacists transition to a pharmacy career in Canada. After explaining why she stepped into a career in pharmacy, Havalee gives details on her community pharmacy experience, why commitment is one of her most important values, and the financial strategy she implemented to make the move from Jamaica to Canada. Havalee then opens up about what she wishes to accomplish with PharmAssist, whether pharmacies in Canada and America are going through the same struggles, common misconceptions that she encounters about moving to Canada, and where her business needs to be in the next three years for her to consider it a success.

Key Points From the Episode

A warm welcome to today’s guest, pharmacist and entrepreneur, Havalee Johnson.
Havalee’s background in pharmacy, including where she trained and her first job after school.
The community pharmacy experience that made her enroll in pharmacy school.
Why the John Assaraf quote about commitment resonates with Havalee and her life’s journey.
Havalee’s reasons for immigrating to Canada.
Her financial strategy for moving to Canada, and her unique relationship with money.
The problems that she is trying to solve with her business PharmAssist.
Why Canada is an attractive destination for pharmacists to consider.
Whether pharmacies in America and Canada are experiencing the same challenges.
Common misconceptions that aspiring pharmacists have about moving to Canada.
Where Havalee wants her business to be in three years to consider it a success.
The mindset shift that has had the biggest impact on her life since moving to Canada.
What Havalee does to reenter herself when she feels overwhelmed and out of focus.

Episode Highlights

“I’m a very committed person. And it’s not just in my professional life, it’s in every area of my life. If I have an appointment with someone, I’m going to make that commitment; I will show up for the occasion. If I have to do something, I just get it done.” — Havalee Johnson [08:47]

“When other people are having challenges or they have this sort of mindset that things will not work out, it’s because their level of commitment is not in alignment with what they think they truly want.” — Havalee Johnson [09:18]

“There’s so much wealth and information tied up in knowledge. It is very indispensable.” — Havalee Johnson [18:05]

“I worked, I saved, I bought the things that I needed to buy. I didn’t focus on the things that I wanted. It’s called delayed gratification. A lot of us know about it but we don’t subscribe to it.” — Havalee Johnson [18:40]

“It is not a matter of resources, it’s a matter of being resourceful.” — Havalee Johnson [27:39]

“I’ve embraced the fact that if I want to get to where I want to go, I need to do things differently and I have to invest in me. And not just investment in terms of monetary investment, but invest in my mindset, in up-leveling my mindset.” — Havalee Johnson [34:23]

Links Mentioned in Today’s Episode

Episode Transcript

EPISODE 304

[INTRODUCTION]

[0:00:00.4] TU: Hey everybody, Tim Ulbrick here, and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I welcome to the show, Havalee Johnson, a pharmacist-entrepreneur from Jamaica, who helps pharmacists transition into their careers and thrive as newcomers to Canada. During the show, we discuss why she decided to move away from her family and hometown in Jamaica to live and practice some 2,000 plus miles away in Canada, some of the biggest misconceptions that folks have about moving to Canada as a licensed healthcare professional and the steps that she took financially to pay off her student loan debt, her car, accumulate savings, and to ultimately fund the move and transition to Canada.

Now, before we jump into the show, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one-on-one with more than 280 households in 40-plus states. YFP planning offers fee-only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. Okay, let’s jump into my interview with Havalee Johnson.

[INTERVIEW]

[0:01:29.4] TU: Havalee, welcome to the show.

[0:01:30.6] HJ: Hey Tim, thank you for having me.

[0:01:33.1] TU: Really excited to follow up on the conversation from a couple of weeks ago to share what you shared with me, which is a really cool career journey and I think an inspiring story for many with the work that you’re doing now with pharmacists. We’ll get to that here in a little bit.

Let’s start with your career journey. What led you into the profession of pharmacy, where did you do your pharmacy training, and what was your first job out of school?

[0:01:56.1] HJ: Oh, that’s interesting. So interestingly, my first job, I will start with that one, my first job was in a pharmacy, that I think propelled me into my career being a pharmacist because I never wanted to be a pharmacist growing up. So my back story is that I was born and raised in Jamaica.

I lived in Jamaica for pretty much my entire life until I moved to Canada at the start of 2020, and that’s where I also did my training in Jamaica, at the University of Technology. I did my undergrad studies with my bachelor of pharmacy degree. So it’s interesting that I never thought of pharmacy, it wasn’t on my radar.

But as a student in high school, we were required to do some voluntary work prior to graduating and it so happened that I volunteered at the hospital’s pharmacy. So that was my first introduction to pharmacy but I never thought anything of it then. But after I completed six form, which is the equivalent of community college. In Jamaica, you can go to six form if you’re in high school.

You do your A-level studies and then you move into university. One of my colleagues was like, “My mom was saying pharmacy is a cool profession and all this stuff.” I was like, “Pharmacy? No.” I actually wanted to become a linguist. I was the Spanish student, I was the math student, and I did a mixture of the sciences and the arts. But as I’ve told you before, Tim, when we met, that I’m very multi-passionate and a multi-potential.

So I could just basically segue from pharmacy into just about anything, which to me that right now is really exciting. I started my pharmacy career in Jamaica where I practiced for five years before moving to Canada, where I interestingly transferred my pharmacist license and I practice as a pharmacist in Canada as well.

[0:03:45.1] TU: What I like about what you just shared there, Havalee, is that pharmacy is a part of your story, it is not the only story, right? So it’s an important part of the journey, you’re obviously helping other pharmacists but you know, you mentioned you can pivot in different directions. We’ll talk about the value of diversification here in a little bit and if I heard you correctly, it was a hospital experience that led you into pharmacy school. But you would end up practicing in community for a while, is that correct?

[0:04:11.0] HJ: Yeah. So after high school, so we had financial challenges growing up and my mom was basically a single parent and my sister went to nursing school prior to me going to pharmacy school, and she was like, “I can’t afford to send you both to university at the same time. So you have to work for a year.” And I was like, “No way, I’m not working.” Because for me, school was the only thing that I knew and actually, I found my value and my education.

As I told you from my back story that I never felt worthy, and I was told growing up that I was ugly. So, I just buried myself in academics. So when my mom told me I had to work prior to going to university, I was crushed. And I thought she was actually kidding but she was serious. So she went and got me a job basically. She made recommendations because she loves to talk about her children and she found a pharmacy owner.

She was like, “My daughter, she’s very brilliant, she’s interested in starting in pharmacy.” I did not want to go to work in a pharmacy. I wanted to go to university and I did an application to the pharmacy owner. That’s an interesting part of my story, we’ll have to talk about that another time, but it was my penmanship that was the hook. Like, my penmanship is really great, if I may say so myself.

So the owner saw my penmanship and he’s like, “I need to meet this person” and so I interviewed. My personality and I fit right into the pharmacy setting. I worked there for 15 months as a pharmacy assistant. So that was my first introduction to business as well because I got to do a little bit of cashiering, I did the OTC stuff, I got to do account reconciliation, I got to do just about every little thing in the pharmacy.

So I was like a floater and I worked there, but the impression that was left upon me by the pharmacist, who was the chief pharmacist at the time, her name is Alicia. Alicia, she was very impressionable. She was very proficient. She was very professional and I like the way she dealt with the parents, and that was my inspiration for going to pharmacy school. I wanted to emulate her and I was like, “Wow, this is really nice.” I enjoyed my 15 months there and I apply for pharmacy school.

Interestingly, I applied for pharmacy school prior and they didn’t have any space and they’ve gotten a letter, an email, a letter saying that I didn’t meet the qualification requirements. I reapplied the following year and I got through but all they needed to tell me was that they didn’t have any space. They didn’t have the capacity but I applied, I reapplied because I’m not the person who gives up easily. With the same credentials, I got in and then I had a whale of a time.

I suffice to say, I mentioned earlier that we had financial challenges and then the pharmacy was how I got through university. My mentor, my support system came through the pharmacy and that was how my accommodation was paid for. That was how my books were taken care of, that was when I got my first laptop.

I was 20 years old when I got my first laptop and just looking back now, it’s amazing to see how far I’ve come since then. Yet, that’s how I got through pharmacy school and I mentioned my friend Alicia the pharmacist, every single month that she got her salary, she sent me some pocket change, every single month, and I just feel so blessed.

[0:07:32.9] TU: Let’s make sure Alicia hears this episode, we’ll have to share it with her as you give a shout-out to her. But one thing that really stood out to me when you and I talked a couple of weeks ago is, you know, I have the opportunity to talk with different pharmacists, pharmacy owners, entrepreneurs all across the country every week, which is an incredible part of the job and the work that I have and doing the podcast.

But something really stood out about our interaction. I think it was your mindset, it was your passion, your enthusiasm, your resilience, you described that a little bit, your optimism, it’s contagious. And you shared recently on LinkedIn a quote by John Assaraf. You said, “If you’re interested, you will do what’s convenient. If you’re committed, you’ll do whatever it takes.” Tell us more, why does that quote resonate with you and resonate with your own journey?

[0:08:23.3] HJ: It absolutely does. Thank you for bringing that up. I tend to forget the things that I put out there sometimes because I’m just, you know, going from what’s inside that I wanted to share. But again, I buried myself in my academics and I found that for me, things just seemed so easy. And it’s just when persons are approaching me and asking, “How did you do this, how did you accomplish this?” that I realized that I was a very committed person. And it’s not just in my professional life, it’s in every area of my life.

If I have an appointment with someone, I’m going to make that commitment, I will show up for the occasion. If I have to do something, I just get it done. So there are no entrances and even if there are obstacles along the way, it doesn’t prevent me from going ahead because I’m so committed to whatever task it is that I have in front of me, whatever commitment that I’ve made. So, when other persons are having challenges or they have this sort of mindset that things will not work out, it’s because their level of commitment is not in alignment with what they think they truly want.

So I thought that quote was fitting for the post that I did. I didn’t realize that it had gone over on to your platform as well. So thank you for the reminder, but I’m actually very committed and it makes the process much easier. It makes things — like, you don’t focus on the problems when you’re committed, you find creative solutions, and one problem has more than a thousand solutions if we were to go through and think about it logically.

[0:10:01.2] TU: Yeah, I mean, mindset really matters, right? I think that’s what you’re alluding to there and you could have two people that are facing a very similar problem but how they approach it and how they receive that challenge can be night and day. I had a chance to talk with Lauren Castle recently on the podcast, who is the founder of The Functional Medicine Pharmacist Alliance, and she talked about a book that its purpose is not a side hustle.

Meaning, what you said is, we bring our purpose and our intentionality to every single interaction, every single day. Now, easier said than done, right? And I often wonder, “Hey, what would the day look like as a parent, as a father, as a business owner, what would it look like if I did that every moment?” But such a good reminder.

Let’s talk about your transition to Canada. So you mentioned your upbringing in Jamaica. After pharmacy training, you worked a little over five years in community practice and then ultimately, you make a bold decision to move 2,000 plus miles to Canada, away from your home country, your family, your friends, your professional network. Why, what led you to that decision?

[0:11:07.0] HJ: I just don’t, it just came out of nowhere. I think Canada for me signified not security, because there’s not security anywhere, but Canada had some of the things that I desired as an adult. For example, growing up, our healthcare system is not the best. I’m not here to criticize our healthcare system but I lost my dad through him having health challenges going through dialysis, kidney failure, we couldn’t afford the dialysis.

I recognize that in order for me to serve people, I need to be healthy and I need to have that access. I’m not focusing on being ill but if things were to happen, if things were to hit the ceiling, I want to know that I have the accessibility. Also, when I completed pharmacy school, I got a statement for three million Jamaican dollars for my student loan debt.

I was like, okay, I didn’t come from the typical middle-class or upper-class family that had the financial means to send me to school. I had that. I was like, “Okay, I need, when I start my family, for my children to have access to work less education.” That was one of, again, these things were my deep why’s. Why I decided Canada.

Canada is underpopulated and they love bright young minds. I should just try for Canada and I had that thought when I went into the pharmacy. The first pharmacy I worked in after I got my license, my boss actually, they were selling the pharmacy and they were like, “Are you interested in buying?”

I’m like, “No, I’m on my way out of here.” I just told her, “I’m on my way out of here.” That was 2015. I didn’t know how, I didn’t have any connections. At that time, I had persons telling me I needed to go back to school and here I am, in three million dollars worth of student loan debt, now I’m at the phase in my life where I think I need to acquire things, which no, in retrospect, I didn’t need to acquire things. I need to acquire experiences instead.

