June 2023 – Your Financial Pharmacist

YFP 314: RMDs: What They Are & Why They Matter

Posted on June 29, 2023June 28, 2023 by Tim U

Tim Baker, CFP®, RICP®, RLP® discusses RMDs: What they are, why they matter, and factors to consider when building a retirement paycheck.

Episode Summary

No matter where you are in your career journey, it’s never too early to start optimizing your retirement plan. One important factor to consider when building your retirement paycheck is Required Minimum Distributions (RMDs). RMDs refer to the minimum amount that you must withdraw from certain retirement accounts each year after reaching a certain age.

On this week’s episode, YFP’s Co-founder and Director of Financial Planning, Tim Baker, CFP®, RICP®, RLP® unpacks the many intricacies of RMDs, like which accounts demand RMDs, which ones don’t, and what to consider when planning how to build your retirement paycheck. You’ll learn about how RMDs are calculated, the penalties you can expect when you don’t fulfill RMD requirements, how to optimize and reduce the impact of RMDs, and why optimizing your retirement strategy starts in the accumulation phase.

Key Points From the Episode

Introducing Tim Baker and today’s topic: Required Minimum Distributions (RMDs).
Planning for retirement and the taxes you typically need to pay.
The importance of understanding RMDs, even if you aren’t near retirement age.
How the IRS defines RMDs and a run-through of the accounts that typically include RMDs.
An overview of a Roth IRA and how it is contributed with after-tax dollars.
How contributing after-tax dollars allows your retirement to grow tax-free.
A rundown of what happens if you inherit a Roth account.
The primary benefit of Roth accounts: control.
Why traditional accounts are still beneficial despite RMDs.
A breakdown of how RMDs are calculated in various scenarios.
The rules and penalties if you don’t fulfill your RMDs.
What to consider when planning how to build your retirement paycheck.
Why optimizing your retirement strategy starts in the accumulation phase.
How to optimize and reduce the impact of RMDs.

Episode Highlights

“The government doesn’t really care because they’ve already taken their bite of the apple. With Roth IRAs, and then Roth 401Ks, 403Bs (especially heading into 2024), you’re not required to take RMDs.” — @TimBakerCFP [0:10:53]

“With Roths, it’s about control. It’s the control of when you’re paying your taxes or a known quantity of what your tax bill is going to be but then it’s also [that] I don’t have the burden of being forced to distribute the account when I don’t want to.” — @TimBakerCFP [0:13:03]

“So much of building a retirement paycheck (and all this strategy we’re talking about) really starts with ‘in what buckets are you saving?’” — Tim Ulbrich [0:27:16]

“I would still advocate for the use of these accounts because the long-term benefits of having tax-deferred growth is a huge benefit. – I don’t want people to think ‘I don’t want to use these accounts because I don’t want to have to pay RMDs’.” — @TimBakerCFP [0:30:01]

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 YFP co-founder and Director of Financial Planning, Tim Baker, to talk about required minimum distributions. Also known as RMDs. We discuss what they are, how they’re calculated, strategies to optimize, and why this topic matters to building a retirement paycheck.

As a supplement to today’s episode, make sure to download our free checklist; What Issues Should I Consider When Reviewing My Investments? You get a copy of that resource by visiting yourfinancialpharmacist.com/investmentreview. Again, that’s yourfinancialpharmacist.com/investmentreview.

Okay. Let’s hear from Justin from the YFP team and then we’ll jump into my interview with Tim Baker.

[00:00:55] JW: This is Justin Woods from the YFP team with a quick message before the show. If you listen to the YFP podcast, you may learn something every now and then, either from Tim Ulbrich, Tim Baker or one of our guests. A lot of people listen to the show but they may not execute or implement the things they learn.

As pharmacists, we know the impact of non-adherence on patient outcomes and their overall well-being. As a pharmacist myself and part of the YFP team, I talk with pharmacists every day who are confused about how to implement financial knowledge. Pharmacists share with me that they’re treading water financially. Maybe took a DIY approach, reached the plateau and are confused about what to do next. Or those who work for decades can see the light at the end of the tunnel and feel uncertain about how the next chapter will unfold. If that sounds like you, one, it is not uncommon to feel that way. And two, does it make sense for us to have a conversation to see if YFP planning can help you? Visit yfpplanning.com or follow the link in the show notes to find a time that works for your schedule.

[INTERVIEW]

[00:02:01] TU: Tim Baker, welcome back to the show.

[00:02:03] TB: Good to be here, Tim. How’s it going?

[00:02:05] TU: It is going well. Last week we talked about four reasons that we believe you should have your financial planner manage your investments. Great episode. If you haven’t yet, check that out. I hope you will do so. We’ll link to that in the show notes.

This week we’re going to be talking about a topic that we have not really covered before at length or in depth. And that is around required minimum distributions or RMD.

Tim, maybe not the most exciting topic to talk about. But considering some of the questions that we’re getting considering some of the rule changes have come around this with the Secure Act and, obviously, an important part of the retirement planning, a topic that we need to address.

[00:02:43] TB: Yeah. It’s one of those overlooked things until you’re kind of right up against it, unfortunately. And we kind of talk about it at a high level more with regard to your investment assets and what has yet to be taken by Uncle Sam.

I always kind of talk through, if you have a million dollars in a traditional IRA, a million dollars in a Roth IRA and a million dollars in a brokerage account, like how much money do you have? And unfortunately, it’s not $3 million. Because at least in the traditional IRA, when that money goes in pre-tax, it’s tax coming out. So if you’re in a 25% tax bracket to keep the math simple, you have 750,000 of that and Uncle Sam has 250,000. So you’re in a partnership with Uncle Sam in that account.

The big difference or when where RMDs come into play is that, just like when we retire, or how we retire, or things like that, we’re not always in control of how that money is to be poured into retirement. And, essentially, what the government says is, “Hey, remember all of those years that you were able to defer? Now we’re kind of requiring you to distribute those assets over time based on a table in terms of how much you actually have to do or actually have to distribute.” So we’ll kind of talk about that in this episode.

[00:04:16] TU: Yeah. And I really do believe, while this is a topic that I think tends to focus more on those that are nearing retirement planning, to build that retirement paycheck. Really, for folks at all stages of their career, even if I’m early on in my journey, really understanding how RMDs can be helpful in understanding, as you mentioned, the different bucket than how you’re saving and even some of the early investing strategies. So stay tuned regardless of where you are throughout your career.

Tim, let’s start with the definition. What exactly is an RMD? Requirement minimum distribution?

[00:04:49] TB: So this is the minimum amount that you must withdraw from your retirement account each year. I think that’s how the IRS defines it. And essentially, what it means is that if you have that million dollars in your traditional IRA that we talked about, you don’t have to pour all million dollars out in one year and Uncle Sam gets 250,000 and you get 750,000. That’s just used for kind of illustrative purposes.

But depending on your age, you have to pour out a portion of that million dollars. And essentially, what it’s doing is it’s forcing you to pay the tax on those pre-tax retirement accounts. And this has moved over time.

I think, Tim, when I first started learning about studying for the CFP and things like that, the age four required minimum distributions was 17 and a half years old. Now it’s 72. And this is part of the changes of the Secure Act. It’s going to move to 73. And then I think starting in 2033, the age will be 75. That’s a benefit for us. Our required minimum distribution at present will be 75 years old.

What that means is that we can hold on to these investments in the tax-preferred account longer. Now what the government is saying is that, yeah, you could hold on it longer. We also know that you’re living longer. So that’s one of the things that you’re trying to do.

The accounts that are in question, Tim, that often require – not often but do require minimum distributions are the 401K, the 403B, the 457, the TSP, the traditional IRA, SEP IRA, SARSEP IRA and then the simple IRA. These are the ones. Again, most people don’t have SARSEPs these days.

And then what’s weird is most Roth accounts do not require RMDs, which is one of the main advantages of a Roth. However, today, in 2023, and this will change in 2024, if you have – with YFP, we have a 401K with YFP. Part of the dollars that I invest into our YFP 401K goes to a pre-tax, a traditional 401K. But a good chunk of my dollars go into a Roth 401K.

If I were 73 and I had a balance in that Roth 401K, technically, I would still have to take an RMD from that account. In 2024 and Beyond, RMDs will no longer be required from those designated Roth 401K, 403B. So another little quirk in the –

[00:07:34] TU: Tim, just to highlight that for a moment because I think that’s point of confusion that’s going on right now. Roth IRAs have been like that. If you have a million dollars in a Roth IRA, as you highlighted, the buckets, a little bit earlier, you’re not required to draw from that in terms of what would come out of it with taxes. And we’ll talk about how that could impact beneficiaries if that money was transferred here in a moment.

And so, really, the change you’re referring to is for what has been a more popular employer-sponsored account. We see more and more people that are in these Roth 401Ks or in Roth 403Bs. Where the Roth is a part of an employer-sponsored account. And up until – coming up in 2024, those would have required an RMD even though they had the Roth term. But that’s going to change. Correct?

[00:08:22] TB: Correct.

[00:08:22] TU: Okay.

[00:08:23] TB: Yep.

[00:08:24] TU: So will that be a part of it will, part of it won’t? I’m thinking about my situation, right? I’ve got all this Roth 401K money that’s sitting in that bucket that’s pre-2024 and then after 2024. So some of it will be subject to RMD. Some of it will not?

[00:08:43] TB: No. When you’re in retirement, the only thing that’s going to be subject to an RMD for you would be what’s in your traditional 401K and any – if you still have a 403B, if you have a 457, a traditional. So it won’t be – that rule, you’re not going to have to take a little bit out of the Roth in 401K in the future. No.

I guess, in 2024, no one will be taking any money out of a Roth 401K or 403B for the purpose of an RMD. It was just one of those weird rules that kind of just needed to be satisfied. And I think that was put into the Secure Act 2.0.

[00:09:21] TU: Got it. Okay. So talk to us about Roths. And one of the main advantages I often – I guess debates I often hear around Roth is the whole tax rate today, tax rate in the future. But I think what we don’t talk enough about is the benefit of Roth’s not being required to withdraw that money until after death. So not only not having an RMD, right? Which is a positive. But also, that there’s not a requirement of those monies being withdrawn. So tell us more about that.

[00:09:49] TB: Yeah. So as part of the Roth – and again, you think about it from the government’s perspective. So the government, although we joke inefficient and like why the heck are we doing this? Or why is it written this way? From the government’s perspective, they’re looking to access tax dollars where they can. And for a Roth, they’ve already taxed those monies.

A Roth IRA is contributed with after-tax dollars. Again, the example I use is if I make $100,000 and I put I put $5,000 into a Roth IRA, the government taxes me in that year as if I made $100,000. So I don’t get a deduction for that. So it goes in after-tax and then it grows tax-free.

As those investments – as that $5,000 grows to 10,000, 15,000, I’m not paying capital gains tax on those dollars. When I pour that out in retirement, that doesn’t hit my 1040. I don’t get a 10 – like I’m not reporting that as taxable income. So the government doesn’t really care because they’ve already taken their bite of the apple. With Roth IRAs and then Roth 401Ks, 403Bs, especially heading into 2024, you’re not required to take RMDs.

Now if you inherit a Roth. Say you inherit a Roth from a deceased spouse, essentially, what you’re going to want to do is roll that over into your name and then no RMD will be required. If you inherit a Roth, say, from like a parent or something like that or any type of non-spouse, typically, there is an RMD required and it’s typically over a 10-year timeline. And that’s just the kind of exhaust the legacy account and close that out.

That’s one of the major bene – so I think one of the major benefits of the Roth and probably not talked about it directly is control, right? Because in a Roth, you are controlling when you’re paying the taxes, today. Whereas in a traditional, it’s kind of you put your finger in the sky. You don’t really know what your tax – your marginal tax rate is going to be in the future. We have no idea.

The government, the Congress could say, “Hey, these are the new –” the IRS could say, “Hey, these are the new tax brackets.” They’re a lot more than what they are today. Or they could go down. I think most people think that taxes are going to go up. That’s one of the benefits of like, “Hey, pay the tax now and go from there.

But the other thing that often doesn’t get talked about is, if I’m going to retire in Florida, Tim, we know that Ohio – one of the reasons I put a lot of money into Roth now is because – because we’re business owners, one of the weird nuances is that we don’t get hit with taxes for the first set amount of dollars that we make as business owners.

Right now, I’m like, “Okay, that’s a good opportunity for me to kind of circumvent.” It’s almost like I live in Florida or Texas from a – but if I didn’t have that and I was going to retire to Florida or Texas, where I don’t have state income tax, and I’m going to pour that out then, then that’s another thing that we have to kind of consider.

With Roth, it’s about control. It’s the control of when you’re paying your taxes or a known quantity of what your tax bill is going to be. But then it’s also I don’t have the burden of being forced to distribute the account when I don’t want to.

That is a huge benefit to a lot of people, is being able to have control over the tax rate and the time. And again, that’s not to say that these traditional accounts are bad. They’re not. They’re good, in fact. But when we kind of get the question of like where should I have my money? It’s a little bit in pre-tax. It’s a little bit in after tax. And it’s a little bit in tax-free. And I think all of those are going to play an important part as you approach retirement.

[00:13:53] TU: Yeah. And Tim, I wasn’t aware of the difference between the spouse versus non-spouse with a Roth being passed on to a beneficiary.

[00:14:03] TB: They’ve changed those rules like recently too. Yeah. Because it used to have stretch. And the stretch IRAs and inherited IRAs. And there’s lots of different nuances with that. And even the rules around inherited IRAs are pretty complex. Like they’re not straightforward if you’re an entity, versus a non-spouse, versus a spouse, versus keeping it in the decedent’s name or your name. There’s lots of different things that are going on there.

[00:14:31] TU: This too is another example we just talked about in the last episode of how we don’t want to look at any in a silo, right? For our younger practitioners who are listening that may be working through something like a student loan, forgiveness strategy, right? Implications here of traditional versus Roth contributions on the student loan equation.

We’ve talked about that before. We don’t need to go down that rabbit hole now. But when we talk about like Roth or traditional, another example yet where it’s not just a blanket, this one is better than the other, right? It really does depend in someone’s whole situation.

[00:15:03] TB: Yep.

[00:15:04] TU: Tim, how are the RMDs calculated?

[00:15:07] TB: The required minimum distribution for any year is – essentially, the way I learn this is that you look back for the balance. So this is the balance of your 401K, your IRA, your SEP IRA. So you look back at 12-31 of 2022 as an example. And then you look ahead, essentially, the year of – so if I’m turning 76 this year, that I look at that year as the year that I need for the IRS’s uniform lifetime table.

What do I mean by that? Let’s do an example to kind of flush this out. Let’s pretend it’s June 2023, which it is. And I’ve just turned 76. Or I’m about to turn 76. Essentially, when I look at age 76, the IRS uniform lifetime table returns a column. It’s distribution period in years of 23.7.

As a 76-year-old, essentially, I have 23.7 years to distribute the account out. So that’s the factor that I use. I go and I pull my statement from the end of last year and I see that, in my traditional IRA, I had $250,000. I take that $250,000 and then I divide it by that factor from the IRS table as a 76-year-old. $250 000 divided by 23.7. And it says that my required minimum distribution for that year is $10,548.52.

That is what I’m required to distribute to kind of – to not be penalized by not taking the proper RMD. Essentially, I would work with my advisor and I would say, “Okay, at a minimum, I need to, either in a lump sum or in payments over the course of – we would probably just build this into the retirement paycheck. That, hey, we need to essentially allocate this amount of cash from the IRA and make sure that that satisfies the RMD requirement. That’s the first example, Tim. Did you have a question?

[00:17:18] TU: Yeah. And so, in that example, 10,548, right? You mentioned $50,000 balance in your traditional IRA. [inaudible 00:17:25] 10,500, that would be the required minimum distribution. That 10,500 is then taxed as ordinary income, correct?

[00:17:34] TB: Correct. If the custodian is what we use that TD Ameritrade, which is TD Schwab. Essentially, TD Schwab would send me a 1099R and it would show that distribution. And essentially, I would be working with Sean, my CPA, when I go to file my taxes. And that would show up as income. I might still have some W2 income or I might have some other 1099 contract income of doing some consultant and when I’m 76. Maybe I’m doing that for YFP in the future.

I might have some W2 income. I might have some 1099 income. And then this 1099R our income would be recorded on my taxes. And then depending on what tax bracket I’m in, that’s when I would be taxed.

Right now, if I’m in a 25% tax bracket versus maybe when I’m 76 – I know I’m conflating years and everything. But maybe when I’m 76, maybe I’m in a 12% tax bracket. So that would be benefit to essentially – let’s say I’m earning less than $90,000, which is the 12% bracket for married filing jointly. That’s kind of what’s at play here. You basically get the 1099R and record it in your taxes in that year.

[00:18:50] TU: Okay. Got it.

[00:18:52] TB: Another example of this is let’s pretend, Tim, that I have a traditional IRA, a SEP IRA and a 401K. Same fact pattern. It’s June 2023. I’ve just turned 76. And that distribution period in years is still 23.7. When I look at my statement, I see that, okay, I still have the $250,000 IRA. But I also have $100,000 in my SEP IRA and I have $500,000 in my 401K.

My RMD this year, if I take 250,000 and divide it by 23.7, it’s still at 10,548. The SEP IRA, $100,000 divided by the same factor, 23.7. The RMD for that is now $4,219.41. That’s still in addition to the 10,500 from the traditional.

And then the 401K of half a million dollars I have to distribute. So, $500,000 divided by 23.7. I have to distribute 21,000. We’ll call it 21,1000. $21,000. My total RMD across all three of those accounts is $35,865.

Now just to make this even more complex, Tim, with the traditional and the SEP, I could take all of that out of my traditional. That’s the bigger account. Or I could take that all out of the SEP if I wanted to. With the 401K, I have to take it out of the 401K.

Or let’s say I had a 403B. I would have to take it out of the 403B. So those that are administered by the employer, or in my case, a previous employer, I have to take it out of those plans if I have those IRAs that I’m managing. Or an advisor is managing for my benefit, I can aggregate those and have that come out of one. That’s one of kind of the nuances there.

[00:20:53] TU: That makes sense. So the I in IRA is an individual account, right? It stands for individual. In that example, we had a traditional and a SEP. You could take the RMD out of one of those accounts. Either the tradition or the SEP. But since the 401K was an employer-sponsored account, that RMD has to come directly out of that account.

[00:21:11] TB: Yep. Correct.

[00:21:12] TU: Okay. Got it. So we’re going to talk in a little bit about why this topic really matters and some of the strategies to reduce CRMDs. But let’s talk about the penalty side of this. What happens if, Tim, I don’t take an RMD? So maybe I’m not familiar with the rules. I’m DIYing this and just not paying attention to logistics or something gets overlooked. What happens in that case?

[00:21:33] TB: In the old rules, before the Secure ACT 2.0, it would be basically 50% of what you fail to take that would be taxed. In the case that I was saying, it’s like if I had to take 10,500, 5,200 of that would be basically the penalty. And then you’d have to file form 5329 in your federal tax return for the year that the RMD was not taken.

With the new rules, it’s basically they tried to make this less – they try to soften this a little bit. So now it’s 25%, which is still substantial. And then if you correct it within two years, it’s 70 – it’s 10%. Excuse me. One of the things – again, one of the weird nuances is let’s say I’m turning 72 this year. Technically, I don’t have to take the R in the first year. Don’t ask me why is this, Tim. In the first year, I don’t have to take the RMD until April of next year.

But then every subsequent year I have to take it before the end of the year. Let’s pretend I say, “Oh, I didn’t take it. I’m taking it April 15th right before I file my taxes.” But then in that same – if I have to take that 10,500. In that same year, I have to take another RMD for 73. That’s another one of the weird nuances. Yeah, it’s 25%. But 10% if it’s corrected within the first two years.

[00:22:54] TU: I mean, even 10% is no joke though, right?

