October 2023 – Your Financial Pharmacist

YFP 331: How One Couple Paid Off $208k of Student Loans

Posted on by Tim U

On this episode, Jackie Boyle, PharmD, MBA and Paul Boyle share their journey paying off $208k of student loans.

Episode Summary

Debt can be an overwhelming weight on one’s shoulders, but imagine paying off an astounding $208,000 of it! This week on the podcast, we are joined by the inspirational duo, Jackie and Paul Boyle. They recount their journey from being neck-deep in student loans to paying them off entirely. This episode delves into their personal and collective strategies, their highs and lows, the financial compromises made, and how they kept the momentum to reach the finish line. From Paul’s decision to be a stay-at-home dad to Jackie’s reflections on missed opportunities with the PSLF program, their experiences provide invaluable insights for anyone navigating their own debt repayment process. We also dive into the emotional and financial challenges they encountered, especially when transitioning to a single-income household. Yet, their story isn’t just about the hurdles; it’s brimming with actionable takeaways and advice for those on similar paths. As Paul and Jackie demonstrate, with determination, strategic financial planning, and mutual support, even the heftiest of student loans can be overcome. So whether you’re struggling with student loans, seeking motivation, or just curious about the Boyles’ debt-free journey, this episode is a must-listen. Join us and discover how you too can rewrite your financial story!

About Today’s Guest

Jackie Boyle is a pharmacy educator by day and coaches pharmacists and pharmacies in a part-time capacity. She received her Doctor of Pharmacy from Northeast Ohio Medical University in 2012, MBA from University of Findlay in 2016, and Master and Bachelor degrees from THE Ohio State University (O-H!) She is highly involved in professional organizations including ASHP and AACP, and also loves spending time with her husband and two daughters, Gianna and Giulia. In her free time, she loves spinning, yoga, and enjoying a warm cup of coffee.

Paul Boyle is a Client Service Associate out of the Cleveland, Ohio area where he has had a diverse career of over 20 years, mostly taking care of customers and clients in various fields of service ranging from manufacturing to professional baseball. He received a Bachelor’s degree in Sport Management from The University of Akron in 2020, while taking time away from the workforce to raise his children. Paul spends most of his free time with his wife, Jackie, and two daughters, Gianna and Giulia. An avid Cleveland sports fan, musician and aspiring podcaster. When not supporting his local teams he likes to enjoy the occasional motorcycle ride, which is another longtime passion.

Key Points From the Episode

Get to know Jackie and Paul, and their student loan debt repayment journey.
The shared decision for Paul to be a stay-at-home dad and finish his degree.
A reminder that you can make mistakes and still achieve your debt repayment goals.
The extensive student loan debt that Paul inherited when he married Jackie.
Having a baby and becoming a single-income household.
How the emotional weight of student loans shifted throughout their debt journey.
Why Paul always maintained confidence in their plan and abilities.
Jackie’s income-based debt repayment strategy during her residency.
Her biggest regret: not using the PSLF program.
The challenge of staying motivated during an aggressive repayment journey.
How Jackie and Paul maintained momentum.
The value of budgeting and breaking repayment down into smaller goals.
Why everyone’s debt repayment journey is different.
Finding the right balance between debt repayment and investing in the future.
How to assess your priorities and allocate your finances.
Using your side hustle to pay for additional expenses.
Refinancing your student loans and taking advantage of lower interest rates.
Advice for new graduates as interest on student loans returns after the pandemic freeze.
What’s next for Jackie and Paul now that they have their student loans behind them.