So I had Canada in mind and I made it happen. I was committed, I did whatever it took. I had the two jobs. I was trying to be very savvy with my finances because again, we had the challenges of not having things that other children had that you probably, why you would have had but no, I’m like, it’s okay. I didn’t really need them but the mind of a child is totally different from the mind of an adult.

When you’re a child, you’re very impressionable and we have very receptive minds but as an adult, you know that you might need to be receptive as well as fertile and the things that we allow into our spaces has to be totally different from the focus we had when we were much younger.

So, I had Canada in mind and I’m like, “Okay in Jamaica, you get two months maternity leave when you start your family” and I was like, “That’s no time for you to nurture and care for an infant” and I’m like, “Okay, Canada, you could get up to a year as maternity leave” and also the scope of practice.

I was frustrated at times, so I had to do a year’s internship in the hospital after pharmacy school and I was frustrated with the way things were systemically, like the things that patient — I’m very passionate about patient care and I’m an advocate for people because I treat people the way I would want to be treated, the way I want my family members to be treated. And they have to go through too many hoops and hurdles to get even a registration number and a prescription, for example. These are things that I would have done differently but I’m not in administration.

I’m not in a certain position to implement those changes. So when I completed my internship, I said, “I cannot work with this system because it’s not in alignment with me.” And then going into community, I had so much autonomy and my boss’s wife is a pharmacist and my boss. They respected me, they allowed me to practice to my fullest scope but my scope was still very restrictive.

If the doctor wasn’t available, I couldn’t fax, I could make changes to the prescription. I love that about Canada, because the scope of practice here is that much greater. You can adopt a prescription, you can prescribe for a minor ailment, you can order labs, you can see the patient’s actual lab results, and that to me was exciting and that was one of my reasons for wanting to move to Canada as well.

[0:15:29.1] TU: And when you take a bold move like that, whether it’s moving from Jamaica to Canada, whether someone decides they’re going to start a business, which you did that as well. We’ll talk about that here in a little bit. But any bold move I think often requires one to feel like they’re in a sound financial position to make that move with confidence, and I talk about this in the show all the time.

If you’re starting a business, not that we need to have every single T crossed and I dotted with our financial plan, but we want to have some level of a foundation that we can approach that business with confidence, and not be having the stress and anxiety of personally not being where we need to be. So I ask that because, for you, you shared with me before that you paid off three million dollars in Jamaica debt from pharmacy, which was equivalent to about 30,000 in Canadian, is that correct?

[0:16:20.1] HJ: Correct.

[0:16:21.1] TU: Paid off a car, you accumulated savings, there is cost of moving, what was the strategy for you to get yourself in the financial position to be ready to make that bold move?

[0:16:33.6] HJ: Thank you for that question. I think that my relationship with money is very unique. I used to say that I don’t know how my mom makes more than a hundred cents out of a dollar because she did it, and I think I got some of that from her in terms of being very savvy about my finances. The minute I started working, I said I’m going to start saving towards this Canada journey, and that’s what I did.

I earned, I took care of my obligations. So in pharmacy school, we actually learned about the reducing balance method. I’d never done any business subjects, I never done accounting prior, I learned about the reducing balance method. I applied that to my student loan and my debt payoff but I also did it smartly. I also referenced my friend Alicia. She allowed me, whenever I needed to do any business transaction, not business but any personal related transaction if I wanted to travel to buy an airline ticket.

She was the person that got the credit card print posts from. You use, you pay on time and in full so you don’t accumulate an interest, and then I just started learning that, “Okay, if I use it directly after the due date, I get at least 51 days to make that payment.” Because the date for the statement will come and then you’ll have time to pay. So I adopted that from Alicia, that was where it started initially and then I started reading the financial section of the local newspaper.

There’s so much wealth and information tied up in knowledge. It is very indispensable and I did that, and using my credit card to pay down my student loan was a part of my strategy because I had a credit card that had cash back. So I would pay the student loan and I’d get back some of the money and I built up great credit. I honestly never checked my credit back in Jamaica, but I knew that my credit was great because I started out with a credit card of USD 100,000 in 2016 and by 2018, my credit limit increased to over a million dollars.

So I worked, I saved, I bought the things that I needed to buy, I didn’t focus on the things that I wanted. It was called delayed gratification. A lot of us know about it but we don’t subscribe to it . And just being very disciplined in my finances, paying my debts, honoring my financial obligations, doing everything that I needed to do, it allowed me to save and I also set up, I didn’t even know for sure but I invested in a life insurance investment policy.

I just heard about this in financial advisor. I called him up and met with him, he explained some stuff to me, then it was just all his. I didn’t understand what were mutual funds, I didn’t know the jargons, I didn’t know what was going on behind the scenes but I knew I needed to make plans and preparation for my future. So I invested in a policy and I started saving every single month from my salary.

I told myself, “This is my retirement plan” and over a period of time, it accumulated so much funds. I was like, “Whoa, this is amazing.” It is amazing to see the tiny steps that we take, and over time, we adapt quickly and I think that was a very big thing for me. But I think it really boils down to me being the disciplined person that I am with my finances. I have never paid any money for credit card interest while I work in Jamaica. Never.

I paid on time, in full, and over a two-year period, I got back over USD 130,000 in cash back just by using my credit card.

[0:20:19.6] TU: It makes sense when you’re paying big student loan payments, right? And the cashback of that. So I’d like what you share. I think there’s a couple of things that really stand out there, your relationship with money and really, understanding what is that, where does that come from, our upbringing typically, what are the good things that we have a positive relationship with money, what are the not so good things.

Being aware of that and then really, what I heard is a lot of discipline in setting your goals and being intentional with how you were going to achieve those goals, which obviously, allowed you to make some of the transitions and move that you did make.

I want to shift gears and talk about the work that you’re doing through PharmAssist and as you say on LinkedIn, “I help pharmacists transition into their careers and thrive as newcomers in Canada.”

So two questions for you here, what problem are you trying to solve with this business, and what benefits does living in Canada for pharmacists, that it may be an attractive option for people to consider?

[0:21:17.0] HJ: Thanks for that question, Tim. So in my business, actually I just studied shortly a backstory, PharmAssist started off as a podcast but it was a podcast to help patients, because I wanted to use my voice that I wanted –

[0:21:29.9] TU: I saw that, I found it, yes.

[0:21:32.4] HJ: You did? I wanted to utilize my voice in a way that could be meaningful and impactful. I’ve always stayed away from public speaking, anything that required me to be in the spotlight. So, I started PharmAssist but I didn’t, at the time, know how to get in front of the right audience, but it was well working in pharmacy. I’ve noticed certain trends, I saw the frustration, I heard the stories.

I’ve met several international pharmacists who were struggling and when I say struggling, in terms of transitioning into their careers in Canada. They’re already in Canada but their credentials have not been recognized. And if you have noted recently on my platform, I’ve been talking about decredentialization, having high credentials is not yet recognized. So you end up doing survivor’s jobs and so your income earning potential has been significantly diminished.

So what I aim to do is to empower especially persons who are coming into Canada to let them know, “Hey, there is a possibility for you to transition smoothly into your career.” You can take an alternative route than coming to Canada as an international student, which is I believe one of the most expensive roads to come to Canada, or even coming and not having your degrees transferred, getting, passing your board exams.

Getting your pharmacist license recognized so that you can continue in your practice to create impact but also to make an income so that you can have a higher standard of living. I successfully transferred my license and I started while I was working in Jamaica, because I was so fortunate I had the discernment to know that if I move to Canada prior to getting my license, I’m going to have to move into the fast lane, but also be doing menial jobs, low income, so I might end up burning out.

I need to be doing maybe two or three jobs just so that I can survive because when you convert the dollar, it’s totally about being a millionaire in Jamaica. I’m a ten thousand-narian in Canada. A million Jamaican dollars is 10,000 Canadian. So it doesn’t stretch very far, especially with the cost of living. I wanted to help those international students who have the misconception that they need to first move to Canada and get their credentials transferred.

But if their desires or they desire to move to Canada, there is a way for you to zone in focus on passing those exams and getting into practice because statistics show that it’s in the low 40s the amount of international students who pass the exams, the statistics are very low. I think, again, it’s because of lack of knowledge. People are not aware of the commitment that they need to make to pass the exam.

The investment that they need to make to get through the programs that they need to go through so that they can, and I believe every single pharmacist across the globe, they are capable of going into their careers in Canada successfully, it’s just that they don’t know the right strategy. They need someone to maybe hold them accountable, someone to show them what pathway they need to take, what direction they need to go. They just probably need like a human compass and I think that’s where I stepped in.

[0:24:55.8] TU: They need a guide, right? They need someone that will help them along. I’m curious, our listeners know very well that there’s many challenges right now in community retail practice in the United States in terms of burnout and expectations and staffing. There’s obviously a lot of work that’s being focused in advocacy on that.

Because of that, are you seeing interest from pharmacists in the US potentially moving to Canada as well, or are those same challenges we see in community retail practice here in the US, are those very similar in Canada?

[0:25:28.7] HJ: I have seen interest from pharmacists in the US who want to move to Canada for a myriad of reasons including — it’s like in the US, where it’s state-to-state practice, each state they have their own scope of practice or their own regulations. It’s the same thing in Canada with provinces, but a province like Alberta where I was practicing, we have a wide scope of practice.

So it may be for the scope of practice, it may be to escape the burnout. The thing about pharmacy practice in Canada as well, because immigration, and people are coming in full force. A lot of people are migrating to Canada then the workload becomes that much heavier as well. So there is burnout being experienced by pharmacists in Canada as well but it depends on the settings.

It depends on whether you’re working with a corporation or if you are working for an independent, or you could be working in just about any setting. But I don’t know if the challenges that are being faced in the United States if it’s that the same magnitude in Canada. Again, the cultures are very different, things are quite subtle here and maybe Canadians, they don’t want to seem as if they’re complaining.

But a lot of the challenges that people are experiencing in the US I can say that, from my own experiences, that some of them are similar in Canada. It’s just that people are not advocating at the level that it’s been done in the US.

[0:26:59.4] TU: Havalee, as you are talking to people that might be thinking about making the transition as a pharmacist to Canada, I suspect you hear from a lot of folks that their interested but they may have some type of misperception about what that transition may look like. Is there a common one that typically folks have that might hold them up in their journey?

[0:27:18.4] HJ: Yes, Tim. So one of the most common misconceptions that persons have in terms of transitioning into their careers in Canada, they believe that they don’t have the money to get it done. They don’t think they have the financial needs. And I am here to tell them that, like my coach said to me, it is not a matter of resources, it’s a matter of being resourceful. So a lot of these folks who, they will say, “I am going to pursue the school road, I am going to apply for school.”

And this is where the misconception comes in, because it is more expensive for you to apply as a student than it is to apply to transition into your career as a pharmacist, and even to move to Canada as a pharmacist, as a skilled educated professional. And this is not limited to pharmacy alone. I’ve had just today a connection on LinkedIn sent me a message saying, “Hey, I came to Canada as a student and it lasted for three months and then I just spent my six months and I returned home because it was so expensive.”

The connection just said, “I spent 15k.” And if you are moving to Canada as a skilled, educated professional and you are a single person, you need about 14k to show the government proof of funding, about 14k. If you come as a student for one semester for three months, that’s 15k. You will not see that money again. The money for a year of residency, you will get to keep that money.

So the misconception is, “I need to come as a student, ride along on the struggle bus, and then struggle to get my credentials transferred, and then five years later, I’m still not registered.” I’ve had a colleague in pharmacy who has been in Canada for 10 years and still unregistered. I’ve had a colleague who’s been in Canada for four years and still unregistered. Another misconception if I may is that the exams are too hard.

Because the statistics are low, it doesn’t mean that it’s not passable. You just need to have a strategy, you need to have a plan, and you need to have your commitment. You need to have these things in place and once you pursue the exam, it’s kind of like going to pharmacy school, there’s no difference. You go through the exam, you pass your exams, you can transfer your licenses. So those are two of the biggest misconceptions that I have had.

[0:29:48.8] TU: Havalee, I am curious, since you are on the front end of this business journey, which I think many people will find refreshing hearing some of the early experiences you’ve had of starting the business. I’m curious, as you think out let’s just say three years as a marker, what does success look like for you three years from now?

Personally, with the business, I mean, I’m sure there is a lot of overlap there but as you’re at the beginning of this and obviously, you’re in the day-to-day, you’re kind of in the weeds, you’re thinking about growing it. But I know when I have these conversations there’s often these feelings of, even if it’s not clear, I kind of see the vision of where things are going. What does that look like for you in three years?