[00:22:58] TB: Yeah. I mean, some of these rules is like if you over contribute, it’s like a 6% excise. When you go from 50% even down to 25% or 10%, it’s – and the dollars get bigger. I mean, your balances are supposed to get smaller. But every year – so when you go from like 76, where the factor is 23.7, the next year at 77, it’s 22.9.

And one of the things that the IRS has done is they extended it out. I think it goes all the way up to like age 120 and older. But at 110, as an example, the factor is 3.5. If you have a million dollars at 110, about $300,000 and $400,000 is what you have to distribute in that year. The factors get smaller, which means that the RMD gets bigger as you age. Again, if you’re not doing it properly, the penalties can be quite robust.

[00:23:54] TU: Whether we like the rules or not, Tim, they are what they are, right? We’ve got to factor them in. We’ve got to plan for this. And my mind is spinning around, “Okay, I’ve got all these different buckets of funds that I’ve been building throughout my accumulation phase.” Right? We’ve talked about some of the alphabet soup here in this episode. And now there’s this strategy of how I withdraw not only from those buckets. But also, how do I factor in the RMDs? And in which order? Which priority?

At the end of the day, the topic matters, I think, as you try to build a retirement paycheck and think about the order of withdrawal and how you’re going to put together that paycheck in retirement.

[00:24:33] TB: Yeah. I mean, if you look at what are the sources of income that you’re going to have in your retirement paycheck, one of the big ones is going to be Social Security, which, as we continue to go on, more and more people, their Social Security will be taxed. Because a lot of the phase-outs for that have not been adjusted for inflation.

But if you think about it, the average today, Social Security check, per month, per recipient, it’s like $1,780. Just about 21,000 and change per year. That might be your baseline. And then for most people, if I need $80,000, then 60,000 is going to come from your traditional investments.

And what we’ve seen here is, in this example, 35,000 of that has – in this example, has to come from the traditional, right? So then you’re playing the game of like, “Okay, if I’m trying to get to 60,000, that still puts me in a 12% tax bracket.” Again, if I’m just looking at myself and not necessarily Shay.

What is she getting from Social Security? What does her RMD look like? Are we going to try to fill up the 12% tax bracket? Are we looking at the 225 tax bracket? Are we pulling anything from Roth at all?

I think, again, having the ability to pull from pre-tax, you have to, especially with the RMDs. But then to then move to something like a brokerage account, which is after tax to a tax-free, which is a Roth. All of those things are going to be in play to make the most efficient play at building a retirement paycheck.

And depending on where – again, if you have certain assets in certain accounts, they are not going to be optimized with kind of the strategy. You have to be wary of that too. What are the things that are going to be most volatile or higher risk, higher return? Most capital gains, things associated with that. Those are all going to be important when you’re kind of building this out.

Is there an annuity? A lot of annuities if you buy a qualified annuity. If you take some money out of your traditional IRA, so to speak, to buy an annuity, those have RMDs. And a lot of that can satisfy the RMD or delay it. There’s some strategies there. There’s lots of tax implications. But also, how does this relate to your investment allocation? The location of certain assets? It’s all very nuanced.

[00:27:10] TU: Yeah. And Tim, the place that I’m thinking about right now, I’m 15 years into my career. I put myself in that mid-career bucket. But so much of building a retirement paycheck and all this strategy we’re talking about really starts with ‘in what buckets are you saving’, right?

I think sometimes there’s a tendency that, “Hey, we need to save whatever big number.” Right? Two, three, four million dollars. And we just start saving, saving saving.

And saving is good, especially if we’re doing it over a long period of time. But saving intentionally so that we’re thinking about this from a distribution sense, I think we often disconnect that accumulation and decumulation phase. And, really, prioritizing that. Really, the accumulation, optimization, and the strategy around that, especially in a tax-efficient way, really starts back in the accumulation phase.

[00:27:58] TB: Correct. Yeah. It’s kind of building – we talked about building a foundation of an emergency fund and getting the debt – the consumer debt in line and having a plan for this student loan. But this is right there in terms of, again, bucket selection. But then inside of those buckets, what assets are we actually put in? And are they the best for the long run? Yeah, those are definitely in play.

And again, I think it’s often an overlooked thing. And this is where – and again, it’s not necessarily like if you’re required to distribute your account, that doesn’t necessarily – it doesn’t mean that you have to consume it. You can always direct those dollars elsewhere. Whether it’s a brokerage account or it could be real estate. It could be paying for a grandkid’s education or something like that. There are things that you don’t necessarily have to like move those dollars off your balance sheet.

But, essentially, what’s in play here is the efficiency related to tax. And, again, in the context of like, “Okay, what is it that I need to sustain a retirement paycheck for from now until age 95, 100, 105, 110?” And that’s difficult to do.

[00:29:13] TU: Yeah. And I’m thinking about this from a household perspective, right? Tim, you mentioned you’ve got, often, two people, multiple accounts. So now you’re talking about additional layers of complexity. Maybe different timelines of retirement and when they need those funds and goals that they have. This is where I really want for Jess and I. I want the two of us with our CFP and the CPA in the same room whiteboarding and kind of masterminding this to make sure that we’re really thinking about it from every angle.

[00:29:43] TB: Yep.

[00:29:45] TU: Finally, I know many of our listeners are thinking what I’m thinking, which is, “Hey, what can we do to optimize this? What can we do to potentially reduce the impact of the RMDs?”

[00:29:55] TB: Yeah. So there are a few things. RMDs are inevitable, right? If you use any of these accounts – and again, I would still advocate for the use of these accounts because the long-term benefits of having tax-deferred growth is a huge benefit. I don’t want to say it’s not. I don’t want people to think I don’t want to use these accounts because I don’t want to have to pay RMDs.

There’s a few strategies that you can employ. If you are still employed and you’re kind of within that RMD age. Let’s use 72, 73. You can delay your 401K RMDs. Not necessarily your IRA RMDs. But your 401K RMDs from your employer until you retire. You just can’t be a 5% owner, Tim, for you and I. Like that wouldn’t imply. We would still have to take RMDs.

Probably one of the biggest things that you can do is just get money out of those buckets. So this would be things like Roth conversions. Essentially, over your career, you can identify times that it makes sense because of lower earning years. You’re still paying the taxes on it. But you’re doing it in more of a controlled way versus here’s the balance, here’s the factor, and then that’s your RMD.

One way that you can do it is just manage the distribution. So most people take RMDs either in a series of payments or through like a lump sum at the end of the year. One strategy that you can, which, again, we bring up annuity, which is sometimes a bad word for people. But you can invest in a QLAC.

A QLAC is a qualified longevity annuity contract. This is the deferred fixed annuity that you purchase with funds from your retirement account. Like a traditional 401K or a traditional IRA. And typically, because there is a promise in the future to pay out those funds, one of the special things about this is that there’s no required distributions until 85. Until age 85. You can push that out for a decade or so.

The big selling point for this is, if you’re looking at – in the example I gave, “Hey, I had $500,000 in my 401K.” And that means that the RMD for this year is 21,000. I really don’t want to do that. I can peel off 100,000 or 200,000 and put that into a QLAC. And that lessens the burden from what’s coming out from the 401K. That is a strategy that you can use.

Charitable donations. So you can either – you can do this one of two ways. And I think it just depends on the tax situation. You can make a QCD, a qualified charitable distribution, which is a direct transfer from your retirement account right to a qualified charity. And this will be basically excluded taxable income, which will lower your tax bill. Or you can use your RMD to make charitable donations and kind of get a – that’s typically where, again, you’re going to use the itemized deduction and maybe want to do a bunch in strategy or things like that to get the most benefit. So those are ways to kind of reduce or delay or get around the RMD, which at the end of the day is inevitable.

[00:33:17] TU: Tim, great stuff. I feel like we’ve covered a lot of length in a short period of time a topic, again, that we haven’t talked about in great detail. We’ll certainly be coming back to this more as we talk about some of the retirement planning strategies. But again, a great episode regardless of what stage of career that you’re in.

For those that are listening and say, “Hey, I’d love to have someone in my corner really thinking about this from an investment, retirement planning strategy,” we’d love an opportunity to talk with you further about the financial planning services that we offer at YFP planning. You can learn more and book a free discovery call at yfpplanning.com. Again, that’s yfpplanning.com.

Tim, great stuff. We’ll be back here in the future.

[00:33:57] TB: Thanks, Tim.

[OUTRO]

[00:33:58] 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 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 publish. 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 Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 313: 4 Reasons Your Financial Planner Should Manage Your Investments

Posted on June 22, 2023October 5, 2023 by Tim U

Tim Baker CFP®, RICP®, RLP® discusses the 4 reasons why your financial planner should manager you investments on this podcast episode sponsored by First Horizon.

Episode Summary

Financial planners often get a bad reputation because people either don’t trust them or they feel like planners are a waste of time — they could be doing the job themselves. So on today’s episode, sponsored by First Horizon, YFP’s Co-founder & Director of Financial Planning, Tim Baker is here to discuss the four reasons why having a financial planner is crucial for managing your investments. From our conversation, you’ll gain a better understanding of the type of accounts that a financial planner could manage on your behalf, what an Investment Policy Statement (IPS) is, and why it’s vital for your financial plan. Then, we dive into the 4 reasons why, if it is the right fit, having a financial planner manage your investments is a good idea. Spoiler alert…hiring a financial planner to beat the market didn’t make the list!

Key Points From the Episode

Introducing Tim Baker and today’s topic: Financial planners managing your investments
Taking a closer look at the investment accounts that a financial planner could manage for you.
What an investment policy statement (IPS) is and why it’s important.
How having a financial planner will save you time and bring you peace.
The importance of an integrated financial plan, and how a financial planner can help.
How a financial planner will ensure that don’t fall victim to behavioral mistakes and biases.
Using a planner to avoid technical mistakes, and the common technical errors that Tim sees.
Why the role of a financial planner is not necessarily to help you beat the markets.
What you can look forward to in the next episode.

Episode Highlights

“On my time off, on the weekends or whatever, I would rather pay a professional that knows what the hell they’re doing — they’ve done it, it’s not their first rodeo — than me waste a weekend.” — @TimBakerCFP [14:33]

“The more that you continue on and accumulate wealth; working with a coach [or] a planner is in line with that. The management of the investments and the stress of it should be delegated to someone else.” — @TimBakerCFP [15:31]

“If we don’t have the assets and the investment management integrated with the plan, it’s almost like we’re trying to fight with one hand tied behind our back.” — @TimBakerCFP [19:13]

“I often say that with investment, you often want to do the exact opposite of what you feel. But the statement that you have to make, even before you make that, is that investment is an emotional activity. It is. [And] a lot of that has to do with our aversion to loss.” — @TimBakerCFP [25:12]

“[Go] by the market, don’t try to beat the market, and the market will take care of you — if you invest in it consistently without bad behavior over long periods of time.” — @TimBakerCFP [36:46]

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 YFP co-founder and Director of Financial Planning Tim Baker to talk about four reasons you should have your financial planner manage your investments. Spoiler alert, beating the market did not make the list. As a supplement to today’s episode, download our free checklist, “What Issues Should I Consider When Reviewing My Investments.” You can get a copy of that resource by visiting yourfinancialpharmacist.com/investmentreview. Again, that’s yourfinancialpharmacist.com/investmentreview.

Now, at YFP Planning, our team of fee-only certified financial planners pride themselves in helping clients manage their investments in a tax-efficient, low-fee manner. While that in and of itself is a win, that’s just one part of the financial plan. Our planning team that services more than 280 households in 40 plus states guides clients through the entirety of the financial plan, including retirement planning, debt management, wealth protection, and more. All centered around our philosophy of helping you live a rich life today and tomorrow. You can learn more about our one-on-one planning services while visiting yfpplanning.com. Again, that’s yfpplanning.com. Okay, let’s hear from today’s sponsor, First Horizon and then we’ll jump into my interview with Tim Baker.

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[INTERVIEW]

[0:02:40] TU: Tim Baker, good to have you back on the show.

[0:02:42] TB: Good to be back, Tim. How’s it going?

[0:02:44] TU: It is going well. We’re going to be doing back-to-back episodes focused on managing investments. Next week, we’re going to talk about RMDs or required minimum distributions. We’re going to get in the weeds a little bit over the next two weeks, which I’m excited to do as we talk about some of the investing side of the financial plan. Tim, today we’re going to talk about four reasons you should have your financial planner manage your investments. Now, before we get into those four reasons, I want to make sure we’re all on the same page with what we mean by this. So, having your financial planner manage your investments. Talk about this at a high level, so we can have the right context throughout the show.

[0:03:23] TB: Yes. My attitudes have changed about this over time. Really, this is because of just working with pharmacists on their financial plans and just some of the things that we’ve come up against with regard to being effective and efficient with the financial plan. When we say we feel that your advisor, your planner should manage the investments, what we’re talking about are the investments that you’re managing, that you don’t necessarily need to. This means – these are things like your traditional IRA, your Roth IRA, your brokerage account, old 401(k)s, old 403(b), TSPS, 457 Plans. These are things that you’re not actively contributing to as part of like an entire employer-sponsored retirement plan.

What we found over the years, because I used to be more location agnostic, meaning, my viewpoint was, it didn’t really matter where it was. We either manage it or help your management. I think, in theory, that sounds nice. But in application, it’s not, it’s messy, there’s lots of hands in the cookie jar. There’s lots of moving pieces in regards to the financial plan that the investments are absolutely part of that. Our belief is that if there are held away assets, so held away are defined, you know, when advisors talking about this or assets that are not at their custodian. We use that YFP Planning, we use TD Ameritrade, which is recently merged with Charles Schwab. Schwab will be the predominant brand there. We feel that those client assets that can be managed by us, the advisor should be managed by us. We’ll get into a few reasons of why that is. That’s held away piece.

[0:05:25] TU: Let me give a for instance to define these just a little bit further, and hopefully put something that people can hook on to. Tim, if I, let’s say, I’m working with Kroger pharmacy right now, and I’ve been with them for five years, contributing to their 401(k). Then prior to that, I worked for, let’s say, CVS for five years. Once I left CVS, that money, I moved into a traditional IRA, let’s just say for that example. I’ve got $100,000 in an IRA, and then I’ve got this, let’s say, another $100,000 in my current employer, Kroger, with the 401(k).

When you say held away, that Kroger, my current employer count $100,000, would be a held away asset through my current employer and the contributions I’m making. When we talk about today, managing why you should have your financial planner manage your investments. We’re talking about that previous $100,000 that’s sitting in an IRA that maybe I’m self-managing right now, or it could be someone’s listening to another advisor that’s managing for it. But that’s a differentiation we’re making, correct?

[0:06:33] TB: Yes. You’re going to have held away accounts that some are going to be eligible to potentially be moved over for us to manage. That would be like the old employer, and then you’re going to have some that aren’t because you’re actively contributing to said account. Yes, that would be the distinction I would make.

[0:06:50] TU: Okay. An assumption I want to put out there before we get into the weeds here is that when we say why we believe your financial planner should manage your investments. The assumption we’re making is that that planner, from our perspective, best practice is, there’s a fee-only with a fiduciary responsibility. They have a really thoughtful approach to how they’re managing their investments, which would include an investment policy statement, an IPS, where you’re really spending time with the client to understand their goals, understand their risk tolerance. All of that is informing the direction that we’re taking with the investment. Let’s spend a moment just to break that down a little bit more in terms of what is an IPS, and why is that important? Obviously, the context here of fee-only as well.

[0:07:37] TB: Yes, IPS is not something that every advisor has or even employees. I think regulators like this because it’s kind of a set of instructions for them to see how they are managing client accounts. When I was in my first job in financial services, we didn’t have an investment policy statement. We knew, based on a risk tolerance assessment that we give them, that, “Hey, they’re conservative, or they’re a moderate, or they’re an aggressive investor,” but that was essentially it. We had it in their file that that was what they were, and then we try to match up their portfolios at such.

The way that we do it is, before we invest any dollars on behalf of our client, so let’s pretend that we moved that $100,000 over to a rollover IRA at TD Schwab for us to manage for the benefit of the client. Before we do anything with those dollars, we essentially go through a risk tolerance and questioning goals about the investments. And we issue an investment policy statement, so this is something that we send to a client via DocuSign. In the investment policy statement, it’s essentially an executive summary. What the purpose of the document is, and it’s really to outline investment goals, expectations, strategies, and responsibilities related to the portfolio? It’s to create reasonable objectives and guidelines in the investment of your assets.

We outline things like, what was your risk tolerance, what portfolio do we agree to, what is the asset allocation. Is it a moderate 60-40, or is it more aggressive 90-10, or an all-equity portfolio? What is that investment objective? Is it aggressive growth or growth with income? Are there any type of liquidity needs, any type of tax considerations that we should be aware of? What is the time horizon?

If Tim, you’re the client, and you have 25 years left to retire, then the time horizon is 20, 25 years. What type of accounts most of – a lot of our clients will have an IPS, an investment policy statement for retirement accounts, but they might have something that is related to a tax bomb or a more near-term goal. So we have a different asset allocation. We outline what are the duties and responsibilities of reporting. I think one of the fears that people have, if they’re having their advisor manage their asset is, I think they fear that the money’s not theirs. One of the things that I’ll say is that we don’t have necessarily access to the money. We trade the account, but I can’t go in there and say, “Hey, Tim, you move from this part of Ohio to this part of Ohio.” You have to do that yourself. Because they want to make sure that the chain of custody from where they’re sending account statements is not broken. We used to be able to do that recently.

It’s very, very much like we have very deliberate and specific responsibilities related to the portfolio, but we’re not – it’s not our piggy bank, which I think sometimes people get afraid about that. So, we do know the custodian does all the reporting with statements. We talk about what our responsibility is with rebalancing, how often we’re going to review the count if we take discretion or not. Then, part of our IPS is we outline the different positions that we’re in. So we go through what’s our large cap, or mid-cap, and all the different positions that we’re in related to the portfolio, what the allocation is, some nerdy stock analysis.

What parts of the world that we’re invested in, so whether that’s North America or Asia developing, Asia emerging, Latin America, what the bonds look like, so if they’re double A or single A, we show performance. We look back one, three, five years and show the annualized return, the risk, some charts. We’ll show what the income is on this portfolio. It’s a look back in terms of what the yield is, the stress test, which is a big thing. In the subprime mortgage crisis, this is how the portfolio would react, or when coronavirus happened, or the tech bubble? So, we show some of the stress testing on that. Then, the expense, which often is a huge driver in the overall ability for the portfolio to grow, what does the expense of the overall portfolio look like? That’s our north star, Tim. That’s the document that we use to trade and manage the portfolio as we go here.

[0:12:44] TU: I think that’s time really well spent, right? Because I think for folks, as you mentioned, especially I would say for people who have maybe not worked with an advisor before, who have gone through this type of process or experience where you have someone that is helping to manage your investments. This can feel scary, it can feel big, it can feel — at least as you hear, for the first time, a little bit like a black hole. I think when done well, and that’s the backdrop. We’re assuming as we go through these four points here today. When done well, as you just described in great detail, there’s a lot of time spent, a lot of thought, a lot of attention to make sure that there’s alignment and the decisions that are being made.

Obviously, that’s an important part of the trust process as you’re working with a financial planner, and that should be something that you feel good about, number one. And that you understand and make sure you understand as you’re reviewing those documents and having the conversations with the planner.

[0:13:34] TB: Yes, absolutely.

[0:13:34] TU: With that in mind, let’s talk through four reasons that we believe you should have your financial planner manage your investments. Tim, number one, perhaps most obvious on the list is saving time. I’m busy; I don’t have to worry about this, maybe less stress involved as well. Tell us more about this.

[0:13:50] TB: Yes, I definitely think it’s a time thing. Obviously, this is something that we often talk about, less is more. But I think having your hand on the wheel with regard to this is important. I probably even more so than time; it’s just the brain capacity, Tim. I think sometimes we often really undersell or overlooked fee, the things that drag on our mind that don’t necessarily need to. I always – we’ve kind of talked about how the two of us were not necessarily the most handy people in the world. Could I go out and learn basic plumbing and things like that? Yeah.