Episode Highlights

“We ended up paying off earlier than I anticipated due to some choices we’ve made. So, yes, it’s very exciting to be on this journey. That said, I know we definitely made mistakes as well.” — Jackie Boyle [0:05:27]

“I never thought inheriting this much debt comes with the territory of a relationship. So that was all brand new.” — Paul Boyle [0:07:57]

“I was so engulfed in residency life that, honestly, [repaying my debt] took a back burner. I should have been doing things way differently during that time.” — Jackie Boyle [0:09:30]

“If you look at that big number, you could be paralyzed by it. But if you look at those smaller numbers, it’s like, ‘okay, over the course of the next three months, I can achieve this goal, and I know how I’m going to achieve it.’” — Jackie Boyle [0:12:49]

“We never felt strapped or that we had to eat ramen for the next couple [of] years to achieve this. That made things better, and that’s motivating in its own [right]. You could see, ‘Hey, we’re doing great.’ We could keep this up as we’re going.” — Paul Boyle [0:15:52]

“Educate yourself. Find a mentor or a financial planner to work with. Get a budget in line. Those basic tools can be really helpful in giving you the motivation to realize that you can do this with a better understanding of your own personal situation and what’s possible.” — Jackie Boyle [0:26:26]

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 Jackie and Paul Boyle as they share their journey of paying off $208,000 of student loans. We discussed the motivations behind their debt-free journey, how they balanced debt repayment with other financial goals, including investing and buying a home, lessons they learned along the way, strategies they employed to get on the same page, and advice that they have for those that are navigating loan repayment.

Okay, let’s hear a brief message from YFP team member, Justin Woods, and then we’ll hit play on Jackie and Paul Boyle’s debt-free story.

[00:00:40] JW: Hey, Your Financial Pharmacist community. This is Justin Woods here, Director of Business Development at YFP. You may be one of the 13,000 pharmacists that have already signed up for YFP Money Matters, which is our weekly newsletter. But if you’re not, what are you waiting for? I want to invite you to subscribe. We send financial tips, recommendations, the latest podcast episode and money resources, all specifically for pharmacists. It all comes straight to your inbox every Friday morning. So visit yourfinancialpharmacist.com/newsletter, or click the link in the show notes to subscribe today. Again, that’s yourfinancialpharmacist.com/newsletter. See you there.

[INTERVIEW]

[00:01:25] TU: Jackie and Paul, welcome to the show.

[00:01:27] JB: Hello.

[00:01:28] PB: Hey, Tim.

[00:01:29] TU: Well, this is a real treat for me. Many of your listeners may not know. Paul, you are a member of the YFP team, and so we’ve had the opportunity to work with one another here over the last several months. We’re incredibly grateful to have you as a part of the team.

Jackie, you and I have known each other. It’s got to be well over a decade, I think, at this point. I used to be on faculty at NEOMED way back when, and you started there as a student and then a resident. Then we were colleagues. You’re continuing to do great work there, and we’ll talk more about that here in a moment.

So this is a treat to be able to have both of you on as friends, as well as to share with our community your debt-free story. So congratulations to both of you and excited to dig into a little bit of what went behind that, how much debt you paid off, what were the motivations, what worked, what didn’t work, and what lies ahead for you guys now that you’ve got this big milestone achieved.

Paul, let’s start with you. Tell us a little bit more about your background, your career, and the work that you’re doing now.

[00:02:26] PB: Yes. So like you mentioned, I am part of the YFP team now as a client service associate. Love my job. Love the people I work with. It’s great to be a part of this community. But before that, my last paid job was with a company called Lincoln Electric, and I was a warranty service rep there in my last position. So still kind of helping customers out in that realm. But I chose to – well, we as a family made a decision when we had our first daughter that we wanted one of us to stay at home.

So me being the lesser income earner and with this topic, it’s student debt, we decided that my wife was going to continue to work and that I was going to be a stay-at-home dad. I used that time to go back to school, finish my degree in sports management and, yes, never looked back. Since then enjoyed the time with my kids. Being a stay-at-home dad was probably the best job that I’ve ever had so.

[00:03:23] TU: That’s awesome. Jackie, I just scratched the surface on my mention of your training at NEOMED and your residency and your faculty role. But tell us more about your pharmacy journey. What led you into the profession, including the work that you’re doing now?