[0:30:26.5] HJ: In three years from now? Wow. I see myself running a very well-organized, fully-automated, technologically included business that merges healthcare with immigration. In three years, I see myself there. I see myself onboarding more people to solve the many problems that we have, whether it’s in the health system and also to help a lot of people to change their lives. The way immigration and moving to Canada has changed my life, I want that other person to have a similar experience and especially if they have a family.

They will get that social support and also to help them to up-level in their finances. I could introduce them to Tim. I was like, “Tim is a financial pharmacist.” Yeah, so in three years from now, I can see myself positioning myself in the marketplace as the go-to person for any internationally educated pharmacist as well as persons who are interested in migrating to Canada.

[0:31:29.8] TU: I love that. Here’s the reason why I asked that question, well one, I’m curious but two, as I talk with a lot of aspiring or early pharmacy entrepreneurs, I’m often encouraging them like you’re in the weeds, you’re building it, you’re wearing every single hat of the business. That’s what you need to do when you get started but it’s so important even if you don’t know exactly where things are going to go, because none of us do.

This will evolve over time. It is so important to have even a fuzzy north star of what is this vision for a couple of reasons, one, that gives us the focus of, “Does the activities I’m working on, the products and services I’m developing, how I’m spending my time, does that line up towards that vision?” And obviously gives us clarity to the messaging that we have both for ourselves as well as externally.

Then I think it also provides a really important source of motivation, right? Because something you just shared there highlights that so well. You said, “In three years I really see running a well-oiled technologically included business with a lot of automation that is focused on the intersection of immigration and healthcare.” Now, pharmacists moving and practicing in Canada, that can be one piece of that business, right?

But the intersection of immigration and healthcare is a much bigger vision and obviously, you are taking a very important first step right now. So I love that you’ve thought about that. I think it is such a good example of what are the things that I am doing right now, the steps that I am taking, the efforts that I’m moving, the products and services I’m developing, and how does that align with where I want to see things going in three to five years, so really cool.

Thanks for sharing. I want to wrap up by asking you two questions, which I have stolen from Tim Ferriss who ask some really great questions on his podcast. That first question is, in the last let’s say couple of years since you’ve made this transition, what new belief, behavior, or habit has had the most significant impact on you personally or professionally?

[0:33:34.0] HJ: So over the last five years or let’s say ten years, let me just even say even three years, a lot has shifted for me both personally and professionally and I’ve had to embrace a new mindset, I’ve had to embrace a new philosophy and I’ve had to become a student. I have had to question my belief system and the things that I grew up knowing. I’ve had to unlearn a lot of the things, unlearn the belief that I wasn’t worthy enough, I wasn’t good enough.

That there were limited supplies of everything out there when there actually is an abundance. I’ve had to retrain my brain and I’ve gotten into personal development. But one of the things that I’ve done most is embrace the fact that if I want to get to where I want to go, I need to do things differently and I have to invest in me. And not just investment in terms of monetary investment, but invest in my mindset, in up-leveling my mindset.

So, I’ve had to surround myself with other women in business, in a community setting where there are people who are empowering you and inspiring you and not just settling for mediocre things. I’ve had to make that shift and I’m so grateful that I’ve had, again, the discernment to know that. If I see things going on a particular trajectory and they want a different outcome, then I can. I have the power within to change that direction, so yeah.

[0:35:05.5] TU: That’s a really good one. I think it’s so important that we are aware of what are those external influences or the stories that we’re telling ourselves that are leading to some of those self-limiting beliefs and behaviors that we have. Well, one of the real examples of this, you probably see this all the time is you mentioned the 40% passage rate of that examination, right?

I can almost assure you that if you talk with someone that does not know that number and you know, maybe they are confident about this transition, they’re feeling good about it, they’re confident in their abilities and all of a sudden, you throw that number on them like I am sure you can see the confidence and the demeanor change, and all of a sudden the ceiling comes down of what they think is possible.

I think it is so important that we’re constantly examining where do these beliefs come from and why do I have this ceiling in my mind? We all have them, when we think about our goals over the next year even in 2023, even if we are challenged to think big, dream big, we all have a ceiling. It is just a really interesting question of like, “Where does that come and why is that there?” Gay Hendricks talks about this in The Big Leap, which is a great book that I kind of –

[0:36:12.5] HJ: That’s the book that I just completed, just completed.

[0:36:14.5] TU: Oh cool.

[0:36:15.6] HJ: Yes, talk about that ceiling and how when we get there, we tend to self-sabotage. I love that book, I love the concepts that it brings across.

[0:36:25.7] TU: My second question for you Havalee here again, stealing this from Tim Ferriss is when you feel overwhelmed or unfocused, what do you do to refocus and get yourself back on the right path?

[0:36:36.5] HJ: So, I tell people that I have a really short attention span but that’s not true. What I’ve come to realize is that I’m not focusing on the most important things that I need to get done, so I get distracted. I get sidetracked. Whenever I feel unfocused or overwhelmed, I first have to check my environment. What is it in my environment that I need to remove? What is it that I need to, what systems do I need to put in place? What habits do I need to reinstall?

For me, I listen to Patrice Washington’s podcast, where she said, “Clutter is a physical manifestation of chaos in your mind.” I check my environment to see if everything is organized, what do I need to clear out. I also try to do some brain dump, I do write out the things that just free up my mental queue. I also do journaling and sometimes I do meditation, I don’t do it often enough. I know I need to get centered and get focused and get realigned and write out the things that are most important to me.

What is it that I need to get done right now that’s going to have the greatest impact on the big goals that I have for myself and just to add to that, it’s funny that when I was operating in my imposter syndrome, that I felt fearless because I didn’t know that I had imposter syndrome. I was just smashing through goals and moving from one goal to the other and then when people were like, “Okay, so how did you do that?”

I was like, “It’s no big deal” because I was just operating. But now that I am more centered and becoming more aware of who I am and what I bring to the table, I am smashing through my imposter syndrome and just showing up anyway and trying to de-identify. It will take some time but try to de-identify, I need to divorce imposter syndrome altogether so that I can operate in my greatness and operate in alignment.

[0:38:38.5] TU: I love that reflection and I think the comments you have about clutter are really interesting. I found that as well that sometimes it needs to be a brain dump, sometimes it needs to be a physical organization of the space so that we can focus and align and get ourselves working on the thing that’s most important.

Other times I have found that sometimes we’re not working on the most important task, because typically there’s some fear that might be underlying us wanting to lean into that. We’re working on something that’s maybe a little bit easier or not as significant or that fear doesn’t reside is kind of an escape route, that typically fear of failure, but it could also be fear of our identity or what other people think, fear of success, exactly, so.

[0:39:20.2] HJ: I have experienced that myself.

[0:39:22.6] TU: Yeah, an important question for folks to reflect on, if you find yourself often not focusing on perhaps the most significant or meaningful work that you could be doing, what’s driving that and if it’s fear, what’s behind some of that fear? So Havalee, this has been awesome as I knew it would be. Where is the best place that folks can go to learn more about you and to follow your journey?

[0:39:44.8] HJ: Oh, absolutely. So I may be found on LinkedIn, Instagram, and Facebook. I go by my actual name Havalee, surname Johnson. On Instagram, I’m @havalee_89. On Facebook, I’m Havalee Johnson and that is in fact my real name. I’ve had persons reach out to me like, “What is your real name?” I say that’s my real name.

That it’s because a lot of persons have been scammed, a lot of persons have had encounters with people who are not authentic and so they’re questioning whether or not this person is real. Like out of nowhere Havalee showed up prior to March, April of 2022, I was a ghost on LinkedIn. I would not show up, I would not write anything, I would not advocate.

If Tim had asked me to appear on his podcast, well, he wouldn’t have known me but if he just mysteriously came across me and say, “Hey, would you like to be on my show?” I’d be like, “No.” I have passed up important opportunities in the past. So I appreciate being on your platform, Tim. Thank you so much for having me and it was so great connecting with you on LinkedIn, that’s where it started.

[0:40:53.2] TU: Thank you for saying yes and I hope folks will follow your journey. I’ve enjoyed it as well. So thank you for taking time to come on the show, I appreciate it.

[0:40:58.7] HJ: Thank you for having me.

[END OF INTERVIEW]

[0:41:00.0] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information on the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog post, and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 303: How This Pharmacist Paid Off $115k in Two Years

Posted on by Caitlin Boyle

Dr. Donisha Lewis talks about her debt-free journey, why and how she got involved in real estate investing, and how she and her husband got on the same page to achieve their financial goals.

About Today’s Guest

Dr. Donisha Lewis is a clinical pharmacist at an ambulatory care facility where she collaborates with providers of the Hematology/Oncology and Internal Medicine departments to create treatment plans for patients. She attended the University of Louisiana at Monroe College of Pharmacy where she received her Doctor of Pharmacy degree in 2011. During her career as a pharmacist, she has served patients in the community, inpatient, specialty, and ambulatory care settings. She is also a real estate investor alongside her husband. She enjoys traveling, spending time with family, and volunteering.

Episode Summary

This week on the YFP Podcast, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, welcomes Dr. Donisha Lewis to the show to discuss her debt-free journey. During this episode, listeners will hear the how and why of Donisha’s path toward financial freedom, how she got her start in real estate investing, and how she and her husband got on the same page to tackle $115,000 in debt in just two years. Donisha shares her pharmacy story, what drew her to the pharmacy profession, and her financial picture upon graduation from pharmacy school. With plans to tackle her $99,000 in student loan debt as soon as possible, her mindset and approach to debt payoff were critical in achieving this goal. She shares practical tips and tricks from her experience in paying off a combined $115,000 between herself and her husband, and advice for recent graduates who may not have started making payments on their loans due to the student loan pause. Making sacrifices while remaining realistic, Donisha built a budget that allowed her and her husband to combine the snowball and avalanche strategies. Using her budget, she identified wasted spending and analyzed her savings to determine the amount she was comfortable contributing to the debt payment. Tim and Donisha talk about the importance of having a shared financial vision with your partner and the benefit of having varied strengths in personal finance.

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I welcome Donisha Lewis onto the show to talk about her debt-free journey, why and how she got started in real estate investing, and how she and her husband have been able to get on the same page to achieve their financial goals. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals. You can book a free discovery call at yfpplanning.com. The team at yfpplanning includes five certified financial planners that are serving more than 280 households in 40-plus states. YFP Planning offers fee-only, high-touch financial planning that is customized for the pharmacy professional. Whether or YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. Okay. Let’s jump in our interview with Donisha Lewis. Donisha, welcome to the show.

[0:01:02] DL: Thank you for having me.

[0:01:04] TU: Well, I am really excited for this conversation. You and I connected via LinkedIn through a mutual colleague, Dr. Jerrica Dodd. After we connected, and I learned a little bit more about your journey as eager to share your story with our listeners. So we’re going to dig into your debt-free journey, paying off the student loans. We’ll talk about some real estate investing as well. But before we get into all of that, let’s start with your career journey. Where did you go to pharmacy school and what led you into the profession?

[0:01:34] DL: Absolutely. I completed my pharmacy degree at the University of Louisiana at Monroe, back in 2011. As a child, I wanted to be a pediatrician, actually. My mom actually put me into a program, at the time, you could kind of shadow physicians. We didn’t shadow them seeing patients, but just the day in the life when they were doing their office hours. We went up to the operating room, and I saw all the tools and I just said, “You know, I have to find something else to do, because this is pretty intimidating.” I didn’t really want to perform any surgeries. I really didn’t think that I wanted to do anything that had that much patient contact as it related to doing surgery, stitches, anything like that. That really made me reconsider being a physician. So I started researching other medical professions that weren’t as hands-on, if you will. That’s when I came across pharmacy.

I actually have an uncle who’s a pharmacist too. That led me to the profession. I was still able to interact with patients, but not necessarily be as hands-on as I would have been as a physician. That’s what led me into the space.

[0:02:44] TU: I can relate to that. I went into pharmacy right out of high school and I was interested in medical professions at large. But the whole blood thing, you know, kind of scared me away. You hear that story often with pharmacists. One of the many reasons. I’m not sure that’s a great reason not to go into other ones, but it was an important one for me at that time. Tell us more.

So you graduated 2011. Coming up on your 12 years out into the profession, what have you been working on this point since graduation? I understand you’ve had experience in community practice, ambulatory care, a little bit in management as well. Give us that career journey over the last decade or so.