But I look at that as, like, on my time off, on the weekends or whatever, I would rather pay a professional that knows what the hell they’re doing; they’ve done it; it’s not their first rodeo. Than me waste a weekend, and either complete it at an hourly rate that is well below that than what I would make during my day job, or that it’s half done or not done. That’s the thing, is like –

[0:14:58] TU: With some curse words.

[0:14:59] TB: With a lot of curse words, and stress, and things like that. That’s just my mentality. I think that becomes more of a thing. The more you look at yourself as a professional as pharmacists should, right? To me, this is an area. We talked about this with small – it’s kind of a no-brainer with small business owners. The first thing that probably needs to go is bookkeeping. It’s one of those things, and I would say that the more that you continue on and accumulate wealth, this thing, working with a coach, a planner is in line with that. And the management of the investments and the stress of it should be delegated to someone else. Obviously, again, it assumes you trust the person, the team that you’re with, which is not something that I take lightly, or anyone takes take lightly. One on our team takes lightly.

One of the things that I really like about being a financial planner is that you’re in that position of trust, and I think pharmacists can relate to that. Again, not taking that lightly, I think is important. But just think about the convenience, and ease of management, paperwork that’s involved. I would love to be more paperless than we are now. We’re getting there. But it’s a slow go. But the ongoing account maintenance, rebalance, and other strategies that you’re going. If you can delegate that to others, I think that’s a huge time savings, but just a brain capacity savings. Then, I think you see this with people in the accumulation stage. But I think, even more so, retirees. I’ve joked about this with my dad, like when he retired, he was no longer doing his day job. He knew that I was, obviously, building out my business and I’m a financial planner.

It was almost like every time that we talked, we talked about the market. He almost preoccupied this, and it was almost a substitute for his job. His livelihood is very much connected to what the market is doing. But I think if you’re doing it correctly, you want to inoculate yourself as best you can. Those near-term ups and downs should not really affect your overall well-being. So to me, a lot of people miss the mark on that. I think that’s where a professional can help you as well.

[0:17:22] TU: Tim, that’s a really good example in terms of the retirement and the preoccupied nature of investments. It’s funny, my father, father-in-law, every time we visit, this comes up within 10 minutes prior. We’re talking about the markets and trends. I think it’s just human behavior that now you get more time available than you did, obviously, than when you’re working. But you’re thinking about things like distributions and strategies, especially if you’re DIY’ing this and not working with a planner.

The ups and downs of volatility, especially the period we’ve been in here the last couple of years that can weigh on you. I think having someone in your corner to help talk you through that, coach you through it, making sure that we’re sticking to the plan, and that we have accountability to stay to that plan, it’s important all the way throughout, but probably even more important than that time period, where you just have the time and it’s front and center top of mind.

[0:18:14] TB: Yes, and I probably should give my dad less of a hard time. He’s probably just trying to find ways to engage me and talk about my business and things like that. But I know for a lot of retirees, definitely one of the things that they talk about quite a bit.

[0:18:29] TU: Number two on our list is ensuring an integrated approach, that we’re not considering this in a silo. Something we talked about often on the show, Tim, that it’s really important we look across the entire financial plan. When we’re looking at investments, retirement planning, debt pay down, insurance, any part of the financial plan that we’re really looking in its entirety, and we’re not just focused on one part of the plan, perhaps at the expense of other parts. Tell us more here.

[0:18:58] TB: Yes. I think, just like we talked about systems of the body, everything’s interconnected. I think one of the things that we’ve learned over from my time at script financial and now, YFP Planning is that if we don’t have the assets and the investment management integrated with the plan, it’s almost like we’re trying to fight with one hand tied behind our back. What we’re really trying to do here see the full picture. We want to make sure that the investment philosophy and management of such assets is aligned with your goals and your life plan. I’m a big, big believer in purpose-based investments. Another buzzword. But what I often find with people that are coming in the door, even do-it-yourself investors is, I’ll say, obviously, Roth 401(k), a Roth IRA, a traditional IRA, we know that those are for retirement by and large.

But I’ll often will see brokerage accounts and accounts like that. I’m like, “What is this money for?” It’s like, “Well, I don’t know.” Why do we even have it? So really aligning and drawing clear lines of distinction between what this bucket of money is for and executing to that. But probably – so you have that, which is more broad to the overall financial plan, but then making sure there’s alignment with other technical areas of the plan. Whether that be debt, the tax situation, retirement. It could be estate and charitable given. All of those things are interconnected. I think if you don’t have eyes on our hands on that, again, it makes our job a lot easier. From the depth perspective, Tim, we know this with regard to PSLF, and non-PSLF, that these things are interconnected. Oftentimes, they are disconnected if they’re not managed, I think, by a QB, one person that is overseeing the plan.

We know that tax is another thing. Is there synergy with the financial plan and the tax plan? By and large, most advisors will say, “Hey, that’s a tax question, go talk to your accountant.” Which is like nails on a chalkboard for me. That’s one of the things that we do differently. We have YFP tax that works in concert with YFP planning. We have a CFP, that is your financial planner, that is working in tandem with a CPA, which is your tax accountant. Looking at things like, are we going to have a big refund? Are we going to owe a lot of taxes at the end of this year? What are the tax loss harvesting strategies as we get more advanced multi-year tax planning? It might be bunching for charitable giving.

We know that retirement and the investment strategy is intertwined. In the accumulation phase, which a lot of our clients are in, that simply bucket creation, so having the different buckets. But then, where are we putting different assets? A lot of people don’t think that probably in your Roth, you need your most appreciable assets, which might be small cap or emerging market. Should probably go there. Where do we put tax advantage accounts that are in the brokerage, or is that somewhere else?

Just knowing where to actually put the investments that you’re putting in that bucket is important in the accumulation stage, where a lot of people overlook that. Then in the deaccumulation, or the withdrawal strategy, whether you’re using a foreign strategy, a bucket strategy, a systemic withdrawal strategy. All of these have rules, Tim, that are clearly linked to the traditional portfolio, and how we either refill bucket one with bucket two or refill bucket two with bucket three. Or how we’re going to with inflation and the gains on the portfolio. How are we going to essentially send that paycheck to you in concert with social security in 2024? How do we create the floor? What are the tools that we’re going to use, and then how are we going to supplement from the investment strategy, and give those dollars to you in retirement?

Then, just overall, how do we manage the liquidity needs. There’s lots of things that happen in real-time. Over the course of many years, that if we’re managing through the client by proxy, is a is a challenge. We’ve had instances where clients will be upset because they’re trading their own accounts, and this is related to tax, and they’re generating lots of short-term capital gains. Then they’re upset with us because our projections are off. It’s like, “But we don’t have any visibility or vantage point of what you’re doing in these accounts that we’re not controlling or we’re not overseeing for you.”

It’s one of those things that, this is what we do. We do this for our clients across the board, and we think we do it well. So working in that way, I think, is important for us, and I think for the effectiveness of the overall financial plan.

[0:24:22] TU: Tim, I think for folks that are hearing some of these terms for the first time, when you talk about things like flooring, bucket tragedy, systemic withdrawal. We talked about this on episode 275 of the podcast, where we had a month-long series on retirement planning, and that episode specifically. We talk about how to build a retirement paycheck. I hope folks will check that episode out in more detail. That’s number two. Ensuring that we have an integrated approach. I think you explained that well, Tim. Number three, which is one that maybe our DIYers are going to get a hate, that we’re challenging this. But this is avoiding behavioral mistakes and biases. Tim, I tend to fall under this – I’ve come to appreciate where I need help. But perhaps, I’m over overconfidence, and really understanding the behavioral mistakes and the biases that we may fall victim to.

[0:25:11] TB: Yes, I often say that with investment, you often want to do the exact opposite of what you feel. But the statement that you have to make, even before you make that is that, investment is an emotional activity. It is. A lot of that has to do with our aversion to loss. Sometimes, it can be also chasing a big payoff if we’re doing things like chasing hot stocks. The market volatility, I think, really plays on our emotion. I always joke, like when the market took a downturn during the Corona Virus or during the subprime mortgage crisis. As you’re seeing your portfolio go from X to X minus 30%, 35%, you want to then take your investment ball and go home, Tim. It doesn’t feel good to see your balance get sawed off like that. But it often leads to bad behavior, and that’s typically where we’re doing things like selling low and buying high.

When we sell to avoid that pain, then we wait on the sideline and buy when the market seems like it’s returned to normal. All of that upside. Again, l think people don’t see this in themselves. I would say that, Tim, that this is true for advisors as well. It absolutely is. But I would say that, if you’re, again – I’ve talked about this, related to the any type of salary negotiation. The big disadvantage that you have as an employee of a company when you’re – or a prospective employee of a company is that you might have a dozen times during your life where you’re negotiating on your behalf with an employer. Whereas your counterpart, whether it’s a hiring manager, an HR manager, they might do it a dozen times in that week. You’re at a disadvantage just because of reps. I’m not saying that we as humans or as advisors, we don’t have these. It’s just that I think we’re more aware of it, and we try to mitigate that with the way that we build out our portfolios.

The behavior thing is huge, and that can be again, it can be chasing hot stocks, it can be trading too much, trying to time the market, which we talked about the buying high, and selling low. Ignoring diversification that’s another issue. Sometimes we see portfolios that are overloaded in tech stocks or one particular security or even act on unreasonable expectations. I still frequently we’ll talk to people who are super confident in their prowess as an investor. But they will say things that just are not in line with reality. Like, “Hey, within the next year, I really want to start making passive income off of my portfolio.” I’m like, “That’s not a real thing in any time in the near future.”

We have to be aware of our common biases, and I think a lot of the ones that you mentioned are things like overconfidence. I probably see that the most. Typically, that is more male than female. It’s just the reality of situation. But even things like hindsight bias, like, of course, the market went down, and this is why. Or herd mentality, or overreaction, these are all biases that I think that we don’t see in ourselves that really can affect our ability to grow our portfolios consistently over time.

We always cite Vanguard. Vanguard has done an advisor alpha study. Vanguard doesn’t have advisors. They’re kind of – they don’t necessarily have a horse in the race, but they basically said that an advisor can add 3% per year in return to your assets. Half of that Tim, 1.5%. I think it’s 2.9 or it might be three. But essentially half of that, Tim, is related to behavior. Paul Eichenberg, he talks about – he does manage some cash, or some investments himself. But he basically said, the core of his investments, what he talks about is, there’s a wall between him and his investments. It’s just so he doesn’t do anything foolish or crazy. That’s part of this as well, is sometimes, something – it’s the overreaction, something happens in the market and it’s like, part of our job is to say, “Hey, we’re okay here. Let’s continue to execute to the plan that we have in place.” The behavior and the emotion drives so much of this, and it can either be bad behavior or you can, again, delegate that out to help you with that.

[0:30:19] TU: Yes. I think, Tim, the time we’re in right now with the volatility, we talked about this a little while going in Episode 213 of investing considerations in a volatile market. But we are living at firsthand the ups and downs, the announcements from the Fed, the anticipation, the reaction to that, the inflation numbers. I mean, it’s just June, June, June. More than ever, I think there’s that risk of access to information volatility on top of that. Obviously, there can be some fear that’s layered on top of that, as well. All of a sudden, we’re feeling that edge to make a move, make some decisions, move our investments. Obviously, there’s tax considerations. There’s timing of the market; you talked about those considerations that can have a negative impact as well.

Great explanation there. Number three on the avoiding behavioral mistakes and biases. Number four probably the favorite of our team. Right, Tim? As it relates to clean these up, is avoiding some of the technical mistakes. You’ve talked about this at length on the show as it relates to backdoor Roth and some of the mistakes. I think one of the challenges here, and we even talk about this behind the scenes that we love putting out content and education. We do a lot of it. But as I often say, in presentations, one of my fears is that I’m oversimplifying information to try to explain and to do in a short period of time. And that someone may run, make some decisions, and maybe not have the full understanding. We just saw that, as we talked about some of the changes that are coming to tax laws and different things. We may not understand the whole picture. Talk to us about avoiding technical mistakes and some of the common ones that we see here.

[0:31:54] TB: Yes. I mean, it’s most base. Sometimes it’s just understanding what accounts that you have. I still hear investors that will say, “I have this mutual fund account.” I’m like, “Well, mutual fund isn’t an account, it’s a type of investment.” That’s very extreme. But then, understanding what are inside of those accounts, those investment accounts, which could be a mutual fund, an ETF, a stock. Again, this is not to – this is not to belittle anyone or make anyone feel bad. Again, I always joke that when I first got out of the Army, I was picking the investments for my 401(k). I looked at all 50 investment choices, or whatever, I’m like – Investing for Dummies, and I bought that book, and I read a few pages, and I’m like, “No, thanks,” and I just picked whatever.

This isn’t something that necessarily is – we know this, Tim. It’s not taught in school or anything. It’s not to make anybody feel bad. It’s just that – this is what we do. It could be the types of accounts that you have, what are in those accounts, transfer accounts wrong. Sometimes this happens where accounts are moved between custodians, and they’re not performed accurately, and that can cause a lot of problems. You have the hyper investor, so it can be someone that’s trading in and out of positions that’s triggered in short-term capital gains tax.

Then, we have issues with the tax bill at the end of the year or other things that are going on. I’ve seen portfolios that have 20, 30, 40 positions, and I’m like, “What the heck is going on? What are we doing? What is the goal of this?” Sometimes it’s just overheard a stock, or I heard this, and I just bought it. Yes, overconcentration. That’s a technical mistake. Is there too much cash in the accumulation, too little cash when you’re in the withdrawal stage?

But yes, one of the things that you’re talking about that, I think, is, again, we gloss over is just things related to backdoor Roth. Most of the people that we are working with are in that Roth IRA eligibility phase-out. So even us managing this as a team, it’s a project. It’s something that we have to be on top of. It’s difficult to do when you have to factor in phase-outs, pro rata rules, you have to look at other accounts that you have, the step transaction rule. There’s lots of things that go into that.

On the technical, I always joke like – kind of related, but unrelated, Tim. When I lived in Ohio the first time, there’s no way that I filed my own Ohio taxes correctly. This is impossible. There’s no way that I did it correctly because of the nuance there. Even some of this stuff is kind of in the same breath; it’s like there’s no way that if I had a similar savviness with regard to investments that I did back in the day, that I would be able to do this correctly without mistake.

There could be a mistake with RMDs for retirements, obviously fees and things like that that are less technical but more an awareness thing. So the list is long with regard to this. Again, what often happens is we read a blog or a podcast. Some say, “Hey, that’s really easy,” and then we do it. Then, the reality is that it’s much more nuanced than – it depends on your particular situation in terms of how to execute some of these strategies.

[0:35:31] TU: Tim, we just talked about four reasons that you should have your financial planner manage your investments. What’s not on the list perhaps is something that everyone is thinking about of, “Hey, I’m going to have my planner manage my investment so that I can beat the market. Isn’t that why I’m hiring you after all? Where’s that on the list?”

[0:35:49] TB: Yes. I mean, I think it’s not on there. I think the reason, Tim is that, in order to beat the market, in order to beat the S&P 500 consistently, and there’s still no guarantee of that, is that you have to spend so much time, effort, energy, and money to do that. They say, we look at the most active mutual fund managers out there. By and large, the research and the studies show that, though, that type of active management in an effort to beat the market does not pay off on a consistent basis.

The strategy that we employ that I feel like a lot of fee-only financial planners employ is more of a passive by the market, don’t try to beat the market, and the market will take care of you if you invest in it consistently without bad behavior over long periods of time. It’s more of a singles and doubles approach versus, “I’m going to hit a home run in 2023, and then strike out for the next three or four years, and then maybe the home run in 2026, 27.” It’s kind of the singles and doubles approach to invest in. And over time, I think that’s a good equation for success.

[0:37:13] TU: We’re going to talk more about that. We have an episode plan for the near future on passive versus active investing, so we’re going to dig into that a little bit more detail in the future. Tim Baker, great stuff. For those that are listening to this episode, and would like to talk with us about the financial planning services at YFP planning and what we offer. Obviously, we’ve talked about managing investment, just one part, an important part, but just one part of financial plan. We would love to have that conversation. You can book a free discovery call at yfpplanning.com. Again, that’s yfpplanning.com.

Whether you’re in the early stages of your career, in the middle of your career, nearing retirement, whether you have an advisor, you don’t have an advisor; we’d love to have a conversation to learn more about your situation so you can learn more about us and determine whether or not what we offer is a good fit. Again, book a free discovery call at yfpplanning.com. Tim Baker, great stuff, and looking forward to talking about R&Ds next week.

[0:38:06] TB: Thanks, Tim.

[END OF INTERVIEW]

[0:38:07] 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 in the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% downpayment for a single-family home or townhome for first time homebuyers 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 yourfinancialpharmacists.com/home-loan. Again, that’s yourfinancialpharmacists.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 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 312: Secrets About Financial Planners (and How to Feel Confident in Who You Partner With)

Posted on June 15, 2023June 12, 2023 by Tim U

Justin Woods, PharmD, MBA shares takeaways from 350 financial conversations with pharmacists looking to work with a financial planner.

Episode Summary

Navigating the world of financial advice can be a tricky thing. You’re often confronted with baffling jargon, an overwhelming amount of choice, and a lack of transparency, which will typically leave you feeling more confused than when you started. Here to help us unpack these topics today is YFP team member, Justin Woods, PharmD, MBA who has had over 350 financial conversations with pharmacists! We talk with Justin about why pharmacists tend to be skeptical when it comes to hiring a financial planner, the various terms and titles used in the financial services industry, and what outcomes you should expect as part of the financial planning process. Tuning in you’ll learn about key factors that hold people back from pursuing financial advice — like previous negative experiences — as well as an overview of how the financial services industry has changed over the years, and how this impacts clients. We also discuss key terms, like “fiduciary”, and how understanding their implications can help you navigate the industry, before unpacking the four factors of financial decision-making and how planning can help you live a rich and meaningful life.

Key Points From the Episode

We welcome back Justin Woods, PharmD, MBA Director Of Business Development at YFP.
Some of the reasons why pharmacists tend to be skeptical of financial advice.
How past negative experiences can prevent people from getting financial advice.
Why it can be so challenging to navigate the financial advisory market.
The concept of “fiduciary”, what the term means, and why it matters.
How the financial services industry has moved towards tailored advice.
Optimizing for a particular niche and the benefits and value that come with that.
The variety in the types of services on offer (and why it can be overwhelming).
What clients should expect from their financial advisors in terms of scope.
An overview of the four factors of financial decision-making: financial analysis, money scripts, emotions, and overall well-being.
The importance of being comfortable with raising questions with your advisor.
Establishing the ROI you expect from your financial plan.
An overview of the various fee models of financial advisors and what to be aware of.

Episode Highlights

“Most pharmacists I talk to have a difficult time really thinking about one person in their circle who works with a financial advisor.” — @justin_woods [0:05:41]

“[Fiduciary] is just a fancy term, right? But it basically means that it’s a person that you can trust with your life savings that is ethically bound to act in your best interest. So oftentimes, I compare it to taking the oath of a pharmacist that a lot of us did.” — @justin_woods [0:12:56]

“You want a particular outcome, but you may not be as concerned with how it’s done as long as you get there. And there is a lot of complicated financial jargon out there that oftentimes can scare people away or make them feel stupid.” — @justin_woods [0:27:05]

“I feel like pharmacists work so hard for this six-figure income and view it as the ultimate security in life. And what I see from pharmacists that I talk to is that the income alone doesn’t give you the freedom, flexibility, or time that a lot of people are looking for.” — @justin_woods [0:30:49]

Links Mentioned in Today’s Episode

Episode Transcript

[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 back on to the show, YFP team member Justin Woods. During the show, Justin shares takeaways from over 350 conversations that he has had with pharmacists, looking to hire a financial planner.