[00:03:36] JB: Oh, thank you, Tim. This is such an exciting thing to be on your podcast, Tim. My relationship has gone on for so many years and so many different capacities. So I’m just so excited to be talking with you here today. My background is a bit of a mix of ambulatory care practice and education. So I started out my career in practice-based faculty roles and a few different settings in ambulatory care and then actually took a full-time position at the college at Northeast Ohio Medical University here in 2019. So I’ve been here for the past four years.

Around 2017, though, I started getting a little bit of an entrepreneurial itch. Of course, as Tim is one of my greatest mentors, I started talking with him about ideas for part-time work and actually got connected to an awesome entrepreneur, Alex Barker, who was starting a career coaching company at the time and have been career and business coaching pharmacists now for about six years, which plays into our story as well. It’s just been a ton of fun.

So, yes, a little bit of a few different things. I love being a jack of all trades and kind of exploring what’s out there in pharmacy. So, yes, this journey has been a long one, but I hope that we could share some of our mistakes, some of our wins, maybe inspire a few people along the way.

[00:04:59] TU: So, Jackie, let’s start with the juicy details around the student loans. How much did you end up paying off between the two of you when it was all said and done?

[00:05:09] JB: Yes. I think it was about $208,000. As the CFO of our family, I was keenly keeping an eye on our balances as they went down over time. It’s awesome to think back now how much we started with and where we ended up. We ended up paying off earlier than I anticipated due to some choices we’ve made. So, yes, it’s very exciting to be on this journey. That said, I know we definitely made mistakes as well, and I wish – for example, like PSLF. I probably could have taken advantage of that, but I didn’t even know that was a thing. So I’m here to say that you can make mistakes and still achieve the goal eventually as well.

[00:05:53] TU: Yes. That’s such a good reminder, Jackie. I think there’s so much pressure around this decision. We have the opportunity to talk with pharmacy students, new grads on a regular basis. We talk about the importance of really understanding these loan repayment options and getting that decision that’s best for your personal situation. I think that can feel weighty at times, right? Because it can have big implications, whether it’s a PSLF strategy or another strategy.

But, also, what you shared, I think, is such an important reminder is that mistakes are inevitable part of the financial plan. It’s going to happen. They happen on the regular and giving ourselves some grace and learning from those mistakes. We’re not always going to get it according to the textbook, and that’s okay, right? That’s part of this journey is to learn as well.

Paul, I want to start with you but really a question for both of you. As you think about your journey and the student loans, did your feelings around the student loans change over time? Some people we talk with, when I say give me the 0 to 10 student loan pain scale, where zero is the – no. They are what they are. They’re going to take care of themselves. Ten is the house is on fire, right? No right or wrong answer, but everyone is different on that journey. I’m just curious. Like for you, did that change at all along your journey, right? As you guys grew in terms of a family and your careers, tell us more about the emotions and feelings around the student loan debt.

[00:07:21] PB: Yes, absolutely. It’s intimidating for me at the beginning because when Jackie and I met, she had just graduated. So she went into residency. As everybody knows out there, residency pay is not quite the same as full pharmacist pay. But I was working full-time at the time, too. But just realizing like the massive amount of that compared to mine, I think what Jackie – I don’t know how much mine was at the time. I only had a couple thousand left to pay off on mine, and we paid it off first.

But kind of we got engaged, and I was like okay. I never thought like inheriting this much debt like comes with the territory of a relationship. So that was all kind of brand new.

[00:08:04] JB: I came with a lot of baggage.

[00:08:06] PB: Yes. It’s not bad baggage, but it’s just something that you never thought you had to plan for, right? So before even like our wedding and taking on a mortgage and stuff like that, here’s this amount of debt that amounts to a house. I think I took it pretty seriously, but I don’t think I felt like it was a pain point quite yet because, again, we were both working full-time. We figured, okay, we could come up with a plan to handle this.