[0:03:22] DL: Sure. I began my career with one of the large retail pharmacies. I stayed with them for a little while. Then, during my time with them, I was able to get a PR, inpatient clinical pharmacist position, so I was doing both. From there, I was able to transition into a specialty pharmacy role, which was within a hospital practice. I like to say it was a combination of outpatient community pharmacy, as well as some inpatient clinical pharmacy. I really enjoyed that role. Now, I’m with an academic-based practice, and I’m helping them expand pharmacy services there. I am in a clinical role there, and we are expanding our services throughout the practice. We have some collaborative practice agreements in place. I’ve also started an ambulatory care clinic with the Department of Internal Medicine, and we’re launching specialty pharmacy there as well.

[0:04:16] TU: Wow. I love it. I love it. Some of our listeners, especially those that have graduated here in the last five or so years. I graduated in 2008, so we’re pretty close in that timeframe. When you and I graduated, student loans were – they were a thing, but they weren’t as big of a thing as they are today. We see lots of graduates coming out with you know, $200,000, $250,000 of student loan debt. Average right now is about 160,000. I think sometimes, when we talk about our own journeys, 10, 12, 13 years ago, people were like, “Oh, well. That was only $100,000.” It’s like context, context of what pharmacists were making at the time, as well as – that’s still a substantial amount to pay off. I think we’ve become a little bit numb to the indebtedness and the debt loads that are out there.

Let’s talk about your student loan journey. Give us the juicy details. How much did you have upon graduation, and what was your mindset at the point of graduation about how you wanted to approach the student loan debt?

[0:05:20] DL: Sure. When I graduated, I came out with right under $100,000 in student loan debt. Like 99,000 and some change is what I owed. For me, when I came out of school, we were at the end of the shortage, approaching really a saturation of pharmacist. One thing that I wanted to do was definitely be conservative in my spending because of that, but also not being comfortable with that type of debt that really led me to make decisions. Basically, like I was still a college student, related to my finances. I’m sort of grateful for that time coming out of school. It was an interesting time, because I saw a pharmacist when I started pharmacy school being offered all these incentives, and bonuses, and that stopped.

As soon as I graduated, those bonuses, and all of those incentives, they stopped. That’s a very big difference. I heard of people getting these extremely, just extreme amounts of bonuses, cars, all these things. For all of that to stop, I really wanted to be very cautious in my decision-making financially, because I really wasn’t sure what the future of pharmacy was at the time. One of the things to do with obviously, live below my means, but also reduce this debt. That was very important to me. With that large number, though, it’s intimidating.

Like you said, nowadays, 99,000 is not that much, unfortunately, for a lot of pharmacy grads. But to me, that was a lot. That was the framework, the mindset. I really did not want to have that debt looming over me like that for an extended amount of time.

[0:07:07] TU: It’s interesting to hear you share the timeframe you were in. I graduated in 2008, which was still at the time sign-on bonuses. We’re happy. I remember I made the decision to go do residency. I was going to make a whopping $31,000 salary all the while. Cars and sign-on bonuses we’re having. I remember one specific offer that was out there. It was one of the big chains that was offering a million dollars to go work in Alaska for a three-year deal.

[0:07:31] DL: Wow.

[0:07:33] TU: I remember, I mean, times changed significantly. You saw that happen, you graduate in 2011. We’re actually swinging back into some of that right now, which is an interesting discussion for another day. But you said something that I want to dig into a little bit deeper, which is, I’m not comfortable with that amount of debt, right? Whether the number was 99, or 150, or 50, I get a sense that just overall, you wanted this debt off of your shoulders. Tell us more about that, because I will talk with some people, Donisha that will say, “Hey, I’ve got $250,000 of debt.” And you’ll see a range of emotions to that debt. The number can be the same. In one instance, the house is on fire, it’s causing anxiety, it’s causing a lot of stress, and worry.

Then the other end, it might be, “Nah, it is what it is. It will kind of take care of itself over time.” Where was your motivation, your mindset around, “I want that off my shoulders”? Tell us more about why you felt that way.

[0:08:31] DL: Sure. For me, I, as a pharmacist, we have the actions to work part-time jobs, or pick up extra shifts and all of these things. Initially, I was thinking, “Oh, I can do that when I want to do extra things.” But I realized that that wasn’t very fun working all the time, so that was extra motivation to really have that time back and not feel like I had to work so hard in so much because I had this amount of debt. I felt like I couldn’t really do much else, because I owe someone else all this money. For me, personally, that’s just my belief with that, I really wasn’t comfortable making more decisions and making big purchases, and really moving my life forward the way that I wanted to, because I owe this large amount of money. It was really uncomfortable for me, but I do know, you know, like you said, other people, they’re totally comfortable with it. They’re like, “Well, hey, I’ll pay it off eventually.” But I just wasn’t okay with that, and I initially scheduled my student loans for a 10-year pay off. But even with that, I was like, “This isn’t going to work. Let’s speed this up.” So that’s what happened.

[0:09:37] TU: Yes. I would really encourage the listeners, especially those that are listening, that our students are just getting started. When it comes to the financial plan, I think what you’re highlighting so well here is there’s the objective numbers part of it, how much debt, what’s the strategy, what’s the plan. But then there’s the emotional side of it as well, which is really important. Folks often talk about how much a personal finance is behavioral. As each year goes on, I’m believing that more, and more, and more. There’s so much to be said about acknowledging the emotional side, the behavioral side of financial planning. There is no right or wrong answer. That’s I think it’s so important to communicate that, whether you are someone that looks at debt, and you have a lot of aversion to it, and it’s causing you stress, and it’s causing anxiety, like honor that. Honor that and develop a plan around that.

For folks that feel differently, making sure you’re finding a way to mitigate the risk, but just understanding having the self-awareness of where you are, emotionally in terms of viewing different parts of the plan.

[0:10:35] DL: Absolutely.

[0:10:37] TU: Donisha, I’m curious to hear your perspective. We are now approaching three years since the beginning of the pause on any payments being due for federal student loans because of the pandemic. So March 2020 was the beginning of the passage of the CARES Act, it’s been extended several times. We’ve had a freeze on payments, a freeze on interest rates. We now are coming up on class of 2023. We’ll be the fourth graduating class, and depending on what happens here, with the Supreme Court decision, and when the when the payments begin, potentially the fourth class that has not had to make payments on their student loans. I think that is a blessing, and it also presents some challenges. I’d love your perspective as someone who has gone through this journey, what would you have to say to those that are coming out, and those that are recent graduates about, “Hey, be thinking about this when these payments begin, because they will begin at some point.”

[0:11:32] DL: Absolutely. I think if you’re in the position where you are making the money that the average pharmacist makes. I would strongly consider starting to plan now, or starting to make those payments, and loan forgiveness and all of that. Those things are still in legislation. I really don’t recommend waiting for that to happen. It may very well happen. But I feel like if you’re in the six-figure zone, I don’t think the full amount will be forgiven. Even just now, thinking about your strategy, thinking about how you want to approach it, and especially if you’re someone who’s not comfortable with it, you definitely don’t want to just ignore it. There are different strategies that you can take to make sure that you aren’t – it’s completely ignoring it, but you’re still comfortable in your lifestyle. I would really do my research there and begin to plan and have a decision to take some action on that.

[0:12:30] TU: Yes. Such a good time to game plan, right? That timeline to game plan has been extended. We were saying back in 2020, use this window, come up with the plan. I think that’s had a – it’s lost its effect right over time, because it’s been extended so many times. But I love what you’re sharing there, because if payments start back up, and you’ve got a plan, great, you hit the ground running. If payments don’t start back up, but you have a plan, and you’ve just had expenses. That’s great, too, We can allocate that to different parts of the plan. I think my fear is that, especially with rising housing costs, often we have student loan borrowers, that are also first-time homebuyers, like pharmacists making a great income. But at the end of the day, there’s only so much income to go around.

When you’re looking at $200,000 of student loan debt, rising home costs, and obviously inflation. There’s been other competing expenses, I’m sure for many people as well. You start to get pinched in all different directions, and we’ve got a reset. What is that payment going to be when we come out of the pause? Look at the options. Are we doing a 10-year standard repayment? Are we doing an income-driven repayment? Are we doing a loan-forgiveness pathway? What is that monthly amount going to be based on the strategy, and then how do we work that into the budget to make sure that we’re ready?

I do think, though, that for folks that have really optimized this time period, the we have heard of situations of pharmacists that hey, I had a big student loan payment. But because that’s been on pause, I’ve been able to pay off credit card debt or I’ve been able to build up my emergency fund, or focus on another debt that was getting paid off as well. Hopefully, there’s been a lot of wins and opportunities that have come from this

[0:14:05] DL: Yes, I hope so too.

[0:14:07] TU: Let’s talk about how you were able to accomplish this. We can debate whether or not $100,000 is a lot. I think it’s a lot.

[0:14:14] DL: I do too.

[0:14:16] TU: It wasn’t just the amount, but it was the time period and the intensity. Couple years that you paid this off. I’m curious, you know, what sacrifices did you have to make to be able to allocate as much as possible towards the student loans, and then how did you keep up that momentum and the intensity of it knowing that two years, yes, it’s a short period. But when you’re in that type of intense debt repay off, that can feel like a long time. What were the sacrifices and then how did you keep the momentum?

[0:14:47] DL: Sure. I did this with my husband. Total, it was $115,000 together, between the two of us and that did include a car loan. We just included all the debt. We didn’t have credit card debt, but we did have the student loan debt and the car loan. I will be honest, in the beginning, we really didn’t know how long it was going to take us. We just knew we wanted to get more aggressive with our payoff. We use the snowball strategy. Some people don’t know what that is. You just put all your loans in order, you start with the lowest amount, and put them down in order, and you pay the first one off, and then you just roll that payment into the next payment, and you keep going.

The first thing we did, Tim, was we just looked at our budget. If you don’t have a budget, you can create one. I would say, look at the last few months of your banking statements, credit card, all that stuff, put it together, create a budget based off that. Now, the first thing you would do is, you want to see, “Am I spending more than I’m making?” If that’s the case, then you really need to, again, create some type of strategy. That’s what we did. We looked at our budget, we looked at our spending. Even though we did live below our means, I think everybody can identify areas of waste in their budget. For us, that was food.

We would go to the store, buy groceries for the week or so, get tired, go buy food out, because we didn’t want to cook. Meanwhile, those groceries, they’re no longer, you know, you can no longer eat them. They’ve gone bad. So now, we’re throwing away food and buying more food. We really identified that, and that was a big area for us that we could cut down on. So really, looking at your budget, identifying areas of waste. That’s another thing that we did. Then, we just looked at our savings to see what we were comfortable with going at the debt.

I know a popular snowball or the author of Snowball, they recommend the $1,000 for your emergency fund. That wasn’t realistic for us. I live in DC, my husband and I are both from Louisiana. If something happened, $1,000, we couldn’t even get home. We had to make that a larger number, but whatever is comfortable for you.

We did take some of our savings, and we just did the Avalanche Method, which is where you put a large amount of money towards the debt. We use that. During that time, we had just purchased our first home, which was a fixer-upper, pre-foreclosure. In that, the next year, we got a lot of tax benefits, because we did a lot of improvements. When we received that tax return, threw it at the debt, like that’s what we did. So, sometimes things like that happen. Anytime that happens, just throw it at the debt. I recommend being realistic. When I say create your budget, identify areas of waste, going back to the food example. If you’re someone that’s eating out five or six times a week, don’t just say, “Oh, I’m going cold turkey.” It’s not realistic, and you’ll probably be miserable. That’s not the goal, because then you really, probably will quit before you get to the finish line.

What I would recommend is, being realistic with your goals. If you’re eating out five times a week, maybe cut it down to one to two times a week, and also reduce the level of the restaurant. Maybe not the most expensive place, maybe like a mid-range place. You definitely don’t want to deprive yourself. For us, we also like to travel. We decided, okay, instead of maybe taking three to four trips a year, you just do one. That’s what we decided to do, so that reduced a lot of money going out as well.

Setting up some realistic expectations once you do your budget, identifying that waste. Another thing with a budget, some people don’t realize, if you get paid bi-weekly, two times out of the year, you get a third check. For us, that was a mini bonus. What we would do was really strategize with that check. Do I want to spend a portion of that to do something that I’ve kind of cut back on to pay off the debt? To pay off the debt, do I want to put the entire mini bonus toward the debt? Really like looking at different areas that you can strategize in. Another area of waste is subscriptions to the gym, to subscription services, with television or all those things. Just looking at your finances, there may be things coming out every month, $7 here, $10 there. Those things add up.