Some of my favorite moments from the show include hearing why pharmacists are skeptical when it comes to hiring a financial planner, the various terms and titles used in the financial services industry, why fiduciary and fee-only matter, what outcomes to expect as a part of the financial planning process, and the various ways that financial planners get paid.

Whether or not you decide to work with our team of certified financial planners at YFP Planning. Our hope is this episode will give you the insights and information of what to look for when hiring a financial planner.

If you are interested in joining more than the 280 households in 40-plus states that work with YFP Planning for one-on-one financial planning and wealth management, you can book a free discovery call at yfpplanning.com. Whether you’re just getting started, in the middle of your career, or nearing retirement, our team is ready to help. Again, you can book a free discovery call at yfpplanning.com.

All right, let’s hear it from today’s sponsor, Pyrls and then we’ll jump into my interview with YFP Director of Business Development, Justin Woods.

[SPONSOR MESSAGE]

[0:01:26.6] JW: This is Justin Woods from the YFP team with a quick message before today’s show. If you’re tired of relying on shared passwords or spending hundreds of dollars for drug information, we’ve got great news for you. Today’s podcast sponsor, Pyrls, is changing the game for pharmacy professionals. Pyrls offer us top drug summaries, clinical teaching points, a drug interaction checker, calculators, and guideline reviews all in one user-friendly resource.

They also recently add free weekly quizzes to test your pharmacotherapy knowledge. Whether you’re on your web browser or accessing the mobile app, Pyrls has got you covered. Visit pyrls.com to get access to more than 25 free pharmacotherapy charge to get you started. Upgrade your drug information resources today with Pyrls, don’t miss out on this game-changing resource.

[INTERVIEW]

[0:02:21.8] TU: Justin, welcome back to the show.

[0:02:23.7] JW: Thanks for having me, Tim.

[0:02:24.8] TU: Excited to have you in this discussion that we have today. Also, an exciting time for you Justin, some of our listeners may know, many may not that you and Sarah, you have twins on the way, super exciting phase of life. How’s the preparation coming? I don’t know if you can be fully prepared but how are you feeling?

[0:02:42.4] JW: Yeah, we feel, I guess, mentally prepared, right? As two pharmacists, we want to plan for everything and so we’re just anticipating the arrival. My wife is 33 weeks pregnant right now. So I guess, on average, twins go to 38 weeks. So it could be any time now to be honest.

So yeah, we put the car seats in the minivan this morning, and yeah, exciting stuff around here, a very expensive season of life with daycare and whatnot but yeah, we are excited nonetheless.

[0:03:14.4] TU: You know, it’s funny, I was reflecting back. You know, I’ve talked about this, you know, as Jess and I had our four boys and you know that adjustment from one to two and then you go two to three, everyone says, “Hey, you go from man to man to zone defense.” You’re going right there, right? One to three so.

[0:03:26.6] JW: Yeah, we’re going right there, we’re going right there. So thankfully, our toddler who is two, a little bit over two, already knows that there are two babies on the way. She’s already been trying to be very helpful, so we’re hoping to bring her into the defensive scheme a little bit as well.

[0:03:42.2] TU: Yes, I love that, I love that. Well, it’s been a while since we had you on the podcast on episode 250, we talk about 10 takeaways that you had from 50 financial conversations with pharmacists, colleagues. We’ll link to that episode in the show notes and for today’s episode, we’re going to dig deeper into the now over 350 conversations that you’ve had with pharmacists and what you’ve learned, and why we struggle evaluating professional financial advice.

Why we struggle perhaps in choosing and hiring and evaluating a financial planner. Our goal being, Justin, that we can pull back the curtain on some of the secrets about financial planners so that our listeners can feel confident in who they partner with, whether that’s with us, we hope so, or whether that’s with someone else and certainly, that’s okay. We want them to be informed in that process.

So Justin, let’s start this off. One of the key takeaways that you’ve had, again in now over 350 conversations with pharmacists all across the country at all different phases of their career, which I too noticed early on in my experience building YFP is that pharmacists are skeptical when it comes to hiring a financial planner. That’s not to say a bad thing, right? Tell us more.

[0:04:54.2] JW: Yeah, it’s not a bad thing, right? But when I talk to pharmacists and I survey them to understand how they feel about financial advisory services they shared, we’re just confused about what advisors do, skeptical if they can actually trust them, right? That trust piece is huge or some folks who have actually regretted their decision to work with a particular advisor and oftentimes, when I tell people about the work our team does and the breadth and depth of the topics, the advice that we offer, they share, “Gosh, I didn’t know financial planning covers all of that” right?

And in my opinion, a major factor of that is that people often don’t talk about money with family, with friends or colleagues, and from that standpoint, it’s not talking about money, they’re probably not talking about their financial advisor either. So in most pharmacists I talk to have a difficult time really thinking about one person in their circle, right? Who works with a financial advisor.

In fact, in 2022, only 35% of Americans worked with a financial advisor, and a more interesting stat, is that a study done by AARP found that 45% of people would rather visit the dentist than make an appointment, an initial appointment to talk with a financial advisor and nothing against a dentist, right? Because my mom was actually a dental hygienist for about 35 years but people distrust financial services as an industry.

They don’t know how to choose or vet a good advisor and they don’t even know what an advisor does, right? So the other side too are folks who are in that pre-retirement phase is 74% of Americans have shared that they wish that they could get a financial planning do-over or set up a better financial situation. So there’s really that this gap between what people are afraid of, maybe because they don’t know enough about it, and what they wish they had done about in the first place too.

[0:06:46.4] TU: Yeah, that’s really – I mean, the visit to the dentist is fascinating, right? I think of you know, that process obviously. I love dentists too but not necessarily my favorite place to go and so I’m curious to pull this back a little bit further, Justin. From all these conversations you’ve had with pharmacists, why is this discomfort, this feeling, this, “Hey, I’d rather not do this at all or look at it” do you have a sense that it’s from maybe some that have had a previous experience that left a bad taste?

Is it influence of you know, maybe a parent or family or friends or others? Is it just this topic of personal finances you mentioned is one that especially if I’m maybe not exactly where I want to be that I don’t want necessarily someone, you know, making that worse or me feeling judged by where I’m at with my financial position, what’s the read you get on why the pharmacists you speak with maybe are even though they’ve taken that step, obviously, to meet with you or you wouldn’t have those conversations, still maybe not the most comfortable thing that they want to be doing?

[0:07:47.7] JW: Yeah, because there is a lot of confusion out there about what is a financial advisor and when most people think of financial advisor, they think of just the investment piece and realistically, that is only one piece. If you think about the term “financial advisor” technically, it’s just a generic term with no precise industry definition.

So this title can describe many different types of financial professionals like stock brokers, life insurance agents, tax preparers, investment managers, and financial planners. There are some estate planners and bankers who also may fall under this category as well. The only distinction is that this person has to provide guidance and advice.

If they just press a button and place trades for clients or simply prepare your tax return without providing that advice piece, they would technically not be a financial advisor and according to the Bureau of Labor Statistics, there are more financial advisors than pharmacists.

In fact, the job outlook for financial advisors has a growth of 15 per percent compared to 2% per pharmacist and these numbers alone show that the demand for people seeking professional advice about their situation and the number of options a pharmacist has when it comes to actually hiring a financial advisor.

So that process of vetting an adviser and find out where that best fit is that can feel overwhelming at the same time.

[0:09:15.8] TU: Yeah, I’m so glad you brought up the numerous titles that can be used. One is I often share with folks is you know, the term financial advisor or financial planner or wealth manager, whatever term you may see in and of itself isn’t really going to tell you a whole not about what this person does. We’ll talk about fees and how they charge and scope of services and all that.

Really, the ownership is on the consumer to understand you know, “What does that mean and are they qualified and are we a good fit?” we’ll talk about fiduciary and some of those responsibilities as well and I think because of that variety and because of that confusion, Justin, I suspect that that may be playing into not only the low percentages of folks that are engaging with advisor but also that feeling of like, “Uh, I’d rather just not engage.”

I do still think there’s a piece of, “Hey, maybe I had a bad previous experience that validated some of the concerns that I had” or maybe I have a family member, a parent, a relative, someone that’s saying like, “Hey, don’t work with an advisor” Because they had that experience that maybe was less than ideal, you know, themselves or as we talked about just a little while ago, I do think for some, especially if they’re in a position where they think, “Hey, maybe I should be progressing further than I have thus far.”

That you know, engaging with someone that is going to, you know, reinforce some of the opportunities of where things could be a little bit better could add on to some of those negative feelings and feelings of self-judgment that people may have as well. So lots to consider and unpack there and this reminds me, Justin, when Tim Church and I wrote the book Seven Figure Pharmacist.

We sat down to write this chapter and I kid you not, a chapter on evaluating a financial planner, understanding your financial planner, by far it was the chapter that took us the longest to write and had the most edits and revisions and it’s because of everything that we’re talking about. You know, there’s not a simple understanding of what these terms mean.

I think, more than anything, there’s some good questions that people can be asking to try to figure out more about, “What are the credentials, what does the scope of service look like, what does the fee, is this a good fit for me?” but you know, we’re used to the model of, we know what a PharmD means, right?

There are variances in educational programs but there’s a set of accreditation standards for good reasons when it moves to you know, the public understanding, what is a pharmacist, what does a registered pharmacist mean, what does a PharmD mean, there’s some level of consistency, right?

Same thing with the PGY1 accredited, PGY2 board certification and I think my experience and I suspect for many of our listeners, we adopt that mindset and we try to apply it to the financial services industry and it doesn’t work because there’s so many differences and nuances in this industry, and if we don’t do the homework and understanding a lot of what we’re talking about here today, I think that further validates that feeling of like, “Ugh, this is confusing.”

“I have this skeptical feeling, maybe this is a little bit you know, not ideal for what I’m looking for” or “Hey, I don’t mind paying a fee” is something I hear often but I just want to make sure that it’s transparent and I know that you know, this is a good investment that I’m making. So really good breakdown, Justin, of the titles and some of the concerns that are out there in the confusion of it. What about the concept, Justin, of fiduciary?

This is a common question that I get. I think we’ve made some end roads into this term becoming something that people are looking more for but there’s still a lot of confusion of like, what is a fiduciary, why does this matter and why isn’t everyone a fiduciary? It just seems like common sense.

[0:12:54.6] JW: Yeah, definitely, and it is just a fancy term, right? But it basically means that it’s a person that you can trust with your life savings that is ethically bound to act in your best interest. So oftentimes, I compare it to taking the oath of a pharmacist that a lot of us did, right? But if you partner within an investment broker, technically, they only follow a suitability standards.

So they believe that a recommendation of a transaction involving a stock or bond, right? It’s based on what the customer may disclose in connection with that recommendation. So they’re only looking at a piece of that person’s life or what that person has told them. So in most cases, those who follow suitability, they’re not required to collect as much information, data about you before they tell you what to invest your money in.

It’s kind of like a pharmacist only reviewing half of a patient’s medication list before making a recommendation, right? I actually met with a pharmacist last week who said that she asked her financial advisor if he was fiduciary and he replied with, “I always do what’s best for you” and that may be true, right?

There are a lot of good financial advisors out there but being fiduciary, right? Had taken that oath, demonstrates a level of commitment and transparency that the advisor is held to that standard at that standard at the same time.

[0:14:19.5] TU: Yeah, that’s a good call, Justin, right? Just because someone is not a fiduciary or something we’re biased toward and obviously not a fee-only advisor, meaning that you know, in a fee-only model, you are compensating the advisor for the advice that you – they are giving you, they’re not getting paid by recommendations of insurance products, your investment where they’re essentially getting a kickback.

You know so we use these terms, fee-only and fiduciary but just because someone is not fee-only or fiduciary, it doesn’t mean that they’re incompetent. It doesn’t mean that they’re a bad person. It really means that “Hey, we got to do a little bit more homework to line up.”

Well, why aren’t they a fiduciary, why aren’t they fee only and what implications may that have to me and my financial plan, and is that the best option or not in terms of engaging or working with someone in that area? So I think it is a really important concept, John Oliver, Justin, has a great segment.

[0:15:08.2] JW: He does. Yeah, I’ve watched that a few times, it’s funny.

[0:15:10.4] TU: Great segment on fiduciary and suitability if you want to learn more about this. The example I always give Justin, when I present in this topic is that if I’m going to buy a suit, right? And I got to two different suit shops, one is providing suits under a suitability standard, if we play this out, one is under a fiduciary standard.

I like a nice slim-fit suit, right? That’s appropriate for the width of my shoulders, my arms, my leg, overall physique and so if I go to the fiduciary shop and I say, “Hey, these are my measurements, they’re going to do the work and they’re going to get me a nice fitting to that is the best. It’s the best fit for me and my personal situation” that’s the comparison to the fiduciary standard of the financial plan.

If I go to the suitability standard suit shop, you know maybe they don’t take the right measurements or they don’t have to do all of that analysis. Maybe I’ll leave with a little bit of a baggy suit, right? Too long, doesn’t get tailored. It’s not terrible, maybe it is on some level. You can argue it’s appropriate but it’s not necessarily the best fit, right? Or the best option for me and that comes to play exactly in the financial plan.

Whether you’re working on, you know, retirement planning or other parts of the financial plan, you know we really want to make sure that as you are evaluating, are all parts of the plan that that fiduciary is really looking at what is the best option for you and your personal situation. So a fun example and I think, you know, to draw this to pharmacy.

Like could you imagine walking into some pharmacies, Justin, whether the pharmacist was you know, obligated to do all of these things whereas in some cases, you know and the other that they only have to do half of the DUR. It just doesn’t make sense, right? As we think about drawing lines.

[0:16:45.8] JW: Right, exactly, exactly, and Tim, to tie off your analogy a little bit, imagine if you were to go into that fiduciary suit shop and that suit shop only worked with pharmacists or people of your body type and height and I think that gets to what the financial planning industry has molded it into is this focus on niche or niche. We can debate that term too, but the financial advice industry for a long time was predominantly transaction-based, where the advisers earned a living solely from those commissions that they earn on whatever product that they sold.

So there was really no need to meet with those clients until there was an opportunity to implement a product, say like life insurance for example. So it was essentially for advisors to be as broad in their messaging and marketing as possible, right? To cast a really large net to reach anyone with a pulse who might buy that product but then in the last decade, we’ve really seen a movement to provide tailored advice and it’s a really caught on, where you developed a unique expertise for working with those clients and the problems that they face and that in turn, leads to development of services and scope and a business model that really fits a client for their need.

So for example, obviously I’m biased because I’m a pharmacist but if I was asked to recommend a treatment regimen for like Osteomyelitis in an adult, right? I could spend hours researching that topic and hopefully feel confident in my decision or I could just call a friend, who is a PGI2-trained infectious disease pharmacist who has that experience, who has that knowledge to help me feel confident in the solution for that patient specifically.

So that’s kind of where I feel the benefit or the optimization of that niche comes in. Obviously, that perspective is biased too since our financial planning team, we primarily work with pharmacists like us.

[0:18:52.5] TU: Yeah, it’s a really important point though, Justin. Someone recently was kind of challenging this concept on LinkedIn a few weeks ago and I really started to think more deeply about it. Obviously, it’s the bread and butter of what we do and the more I think about it, the more I even firmly believe in the value of the niche and this individual is really, you know, kind of arguing against like, “Why is there a need to really differentiate financial planning services for healthcare professionals?” or more specifically, in what we do with pharmacists and we see very specific examples of this on a weekly basis.

There is value in repetition here. We have a planning team of five CFPs that work with you know, return on 80 households all across the country and you know some of the things that come up over and over again like, “Hey, I’m working on a student loan forgiveness plan and I’m working with a nonprofit hospital.” “Oh, by the way, we’ve had you know, 15, 20, 30 other people that are navigating this” maybe not that same employer, although we do have some of that overlap with institutions like the VA for example.

But we’ve been down this path, we’ve crossed these T’s, dotted the I’s, we’ve seen where the bumps are along the road or even just more generally in some of the trends that we see of pharmacist in terms of income and barriers and challenges and you know, where they’re at, at certain points of net worth throughout their career. I mean, all of these things compound over time with some of the experience and I do think that there’s a lot of value that can come from the niche.

[0:20:21.4] JW: Yeah.

[0:20:23.0] TU: Variety also comes Justin, in the types of services that are offered. This is one that I think gets overlooked so often. You have these conversations way more than I but it feels like there’s this general assumption that like, “Hey, I’m looking at three financial planners” and not necessarily asking the question to understand, “What does that relationship actually look like? Who are the clients that they work with? Are they like me?”

Do they have experience in these areas? So I’m really referring here to the financial planning process and what a client can or cannot expect in terms of scope of service and there are wide variances here. Tell us more.

[0:21:02.7] JW: Yeah and I first want to start with an example that I had last week, I’ve gotten on a call with a pharmacist from Ohio, and right out of the gate, she kind of asked us about our fees and I was very transparent that if you’re only evaluating based on fees of cost, it’s going to be a raise to the bottom because our financial planning model is not the “cheapest out there” but you really have to advocate for yourself and understand, “Okay, does the scope of the service, does the process that this team or this person offer, does that fit me exactly?” and pharmacists want that structure and the financial planning process provides that too.

So it really starts with collecting all of your data and talking with clients that understand your financial situation. So through that conversation with a planner, they can map out both the short and long-term personal and financial goals. So if you look at my financial plan, it certainly has all the big things like retirement and paying off our student loans that are still there but it’s got other things too like going to Disney every year, right?

My wife and I want to do a trip to Africa for our 10-year anniversary, it’s got our beach home in there. So it is really establishing, okay, a road map of where all your goals fit in and then how do we use your income or money as a tool to reach those outcomes at the same time. So it’s kind of a traditional soap note, where the CFP professional, right? Your financial planner will look at this objective, the objective, then they’ll develop that assessment and plan to maximize the potential, the probability that you will reach those goals and achieve those outcomes.

So they often support you put the plan into motion and then monitoring some financial lab value, so to speak, to really understand that progress and making financial decisions, that can be broken down into the interplay about four factors that often aren’t talked about. So there’s the financial analysis, there’s the money scripts, there’s emotions, and there’s the overall well-being too.

And unfortunately, financial analysis has been viewed for too long as the overriding predominant factor in making a good decision but if we boil every decision down to a cost-benefit analysis without giving it the proper – consider the other factors, then we’re doing a disservice to our clients too. So without understanding the money scripts, you know we can’t really understand the client’s beliefs and values in financial decision-making.

An example of that is, you know, some of our clients have student loans and so often times that may come up in a conversation. I had one pharmacist couple who shared that their partner had been in a life-threatening accident. So that really changed their perspective on what they found meaning on in life and they really didn’t care about the student loans. They didn’t care about the math around interest.

They just want to pay the minimum amount and live their life now too. So it is all about working with somebody who understands what that process is and can really help you balance those personal and financial goals at the same time.

[0:24:17.3] TU: Yeah and Justin, the more I experience, you know, for Justin and I and our family and our financial plan, I feel like with each passing year there is a greater and greater appreciation for less about the math, more about the emotions, more about the goals, more about the behavior and I think part of this might be some overconfidence. You know, I even had that I would say early in my career of like, “I’m good with math, I can punch a bunch of numbers.”

But executing on the financial plan versus just developing one or two very, very different things and I think this is such an important part as you’re evaluating different services. You know I think that many pharmacists, myself included, we’re analytical human beings. We see service, we see price, we compare, those often are not apples to apples as you’re looking because of what we’ve been talking about here throughout the episode.

So you really have to pull back the onion of, “You know, what is the scope of service? What is the fees that are being here? What are they going to cover, what are they not going to cover?” you know? Do they typically work with individuals that are working through the challenges that I have in my financial plan? You know, if I have USD 200,000 student loan debt, you know most firms may not work with individuals that are early on their credit.