If you’re not using those things, you can cancel those subscriptions. That’s what I advise, looking at those bank accounts. That’s what we did. Identify as much waste as possible within reason. Then any type of extra money that we received via from tax return, a bonus from your job, or just that extra third check, being strategic about that, and putting it toward the debt. By doing that, we really started to change the way we viewed money during that timeframe, and we got excited about it, and we just really wanted to keep it moving, keep rolling, put more and more money toward it.

During that time, “Tim,” life was still happening. We had unexpected things come up, where we had to pivot, we had to make adjustments. But we never touch the emergency fund, we just adjusted how much we were paying on the debt. We still did it. In two years, we were not expecting that at all. So if you really are serious about it, and you set the foundation, and really make realistic goals, I think you can be successful and also run your own race. Don’t compare too much. It took us two years, but we were only responsible for ourselves financially at the time. That was another thing we knew, “Hey, we’re only responsible for ourselves right now. Let’s take this opportunity, because we don’t know what may change in the future to get this done now.” When your own race, if it takes you longer, that’s fine as long as you’re trying and you’re taking some action on that.

[0:20:48] TU: I love that. So much to unpack there. I think the theme I heard was really a mindset around the intentionality with the financial plan, and several things that you outlined, right? Making sure that you’ve got a budget that is realistic, that one is going to be able to keep the momentum so important. I think we often try to go from 0 to 60 budget. We get frustrated. It further disenfranchises us from the process overall, and it’s something as important as track back 90 days. You said a few months of looking at expenses, before we set these goals that may or may not be realistic. Let’s look at what we have been spending. Sure, we might pivot. You gave the example of eating out. But we want to pivot in a way that, yes, it’s going to free up some cash flow that allows us to achieve the goal. Whether that’s paying down student loan debt, whether it’s paying down other debt, maybe it’s saving for a home, saving for investment property. Whatever the goal is, we got to have cash flow. But just as important, if not maybe more important is the momentum to keep going.

We don’t want a system and a process that’s going to bog us down, it’s going to leave us frustrated. I think making sure that we’re finding that balance of enjoying things along the way, but also, whatever system we’re building, we feel that it’s built in a way that we’re going to be able to sustain it.

[0:22:04] DL: Absolutely.

[0:22:05] TU: I know. I’ve fallen victim too, and I think we see this a lot with people that are getting started, is they develop a beautiful system because they’re really motivated and excited. Then two months later, we’re kind of falling back into the patterns we were, because it’s so much to manage and so much to keep up with. We have a free template for folks that want to get started with the budgeting process, you can go to yourfinancialpharmacist.com/budget. We’ll link to that in the show notes, you can download that.

Then from there, you could use Excel. If you’d like to stay in Excel, you can use a bank tool, you can use mint, you can use – [inaudible 0:22:39] lots of different budgeting tools and options that are out there. Donisha, I want to dig into the we factor more, I heard you say we multiple times throughout the journey. We as in the debt, we as in the plan that we’re developing, we as in making the decisions on what was most important and what goals we’re going to achieve. There’s a lot to get on the same page with and I don’t want to take for granted how hard it can be to have a shared vision where two people are rowing in the same direction. I often have the opportunity to talk with folks, but that may not be the case. You may have one person who’s really engaged, one person who’s not engaged, or one person that grew up in a very different money household than someone else. For different reasons, they’re grown in two different directions.

It’s so hard for them to achieve the goals without first sharing the vision of being on the same page. I sense a very united we front as you were talking. Tell us more about what that looks like, give us the sneak peek into the kitchen table. How have you been able to get on the same page and keep that momentum together?

[0:23:45] DL: Absolutely. I appreciate you for acknowledging that. One thing about us, we’re blessed to go to a church that has a budget class. We took a budget class before we even got married together. That really put us on the same footing. We had the same vision and the same goals of what we wanted to achieve, but the pathways were a little different. In taking that class, we took it together, and we’ve really kind of established that foundation. The budget to me is the first step for everything. Now, once we got married and our finances were together, we really had to look at each other’s strengths. My husband is the big-picture person, I’m the day-to-day person.

When we were doing our debt payoff, I was the one looking at the budget every day and saying, “Okay, we need to slow down in this area because we’re only two weeks into the month and we’re not going to reach our budget goal if we don’t slow down.” That was my job. That’s okay. Then, what we would do is we would have meetings together where I would discuss certain things with him. He’s looking at the bigger picture, and also projecting what’s the next stage after that. That’s kind of his role. I’m the person that goes back, kind of works on the strategy, and looks at the day-to-day and the little details that he really does not want to do at all. We really show one another grace in that and really appreciate our differences, and use those differences for the benefit of the team. That’s how we do it.

[0:25:21] TU: I love that. I think just the awareness to acknowledge the different strengths to articulate that to one another, to embrace the strengths that come with those roles naturally, and then to align those so you can move forward. I love what you’re saying about the budget. I often encourage folks, “Hey, start with the vision and the dream.” Then as you work into the budget, the budget is really the roadmap for how you’re executing your goals. It’s a direct representation of what you are saying collectively is the priority or is not the priority. I think for folks that are listening, and maybe don’t feel like you’re on the same page with a vision, I would really encourage you to start there. Because I think when two people get excited about the vision, before you maybe get bogged down in the weeds of the numbers, like if we can get on the same page about the vision, awesome.

This is what financial success looks like for us as a couple or for us as our family. All right. Now, let’s develop the budget in the system that is the roadmap to achieve those goals. We said these things are most important. Are they represented? If not, why not? What can we change? What should we do differently? I think that that really helps folks get aligned. I think we often think of budgeting as restrictive.

[0:26:35] DL: Absolutely.

[0:26:36] TU: But if we reframe as, “Hey, this is the mechanism in which we’re achieving our goals. I’ll never say it’s exciting, but I think it’s a path in that direction of – and especially if we layer automation on top of that.” Okay. We’re now identifying the goals and automating the goals that we collectively said are most important. Then watch out, right? Because if you have come together on the same page to define the vision, and you’re starting to achieve that, and you both see that happening, things start to move from that forward of what else is possible.

[0:27:08] DL: Absolutely. You hit the nail on the head, especially for us, because the next move was real estate investing for us. That was something that my husband was much more on board with than I was. I’m a pharmacist. We like things to be in a nice little package. It all has to make sense. That was risky to me. I was interested, but I just really didn’t want to dive in. But once we work together to pay that debt off, and I saw the power of the teamwork for us, I just felt like, “Hey, we can do this.” Even if things go beyond what we expected, or things change, and we have to pivot, we have already done that with the loan payoff. So it really strengthened that teamwork, and I was able to get on board with the real estate investing afterward.

[0:28:01] TU: Yes, right. We’ve accomplished this as a team. Obviously, at that point, you’re working from a position of financial strength. We’ve got no debt. We’ve got a fully-funded emergency fund. We’re able to take on a little bit of risk, such that, if things go differently than as planned, it’s not going to create additional stressors. Let’s talk about the real estate. There’s lots of different types of real estate, from passive to active. The guys on the real estate investing podcast that we launched, every Saturday, David and Nate do a great job of talking about the spectrum of real estate, featuring different pharmacists that are investing in all different types.

I think that, at least for me, when I first heard about real estate investing, and really started to dig into learning more. I had a very active image in my mind of, you know, you buy a property, you hold it for the long term, you manage it, you’re fixing things, and a lot of people do that. But there are also more passive strategies, there’s fix and flips, short-term rentals, being in the bank, there’s a lot of different ways to go at it. Knowing the variety of pathways that are out there, tell us more about the pathway that you and your husband decided to go, and how you got to the decision to go down that path.

[0:29:06] DL: The first property that we purchased, it was a pre-foreclosure. It was a situation where it was in the budget that we wanted and the location was good. But the location is really what was most important to us. That’s why I got on board with something that needed renovation, because I realized if you want something that’s turnkey in this neighborhood, it’s far past your budget. I said, “Okay. We’re going to do this, and so we did.” We renovated the home, we didn’t do any structural renovations, but we did – basically got the house. We did that, that went off really well. We stayed in the home for a little while and then we sold it. When we sold it, we sold it before the pandemic when the prices just went crazy. It was before that.

But to see the amount of appreciation in that home, a light bulb went off in my head like, “This is what they’re talking about when they say, real estate can really propel you into financial independence.” From there, the plan was to continue to buy homes, renovate, and then maybe hold them for a little while, depending on what the market was looking like, and then to sell them. That was the plan. But we ended up moving into another home that was a newer build. From there, we have the home that we’re in now, we just renovated this one. We’re kind of still working out the strategy, but the other home is – we’re using it as a long-term rental.

Ideally, we would like to be able to do a flipping business, because we like to do it. But as we’ve done more research, we realize that being able to hold on to some of these properties, and leverage the equity in them, we can propel a lot faster. Our strategy really is to buy, renovate, hold. Then, you know, use that leverage to buy again, which is called the birth strategy. That’s really what we’ve chosen to do. We are open though, toshort-termm rentals. We are exploring other markets for that as well, and really just trying to have a somewhat diversified real estate portfolio. Not to diversify, because I do feel like if you focus on one or two things, you do a lot better. But that’s really our strategy.

We’re okay with doing construction, we’re okay with doing renovation, we’ve done it, and we’re okay. At this point, we’re doing long-distance investing. That’s really our next step.

[0:31:32] TU: I love it. I think it’s a great example of you, take that initial step and kind of get over that initial fear. Then, some things goes plan, some don’t. It opens up some different doors or opportunities. I think for everyone, their journey may be different of what they’re comfortable with in terms of risk tolerance, how active they do or don’t want to be in the process as well.

For folks that are listening to this and hearing some of the strategies that you’re talking about with the birth strategy and leveraging the equity in long-term rentals versus short-term rentals. The Real Estate Podcast, they’ve covered much of that and a future pharmacist stories as well. So we’ll link to that in the show notes. I would encourage folks to check out that podcast as well. I’m curious to know, it sounds like you’re fairly active, right? When you’re talking about the flipping, the construction, is that you and your husband? Is that you managing the project? Are you passive? It sounds like you’re very active. Am I reading that right?

[0:32:23] DL: We are very active. He’s more of the project manager. I’m the money person. I actually analyze the deals, I research areas, and research deals. Then I bring them to him, and we kind of analyze those together. He is the negotiator as well. When the negotiations happen, I walk away, Tim. I’m a lot more polite when it comes to that. I just walk away and let him do his thing. That’s him. He’s definitely the project manager. Working with the contractors and all of that, and I’m more so the person managing the budget, finding the deals, and then we work together on design.

[0:33:02] TU: Okay. Just like your personal finances, it sounds like you have identified strengths, and roles, and areas of responsibility. It’s your own business, within the family unit, which is really cool. I’m curious to know, deal finding. I think that’s one of the biggest barriers for people getting started is where do I look? It feels like people that are in this are just a huge disadvantage of somebody getting started. Are you looking off-market? Are you looking on the MLS? Do you have referral sources? How are you sourcing those opportunities?

[0:33:32] DL: Right now, as you know, these interest rates are very expensive. This market is very unique. But when we started out, we did a lot of driving, just driving ourselves around, and really looking for opportunities where a home may look vacant, or a home looks like it’s not being properly taken care of. Then from there, we will try to see if it was on the MLS. In the case of our first home, it was a pre-foreclosure. It was actually on the MLS as a pre-foreclosure. Then we use a realtor to help us with that.

Now, there are so many just groups of wholesalers and all of this that are out there. If you are trying to get started, there are ways to get in contact with other folks doing that. If you feel like, “Hey, I don’t really want to invest that much money into it” and you want to kind of get that experience and exposure, you can always ask people if you can just link up with them, and ask them what you can add to their system where their pain points are. That’s a great way for you to learn and a great opportunity for you if you’re not really at the point where you really want to invest a lot of money into it.

Right now, we’re currently working with realtors, especially since we’re looking in other markets. So we are working with realtors to try to find some of those properties. We don’t focus too heavily on off-market deals at this point in time. But I do know people do that, and they do that well. There are a lot of systems out there that can help you with that as well.

[0:35:06] TU: When done well, I think real estate can really add to, you mentioned, a pathway to financial independence that could potentially create wealth, lots of reasons to accelerate the financial plan, different tax advantages, et cetera. When not done well, it can be a hindrance on the financial plan, and there is a risk side of it. There’s obviously folks that have built systems and processes that have done this well. There’s individuals that maybe haven’t done as well, or analyzing deals properly, and not looking at the full breadth of what the numbers really are.