Do they even know some of the nuances on student loan repayment? So I think there’s an appreciation that’s happening that to your point, much of the history around the planning relationship is focused on the math on the analytical side I think because of the evolution of FinTech. We’re seeing some of that become more of a commodity and I think that’s going to lead to more of a value of the relationship and really looking holistically at the plan.

The things that you mentioned are what ultimately we hear from people about success and living a rich life, right? The trip to Africa, the beach home, the going to Disney every year, like if you and Sarah wake up and because you had a really good analytical math person doing the planning and you have USD 3.5 million saved but you haven’t lived a rich life, who cares, right?

[0:26:12.5] JW: Right.

[0:26:13.0] TU: So I think that as individuals are looking at option A versus B versus C, what’s the scope, what’s the price, what are the expectations, do they have my best interest in mind, how often are we going to be meeting? These are the types of things that we want to be evaluating.

[0:26:27.8] JW: Yeah, yeah. I think pharmacists, myself include the way that we are trained, the way that we think. We often get focused in on the mechanism action or the process in ensuring that the process itself will help us achieve those outcomes. When we think about it from our profession, so the general public oftentimes does not have an understanding of how the drugs that they take work nor do many of them care, right?

But they have confidence in their doctor and their pharmacist who give them advice, education, recommendations as well. I feel like it’s the same thing when you consider financial advice, right? You want a particular outcome but you may not be as concerned with how it’s done as long as you get there. And there is a lot of complicated financial jargon out there that oftentimes can scare people away or make them feel stupid too.

I was actually speaking with two pharmacists last week from Kansas and they shared how they’re trying to balance their personal and professional life, acknowledge that they are not confident about their financial literacy or what they know. So they shared, they were really looking for somebody who could educate them, help them understand their financial situation to feel more in charge, take control, and just give them peace of mind of where they might end up.

I felt like the husband brought a really good analogy there, he went on to show that as a pharmacist, he doesn’t jump into a conversation with a patient about the Pharma Co. connects of Vanco, right? But I feel like many financial, traditional financial advisors do that exact thing where they show you some fancy charts and graphs to make it just feel confusing, to justify their value over time but if you currently work with an advisor, right?

Are you comfortable telling them you don’t understand something and asking questions because I’ve heard this exact scenario from my sister in fact, where she doesn’t feel comfortable saying she doesn’t know something with her adviser. So as you said, it is a lot about that, that relationship piece.

[0:28:34.1] TU: Yeah and I think that’s a great example. You know, that couple you mentioned, you know just last week, I heard things like peace of mind, I heard making sure that we have our goals defined. I heard comfortable in terms of financial knowledge and literacy, which is interesting because I think those are some of the greatest outcomes that come from the relationship but they also aren’t necessarily the ones that we look at and say, “Hey, we can punch this in a calculator and determine the ROI” right?

[0:28:59.2] JW: Yeah.

[0:28:59.5] TU: So this is where I think you feel as a buyer, as someone who is evaluating financial planner is a common question, Justin, I’m sure you get is like, “What’s the ROI?” right? “I’m going to invest X and what am I going to get?” and I actually think the better we’re doing on the planning relationship, you talk about living the rich life with the Africa trips, the Disney trips, you know what you guys are doing as family experiences, putting a dollar amount to the joy in living a rich life, we know what that feels like.

But to answer the ROI question, that’s not an easy one and perhaps, maybe not even a good fit if that’s the focus.

[0:29:33.8] JW: Right, exactly. I actually spoke with a pharmacist recently who shared that his expectation working with a financial planner was that our team would return a hundred bucks for every dollar that he paid to work with us and I try to think about that if a patient had come to a pharmacist like that. So imagine if a patient has said, “I expect this medication to reduce my A1C by five percentage points” right?

In reality, there’s so many other factors like compliance, adherence, diet, exercise, access for building too that would be impossible to quantify the exact ROI there too. So what the pharmacist asked, “Okay, if we lower your A1C by five percentage points, what would that actually do for you?” right? I think for most patients, it would help them, one, feel a lot better, right? Less fatigue so that they can keep up with their grandkids at the playground.

Maybe more time, right? Maybe you avoid some microvascular complications that don’t derail your ability to drive across the country in an RV, right? Or maybe prevent a major heart event that allowed you to live longer too. So I feel like pharmacists work so hard for this six-figure income and view it as the ultimate security in life and what I see from pharmacists that I talk to is that the income alone doesn’t give you the freedom, flexibility, or time that a lot of people are looking for.

[0:31:05.8] TU: You can see this. You again, do a lot more of these discovery calls, talking with colleagues across the country that are looking for hiring a financial planner. You see this more than I but I recall many of these conversations where you can in real-time see and feel kind of the split-brain feeling of like, “You know emotionally, these are the things that mean, are most important to me” right?

The peace of mind, the security, making sure I’ve got a good plan, perhaps on the same page with the spouse or partner, and we know that those are very difficult to quantify but then are buyer mode goes on. It’s like, “Okay if I am going to spend X, what’s the return and why?” and so I think this is a hard thing to reconcile but it is an important one for obviously someone to feel good about moving forward.

I think for the expectations from a planning relationship, you know we always say that Justin, sometimes we can move forward with us. We don’t want them coming on board and having buyer’s remorse. That’s not a good fit for them, that is not a good fit for us. So the discovery process, the evaluation when done well and I think this is good advice whether someone’s looking to work for us or with someone else is that you want to feel good about that relationship on both sides.

So if someone is expecting a 101 ROI and you know, we kind of navigate that and we move it forward, guess what? In two or three months, we’re probably going to realize this isn’t a good fit and so I think establishing that upfront is really valuable. Fees, Justin, let’s save the best for last, right? So much variety here when it comes to fees and what someone is paying. Often we hear from folks that, “Hey, I am not paying anything.”

We’re like, “Well, not so fast” so sometimes, this is transparent, sometimes it’s not. So what have you learned in terms of the various fee models that are out there and the expectations that clients have for how they’re compensating a planner for their advice?

[0:32:48.3] JW: Yeah and this is the one question that not many people can answer, right? How do advisers get paid? I say that from experience because my first four to five years of working with an adviser, I had very little understanding of the fee structure, how much I paid, and from you know, 350 conversations with pharmacists, they have a very similar perspective as well. I believe it speaks to the industry as a whole, right?

They are not very transparent about fees, which can certainly add to that feeling of distrust and being skeptical too. So if you’re listening to this podcast, you currently work with an adviser and don’t feel you pay anything, right? That should be a red flag, to ask more questions and be an advocate for yourself to make sure it is a worthwhile investment and if you are working with a financial adviser, there is no such thing as free advice.

So financial advisers typically fall into one of three different payment models, right? There’s commission, there is commission and a fee model, typically it’s called fee-based, and then finally, fee only. So both commission and fee-based, they receive compensation based on specific financial products that they sell you. It could be insurance products, annuities, investment options too like mutual funds.

Fee-only though, those financial planners are compensated directly by their clients for advice, planned implementation, and that ongoing management of all of the assets but I feel like oftentimes people just stop there but that’s not all because if you’re not informed and educated, there are other fees that you may not consider and I learned this the hard way. So in a commission-based model, there are fees tied to the sale and ongoing management of a product too.

So it could be life insurance or disability insurance too, there are things like transaction fees, periodic charges, annual operating expenses. When you look at things like mutual funds, there are often sales charges, also known as sales loads, those are commissions you pay when you invest in a mutual fund. So there are also expense ratios too, so when a lot of folks come to me and say, “Hey, I’m paying X amount for my adviser” oftentimes those do not include those additional expenses like the sales loads, the expense ratios as well.

An example that I had, it is a pharmacist who is working with an adviser, asked that adviser, “What are your fees or how can I understand this a little bit better?” and that adviser replied with emailing them a 46-page document talking about –

[0:35:35.5] TU: I’ve seen those, I’ve seen that.

[0:35:37.0] JW: Exactly, exactly and I feel like you know, seeing a document like that is just kind of praying and hoping that your client won’t read that because I often wonder if the adviser themselves can even explain what their fees are.

[0:35:51.9] TU: Yeah, we talked about this Justin, Tim and I in episode 208 of the podcast, we broke down some of the fees on investments, why that’s so important. You talked about a handful of them. I think the transparency piece here is so important not only for understanding but also again what I shared just a few moments ago, you want to feel good about this relationship, and you know we’re not shy about charging fees.

We feel like our planning team provides a ton of value and the return on investment is much more than the fees that are paid by the client and we’re proud that those are transparent and if we get to that point through transparency and we determine, “Hey, it’s not a good fit because of X, Y, or Z” so be it, right? But the transparency is there and again, whether we’re the solution or someone is looking at hiring another adviser, I think feeling good about that decision.

Feeling good that you know and understand the fees and I think the separation piece is a really important one. So you know, if you’re in a planning relationship where we hear this all the time, “Hey, I’m not paying anything for financial planning, it’s free financial planning but I just bought a whole life insurance, I had a commission associated with it” right? So there is a natural inherent bias in the advice that is being given.

It doesn’t mean again, that they’re a bad person, it doesn’t mean that they’re incompetent but where does the incentive lie for them to be spending your time? Not on comprehensive financial planning, not on your student loans, not about setting your life goals and making sure we’re on track with living a rich life both today and tomorrow. It is about spending time where the dollars are going to be earned. And in that model, it’s selling a product.

That’s one of the things I love about the fee-only models that you’re paying the planner for the advice that they are giving and sometimes that means you are working on traditional things, like investments or retirement planning. Sometimes that means you’re getting in the weeds on student plans or budgeting or buying a home or buying an investment property or working through a difficult conversation with a spouse and getting on the same page.

Talking to mom and dad about finances, teaching your kids about it. I mean, all of these things are important parts of the financial plan but they’re not traditionally incentivized where an adviser is going to spend time on those things if they’re going to be compensated through recommending a certain product.

[0:38:04.4] JW: Exactly, exactly, yeah.

[0:38:06.6] TU: Great stuff, Justin, it’s hard to believe it’s been over 350 conversations. That’s pretty wild, right? When you come back to that.

[0:38:12.7] JW: Yeah. Yeah, I had to look at that number before we jumped on but yeah, 353 as of today.

[0:38:20.0] TU: That’s awesome. That’s awesome. So for those that are listening, if you want to learn more about the comprehensive financial planning and wealth management services that we offer through the amazing team at YFP Planning, our five CFPs, and the folks that support them as well, you can book a free discovery call with Justin. We’ll link to that in the show notes, which is the direct link to his calendar.

You can also go to yfpplanning.com and get to that as well. Again, that discovery call process, that conversation is all about understanding what are the goals, what are the things that you are facing in your financial situation right now. More than anything, Justin is going to be asking good questions, listening, sharing more about the services, and trying to identify “Is it a good fit with what we offer or is it not?”

So it truly is meant to be the discovery in nature, there is no obligation through that process, and again, yfpplanning.com or you can book directly to Justin’s calendar. We’ll link to that in the show notes.

[0:39:12.5] JW: And Tim, I would just add one more thing there if there’s time, is that you know through our conversation, we’ve really only scratched the surface on a couple of these topics. So if somebody is still feeling pretty skeptical like confused about this, I do have an on-demand webinar that I recorded with all of my learnings from these conversations, my own experience too that goes into a lot more depth about the various topics like scope and fees and whatnot.

I feel like for a lot of folks, I think there’s been 60 people who have watched that so far. It really helps them understand and feel empowered about evaluating financial advice if it works for them or not. So that’s typically a really good first step if you are still a little bit uncomfortable.

[0:39:58.1] TU: Awesome, we will link to that webinar in the show notes so folks can access that as well. Justin, thanks so much.

[0:40:04.3] JW: Thanks, Tim.

[END OF INTERVIEW]

[0:40:05.6] JW: Hey, this is Justin again from the YFP team. Thanks for tuning in to today’s podcast. If you’re a pharmacy professional, you know how crucial it is to have access to reliable drug information. That’s why we’re excited to tell you about Pyrls, today’s podcast sponsor. Gone are the days spending hundreds of dollars for access to drug information, Pyrls offer top drug summaries, clinical teaching points, a drug interaction check or calculators, and guideline reviews all in a user-friendly resource.

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[DISCLAIMER]

[0:40:58.7] 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 311: Raising Money-Savvy Kids

Posted on June 8, 2023October 5, 2023 by Tim U

Julia Myers, PharmD discusses strategies for teaching kids about money, all the way from elementary age through young adults. This episode is sponsored by First Horizon.

About Today’s Guest

Julia Myers is a practicing pharmacist and pharmacy leader at the University of Missouri Health Care in Columbia, Missouri. Julia received her Doctor of Pharmacy degree from the University of Wyoming School of Pharmacy and her Masters in Business Administration from the University of Tennessee- Knoxville. Her 15-year career encompassed clinical and leadership roles in community pharmacy, ambulatory care, health system, and specialty pharmacy. In 2020, Julia was recognized as a member of the Class of 20 Under 40 by Columbia Magazine for her achievements in medication affordability, specialty pharmacy, and overall community impact. After experiencing a life-changing medical event, Julia semi-retired in May 2022 and is now pursuing her best life focusing on family, lifelong learning, and travel. Julia enjoys spending time outdoors, reading and writing, and raising 5 children with her husband Brad. Follow her on social @Juliamyersrx

Episode Summary

Less than half of parents feel confident in what they are teaching their children about money. Even fewer regularly discuss money with their kids. Julia Myers is a practicing pharmacist and pharmacy leader at the University of Missouri Healthcare. During this episode, sponsored by First Horizon, we discuss how the type of money household you grew up in influences your financial management today. We explore strategies to teach your children about money across the full spectrum of ages, from early childhood to young adulthood. Julia weighs in on the loss of generational wealth, why mistakes are the best teachers, and how self-reflection can lead you to better equip your children to build their financial futures. Throughout the show, Julia offers practical tips on approaching money conversations with your family and empowering your children.

Key Points From the Episode

An introduction to Julia Myers, practicing pharmacist and pharmacy leader.
The Pharmacist Home Loan offered by First Horizon Bank.
How Julia’s career journey in pharmacy has led to her current role.
Where her interest in the topic of kids and money began.
Julia summarizes her vision to help families build a legacy of generational wisdom.
Julia’s perspective on what is taught in the classroom and how parents need to take it further.
Why it is important not to project your feelings about financial habits onto your children.
The loss of generational wealth today.
Why we often learn the most from mistakes,
The importance of self-reflecting on the money scripts you were raised with.
Applying different strategies to different age groups.
Resetting ‘I deserve’ to ‘I am responsible for’.
Explaining money to your elementary school-aged child.
Discerning between ‘need’ and ‘want’.
Introducing delayed gratification to pre-teens.
Bringing the financial conversation into dating and marriage with your adult children.
Where to find Julia’s 5 Family Financial Conversation Starters online.

Episode Highlights

“I inspire and empower families to expand their legacy beyond generational wealth to generational wisdom.” — @juliamyersrx [0:06:36]

“‘Someday’ always happens. How are you preparing and being intentional for that someday?” — @juliamyersrx [0:14:29]

“They’ll say, ‘Well, what’s money for?’ and I say, ‘Saving, spending, and sharing or giving.’” — @juliamyersrx [0:28:48]

“Generational wealth without wisdom is playing the lottery. It’s leaving your legacy to a lottery rather than being intentional and passing it on.” — @juliamyersrx [0:34:04]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] 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 Julia Myers onto the show to talk about a topic near and dear to both of us, kids and money. Julia’s a practicing pharmacist and pharmacy leader at University of Missouri Healthcare. After experiencing a life-changing medical event, Julia semi-retired in May of 2022 and is now pursuing her best life focusing on family, lifelong learning, and travel.

During the show, Julia and I talk through how an understanding and awards of the type of money household that you grew up in plays an important role in the money script you are passing down to the next generation. Furthermore, we discuss strategies to employ teaching kids about money, ranging from elementary age to young adults.

If you are looking for one-on-one financial planning, look further than the team at YFP Planning. Whether you’re just getting started in the middle of your career or nearing retirement, our team of certified financial planners and tax professionals are ready to help.

You can learn more about our financial planning wealth management and tax services by visiting yourfinancialpharmacist.com. All right, let’s hear from today’s sponsor, First Horizon, and then we’ll jump into my interview with Julia Myers.

[SPONSOR MESSAGE]

[0:01:17.2] TU: Does saving 20% for a downpayment 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 downpayment 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 downpayment and are happy to have found that option with First Horizon.

First Horizon offers a professional home loan option, AKA, doctor or pharmacist home loan that requires a 3% downpayment for a single-family home or townhome for first-time home buyers, has no PMI, and offers a 30-year fixed-rate mortgage on home loans up to USD 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.

[INTERVIEW]

[0:02:29.7] TU: Julia, welcome to the show.

[0:02:31.4] JM: Hey, thanks so much for having me. It’s such a pleasure.

[0:02:34.7] TU: I’m very much looking forward to this conversation. You and I had a chance to connect a couple of months back after I learned about your passion for personal finance. It was really a great conversation, where two personal finance nerds were in their element, not only talking personal finance but also shared interest in kids and money, which is our topic here for today’s episode.

Julia, before we jump into today’s topic, kids and money. Tell us more about your career journey in pharmacy starting with what led you into the profession and the work that you did after graduating from the University of Wyoming.

[0:03:06.4] JM: Yay Tim, and thanks so much for having me, excited to share my story today. I got into pharmacy the way most students do, they wanted to help people. I spent a summer in the mini med school program while in high school and realized I very quickly did not want to see another dead body again.

So I headed out to the University of Wyoming, I was a student-athlete for my first year on the swimming and diving team. So, fun fact about me, and then I jumped right from the pool into the library and worked for four years at the University of Wyoming, I got my PharmD and I came out of school with a really clear passion of I want to make money and I don’t want to waste time doing the residency.

So I told my professors and my mentors and preceptors, I want to get out, do clinical work, and make retail money and everybody looked at me and said, “I don’t think that’s possible” and I did it. So I moved to Phoenix and worked for a chain pharmacy there and then very quickly got in the world of HIV and was a clinical pharmacist one day a week in an infectious disease internal medicine primary care clinic, spent seven years in Phoenix and wanted more.

I kind of wanted to stretch my wings and grow in a leadership capacity because what I did in my clinical role was explain to my chain why what I was doing with adding value to what they were doing and I figured, “If I can do that for one chain, why not do that for more?” I moved to Columbia Missouri where I’ve been for the last 12 years at the University of Missouri Healthcare.

I started off as a retail pharmacy manager, managing our hospital-owned pharmacies for our health system and then I started our specialty pharmacy program, some ambulatory pharmacy programs called patient medication liaison technician career ladders, and then most recently, was sort of able to semi-retire and about two years ago, I moved into a part-time kind of consulting role and got really passionate about getting clear on my family values and my vision and that led us to what we get to talk about today.

[0:05:05.6] TU: I love it. I love it. Now we share two, I was a competitive swimmer growing up, so we have another shared connection right there as well. So were you a swimmer or a diver? What was the –

[0:05:13.8] JM: I was a diver. Springboard and platform. I never competed 10-meter but I trained 10-meter. We did Christmas training at ASU in 10P and that’s what made me fall in love with warm weather in the winter because we were swimming outside in December.

[0:05:27.1] TU: So where does your passion and interest in personal finance, where does that stem from and more specifically, the interest you have around this topic, which is kids and money?

[0:05:36.6] JM: I think the passion came from working hard translating into money. That’s the value I grew up with, one of four siblings in my family and we had enough but there were always people around me that had less and always people that had more and I was just fascinated by this concept, and as a mom myself, we’re a blended family of five kids, we range in currently, ages from first grade to a freshman in college and all the grades in between.

And what I found is the things that I learned growing up had a similar look and feel to what I was teaching my kids and then at the same time, there’s a lot of gaps and a lot of opportunity, not a lot of information on you know, when and how and what are some of the more tactical ways that we can engage children in conversations so that they can raise themselves up and move out of the house eventually.

It shouldn’t be a surprise that kids when they grow up that they move out and that is what I’m so passionate about. So to kind of summarize, I inspire and empower families to expand their legacy beyond generational wealth to more generational wisdom.

[0:06:44.8] TU: I love that. I love that vision and the clarity around that vision and you know, it’s going to be fascinating to hear your experiences, first grade to freshman in college. We’ll talk more towards the latter half of this episode about strategies, you know, activities, ideas, conversations we want to have based on you know, age groups and where people are at in the journey, so you’re living it, right?

The spectrum is there and my eldest is turning 12 years soon so you’re going to be able to share some wisdom with me as well, which I’m really looking forward to.

What does the data tell us, Julia? You know, I have a sense in my conversations that this topic is becoming more comfortable. It still feels like it’s somewhat of a taboo topic, although generationally, that feels like it’s shifting but conversations in the household around money.

You know, I often share with people, probably for many, it’s what’s unsaid, sometimes what’s said but what’s unsaid that we often, you know, carry some of those behaviors, some of the stress, the anxiety or perhaps some of the positive behaviors as well but what does the data tell us in terms of how often these conversations are happening in the household as we engage with our kids around money?

[0:07:51.9] JM: Yes, that’s probably the second most important question to ask. The first one is, “Have you had the talk with your kids at home?” and then the other one would be, “Have you had the talk about money with your kids at home?” So about 42% of parents feel confident that their kids are going to be able to manage their finances successfully.

So less than half of parents, just in general, across the board. 24%, about a quarter of parents regularly talk to their kids about money, so that’s really interesting. If you ask young adults, so 18 to 29-year-old young adults, only 39% really feel confident in their ability to manage their finances, and the most staggering of all is going to be 70% of wealthy parents worry their children will become entitled as a result of their inheritance.

So, so many pharmacists and pharmacist couples, dual-income couples, financially free, they retired early, they’ve reached independence and they are worried that their kids are not going to know what to do or even worse, become entitled because of that inheritance.

[0:08:57.1] TU: And you see the seesaw effect. I think you’re speaking to some of it in a literature, where you know, you often may see this in terms of someone who is you know, first generation you know, college or you know obviously, had to work very hard for what they have and then we get to a point of financial independence, they’re building wealth, and they’re worried about that shifting back to the next generation.

So you can see some of these patterns go back and forth. I’m curious to hear your thoughts. There are states, we see an expansion across the country, it’s happening with more states requiring personal finance education in K through 12 but from your experiences, you know, how much of this do you think is valuable foundation from a classroom experience versus you’re just at home?

You’re living life, you’re having dinner conversations, you’re at the grocery store, you’re working through the budgets. Again, you know sometimes I even notice my kids are picking up on Jess and I, my wife having conversations that they weren’t even intended to be a part of but I can tell they’re picking up things and it feels like that learning environment is really where the richness is happening of this topic coming to life.

But perhaps there’s also value in some of the foundational education that we’re seeing, you know hopefully, more in the higher education level as well but also in the K through 12. What are your thoughts there?

[0:10:11.7] JM: Yeah, I agree, it’s an all of the above model. So you can learn and different children learn in different ways. I have a saver at home and you probably have one somewhere in your bunch as well, where everything that they can get their hands on about learning how to save money and save money, and so that topic comes very naturally for us to talk about.

However, I have another one that is a very creative brain, can’t keep $100 in his pocket past Christmas morning. Yet, they receive that same kind of foundation in their academic journey or didactic kind of classroom journey. I love what you said about sharing and kind of pulling them into those conversations.

I will also say that there’s financial literacy and then there’s common sense and as parents, there’s not a textbook that tells us how to do this. We’re all writing this individually, just like our financial plan, your family dynamic is not something that you can find, and check out a library and check all the boxes.

So as you approach these topics and areas, sometimes parents can be the best storytellers, what did you do growing up or how are you raised or what were some of the maybe dumb decisions you did with money and how do you share those in a way that is more memorable and meaningful to your kids. So I think it’s both.

[0:11:29.6] TU: It’s interesting, you just talk about a saver and a spender and perhaps you’ve got others that are in between that or more balanced. You know, I see the same in my boys. My oldest, classic saver, my second born, much more creative, you know, if there’s a need in the moment, you know, I’m going to spend the money.

But what’s interesting is, I find myself projecting my tendency, my feelings around what’s good or bad onto them and I’m trying to be very careful of that and I think that’s one of the things I want to talk about here for a moment is that as a financial personal finance nerd, as someone who is focused on you know, saving for the future as we often say on this podcast, we really believe a good financial plan balances living a rich life today and saving for the future. Both have value.

And I tend to put too much weight into the future at the expense of today, and I think that being careful of both the projection but also attaching the positive or the negative emotion, you know, to the behavior. So you know, I could very easily affirm in my oldest, “You’re doing a great job saving” right? Because that resonates with me.

But I think there’s a period where he’s really going to have to learn, you know, that it’s okay to invest in experiences and make sure that we’re present and how we’re spending money today and perhaps with my, you know, second born that – or he’s enjoying more the moment and the present that we can work on also focusing on saving for the future.

So I’d just be curious to hear your reflection on thoughts of what you’ve experienced both projecting your personal finance scripts behaviors on your kids and how you can help balance some of that conversation.

[0:13:00.7] JM: Great points and I couldn’t agree more. I think when you attach emotions to money, it’s kind of like as a parent, you want to talk about eating healthy or managing your time well but you don’t want to obsess over it, you don’t want to make that all that you talk about at all and so I like to think of money as just a currency, something that you exchange for something that you want.

Whether it’s food or whether it’s time, to me, those really stand out as important to balance. Knowing that how you were raised, everybody has kind of things that they came up with or you know, they remember the one time you went out to eat growing up because it was your birthday and all the rest, you did home-cooked meals and there will be times that as families, you make decisions and choices and you might share with them why you’re doing that.

Why you drive a used car instead of a new car or whatever it is that’s important to your financial plan, pulling the kids into those conversations but then also sharing with them more under the hood of why to me is really important because children today, if you’re listening to the podcast, they’re very likely to be growing up in a different socioeconomic class than how the parents were, than how you and I were raised and I see that creep up everywhere.

I see that as that “E” entitlement word but then I counter it with money is not a four-letter word either. Money doesn’t solve all of these problems and when you put this like a prize, dangled it, you know, someday, always happens. How are you preparing and being intentional for that someday? As parents, kids are going to grow up, we blink and they’re in grade school and we blink and they’re graduating and we blink and they’re moving out of the house, hopefully.

And so at the same time, that someday is going to come and you only have so many days, weeks, months, with them to impart all of this knowledge. So figuring out what’s important to you at home, how do you share those stories and share them well and it takes a little bit all the time.

[0:15:02.4] TU: That’s beautiful, I love the wisdom there. Julie, when we talked to – a few months back, you mentioned a concept that I thought about often since that conversation, which was around the loss of generational wealth. Tell us more about what you see there or what the data shows in terms of the transfer of that wealth and how it may be lost.

[0:15:21.7] JM: Absolutely. Some people call what you’re talking about, that transfer is the short sleeves to the shirt sleeves generation. So basically, folks that are able to become financially independent, retire early, fire movements, they are generating a lot of wealth, and 70% of the time when it gets passed down to that first generation, it will be spent or consumed or divided up in a way that is not materially passing down to the next generation. 70%.

[0:15:52.6] TU: That’s wild.

[0:15:53.7] JM: Taking a generation further, so you and I will have grandchildren maybe someday or grandnieces and nephews, 90% of our wealth that will be passing down will not be material for that grandchildren generation. So you see this in the movies, you see this in Hollywood, right? Wealth is lost because of the shift in generation and there’s a couple of things that really play into that, which is just fascinating and it all comes down to just three really basic things.

Lack of financial literacy. If your kids are growing up without having to worry about where their food comes from and their basic needs, they may or may not be as literate in being an adult. I call it life lessons in adulting, that’s my job as a parent. I think also another thing that plays into that is lack of clear financial goals and expectations. As a parent, what are you expecting your child to do? Do you expect them to never have to work again?

So that short sleeves that you’ve created that they grew up in, might mean that they’ve got to go back to work mid-life or after they graduate. They don’t have just a very expensive piece of paper that’s their diploma, they actually have to use it and then the third and final one I think we as parents but also society, the world we live in today, especially, you know, in the US economy would be that sense of entitlement or that sense of complacency.

That inheritance is going to take care of everything or on the flip side, the government is going to take care of everything, or student loans will all be forgiven and it will all be fine. So those real three things are a big part of how generational wealth is just kind of lost and that’s where I really focus on generational wisdom, in addition to or expanding upon generational wealth.

[0:17:38.2] TU: I love that, right? Because the generational wisdom can transform, lead into generational wealth but sustainable generational wealth, which is really exciting and I think we do have some very unique circumstances right now that make sense that if there’s not some of the lessons learned or the experiences, some of the hard knocks, right? If you will of getting punched in the face and kind of figuring out what you need to do differently.

I always share that in my journey paying off way too much student loan debt and making some you know, very significant but obvious mistakes as I now look back on, “Yeah, well of course, I could have done that differently” those are all valuable lessons at a very early stage of my career that there were some costs to them but if you look at that, in terms of the lessons learned and how you’re able to grow from that over the next 30 to 40 years, there’s some gratitude to those mistakes as well and some of the learning that it can happen in that also.

[0:18:31.4] JM: Absolutely. As parents, sometimes we want to protect the kids and we want to block and tackle from life and then we, when we reflect upon our own experiences, that’s often where we learned the most, was when it was hard and navigating with your kids where our safe places to make mistakes versus where those will follow you for a very long time or be much more detrimental or impactful.

[0:18:53.3] TU: And we’ll talk about strategies here in a bit but I think that’s the mindset I often try to carry is, you know, even as they potentially make some mistakes and learn and you know, maybe there’s some emotion or tears that come from those mistakes, it’s within a very safe sandbox that they’re playing right now and so this is the place, this is the time, you know, to stretch their wings a little bit and let them learn from those mistakes along the way.

Julia, I think we would both agree that it’s important to do some self-reflection on our own experiences with money, the money scripts that we grew up with, the stories that we tell ourselves related to money before we even think about how we’re going to execute and teaching our kids. So tell us more, not only in your own personal experiences but what you’ve read and worked with others, why is understanding these money scripts, what we carry around, the stories we carry with us is so important as we think about teaching our kids about money?

[0:19:45.3] JM: I think it starts with, “Are you a saver or a spender?” Like just knowing that that inherent side of you means there’s somebody else on the other side of the table or the other side of the aisle. Maybe it’s your partner that you’re just kind of at odds with and you’re trying to understand, “Well, from my perspective, it’s this and from their perspective, it’s that.”

For me, I think it’s growing up with what’s the value of money and in an age where I grew up, it was a lot of you work hard for money and you put in your hours and you clock in and you clock out, and then at the end of 60 years, you can retire and so I carry that with me and I find that when I start telling those stories, the average time of employment for someone who is in their 20s is less than a year, right?

And so as we’re hiring pharmacy technicians or as I’m talking to my kids about their first job, you know, the longevity piece is just so very different, and so I think reflecting upon your own stories, maybe you grew up in a scarcity mindset or an abundance mindset or maybe you grew up with Dave Ramsey or you grew up with Robert Kiyosaki, both very different approaches to debt but asking yourself those questions, “Do I think debt is bad?”

“You know, do I think being rich is good?” and then asking your kids those questions that you get very, very different answers. The types of charities that I’m interested in are so very different than my kids and it’s based on maybe some o those stories you told yourself or what you were exposed to growing up and always remembering that the stories our children are telling to your grandchildren and then well after you’re gone, are going to not include you.

So what are you doing today to make sure that they’re either seeing or being part of some of the things that you’re passionate about and then realizing that their freedom and their flexibility is, they’re going to do whatever they want anyway and so you could just hope and pray that they are making the wise choices rather than just the easy choices and our job as parents is navigating those experiences.

[0:21:51.6] TU: Yeah, and I think this validates to me what you’re saying, you know, obviously if you’re talking about kids and money certainly but also even in our own financial plan, whether you’re DIYing it, working with a financial coach, working with a financial planner, it’s so important to peel back the layers here and understand the why behind so many of the decisions that we make or don’t make, right?

You ask some great questions, how do I feel about debt? Does debt have a good connotation, does it have a bad? And you gave the spectrum, right? Dave Ramsey to Robert Kiyosaki, leverage to no debt and what I often share with folks is we have to understand and be honest with ourselves about how we feel without judgment to it before we can enact a plan that’s going to take that into consideration.

Take your future goals into consideration, establish what your risk tolerance is, and maybe there’s some movement on that over time but you know I think often, we carry a lot of judgment around those terms, right? Debt and leverage and how do we feel about that and you know so often, that we’ll go back to the stories that we’ve told ourselves, the experiences that we’ve had along the way.

I would love, Julia, if we could spend the remainder of our time breaking down and picking your brain on how we might begin to approach or think about approaching this discussion of kids and money in different age groups and I’m going to be eagerly awaiting to hear what you have to say about the elementary age and pre-teens because that’s where my boys are at but also that we could talk for a bit about teens and young adults.

I think I love that you consider this as a journey from elementary to young adults and certainly, there’s a lot of work to be done along the way. So let’s just go through this one by one and thoughts you have on you know, within each age group, what are some areas that we might want to focus on. Are there specific types of activities or teaching strategies that we might employ? So let’s begin with elementary age.

[0:23:41.3] JM: Absolutely. So I think you start about mindset shifting, right? So you talk about, “Okay, this is the lesson you need to learn, and here’s the competency that I’m going to use to asses can you perform this task or this skill?” I think there’s an art and a science to it.

So as we got through these different ages, just like what the financial plan age isn’t everything, money isn’t everything and so it’s going to have a different experience. Each family is going to have a different experience. If you’ve never had the talk with money, that talk with your kids. Don’t feel overwhelmed. I want you to feel encouraged and inspired and empowered to pick one or two of these.

Please don’t try all of these, day one, you’ll get, you know, eye rolls and, “Mom, this is a fad and this is going to go away” or that’s not how we do it but what’s different. So lean in and start with that mindset shift of, “I deserve” is often something you’ll hear your kids say. All the ages say it, “I deserve.” We as adults say it, right?

I went to college and I have a PharmD, “I deserve…” Let’s reset that as we go through these, into, “I am responsible for.” What am I responsible for? That kind of gives you some accountability along with that and then when talking with kids and you might have had this question like, “What do you want to do when you grow up? What do you want to do?” And tying everything about what you do as what generates money or what you do as your value in society.

Let’s shift that. Who do you want to be? I’ll say that again not “What do you want to do but who do you want to be?” and if we can approach some of these life lessons with that in the background, the tactical pieces I think come a lot easier. Meal times are my favorite, everybody’s all together, we’re a big family, we have five kids and sometimes you will get the most random of conversations, and other times you’ll get different perspectives.

So I would encourage everyone if you have a regular meal time, maybe you had it a lot during COVID, we’ve kept it since COVID like that’s our protected family time but find a time that kind of works for you but meal time are great to cover some of these topics and especially in elementary. We’ll jump in there first, explaining money like what is money and why do I need it, like why is it so important, right?

How do you really break it down that it’s just a reality of life and it’s important to understand in the way that you learn all these other things about science and math and reading like money is inherently in there. If you study social studies like lots of governments have problems with money, lots of people have problems with money. Why are they fighting over this, can’t they just share? That’s a really great question.

Understanding where money comes from, as our generation I say it usually just was money comes from hard work and that’s an easy answer. As we get into the digital age and as we get into passive income and some of these more advanced topics, I think I am starting to shift my vocabulary a little bit. It is not just hard work but smart work, so how are you working smarter and not harder, which sometimes will come back to bite you when they’re doing their homework and they’re like, “I just worked smarter and not harder.”

So making sure that if even in the elementary age you are paying for chores or you are paying some sort of an allowance, that’s a hot topic, that you are paying for the behaviors you want or you’re incentivizing the performance that and the effort. So it might not be that they clean the windows perfectly but if they worked really hard on it, you want to reward and encourage that just as much as straight As on a report card.

If it was super easy, that might be a different level that each kid and each situation is going to be different.

[0:27:21.4] TU: I have found, Julia, with my boys, high energy, I have found that engaging them and teaching them through engagement is where I find the most value. So there certainly are, you know, we’ve got a regular dinner time at home and as you highlighted well like topics of conversation are very fascinating at the dinner table and what directions we may go and so that occasion will come up and often it will be you know, my son or one of them over here as my wife and I talk and ask a question and bringing them into that conversation.

We’re out at the store and they are asking questions or you know, I’ll never forget my oldest, whose soon to be 12 when he was four or five, we were at the grocery store and he looks at me and he says, “So dad you used that card and then you get what you need” and I was like, “Oh” like lots to talk about here, right? Of credit and debit and how money gets on a card and you know when I grew up I remember vividly my mom paycheck to the bank, cash went into envelopes, we spent from the envelopes.

You could see the direct connection from work to the paycheck to the money to the spending and with all the advances and positives that have come from obviously the technology and what that affords us, you know that could be harder to grasp onto at a very young age like in elementary age.

[0:28:39.0] JM: And I think the envelopes is a great way to do it, especially at the elementary age and I say that money has you know, three purposes because they’ll say, “Well, what’s money for?” and I say, “Saving, spending, and sharing or giving.” Some people use sharing, some people use giving and then I will invite them into that conversation to say, “Here is an example of here’s how we’re spending our money today” or “Here is how I’m saving my money” or Here is how I’m giving or sharing.”

Having those conversations with them about, “Well, where would you like to share your money, where would you like to give some of your money?” or okay, each had a birthday, “What’s an amount that you’d like to save?” “I don’t want to save any of it” “Well, we’re going to talk about you know, how in that envelope you’ve got to have something, and before your birthday, you said that you wanted to have half of it in your savings envelope.”

So it is less about the amount, it is less about compound interest at this age. It’s more about can they see those dollars and can they see them adding up overtime and going to the bank is fascinating. How many kids have actually ever been into a bank, turned in the coins and they count it for them and then they give them a piece of paper and like, “It’s worth this much.” You know, my saver was concerned that he had to turn in all those coins.

He’s like, “Why? I want them back, I just want to know how much is in there” and then like, “No honey” “They went into a machine and they’re not coming back.”

[0:30:04.6] TU: Yes and explaining some of that banking, I had a very similar situation with one of my boys where I think they got cash, maybe it was a check for their birthday and we put it into an online savings account and the view was, “It’s gone, I just gave my money, what the heck?” like it’s gone and you know then you get into all types of conversations about banking and interest and all that when the time is right but it can be very confusing. What about pre-teens and teens? What are your thoughts there?

[0:30:29.3] JM: I think pre-teens and teens, understanding that money is not just for saving, spending, and giving but stepping it up a notch of it’s to provide for your needs and your wants and discerning the difference between what do you need and what do you want and I say a lot if they jumped on this podcast would say the same thing is, “Mom and dad will always provide our needs but we’ve got to figure out how we’re going to work for our wants.”

So we’ll always provide for your needs but we’re going to work together to figure out how to provide for the wants and so I think that those responsibilities and accountability are learned behaviors. If they’ve never had to count back change or they’ve never had to shop from a budget before, now is the time to start pulling in maybe some of that vocabulary, back-to-school shopping depending on if you’ve got boys or girls, there’s different shopping expectations already in the pre-teens.

Annual subscriptions or they think that Netflix and all of the streaming things are just – they just come with the TV, right? So every time you have these little opportunities, you get a new piece of technology and you’ve got to upload it or buying in the app store and currency like they want Roblox dollars, right? They want to figure out how to do this, so often it’s getting under the hood even further to explain like why something was purchased and just as importantly, why didn’t we purchase it and then have them kind of identify, “How do you think that aligns with our family values?”