I sense that you guys really do have a system, a process. You’re looking at growing and scaling, which tells me the numbers are working. My question is, how do you view real estate investing, impacting and accelerating your personal financial planet. Is it a long-term strategy of building wealth, it’s part of the retirement plan, it’s a tax strategy? Is it short-term that the income from real estate you’re using towards other financial goals? How do you view the intersection of real estate with your financial plan?

[0:36:09] DL: Sure. That’s a good question. We like to kind of be right in the middle with that. What I mean by the middle, is by us holding those properties. They are a part of our long-term plan. But we also like to choose properties where we will cash flow pretty well, also. That’s a good balance there, because we know there are markets where you can really cash flow. But if you go to sell the home and 10 years, it’s going to be the same price you paid for it. You don’t really have a lot of appreciation on that front. That long-term game isn’t necessarily there. We try to find a good balance, and that’s one of the reasons we’re leaning towards short-term or midterm rentals. Because right now, in this market, especially, that’s really going to give us that that cash flow, but we can also have that appreciation.

We do have a long-term rental, and thankfully, it’s in a location where we’re doing very well on both fronts. But trying to get there right now in this market can be challenging. We’re looking towards that short-term, midterm. But we really like to have a balance, because we do want to use the real estate. Right now, we’re just using the money to purchase other real estate, not for our personal use. But we do want to get to a point where, “Hey, we could if we wanted to.” It depends heavily on our real estate income, and maybe transition into a lower workload on our W-2s or something to that effect. But we are in this for the long run, so we’re not trying to accumulate all of these rentals and get rich quick. That’s not really our strategy.

[0:37:45] TU: Yes. You’re not having to replace your W-2 income. I think that’s an interesting point, because for many individuals, there’s the initial strategy of, “How do I do this well, and then how do I scale the system, so I can invest more into other properties, more opportunities?” But then, there becomes a point of the portfolio where, depending on what else is going on, your retirement plan, et cetera, you might want to draw from that asset. There’s a strategy involved in that, and the tax optimization and so forth there as well.\

As we wrap up, I’m curious to hear your perspective. You’re on the other side of paying off your student loans, you’ve been out for over 10 years, you’ve got a good base in real estate investing. For all intents and purposes, you built a really strong financial foundation that you and your husband are going to grow upon for the next several decades and beyond. For individuals that were – just for you and I were a little over a decade ago, I think there’s both excitement and feelings of maybe some level of overwhelmed. Hearing a story of, you’ve been through that, you’re beginning to build wealth, you’re investing in real estate. What advice would you have for those individuals that are on the front end of this journey may be feeling overwhelmed, frustrated, confused with where they’re at with their finances?

[0:38:58] DL: Absolutely. That’s a great question. I would say, write down what’s important to you and your why. So really, write down what’s important to me, my values, and you can even project that out over the next 10 years, what do I want my life to look like? I think if you start with that, then you work backwards, and you look at what you’re facing right now. Then, you leverage the tools and all these podcasts like this one that are out there, and all the different strategies that you can take to reach your goals. If you do have a lot of student loan debt, and that debt is going to impede you from getting to those goals, then maybe that’s where you start. If you don’t have student loan debt, or it’s not a significant amount of student loan debt, but you do know in 10 years, you do want to have the option of working a W-2.

Then you may want to start with looking at different ways that you can invest your money, so you can make it work for you and make it accumulate even faster. That’s what I would do. I would kind of project out maybe 10 years. Because let’s be honest, a lot of new pharmacists are in roles, and they’re thinking, I don’t want to do this for 10 years, and that’s fair. Trust me, we understand. If that’s where you are, then definitely, think about where do you want to be, and what your goals are, and then work backwards. Look at what’s in front of you, and decide what the, what the priority is, and then start to educate yourself on different methods and strategies that you can use and get help. Get help, there’s no problem asking questions, meeting with a financial planner that understands your goals, and is willing to work with you to achieve your goal. That’s what I would recommend to someone who’s at the front end of this journey.

[0:40:49] TU: I love that. Great words of wisdom, and I’m so grateful for you coming on the show to share your journey. Congratulations on the debt-free journey. I have a sense you’re just getting warmed up here into the future. I appreciate you sharing that with our listeners, and I look forward to following your journey as well.

[0:41:05] DL: Thank you. Thank you so much for having me. I’ve enjoyed it and we will definitely keep you posted on the journey. I appreciate you and this platform.

[0:41:12] TU: Thank you so much.

[0:41:13] DL: Thank you.

[END OF INTERVIEW]

[0:41:14] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archive, newsletters, blog post, and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates publish. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 302: Navigating the Mortgage Market: Insights from a Loan Officer

Posted on by Caitlin Boyle

On this episode, sponsored by First Horizon, Tony Umholtz talks about navigating the mortgage market, important factors home buyers should understand when evaluating lending options, the anatomy of a home loan, and when to engage with a lender in the home-buying process.

About Today’s Guest

Tony Umholtz graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants, and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay, and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine, and Mortgage Originator magazine.

Episode Summary

In this episode of the Your Financial Pharmacist podcast, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, is joined by Tony Umholtz, a mortgage manager at First Horizon. In this episode, Tim taps into Tony’s 20+ years of experience in the industry to discuss important factors home buyers should understand when evaluating different lending options, the anatomy of a home loan, and when to engage with a lender in the home-buying process. Tony opens the conversation with an update on the state of the lending market, with more interest in buying homes, but the market remains competitive with low inventory. An overview of the different loan types is covered, along with their nuances and situations where each is applicable. First-time home buyers will learn how much of a down payment may be needed based on the current options available, the term options for loans, and when 30, 20, or 15-year mortgages make the most sense. Tony shares his thoughts on lending options outside fixed-rate products and when they can be advantageous. He also explains what points are, how they work, and the importance of understanding how they are baked into introductory rate offers. As the show wraps, listeners will hear a frank exchange, where Tim and Tony discuss the impact of current events and bank uncertainty on financing a home purchase.

Links Mentioned in Today’s Episode

Episode Transcript

INTRODUCTION

[00:00:00] TIM ULBRICH: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, where each week we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I welcome back onto the show Tony Umholtz, a Mortgage Loan Officer with First Horizon. During the show, I tap into Tony’s 20-plus years of experience in the industry to discuss the important factors that homebuyers should know when evaluating the different loan options that are available. We discussed the differences in down payment, how credit scores can influence the options available, fixed versus adjustable rate mortgages, and when purchasing points does and does not make sense.

Make sure to stay with us to the very end of the show where I asked Tony about the impact of current events on financing a home purchase, including the inevitable end of the student loan pause, whenever that may be, and the impact of the bank uncertainty, given the current news with Silicon Valley Bank, Signature Bank, First Republic, and most recently with the UBS purchase of Credit Suisse.

Now, before we jump into our discussion, I recognize that many listeners may not be aware of what the team at YFP Planning does in working one-on-one with more than 280 households in 40-plus states. YFP Planning offers fee-only, high-touch financial planning that is customized to the pharmacy professional. If you’re interested in learning more about working one-on-one with a fee-only certified financial planner can help you achieve your financial goals, you can book a free discovery call at yfpplanning.com. Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.

Okay, let’s jump into my interview with Mortgage Loan Officer from First Horizon, Tony Umholtz.

[INTERVIEW]

[00:01:46] TIM ULBRICH: Does saving 20% for a down payment on a home feel like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities, including high student loan debt, meaning that saving 20% for a down payment on a home may take years. We’ve been on a hunt for a solution for pharmacists that are ready to purchase a home loan with a lower down payment and are happy to have found that option with First Horizon.

First Horizon offers a professional home loan option, a.k.a. doctor or pharmacist home loan, that requires a three percent down payment for a single-family home or townhome for first-time homebuyers, has no PMI, and offers a 30-year fixed-rate mortgage on home loans up to $726,200. The pharmacist home loan is available in all states, except Alaska and Hawaii, and can be used to purchase condos as well. However, rates may be higher, and a condo review has to be completed.

To check out the requirements for First Horizon’s pharmacist home loan and to start the pre-approval process, visit yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

Tony, welcome back to the show.

[00:03:01] TONY UMHOLTZ: Tim, good to be here. Thanks for having me.

[00:03:03] TIM ULBRICH: Well, it’s officially the start of spring. So at the time of recording this, yesterday was the first day of spring. Typically, that means it’s prime time for home-buying. Current state of the market, we’d love to hear your thoughts. You shared something with me prior to hitting record about existing home sales being up more than was projected, which to be frank, surprised me a little bit, just given what we’ve been hearing of a lack of inventory that’s out there. So what are you seeing in terms of the current market?

[00:03:33] TONY UMHOLTZ: Well, I think we were in a very slow environment the last few months. When retail or the existing home sales were higher, it was from the month of January. So January was a low month, and I think it was at kind of a bottom level. But economists had predicted like almost 400,000 less units then actually sold. So I think the market is showing some underlying strength that the economists had predicted.

Frankly speaking, with spring here, we’re busy. I mean, there’s a lot of people reaching out for pre-approvals right now. I mean, rates are certainly higher than they were last year at this time. But we’re seeing a lot of people interested in buying a home. But still, inventory is fairly tight, like we discussed earlier.

[00:04:19] TIM ULBRICH: Tony, for today’s show, I want to focus on prospective homebuyers and what they need to know in order to navigate the mortgage market and to make a decision on ultimately how they’re going to finance that home purchase. The question of why is this important, right? For starters, this is one of the, if not the, biggest financial purchase that they’re going to make. Obviously, they’re going to want to feel comfortable in understanding what their options are or want to feel good about the decision that they’re making from a financing standpoint.

Second, I often hear from prospective pharmacist homebuyers, especially first-time homebuyers that are confused and overwhelmed about all the options that are out there; conventional VA, FHA, doctor-type loans, points, no points, 15 years, 30 years, fixed rates, ARMs. We want to clear up as much of that as we can, again, with a goal that folks will feel educated and informed as they’re going forward with that home purchase.

Let’s jump in by dissecting some of the lending options and the features that are associated with those options. So, Tony, at a high level, I mentioned a few of them that are out there. What are the types of loans that are available when people are considering the financing of a home?

[00:05:34] TONY UMHOLTZ: There’s really several loans that are very common that you’ll see in the marketplace. Number one is FHA loans, Federal Housing Administration loans. Also, the Veterans Administration for those that have served in the military, VA loans. So you hear a lot about those. Then, of course, conventional loans, which are basically backed by Fannie Mae and Freddie Mac. So when you hear those two large government-sponsored entities, that’s what conventional loans are.

There’s also nichey loans, niche loans that are offered. Typically, they’re not mainstream. They’re typically offered through banks, some financial institutions that will offer them for, for example, like the product for pharmacists that’s available for pharmacists, doctors, attorneys. There’s some nichey programs available based on your occupation. A lot of those loans are held on the bank’s balance sheet. So they’re not a program that would be openly sold on the open market.

You’ll hear a lot about those programs, and each one has its own benefits. It’s important to know where you stand. So when you go through a pre-approval process, it’s a great way to get educated on where you stand. Even before that, you can find some information online. You can learn more about these different programs.

But, typically, for example, FHA loans are going to have a limit for the market that you’re buying in. Let’s say you’re purchasing Hillsborough County, Florida, for example. They’re going to have a max loan limit of, let’s say, roughly 400,000. You can’t go above that number for FHA on a single-unit property.

Now multiple units, you can do higher loan amounts. So a four-unit property can be higher. FHA is great for certain things. The one downside of FHA is that it’s permanent PMI, lifetime PMI. You can never get rid of it, although they did reduce it recently. But it’s still a lifetime PMI. You can never get –

[00:07:29] TIM ULBRICH: I learned that one the hard way, unfortunately.

[00:07:33] TONY UMHOLTZ: Yes. So there is some downsides there. I do like the FHA when credit scores are a little weak because I can get better pricing than I can on a conventional loan. Then conventional, of course, does not have permanent PMI, has a little bit higher loan amounts for the county. Most counties in the US are 726, 200, so a little higher loan amounts. In some counties in the higher cost areas are actually a little bit more than that.

Conventional has got PMI that only has to be on for two years. Sometimes, you can get it off, pulled off less, if you put more money down during the loan process. It doesn’t have upfront PMI like FHA. So there’s a lot of benefits to conventional. The niche programs, of course, you have to be a pharmacist, doctor, attorney. Those type of programs are going to be more unique to one group. But those are, obviously, going to typically be better and stronger than any of the products you can – the FHA and conventional. When you compare the two, they’re typically going to be stronger.