How do you think that aligns with what we’re doing? Especially in the pre-teens these are some of my favorite situations and tell me if these resonate with you at all is, “Buy this, you can afford it, right?” and so maybe an alternative would be, “We want to spend it differently.” So they see the neighborhood you live in, they see maybe not the background you came from but what they are experiencing today.

The schools they go to, the friends they have, the sports or the activities they’re doing, the extracurriculars, all the blessings that are around them like doesn’t mean that we’re going to continue to fill all of your wants. We as a family are going to spend it differently, “But Mom, I need it. I need it.” “Well, is this a need or is this a want?” having some of those conversations. “I really want this like I really want this.”

“Okay, well, what are you willing to do to earn it?” maybe it’s through good behaviors, maybe it’s through money, figuring out what that currency is, maybe it’s screen time. You know, figuring out what that currency is so that they can identify making wise choices with the results and the outcome that they want and sometimes that’s delayed gratification. Sometimes we make them wait until payday on Friday after they did their chores.

Probably don’t do that at elementary but pre-teens probably could start thinking about a little bit of delayed gratification and then one of my favorites is on the flip side, it’s not just on the spending side but the saving side when they see how much something is. “Well, I could never save that much.” “Okay. Well, how long do you have to save?” So when something starts to get more zeros behind it, especially in your pre-teens.

If you shop for them for Christmas or birthdays like the zeros get bigger and so I will often ask, “How long do you have to save, and what are we going to do to match funds or what are we going to do to think outside of the box?” So my favorite has to be this funny story about, “Okay. Well, we’re saving. Can I just buy a whole bunch of lottery tickets and that will be my investment?”

So we had the conversation about how lottery tickets are not retirement, lottery tickets are not an investment, and that just you know, and we explained how it works and how can you just win a lot of money and what does that mean and so sometimes, I tie back just generational wealth without the wisdom is playing the lottery. It’s leaving your legacy to a lottery rather than being intentional and passing it on.

Pre-teens to me probably should get a bank account. There are many rules around minor bank accounts in different ways to do it, tons of information out there. I am not the expert, I don’t have referral or affiliate links, find something that works for you. Some people have investment accounts, some people let them see it but pre-teens if they are part of the process, they’ll see it’s not easy to just have a bank account.

So even if it’s the exercise of creating a new one, now is a good time. I do think before you get into anything digital like a debit card or credit card even, probably not a pre-teen credit card, physical money. Spending USD 20, giving them a budget and I often let them keep the change, so I let them start to be a little more price-conscious of, “Okay, we’ve got USD 20 to feed three people. Who gets a soda and who doesn’t?”

They will be like, “Ooh, I don’t want a soda, I want an ice cream.” “Well, it spends differently when you got to keep the change” versus “If mom is just going to pay for it and you can have whatever you want.” So I think yeah, pre-teens is really where the rubber hits the road and you start to get the varying personalities that show up, just meet them where they are. There is not a right or wrong, money lessons come sooner than later for some and later for others.

[0:35:29.8] TU: Yeah and what I’ve observed and you have the experience with teens and young adults that I haven’t got to yet is you know, I can see with my oldest who will 12 here this summer like really in the last year, year and a half, the questions are coming forward, the light bulbs are going off, the signs are there, wanting more independence or responsibility and kind of leaning into that and stepping into that.

But I can already tell, his three little brothers are perhaps going to get there a little bit faster because guess what? He’s paving the road, you know we’re working through that with him and you know the other three are naturally involved in those conversations that are asking questions and I think that just speaks to the difference between them, meeting them where they are, and you know really engaging in the conversations along the way the best that you can.

One of the things I’ve heard others do with teens especially later teens or maybe in that gap before they start earning their income if they are working a job is to start shifting some of the dollars that maybe you know you’re going to spend back-to-school clothes if you have a budget for your kids or it could be for certain more the discretionary types of expenses that you know are going to be accounted for in your budget.

But to start to shift those dollars and the responsibility of those spending of those dollars to them for management, for learning, for getting to some of the realizations that you’re talking about here of how far might the dollar go, is it a soda, is it ice cream, some of these decisions and I really like that stepping stone and obviously once you start earning and come, I think that comes to light even a little bit more.

But if I know I am going to spend USD 100 for my 14-year-old on back-to-school clothes, can I give them to him to manage that and kind of work through that as well? What are your thoughts on that?

[0:37:14.7] JM: I love that idea and we’ve actually grown into that. So it started with athletic shoes because you know at some point the ones that you buy for them on sale or clearance just don’t cut it and you know we’re very privileged and blessed to have that problem and so I would give them a dollar amount for their shoes. Anything more than that had to come out of their budget.

I am providing for your needs, you have to queue us if you will, to the want and then that has evolved into the bigger things like prom. You know, you’re going to have to pick between are you doing your hair or your nails and new shoes or eating out. We’re going to give you a set dollar amount and then this year when prom came around, it was, “What about inflation?” because I just reset with the same amount from last year and –

[0:38:00.3] TU: Well, if they’re asking about inflation that’s a good sign so.

[0:38:03.8] JM: I thought that was very entertaining or to the other one that did not go to prom, he’s like, “Do I just get to keep it if I don’t go?” “You bet, that’s for you if that’s what you want to focus on and do instead and do a different social activity.” It is interesting the way that money spends when it has ownership that’s belonging to the kid and that ownership I think is really important.

At this age, especially in teens maybe they’re too busy with extracurricular or they’re too busy with their academics to have a job or a part-time job. I think there’s a balance here and are you working because it’s you need to provide food on our table for us at home? Probably not, maybe it is, and that’s okay, but for us, we actually encourage them to volunteer in something they were passionate about.

It’s a safer place to fall if they no-call no-show. It’s a safer place to interview. It’s less competitive, especially where maybe there is some social apprehension or during COVID there was not a lot of face-to-face interaction. So where these common sense skills and we would actually pay them for their volunteer hours, whether it’s through church or whether it’s through the community organization or the senior center and really encouraging them to take a risk of something they’re interested in outside of our family bubble.

For us, that worked, that might not work for all families, but the value of hard work to me says you can also see that in volunteering, less about earning a paycheck per se.

[0:39:36.9] TU: So knowing you have a freshman in college, let’s talk about the young adult phase, right? Our work isn’t done when they’re a graduate from high school, and I think maybe these are exciting but also tricky conversations, increased level of autonomy and independence, you know, maybe less direct control and observation of decisions that are being made. What advice would you have for folks here as it relates to parenting young adults when it comes to money?

[0:40:02.8] JM: Something does not magically happen when they turn 18 from a cognition standpoint; however, in the letter of the law, they are now fully-functioning voting adults and they will tell you all about that as well. So funny story, a week after my now 19-year-old turned 18 and I share this story with permission, she came home and said, “Hey, I was at the dentist and I signed this thing, I am getting Invisalign,” and I saw the bill, and I saw the paper and the copy.

I said, “Why did you sign this?” she goes, “Well, they said that I should.” Okay, so when it comes to common sense and in all households, there will be those things that you come home and you’re just like, “As long as we can recover from this, I think this is going to be okay.” So it turned out there was a conversation and that she was part of that customer service call that just said, “Oh, that was an estimate, not a real one.”

“We would never have them just sign away and not be able to pay for it,” but I thought that was really interesting that something magical happens and that we, as parents, if you’ve got a senior now, you probably have four or five weeks left of lessons with them, weekend dinners or weekend events. If you’ve got a middle schooler, you might have a few hundred weeks left, that’s it, and so very quickly, you realize you ran out of time before you ran out of things to teach them.

So get the big things right as it relates to what is a value or piece of your family. What are the big things? Are they signing for student loans solo or not? Are you cosigning a credit card for them or are they getting it themselves? Are you walking them through safe ways to navigate borrowing money for whatever it is that they want? Are you making them save up cash for a car or not?

Used cars are expensive these days, and the conversation I had was, “I can’t come up with USD 5,000 in a year and live,” and I’m like, “Well, it’s 13.27 a day” and she’s like, “Oh, okay. We might be able to do that eventually” and so I think that it comes with the financial lessons along with the legality. The problems get bigger as they get bigger, and the risks get bigger. So something as simple that you and I might do, like call customer service and cancel an overcharge.

Where are they looking to see that there were overcharges or incorrect bills? Are they Venmo-ing each other and hitting the purchase icon? That means that you paid your friend actually less because they kept a percentage of it. So what are the technical pieces navigating? Opening a Roth IRA is something that we did with our now 18-year-old, but that is not something I can do on her behalf.

She’s got to do it, and then we can walk through how do you transfer funds, how do you match those funds, all of those things that just magically happen that we learned overtime I think, is compounding in a quick way for young adults for sure. Vehicle research, how many of them have ever been into the DMV? They took their ACTs online, you know? I remember we have two drivers in the house now and both of them were just amazed at the amount of people and the types of people that waited to the last minute, or they’d never had a license, or that there wasn’t a fast pass.

They’re used to being able to buy things as a fast pass or early boarding, and they’re like, “Can’t you do that here?” “Hmm, let’s talk about entitled just a little bit. We’re going to stand here and talk and have a conversation because cellphones aren’t allowed in the line,” and so all the things you’re doing as an adult, renewing insurance premiums, homeowners insurance premiums, pick one thing, teach about it, talk about it and then at some point, it’s going to be teaching them to navigate those landmines.

What are those keywords to really look for or watch for that can be powerful and it can be dangerous? Buying things and investing in yourself, buying assets even though young kids know, “We buy assets not liabilities,” but do they really know what that means? Comes to fruition when you have more zeros in your bank account as a young adult. Whether it’s from a big giant student loan refund or at the beginning of the semester, you’ve got to live on it.

There is a difference between buying assets and just consumerism. There is a difference between signing and cosigning, especially to people you’re not married with or especially with roommates, having a written financial plan and then sticking to it. At the beginning of the semester, you say you’re not going to spend at all, but by the first week of Christmas, if you are hungry and you’re coming home for food and laundry, let’s have some conversations, or you didn’t budget for laundry because these places say, “laundry included.”

But they didn’t realize, funny story, that they are coin-operated laundry and you have to go now and cash in cash for coins for coin laundry. So that’s where that common sense piece comes in, but really safe teaching moments, where are the things that they can kind of slip up on and be okay and where is it when there is a car accident, and you walked away because you didn’t think there was anything worth calling your parents about is a different conversation.

Where does the deductible come from when the car hits the garage? Those things happen, and as parents, we want to jump in and fix and there may be some lessons there that we want to slow down a little bit and say, “We can financially fix this but what’s the lesson here that we might be avoiding if we’re not encompassing them in those conversations?” As kids get older, they start dating, and they date seriously, and for all of the singles out there, prenup is a scary conversation.

Inheritance is a scary conversation but as it takes you into your dating life and your long-term life, I think those in the financial world say, “You know, your best and biggest investment is a healthy and happy marriage” or a healthy and happy cohabitation. Whatever those are, really can have lifelong consequences, especially as it comes to large inheritances and different things like that.

You also have a luxury tax on families that have a lot of wealth associated, either with their name or with their family or with the reputation that they have and you’re going to be targeted for lots of things that might not be as altruistic as you would think and being aware of those and how do you have those healthy conversations. Insurance plans, everybody has a will, I hope if you’re a listener.

If you don’t, stop what you’re doing and start with that and then you have to talk with your family about it. Our kids know that we have a black book, unfortunately, it’s black, that has all the things in it and they know about it and they know that every once in a while, we’re going to have to pull this out and talk about it and not because it’s something we want to pretend doesn’t exist but because that’s part of being an adult too, it’s thinking about us getting older.

[0:46:45.2] TU: So much wisdom there, Julia, that was fantastic and I think it connects to many other topics as well. You know, you talked about estate planning, you mentioned the cosigning, you know just so much to think about the insurance side of the plan and what’s really jumping off the page to me, especially as we think about the conversations with our kids at all stages is really the ability to have an open dialogue and a conversation, which goes back to the foundation we’re setting, the relationships that we have along the way.

To your point, there is going to be more topics and we probably have time to cover with our kids, especially if we’re getting a later start on this and so how can we build to that trust, some of the foundation, the open conversations that when those difficult conversations or situations happen and they’re out of the house and they’re at college, you know we have a foundation to work through those and make sure we’re addressing the lessons to add to the wisdom, right?

Wisdom to the generational wealth as you said earlier, I think is such a powerful way to view this. Where can folks learn more about you, follow your journey, connect with you as they hear this episode?

[0:47:49.0] JM: Absolutely. So you can find me on all the social medias, Julia Myers RX, and if you’re interested in a free download, I’ve got five family financial conversation starters for all ages at generationalwisdom.co, that’s generationalwisdom.co. I would love to connect with you, hear your journeys, share your stories, as parents our job is big and we find support with each other in sharing these stories and these conversations. So looking forward to keeping in touch.

[0:48:21.1] TU: Awesome. We will link to those in the show notes. So Julia, thanks so much again for joining the show.

[0:48:25.6] JM: Thank you so much, enjoy your day.

[END OF INTERVIEW]

[0:48:27.8] 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 in 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 preapproval process, you can visit yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

[DISCLAIMER]

[0:49:11.8] 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 310: Dusting Off Your Estate Plan

Posted on June 1, 2023May 30, 2023 by Tim U

Tim Baker CFP®, RICP®, RLP® discusses the significance of the estate plan, what it includes, and 3 action steps you can take to button up your estate plan.

Episode Summary

On this week’s episode of the YFP Podcast, we tackle getting your estate plan buttoned up. We’re joined by Tim Baker, CFP®, RICP®, RLP®, Co-Founder of Your Financial Pharmacist, to talk about estate plan preparations. We go through why it’s important to plan your estate, what an estate plan includes, and what happens if you do not have one in place. Tim then shares his thoughts and insights on three action areas; documentation, beneficiaries, and legacy folders.

Key Points From the Episode

Tim shares some statistics related to estate plan documentation and preparations.
Why it’s important to have your estate plan.
Tim defines what exactly an estate plan is and what it includes.
Tim explains what happens if you do not have an estate plan in place.
Who needs an estate plan.
The objectives of having an estate plan.
We dive into three action areas; documentation, beneficiaries, and legacy folders.
Why having things in order makes life and estate planning easier.
How they tackle the estate plan as part of the YFP Planning financial planning process: The First Five.

Episode Highlights

“[The estate plan] it’s one of those things that a lot of people have a blind spot for — [we] don’t like to think about our death or our income or [of] being incapacitated, essentially, which is what the estate plan tries to solve.” — @TimBakerCFP [0:04:48]

“At the end of the day, [an estate plan] is peace of mind in making sure that your loved ones are cared for in a way that is in line with your wishes.” — @TimBakerCFP [0:10:52]

“What the legacy folder is meant to be is that gathering place of all of the things that are important related to this topic. The estate plan documents, life insurance policies, trust documents, and tax returns.” — @TimBakerCFP [0:19:02]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00] TU: Hey, everybody. Tim Ulbrich here. 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 Tim Baker and I tackle an important and often overlooked part of the financial plan and that’s the estate plan. We get it. It’s not fun to think about end-of-life preparations, so we keep this one short and sweet. Covering what documents you need in place, why it’s important to check your beneficiaries, and why you should create a legacy folder if you don’t already have one.

At YFP planning our team of certified financial planners is ready to help you on your path towards achieving financial freedom. Yes, financial freedom includes ensuring you have your estate plan buttoned up. If you’re interested in joining more than 280 households in 40-plus states that work with YFP planning for one-on-one financial planning and wealth management, you can book a free discovery call at yfpplanning.com.

Whether you’re just getting started in the middle of your career or nearing retirement our team is ready to help. Whether or not YFP Planning’s financial planning services are a good fit for you, you know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. All right. Let’s hear from today’s sponsor the American Pharmacists Association and then we’ll jump into my interview with YFP Co-Founder and Director of Financial Planning, Tim Baker.

[EPISODE]

[0:01:19] TU: Today’s episode of the Your Financial Pharmacists Podcast is brought to you by the American Pharmacists Association. APHA has partnered with Your Financial Pharmacists to deliver personalized financial education benefits for APHA members. Throughout the year APHA will be hosting a number of exclusive webinars covering topics like student loan debt payoff strategies, home-buying investing, insurance needs, and much more.

Join APHA now to gain premier access to these educational resources and to receive discounts on YFP products and services. You can join APHA at a 25% discount by visiting pharmacists.com/join and using the coupon code YFP. Again, that’s pharmacists.com/join and using the coupon code YFP.

Tim Baker, welcome back to the show.

[0:02:08] TB: Yeah. Good to be here Tim. How’s it going? It is going, I’m excited for today’s discussion which we’re going to keep somewhat brief knowing that the talk around end-of-life planning is admittedly not the most exciting or uplifting topic. We’re going to be talking about exactly that dusting off the estate plan, making sure we take a minute to take stock of where we are at with these important documents.

Tim, perhaps we have some people that are listening where it’s a chance to revisit the work that they’ve already done and to make sure those documents are up to date whereas for others it’s maybe just a point to get started. We’re going to cover some of the basics, obviously, this is not legal advice. We’re not attorneys but it is certainly an important part of the financial plan.

Tim Baker, I think building off of what I just said I would expect that there are some gaps here as it relates to estate planning for some that again similar to insurance, not a really fun topic to think about let alone execute on, but the data really is eye-opening in terms of just how big of a gap this is for many when it comes to their financial plan. Tell us more about that.

[0:03:17] TB: Yeah. There’s a stat out there Caring.com 2023 Wills and Estate Plan Study that said two out of three Americans do not have any type of a state plan document. I would say that with our work with clients, it’s probably more dire than that. I would say that nine out of ten, eight out of ten clients don’t have any type of documents in place. Now typically the further along you are in life, in your career the more dependents that you have or things that major life changes the more that that might force you to take stock, pause a little bit and say, “Hey, this is important,” But it is one of the major overlook components of a financial plan.

It’s important for anyone to have an estate plan, but I think it’s more important if you same thing with life insurance, Tim, if you have a house, a spouse, and mouths to feed. Now those are typically the things that trigger people to start thinking about this, but on the other side of the coin as you’re retiring and moving into that state of your life, it’s important to make sure that it’s there and you have updated information, you might start thinking more about legacy and charitable things that you need to sprinkle into your financial plan, your estate plan that is warranted to dust it off a bit. But yet, it’s just one of those things that a lot of people have a blind spot for, if you don’t like to think about our death or our income or being incapacitated, essentially which is what the estate plan tries to solve.

[0:05:01] TU: Tim, when I present on this topic, I always put a disclaimer out there that, hey, this is not as we’re talking right here, the most exciting part of the financial plan for obvious reasons and the timing of this is really good. I’m actually in the middle of this section of the plan with our lead planner from YFP planning Kelly Reddy-Heffner. I’ve got some outstanding tasks at dragging my feet on to go back and review some of these documents that we established several years ago and update the legacy folder. We’ll talk about that here in today’s session. Unlike other parts when we came off the section on looking at investments and updating our nest egg it’s like, I’m all in. Let’s do those calculations. Let’s get the work done, right? That’s fun. That’s exciting. We’re planning and thinking about the future.

This, not so much. I think, the data certainly shines a light on that, but it’s what we’re going to talk about here today such an important and often overlooked part of the financial plan that we want to make sure that as we’re building other parts of the plan that we’re playing a little bit of defense with the protection part as well. Tim, what exactly is in an estate plan before we get too far into the episode?

[0:06:06] TB: A lot of people when they hear state they think real estate, Tim, right? It’s not that. I mean, real estate could be part of your estate plan, but the estate plan is essentially the process of arranging in life the management disposal of your assets and property at death or even at in capacity. It’s really important. For a lot of people, the people that really value this type of work have either been burned by it themselves or have a family member who’ve been burned by it, but you really want to direct attention to this. It’s also a plan for health and property in the event that you are capacity like I mentioned.