But we always look at every option. That’s one thing that we’d love to do is say, okay, let’s compare it and stack rank what the best products are today for this client. We’ll come up with the best solution, and most lenders work that way.

[00:08:47] TIM ULBRICH: I’m glad you brought up the FHA to kick that off because what I see and what I hear from a lot of pharmacists is depending on where they live, and obviously you mentioned the max loan amount, but I think they’re often thinking first-time pharmacist homebuyers, “How do I get into a home and minimize my down payment? Because I’ve got $200,000 student loans. I’m starting a family. I’ve got all these other competing priorities.”

They may end up down an FHA pathway, which maybe is the best option but maybe not, and they may not be aware of an option like a pharmacist home loan that could get them into a home at a reasonable down payment. Obviously, credit score is a factor that we’ll have to consider, and we’ll talk about that again here in a few moments. But allows for that lower down payment, a little bit higher on the purchase price potential, which obviously in today’s market is an important factor but doesn’t carry the PMI, especially the permanent PMI you mentioned with the FHA.

Take home point that I really hear there, Tony, is when you’re working with an individual such as yourself, working with someone that is looking at what is the best option for you and your personal situation, looking at potential purchase price, looking at down payment that you’re bringing, looking at credit score and really being able to customize the offering for that individual and their own situation.

I want to break down down payment a little bit further because that is probably the biggest pain point I hear from first-time pharmacist homebuyers, which is maybe they’re familiar with the traditional, “Hey, I’ve got to have 20% down.” Not aware of other options that may be out there. That can be a big overwhelming number when it comes to purchasing a home at 400,000; 500,000; 600,000 dollars.

So the question of do I need 20% down, you’ve talked about that a little bit already. But talk to us more about why that may not always have to be the case with other options that are available.

[00:10:43] TONY UMHOLTZ: When you’re looking at purchasing a property, 20% down and a great metric because you get out of PMI for a conventional loan. But it’s also a lot of capital, putting a lot of investment into your home. Then that can dilute the returns you get on your own long-term because leverage enhances returns, but it also takes away from savings and everything else.

So there are programs available. For example, the FHA, I’m going back to FHA, you can put as little as three and a half percent down. Now, you do have heavy PMI. You do have lifetime MI, upfront MI that’s added to the loan amount. There are those other things. But you can get into the home with just three and a half percent.

The pharmacist product and some conventional products, now some of these conventional products do have PMI. But sometimes, they’re priced pretty well. But you can do three, five percent down. These programs, you’re coming into it with very little, little, little down. PMI in the conventional sense, you will have a PMI premium every month. But the pharmacist product, no PMI at all.

So you put three percent down, five percent down. That’s impactful because you’re – and you’re allowed to have the seller pay your closing costs and prepaids, if you’re in a bit of a cash-strapped situation, I mean putting three or five percent down and having your closing costs and prepaids taken care of, pretty attractive. So those are available to pharmacists and physicians as well and then even normal everyday folks on the conventional side. Three, five percent down, an ordinary buyer can take advantage of that.

There are some programs for certain counties if you meet – and most of your audience will be above the median income for the county. But there’s even some programs offered if you’re below the median income, where there’s some additional benefits as well. This is a down payment assistance actually.

[00:12:37] TIM ULBRICH: So for folks who are saying they want to learn more about that pharmacists home loan product, as we mentioned in the introduction, you go to yourfinancialpharmacist.com/home-loan. We’ve got more information about that product with First Horizon, what are the different criteria. There’s an option on there to connect with us, and we can provide you with more information.

Tony, down payment, as I mentioned, gets the attention because I think that’s often what we’re thinking about or how much cash are we going to have to forego at the time of purchase. But what may not get as much attention or other parts of the loan if we dissect that a little bit further, so things like the term of the loan. I’m thinking about, obviously, fixed rate versus a variable rate, whether or not there’s points. We already talked about the PMI.

Let’s start with term. 30-year fixed rate I would assume is the most likely option that individuals are pursuing. But there are other options, 15-year term. I know I’ve seen 20-year terms. Are those the three that are typically used, and is the 30 the most common?

[00:13:39] TONY UMHOLTZ: Yes. Those are the three that are most common by far. 30-year is the most common. It gives you the most flexibility too from a payment perspective because you can always add additional principal. These loans, most loans don’t have any prepayment penalties. So you can always put more towards the loan. That typically is a good strategy. That gives you flexibility.

But the 15-year, the-20 year are – some people do choose them. It also depends on when you choose to retire, right? Or when you – if you think you’re going to hold the home long term. Everybody’s goals are different. Everyone’s circumstances are unique. So we look at their timing.

I had one client that said, “Hey, I’m going to be retiring in 15 years.” I think he’s like in his mid-40s, and that’s what we ended up doing for him because he wanted that 15-year to hold himself accountable. But I said by far the majority of people are opting for the 30-year. I think that that’s the better strategy because for the rate break you get, the flexibility is great. I just think having that flexibility is the most important thing. Cash flow –

[00:14:43] TIM ULBRICH: Cash flow.

[00:14:43] TONY UMHOLTZ: Is important.

[00:14:44] TIM ULBRICH: Yes.

[00:14:45] TONY UMHOLTZ: Yes. Because the one thing that clients have to understand and buyers have to understand is the shorter that term, there’s even a 10-year fixed, actually, 10 as well. But it’s a heavy payment because it’s amortizing so quickly. Amortizing, essentially, is just your principal pay down, right? It’s how rapidly you’re paying down the mortgage. So a 10-year fixed loan, you only have 120 payments, and that loan is totally paid for. So it’s a heavy monthly payment.

I think cash flow is really critical for everyone. I think that’s the best way to – because you can always add principal and pay the loan down quicker, right? But you can’t always – you can’t go back and say, “Darn, I wish I didn’t do that 15-year and have to pay that extra 2,000 a month.” You can be putting it into your IRA or somewhere else, paying down other debts.

[00:15:34] TIM ULBRICH: Yes. I think the options of cash flow. It’s something we hear from a lot of pharmacists, first-time homebuyers. I know it’s something my wife and I have talked about extensively, right, especially when you’re in that transitionary phase, where home prices now are more expensive than they’ve ever been. Rent rates are obviously higher. So those monthly payments, even at a 30-year, are going to be higher than they were just a few years ago, let alone at a 15 or a 10.

Student loans are coming back online. At some point here in the near future, we’ll talk about that in a little bit. Then just a lot of the expenses that come with that transitionary phase, a lot of folks that may be getting married. They’re having kids, right? They’re moving. So a lot of demands on cash flow. To your point, we can make bigger payments, and you can even automate those over time if you feel like, “Hey, I confidently can make this. I want to pay this down for whatever reason.” Maybe it’s, “Hey, I’m going to save a little bit of interest. I’m averse to the debt or I want to retire early.”

Whatever the rationale may be, you have that option. But you’re also giving yourself other options in the event that you need to have some of that cash flow, so well said. I think for those reasons, we see many folks go in with a 30 and perhaps some people that are making extra payments along the way.

What about the rate, Tony? I feel like when I was going through the refinance process pre-pandemic, refinancing a 30-year fixed rate, three percent. Maybe even a little bit lower for some folks at that point in time. Obviously, rates have gone up substantially. But in that moment, it felt like, and for the longest time, fixed rate, fixed rate, fixed rate. Lock it in for as long as you can. I’m curious to hear your thoughts now, given the interest rate environment we’re in. Options on adjustable rate mortgage versus a fixed rate. What are some things that folks should be considering here? As I do know, there are some other products out there that may be marketed towards pharmacist or physicians or other health care providers that aren’t a fixed-rate option.

[00:17:29] TONY UMHOLTZ: That’s right. Yes. I mean, there are ARM products out there. It’s interesting that they’re not super mainstream. They’re going to be more nichey because Fannie Mae and Freddie Mac, the pricing on ARMs is actually worse than a 30-year right now. There’s just no market for it, a secondary market.

But banks will retain it. We have some programs where we’ll write ARMs, and we’re appropriate. It’s a good product. It does carry a slightly lower rate than the fixed rates. I think this would be one of those times where I don’t think you would get hurt, potentially. But I think you got to know your risks, though. I mean, that the risks are what do rates do because, typically, the ARMs are structured 5, 7, or 10 years.

Now, when I first started in the industry, we used to have just outright one-month ARMs. I mean, 20 years ago, you would use ARMs we could write that were adjustable day one. They had some amazing rates made, but they really run with a cycle around BC. I these things move up and down. But I would call them more like a hybrid ARM. They’re fixed for 5, 7, or 10 years. So they do have a fixed-rate component. There’s still a 30-year loan. Some banks offer a balloon, which means you have to like redo the loan at that time. But those are fairly attractive, especially if you think you’re not going to be in the house for 5, 7, or 10 years. I think that’s something to look at.

The downside of those loans is if you are in the property, and it does start adjusting. The rate market is not favorable, but you’re going to be in a higher market, and rates are going up. It’s going to be harder to refinance. So there is some risks and tail risk there down the line that if you’re there in the home that it can move. So I’ve seen a move down. I’ve seen a move up.

Where we are in the economic cycle is tough right now. I think the Fed is pretty far into this tightening phase. We can address more of this later, Tim. But I think we could see some volatility in rates for a while, but there is potential for rates to go down, again, at some point. So I think anyone that does an ARM, I think inside of five years, there could be chances to refinance and do a 30-year again. So it’s not necessarily a bad loan if you’re willing to take a little bit of risk.

[00:19:40] TIM ULBRICH: I think understanding that risk, Tony, is really important, as well as being honest with yourself about your risk tolerance and what is that worth, as well as what margin may there or may there not be in the budget. We talked about this with student loans and days gone by when you might refinance from the Federal on the private side, especially if you’re looking at a variable rate over a fixed rate on the student loans. Understanding if that rate does go up or when that goes up. What margin do you have in your budget, and how do you feel about that being a fluid part of your monthly spending plan?

I think for some pharmacists, maybe many pharmacists, they look at it and say, “I want the known, so I can plan around it.” But I think in the spirit of talking about all the options that are out there and evaluating which one is best for you, it’s worth covering in more detail.

Tony, points. I’m seeing a lot of confusion out there right now around points. Correct me if I’m wrong, but I think what’s happening is people are going out, and they’re Googling mortgage rates. They’re getting into a sales page, and what they’re seeing are rates that have points embedded. Unless you’re reading the fine print, you’re really not comparing apples to apples as you’re trying to find what might be the best rate out there for the product that you’re looking at.

So that’s just, I think, an unfortunate part of the practice if you’re not doing your homework. But what are points quickly, and how do they work, and why is it important that folks are understanding how these are baked into these introductory rate offers that they see?

[00:21:10] TONY UMHOLTZ: Yes. That is a great point, Tim. Basically, points are what the – most lenders do when they charge points is essentially just buying the rates down. So they’re offering you a certain rate at a certain – we call it par price, right? So they will say, “So for you to get this rate –” Let’s say it’s six percent today. You would need to pay a half point or one point, right? That can vary by lenders based upon their pricing. So that can vary.

But the one thing that that’s out there, and I think a lot of people miss this, is like the national headlines like week’s rate by Freddie Mac, right, which is old news anyway, except the last week’s rate. Rates change daily. They almost always include some sort of points in that quote almost every time.

[00:21:56] TIM ULBRICH: All the news headlines you’re seeing.

[00:21:58] TONY UMHOLTZ: Yes.

[00:21:58] TIM ULBRICH: Yes.

[00:21:59] TONY UMHOLTZ: Yes. If you read the fine print, it might say, “Hey, I had three-quarters of a point, which is point .75 percent of the loan amount.” So fairly expensive, right? Or one percent or one and a quarter. So typically, they quote the rates with some points. My stance on points and the way I typically try to charge them if people really want them is where it’s like upfront interest, so they can write it off on their taxes.

But in this environment, especially, I’m not a big advocate of points because there’s a good likelihood that rates are better over the next 24 months. I think why pay a premium now? Come in and pay your points when rates are a lot lower. Then you’d really can grab a nice low rate for the long-term. But you’re seeing a lot of quotes out there with points from lenders right now to make themselves look more attractive. A lot of home builder finance companies will do it as well.

The other thing in these what’s called 2-1 buydowns, which are really, in a lot of ways, a smoke and mirrors because what they’re doing is they’re giving you have a lower rate for the first year or two because you’re paying it all upfront in interest. So you’re paying a couple of points upfront to get that buydown. It’s a worse rate long-term. So that’s another thing. You’re loading up on interest. You’re paying it yourself. You might as well take the higher rates. You’re going to save money.

So there’s things like that that are out there. It’s just promotional ways, promotional products. But the points, again, it’s not a bad thing to do them because you typically will get a better rate than you would have if you didn’t pay points. But given the environment we’re in, I’m not a huge advocate. I’m just giving that you could save the money, and I think you’ll get it back later.

[00:23:43] TIM ULBRICH: Tony, something you said there has me thinking I want to preface my comments with this a little bit of conjecture, right? We don’t know what rates will or will not do. I agree with your thoughts that likely we’re going to see those come down in the next two years. Certainly, that’s not guaranteed. But my mind is spinning. If that happens, my mind was going down the path of, wow, like a flurry of refinances and people that have bought in this high-interest rate market that are trying to get a better rate.

But then also like what does that mean for what we started the show talking about that there’s not enough supply? Unless that rate comes down significantly, I don’t think it solves the issue of people that have a home locked in at 2.8, 2.9, 3 percent. If they come down even a point, point and a half, like it feels like that spread is still too significant.

So I don’t know. Maybe I’m being overdramatic, but it feels like we have some challenges ahead of us as it relates to the supply and demand, even though the rates might get better as a homebuyer. I hear that and think, “Great. I’m going to save a little bit on rates.” But that probably means that home prices are going up because demand is going up.

[00:24:49] TONY UMHOLTZ: That’s exactly right. I think we’re going to see that. I think most – not every market is the same. Some markets have more inventory than others. Some are more challenged. But I know just from my experience, and we learned across the country. I had a conversation this morning with a client, and they had to purchase the home without an inspection. It was that competitive. There was just no inventory where they were buying, and it was that competitive. So I think we’re going to go right back into that again.

I do think lower rates will help move some people because families can grow, right? They outgrow their home. There’s move-up buyers. People have to relocate, and builders will start building more inventory. But the challenge is just there isn’t enough people moving right now and putting their homes up for sale. So you’re exactly right. I think we’re going to start seeing it tighten up again. Prices are going to rise. Maybe not to the extent they were during the COVID boom, but I think you’re going to see prices rise.

I think the last six months have been a good time to buy. I think still even now is still a pretty good time because there’s still – it’s not everybody’s out there buying –

[00:25:58] TIM ULBRICH: It’s crazy.

[00:25:59] TONY UMHOLTZ: You could still get sellers. Sellers will listen to you right now. They’re a little spooked, right? If you’re selling, you’re going to be a little more spooked and a little more nervous. But I think there’s going to be a lot more buyers coming in as these rates drop. You’re right. I don’t think we’d see rates go down. I mean, we don’t know for sure. But I don’t see rates going to the high twos again. But they definitely – even coming down into the fours, even five is going to be a significant lift to the market, significant.

[00:26:28] TIM ULBRICH: I hear what you’re saying, right? There are some things that life happens. We’re in a two or three-bedroom home, and we’ve had a few kids. You’re going to push through that despite rates because those factors are that significant or relocation because of family or whatever.

But a piece we haven’t talked about, which also just hit my mind, is the impact of the remote work transition. I don’t have any stats to back this up, but I would think that that just inherently reduces the number of people that are moving as a result of a job transition or who could stay put and aren’t having to have to relocate, which might put some further pressure on the supply piece as well.

[00:27:09] TONY UMHOLTZ: Absolutely.

[00:27:09] TIM ULBRICH: Yes. There’s just a lot of factors, and we’re going to look back at this period one day and say, “Remember when all these things happened at the same time.” So I want to wrap up by picking your brain. I always appreciate, Tony, not only your 20-plus years of experience in this industry and your experience working with many pharmacists that are looking to purchase but also your mind around the economics of this and, of course, what’s going on in the markets right now. We’ve got some unique challenges.

Two that I want to focus on that I know are top of mind for our listeners right now. One is, hey, these student loans are coming back at some point. What does this mean, and how are lenders going to be looking at that? Then the second, I want to talk about some of the bank uncertainty that we’re living in real-time right now.

So let’s start with the student loans. We don’t know when yet. The Supreme Court heard the case on the Biden debt cancellation. We’re expecting an announcement. I think all signs are pointing to that’s going to restart payments here at some point. Right now, it’d be no later than the end of August, unless something changes as a result of that decision.

From a lender standpoint, we now have coming up for graduating classes, Tony, that have yet to have to pay on federal student loans. That also tends to be a group. They are usually first-time homebuyers. So debt-to-income ratios, how student loans are factored in, knowing that that pause is going to be ending, how are lenders thinking about this, especially for folks like our listeners, pharmacists that carry a pretty substantial debt load?

[00:28:46] TONY UMHOLTZ: That’s a great question. I think it’s just one of those things we look back at this time, right? It’s so unique. There’s a couple of ways that lenders look at these student loans. Number one, we look at that minimum payment, right? That minimum income-based repayment that is required. So that’s one way. The other way is we take a factor of that student loan amount, and the factors vary.

For example, we talked about FHA and conventional earlier. Their factors are pretty high. So it makes it much harder to qualify with those programs. Even though you’re not making a payment, your payment is zero, there’s still an actual factor that’s attached to that loan size. So it’s $200,000. It can be 2,000 a month that the lender is counting against you. So the factor we use for pharmacists on our product is much lower than that, but it’s still used. So that’s basically an internal factor is how banks will look at that typically.

It’s a tricky time. We don’t know what that outcome is going to be. So I would say right now, we’d be utilizing that factor or that income-based repayment, like what’s that amount going to be if you started paying in September or whatever it might be. But I would probably say for most people in that situation, we’ll be utilizing that factor, Tim, to qualify them.

[00:30:04] TIM ULBRICH: I want to poke a little bit more on that in terms of the factor or an income-driven repayment. Is that a general formula that a bank is using like, “Hey, $200,000 of student loan debt based on our calculation, income-driven repayment plan, would be X.” Or is it looking at the specifics bar to bar, right? Because we do have some of our listeners that might be employing a loan forgiveness strategy, where they’re working hard to lower their AGI to increase the amount that’s forgiven tax-free because it’s dropping down their income-driven repayment now. So they might be below like a generic calculation. How is that determined?

[00:30:42] TONY UMHOLTZ: It hasn’t gotten that far yet. That’s a great question because it’s still looked at like we’ll get a payment letter saying, “Okay, your monthly payment is going to be 400 a month.” That’s what we would use on the income-based from the servicer, from the student loan servicer. They would essentially provide the borrower with that number, what that amount is.

Now, the factors is used on the lump sum of student loans. You brought up a good point. Will it get there? I mean, FHA and conventional have a certain way of looking at things and Fannie Mae. I don’t know if that’s going to change. That could change. I think it should change based on that Supreme Court outcome. So that could affect those type of programs.

The more nichey bank programs, I think those would follow suit. They are more lenient, though, than Fannie and Freddie are and FHA as far as how much they would count. So like, for example, FHA, one percent, right? So $200,000, right, 2,000 a month. That’s a big hurdle to qualify in.

[00:31:40] TIM ULBRICH: Makes sense.

[00:31:40] TONY UMHOLTZ: That’s a big monthly payment. If your total debt ratio is 43%, that’s income to qualify. It makes it hard to afford a home. So that’s why these nichey programs are important for clients with big student loans.

[00:31:54] TIM ULBRICH: Yes, median debt load of a pharmacist today about 160. I think we’re going to see that drop maybe a little bit, just because of the pause on interest to credit while people are in school. But we have many clients, many folks we talk with on the regular that, sure, making a great income. But they’ve got 200,000; 250,000; 300,000 dollars of debt or maybe a household debt of 400,000 if you have two pharmacists together.

The second thing I wanted to pick your brain on and we don’t have to go into the weeds on the background of how we got to this point with the bank uncertainty. But if anyone’s been following the news at a high level, it’s been a tumultuous time, right? We saw what happened with Silicon Valley Bank in California a couple of weeks ago, followed by Signature Bank in New York. First Republic, at the time, what we know at this recording, was propped up with a $30 billion cash infusion from some other banks, still struggling after that infusion. UBS buying one of the major banks in Switzerland.

I hear all this, Tony. As a pharmacist, you might be buying a home and wondering, “What is the impact for me and this purchase that I’m trying to make? Is there a hesitancy to lend because of all that’s going on with the uncertainty, and what should I be aware of as a buyer?”

[00:33:09] TONY UMHOLTZ: Well, great questions. There is a lot going on, guys. There really is. I’ll try to unpack it as simply as I can. But to answer that question, I do think there are going to be challenges with lending. Some banks may be more cautious to lend, especially on portfolio products, these nichey products, if they’re in a challenging deposit situation. So you could see some challenges.

I did have one client. It was a physician that mentioned that the bank they were working with had stopped doing physician loans. So there are, I think, some banks that will pull back a little bit on lending. But for the most part, FHA, Fannie Mae, I mean, these loans are all backed by the government. There’s no liquidity issues there at all. The vast majority of banks are not going to have a challenge lending.

In these cases, and again we’re in a time very – there’s a lot of question marks with a lot of uncertainty because the Federal Reserve is aggressively raising rates. So these several banks you mentioned, Silicon Valley Bank, for example, was a risk management issue to some extent. I mean, they essentially were – not to get too far in the weeds, but they were a large regional bank. They serviced tech companies in Silicon Valley in California. So they were very nichey in the venture capital world.

It was basically a classic run on the bank in a more modern time, where they took their assets, their capital, and they invested it in treasury bonds, which are the safest bonds out there, right? The regulators allow that because they’re safe. You’re going to get paid back. But what they didn’t account for is the duration risk and the interest rate risk of holding long-term bonds. So basically, what happened is roughly $100 billion portfolio treasury bond is suddenly worth 70 billion or possibly a little less because of that hit to it with rates going up. When they had the demand for their deposits back, they couldn’t pay the depositors.

The other issue with that too is what’s called uninsured deposits. They had a vast amount of uninsured deposits where FDIC, which ensures a $250,000 deposit, they had a lot of tech institutions, venture capital funds that had a lot more money on balance that was not insured. It was basically that classic run. So that was Silicon Valley. Fairly similar with Signature Bank, just more in the New York real estate market, these are very nichey banks.

But I think there’s a lot of banks that are going to be affected. I just don’t think – we don’t know the extent of it yet. We don’t know what the Fed is going to do. But a lot of this is just risk management per institution and the fact that the Fed has just raised rates so quickly. I mean, it’s that simple, right? It’s reducing the liquidity in the system.

For your listeners and your viewers, it’s not going to impact you. There could be some nichey banks that pull back on their products, so you do have to watch that. But for the most part, it’s going to be business as usual for the vast majority of people out there.

[00:36:18] TIM ULBRICH: I think what’s worth watching is the ripple effect or the potential ripple effect, right? You mentioned not only of these banks but also what’s the Fed going to do going forward. How are they going to continue to fight inflation, while dealing with some of this uncertainty? We’re going to find out a little bit this week.

[00:36:32] TONY UMHOLTZ: Yes, we will.

[00:36:34] TIM ULBRICH: I think while these are niche banks, they’re not small institutions by any means. I think our listeners may be most familiar with First Republic of the group that’s listed. So while me and Ohio may not be actively putting money in a Silicon Valley Bank, and that seems like a niche far-off bank, there’s definitely a ripple effect that can happen. That is causing a lot of the anxiety and concern right now.

But also, these aren’t small institutions. So we’ll see kind of where things go forward, and stay tuned, and we’ll do our best job to bring this information to the community to make sure that they feel confident understanding what’s going on. But most importantly, how this impacts the decisions they’re making, like purchasing a home as we’re talking about here today.

Tony, as always, I appreciate your expertise, the value that you bring to the YFP community. We’ll mention and include in the show notes information where folks can connect with you. They can go to yourfinancialpharmacist.com/home-loan. Get more information on the pharmacist home loan product offered by First Horizon and looking forward to more conversations throughout the year as well. So thanks for your time and for your expertise.

[00:37:47] TONY UMHOLTZ: Tim, always good to be with you. I always have fun. So thanks for having me.

[00:37:51] TIM ULBRICH: Before we wrap up today’s show, I want to, again, thank this week’s sponsor of the Your Financial Pharmacist Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a three percent down payment for a single-family home or townhome for first-time homebuyers and has no PMI on a 30-year fixed-rate mortgage.

[END OF INTERVIEW]

[00:38:35] TONY UMHOLTZ: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog posts, and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward-looking statements that are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you, again, for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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