If you are unable to pay your bills or you are unable to care for a child like, what happens? Unfortunately, if you don’t have an estate plan in place, the state in which you live in writes one for you in what’s called the probate process. Oftentimes, more often than not, you don’t want the state, you don’t want the government to basically say, “Hey this is what happens to your property. This is what happens to your kids.” You might have charitable intentions in your brain that are if they’re not written down in a will or something like that, it’s not going to happen. If these are things that are important to you which I think for most humans, making sure that I know who’s going to take care of my kids. We want to make sure that we’re working within a state attorney to do so.

[0:07:34] TU: Next question I have for you, Tim in terms of, who needs one? As folks are listening you mentioned this previously talked about the house, the spouse, the mouths to feed, but generally speaking as our listeners hear this discussion, who really needs to have this front and center part of the plan?

[0:07:50] TB: Yeah. I think if you’re not in that population of people. If I’m a single person and maybe I’m rented or whatever. It doesn’t mean that you don’t need an estate plan. If you want to make sure that you are directing medical decisions and things like that, you need a state plan and you need to go through that. We put the emphasis on this, because again at the end of the day, we don’t want the dependents that are there if you leave us to not have a proper plan, but that doesn’t necessarily diminish any type of healthcare or plan in need if you’re single and you don’t have dependents or things like that.

I would say, everyone. Everyone should have an estate plan. I think working with an attorney I think is the best in class. Obviously, attorneys cost money. There are a lot of solutions out there that are more DIY forms and things like that which are a little bit cringe for me. But yeah, if you’re in the population of you’re a human and you have a heartbeat, it’s just one thing you should at least consider and go down the path to evaluate if it’s for you.

[0:08:53] TU: We think about what we’re trying to address with the specific parts of the estate plan which we’ll get to here in a moment. I think peace of mind this is something that wherever you are in terms of the different phases and areas of life, knowing that you’ve shorted up this part of the plan. I would suspect that is one big part of the objectives of the estate plan, what else would you consider here?

[0:09:15] TB: Yeah. It’s peace of mind. Given a plan for your family for them to execute in terms of like, how you want to be cared for. How you want the property to be handled. All of that stuff. I think it is really an exercise in the efficient transfer of assets. What we’re really trying to do is minimize cost, so that could be things like taxes, probate, all the documents, all that stuff. Make sure that your stuff goes to the right person, so you hear horror stories of like, the life insurance policy goes to an ex, instead of like a current spouse. All that stuff is on the table.

Those are the objectives. Create a plan so than in the event, Tim, that you’re not here that you have a quarterback for someone that can make sure that property and healthcare decisions are taken care of. It doesn’t have to be the same person. These are typically through power attorneys and the kids are taken care of. Could be that you have a testimony trust that’s set up in the event that you and Jess are no longer here, so then the trust would be created for the benefit of the boys. All of that stuff.

It could be, part of the estate plan. It could be directions that you give directly to your doctor. That’s called the Living Will. That says, “Hey if I’m – I don’t want a breathing tube or I don’t want a feeding tube.” Those types of things. Every state’s going to be different. There’s lots of stuff to cover, but the objective, I think at the end of the day I would put at the top of the list is peace of mind. Peace of mind for you. Peace of mind for the family. The cost and all that stuff is important too, especially if you’re looking at larger estates.

[0:10:52] TU: Yeah.

[0:10:52] TB: But at the end of the day, it’s peace of mind in making sure that your loved ones are cared for in a way that is in line with your wishes.

[0:11:01] TU: This is one of those areas too, Tim, I see there can be momentum that comes from not only having this complete but also having the clarity and the peace of mind of the documents in place. It reminds me of some of the discussions we’ve had around, whether it’s doing an estate calculation as we plan for retirement, whether it’s figuring out how we’re going to tackle the student loans. Sometimes those numbers won’t change dramatically in the short term, but if we can have some of the peace of mind and the clarity around knowing that we’ve done some of the calculations, the evaluation. We’ve considered different factors and now we have a plan that we’re working towards. That momentum can be really powerful as we look at the financial plan at large.

I think the same thing here that this is one of those looming things of like, I know I should do it. I don’t really want to do it. There’s a lot to consider here. It’s overwhelming. It’s confusing. It’s not fun to think about. But once we can see through this and again not something that we just complete and put up on the shelf. We want to revisit this as well. Really, I think gives us a space to be able to move forward with other parts of the plan, as well.

[0:12:04] TB: Yeah. I feel like once this gets checked off it’s a little bit of like, all right like, we have more capacity to look at other things and be excited about some other things knowing that this is taking care of. Again, it’s not necessarily that we just throw it on the shelf and we never look at it, but for a lot of people just to get over that hump and having those documents in place is a big boulder to roll up the hill. Yeah, super important to get it in there. Then our job as planners is to dust it off every once in a while and say, “Hey, what does this look like? Are there changes that need to be made etc.?”

[0:12:41] TU: In terms of action items. Let’s talk about three areas that folks can think about. One would be getting the documents in place and we’ll do a quick mention of what those documents are. Again, the work to be done there really with an estate planning – estate planning attorney, ideally in collaboration with your financial planner. The second would be considerations around the beneficiaries. Then the third, we’ll talk about the legacy folder. Tim, as we move into action items here, number one get your documents in place. At a high level, what are the documents that folks should be considering?

[0:13:12] TB: Yeah. I’m just looking at the estate checklist that Shayna and I have in our financial planning portal, so I can just go through these.

[0:13:19] TU: Yeah.

[0:13:20] TB: Imagine a list on the left and then my name and Shay’s name on the top of the column. These are things like a will. Essentially, once you pass away the court in probate will read your will. Then if it’s a valid will, they’ll basically execute to that. Do you have a will in place? Power of attorney. Really, two types of power of attorney. There could be one for property. Basically, someone that’s going to take control of your bank account, your credit cards, your investment accounts. Either in the event that you’re incapacitated or at your death and figure out work with the courts to dispose of those or move those to the beneficiaries in an orderly fashion.

It could be a Living Will. A Living Will is those instructions that are made out to the doctor. Every state has a different term for it, but you would say, “Hey, do not resuscitate.” Any of these conditions. It could be a Living Trust. A Living Trust is essentially, where you are – if she and I had a – in some states, this makes a lot of sense, but if Shay and I decided to set up a Living Trust we would essentially, instead of our house being in our names it would be in the Baker family trust and all of those assets essentially avoid probate. The trustee in that moment would essentially take control of the trust and any assets that are inside of it whether it’s a house, an investment account, or whatever, the trustee is in charge of that.

It could be if you have kids, it could be like a testimony trust for the benefit of a minor, so some of those become in force or they’re created at one’s death. That would be another thing. Is just, there’s a trust, there are lots of different flavors of trust, but that would be another one that I would ask the attorney about to see if it’s in your best interest to create those. Then the last thing, if I didn’t mention this already is a check on beneficiary designations and get to that a little bit more, but those are the main documents.

[0:15:13] TU: Great overview. We also talked about this with two state plan attorneys, in Episode 222 of the YFP Podcast. We’ll link to that in the show note. We had a good conversation with Nathan and Notesong. I love the way they break down and explain these documents in a very easy, to understand way. Even as you’re engaging and working with an estate plan attorney again, I think it’s valuable to feel like you have some background knowledge and exactly what do these terms mean. That’s number one, get your documents in place. Tim, number two. You alluded to which is something that I’ve overlooked in days gone by. It’s really considering the beneficiaries, especially after you have some of these documents in place. What are the areas that we want to consider as it relates to the beneficiaries and why is this important?

[0:15:57] TB: Yeah. Again, looking at Shame and I’s financial planning, software here, we’re looking at the beneficiary rundown. It shows all of our different accounts from check-in, savings, CDs, investment accounts, our life insurance, and that type of thing. It basically, says like this is the account balance and then like, what’s the death benefit? Typically, if it’s like a cash account or investment, it’s the same. For a life insurance policy, it won’t have an account balance, but it’ll have – unless it’s permanent, but it’ll have a death benefit.

Account balance column, death benefit column. Then it has a primary and a contingent beneficiary. Essentially, if I were to pass away all of my stuff would essentially go to Shay. If we were to pass away, then all of our stuff would go to the contingent beneficiary, which might be direct to our kids or in a trust in the name that’s created for the kids’ benefit. Going through this exercise is really, really important, because again, you hear those horror stories of like this – my stuff didn’t go to the right person and that’s causing pain and additional pain and anguish to the surviving heirs.

Having a checklist to go through and make sure that things go to the right people is really, really important. If you haven’t done that in a while, it’s important to do so and a lot of people don’t have a beneficiary set up. If that’s the case, then that goes through probate. If there isn’t a beneficiary that IRA for example goes right to Shay or goes right to the trust and that is good, because it avoids probate and you don’t have to worry about that in court. That’s a really important thing to make sure that you’re on top of.

[0:17:46] TU: Yeah. I think the thing that might get overlooked here, Tim, is maybe someone has a spouse where on an IRA or on a life insurance policy whatever it may be where before they set up some of their state planning documents. It might be the spouse and vice versa that are listed as a beneficiary and depending on how they set up the trust in the estate planning documents, they may need to switch some of that over time.

Again, I think it just speaks to yes, there’s a lift up front of work to be done, but as other parts of the plan evolve this is something we want to be revisiting every, so often. We’ll talk about what this looks like in relation to our planning services and how the planning team is regularly engaged in this activity. That’s number two. Check your beneficiaries. Number three. Tim, again, I think such an important part of this process especially from a peace of mind is around this concept of a legacy folder. Creating one if you don’t have one. Updating one if you already have one. Tell us about what this looks like.

[0:18:43] TB: Yes. If you’re all buttoned up in those other areas of the docks in place and beneficiaries, that’s great. You’re ahead of a lot of people. However, if your loved ones don’t know where to find everything like the documents or passwords like, it makes their life a lot harder. What the legacy folder is really meant to be is that gathering place of all of the things that are important related to this topic. The estate plan documents, life insurance policies, trust documents, and tax returns. You could include something there like a side letter.

Tim, if I pass away, I want my ashes to be sprinkled on a linking financial field that’s not going to be in an estate plan, so things like that, that you want your loved ones to know about, maybe final wishes and even like passwords like, I can’t tell you Tim, how many – we probably have 10,000 passwords each day. Where are those? How do your loved ones access them?

I think if you can create a legacy folder and either put it in a fireproof safe or a safety deposit box or some people do this electronically and you can give that to a loved one along with a death certificate, they’re able to operate and basically manage your estate much, much easier than if they’re trying to look for things and dig through folders and drawers and parts of the house that they don’t necessarily know where to go.

It’s that, hey, this is a folder or a filing system that has all of the things that are important related to this topic that your loved one knows about. Communicate to them where this stuff is. It’s really important, too. This could be important for your own stuff. This also could be important for if you are the executor or the person for say a parent. It’s important to have your house in order, but I think it’s also important that if you are the person that might be taking care of elderly parents that you know that what the plan is for them, as well.

[0:20:52] TU: Yeah. Have a copy of those documents as well on hand. This reminds me, Tim. One of the things you’ve said before on the podcast is for you, I think when the clocks change you use that as a signal to pull your credit, right? Do check in your credit report.

[0:21:04] TB: That’s right.

[0:21:05] TU: I think a similar rhythm here like whatever that is, especially with how quick information can I change whether it’s passwords, whether it’s new accounts, new documents, transfers of accounts like making sure that you’re looking at this on the regular. I love what you said, right? That we can do such a great job in getting all these documents together, but do others and our loved ones know where these are at in the event that something would happen that this is needed.

This reminds me much, Tim of a great conversation I had way back when with Michelle Cooper who wrote a book on the topic of her journey as a widow to Love, Happiness and Financial Independence navigating some of the challenges that can come when you lose a loved one. Not only, obviously, emotionally what’s happening at that moment, but also then being able to navigate through that difficult time, especially if you’re in a situation where maybe one of the people in a household taking over a more active role of the finances, making sure that all parties have a good understanding, but what’s going on and where those documents are located.

This is an area, Tim where I get a lot of peace knowing that. Hey, if my financial planning team has access to these documents or knows where this information is as well, as parents, and in-laws, or whoever is going to be an integral part of the execution. That also helps in understanding that there’s more than one party that’s going to be involved to be able to sort this out and to be able to work through this.

[0:22:33] TB: Yeah. Again, if you put yourself in maybe in the state of a grieving spouse and you’re working with a planner that has visibility on this type of thing like the life insurance companies or whoever you’re dealing with. They’re not coming out of the woodwork to pay a claim. I would be like, “Hey, what about this?” Again, not to be morbid, but I would say, “To Jess. Hey, what about this life insurance policy?” Or this that she might not be thinking of because that’s not where her brain is.

I was talking to a loved one recently. I think it was something like some type of insurance policy. He was the executor for another family member. He was like, trying to find this document. He got lucky like he found like the policy that he was able to put in a claim, but they’re not like, if something happens, they’re not like banging down the door for them to pay you money. If you have everything in order here, it just makes life a lot easier.

[0:23:33] TU: Yeah.

[0:23:33] TB: And from a financial perspective it makes things a lot easier to get the support that you need for the heirs, for the dependents that are left behind.

[0:23:44] TU: Tim, do you see for folks that choose to do the legacy folder electronically, I would assume there’s still somewhat of a hybrid approach, right? I’m thinking about things like social security cards, birth certificates, and other things that they might want to have physically of court, a physical document in a fire safe proof, whereas other things they want to house electronically that makes it for easier updating. Probably, I’m curious from your perspective or either how you and Shay do it. Do you see folks doing more, hey, everything is hard copy in a safe or try to do as much electronic, a hybrid, what do you see?

[0:24:19] TB: Yeah. I mean, I think there’s some services out there that trying to do like an electronic offering. For us it’s like, it’s both. I’m a big Google user, so like we have a folder that has essentially everything in it. We use a password vault. There’s a document that has instructions related to that.

[0:24:42] TU: Yup.

[0:24:43] TB: But then there are some things that the way that I do, it’s “see hard copy” and then there’s a spot that, because I’m like, for me to go back and scan some of these things or like policies like, I don’t know, but we got time for that, Tim. It’s a hybrid approach. I think the ease of use of being able to share some folders electronically using something like Google along with some of the paper stuff is how we’ve pieced it together so to speak, yeah.

[0:25:13] TU: Tim as we wrap up, I want to talk about how we functionally execute on the estate planning part of the financial plan as relates to the financial planning services that our team offers at YFP Planning. I would say to rare that someone comes up to the door interested in our services and saying, “Can’t wait to work with you guys. We’re going to work on the estate planning part.” –

[0:25:32] TB: That’s right, yeah.

[0:25:32] TU: The insurance part of the plan. Usually, it’s, “Hey, we’re focused on saving or investing for the future, retirement planning, perhaps those folks earlier in the journey student loans, home buying, growing family, etc.” But this is one regardless that we’ve got to make sure that we’re looking at whether it’s the first thing on the list or not. What does this look like in terms of the planning team and the service we offer and how we execute on this?

[0:25:55] TB: Yeah. The way that we do this. The way that we tackle the plan and then this part of the plan is we have the first part of our engagement with clients, we call the first five. The first five is really designed to go through the critical pieces of a financial plan. The first one is, get organized. This is where we are going to do a deep dive into your client portal. We’re going to look at your checking, your savings, your investment accounts, your house, your mortgage, your student loans, all of the things with an eye for what’s your net worth? What’s the quantitative starting point?

The second meaning of the first five is we call scripture plan which is all about, now that we know where we’re at from a balance sheet perspective, from a net worth perspective where we’re going, so like, what are the goals? Like what’s important to you? This might where you might say like, “I want to take that trip to Paris. I want to maybe go down to part-time or four days a week. I want to retire in the next five years. I want to start volunteering.” It’s like a roadmap of where we want to go. For us to be able to advise clients we need to know where they’re at balance sheet and where they want to go balance sheet and like the goal stuff.

Then from there, it’s a plan overview. We’re looking at hash positions, savings plan, debt management, student loans for a lot of our clients and making sure that we do have the balance sheet and the goals right, so we’re confirming that. Planning for major purchases that type of thing. The fourth thing is typically what we call wealth building, so that’s the investments retirement planning, making sure that we’re moving accounts over for us to manage, allocating that in a way that’s in line with the risk profile, potentially looking at building retirement paychecks that type of thing, social security stuff.

Then the fifth one, typically, is wealth protection. This is where we really get into things like life insurance, disability insurance, or through the heavy hitters. It could be health insurance, other things, property casualty insurance, but also the other protection is the estate plan. In the absence of an estate plan, we’re going to recommend that they work with an attorney to get the state plan in place or it could be reviewing that and making sure that it’s up to date, it’s in line with what they need. They’re not exposed in any way and that, it’s in line with their wishes.

Then from there, the plan goes into more of a plan review and implementation. It’s the things that drives that agenda and the things that the client wants to talk about, the things that we feel are maybe the bleeding head wounds like, “Hey did you sign your will? Did you sign your state documents yet?” Make sure that those are in force. The things that are — we view as exposure or risks to the plan and then our regularly scheduled program. Hey, it’s been two and a half years, Tim, since we actually like, did a formal beneficiary review. Let’s get into the client portal, go through these accounts, and make sure, oh, you add it. You bought the CD, where is that going to go? Or we added this Roth IRA, can we check the primary condition, and beneficiaries and make sure that we’re sprinkling those types of checks in as we go? It’s been a while since we looked at the credit report. Let’s look at that.

That’s our rhythm. That’s our cadence, so we want to make sure that throughout the course of our relationship with clients that we’re touching all parts of the financial plan not just the parts that are exciting like maybe investments. Unfortunately, the estate plan falls to the bottom of the barrel. We want to make sure that we bring that up from time to time. We want to make sure it’s there, but then also, it’s current and in line with everything that the client wants.

[0:29:41] TU: Its a great overview. I think that’s valuable for our listeners to hear. I think sometimes when folks are looking at financial planning services, we throw that term out there generically and that can and does look wildly different from one firm to another about what they cover, what do they not cover, how often do they meet, as we’ve talked about before variants and fees and charges and scope of services and fiduciary responsibilities or not. All of these things can be different and to get a sneak peek into the first five and what to expect with the planning team obviously estate planning as one part, but a lot of work to be done getting that plan set up to begin with as well as ongoing.

We feel strongly Tim, whether someone’s coming in the door, “Hey, I’m near retirement and I’ve got three, four, five million dollars saved.” Or they’re coming in the door with a net worth of negative three hundred thousand dollars, because of student loans and other liabilities that it’s important that we walk through methodically. Those steps as we’ve seen that – in some cases maybe they’ve done some of that work, but often there’s some opportunities to be able to shore that up and make sure as you point out before we develop the path forward of whatever that plan is, whether that be starting at the beginning of saving or withdrawing some of that as they go into retirement. We got to have a good vision of where we’re going. We got to get organized before we can even do that.

Great stuff, Tim. Dustin off the estate plan quick overview as we mentioned we’ll link to some of the previous episodes that we’ve talked about on this topic. One that will revisit occasionally as well for folks that are looking to learn more about YFP Planning, this comprehensive financial planning services. You can go to yfpplanning.com. We’ll also put a link in the show notes where you can book a free discovery call to learn more. Thanks so much, Tim.

[0:31:21] TB: Yeah. Thanks, Tim.

[OUTRO]

[0:31:22] TU: Before we wrap up today’s episode of the Your Financial Pharmacist Podcast, I want to again thank our sponsor the American Pharmacists Association. APHA is every pharmacist ally advocating on your behalf for better working conditions fair PBM practices and more opportunities for pharmacists to provide care. Make sure to join a bolder APHA to gain premier access to financial educational resources and to receive discounts on YFP products and services. You can join APHA at a 25% discount by visiting pharmacist.com/join and using the coupon code YFP. Again, that’s pharmacist.com/join using the coupon code YFP.

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