But as it progressed and as I left work and we became a single-income household, it kind of went up there to like a seven or an eight maybe, just because of that weight like of all that debt, and like will we get there, and then we started a family and added expenses and stuff. So I wouldn’t say I lost sleep over it because I had kind of confidence in especially Jackie as our CFO and her earning potential that we could kind of navigate it.

[00:09:03] JB: Yes. I think, for me, I was in denial for the first two years. So during residency, I did income-based repayment, which meant that my monthly payments were zero. But the interest was accumulating rapidly, as you all know. So those first two years, I should have been at a seven or eight. But I was at like a zero to one because I’m like, “Oh, this is not – it’s not a problem right now. I don’t need to be paying attention to it.” I was so engulfed in residency life that, honestly, it took a back burner. I should have been doing things way differently during that time.

Like Paul said, during like the year of our engagement and then leading up to marriage and our first child, that’s when it became more of like a house on fire seven or eight-plus for me. I was so determined to start attacking this thing. Once I realized that I should have been doing things way differently, and I had already made a few big mistakes with not going to the PSLF program. So, yes, definitely changed for me over time and perhaps that denial factor didn’t help us for the first two years.

[00:10:07] PB: It was kind of out of sight, out of mind type of thing. We had, like I said, paid off mine, and we’re like, “Oh, hey. That’s a great feeling.” So we kind of did in our minds know, hey, with us, with the DINK lifestyle, right? Like we can kind of tackle some of these other debts that we had, and I knew Jackie wasn’t a fan of debt to begin with. So we had a couple small wins there. But still, like I wasn’t thinking about the big one quite yet.

[00:10:37] TU: Jackie, remind me. Year of residency completed was what?

[00:10:42] JB: So two years and it was done in 2014.

[00:10:45] TU: 2014. Okay. So when we think about that journey, 2014, obviously, you mentioned the income-based repayment. Paul, you mentioned your loan. But 2014 to 2023, that’s a period of time where you’re waiting through this. You’ve got a young family. Other expenses are creeping up. Many of our listeners can relate to this feeling. Momentum can be very hard to sustain for a long period of time, right? We had a pharmacist on recently that paid off a little over $345,000 of debt in five years. Very, very aggressive repayment journey. I asked her the same question I’m going to ask you, which is when you think about paying off over $200,000 of debt over a sustained period of time, it’s hard to keep the motivation and the momentum going.

For you, Jackie, let’s start with you. For the two of you, for your family, like how were you able to keep that momentum and motivation going? What was the why that was fueling you guys as you were trying to really make sure you persisted through this over that period of time?

[00:11:47] JB: Well, before starting to dive into financial topics, our one session about this topic, student loans, was the last day of our P4 year. We had an hour-and-a-half session about what our debt was, our repayment options. Again, it was just so overwhelming at that time that it got shoved back away. Once we got oriented towards like what our life goals were and that we wanted to not only gain financial freedom but set up our kids for success, be able to do things like giving, pay off things as quickly as possible, then I think breaking it down into smaller goals was the only way that it felt achievable.

I actually started writing down small goals every morning in the increments of like $5,000 to say, okay, if I can get the loan balance under this, like I’ve achieved another goal. As achievement-oriented person, like that felt really good to do. It might sound silly, but it also made the overall goal feel manageable because if you look at that big number, you could be paralyzed by it. But if you look at those smaller numbers, it’s like, okay, over the course of the next three months, I can achieve this goal, and I know how I’m going to achieve it.

I think the other helpful thing we started doing once we got married was to start budgeting and just to even have a handle around what are our finances, what our expenses, how much money do we have left over at the end of the month that’s not left with a purpose, and starting to really allocate like, okay, where are all of our dollars going. Where does this extra money contribute to the financial plan or not?

Thankfully, with all the resources that your team has developed, Tim, and all the education you were providing, we were able to start learning about different options, different ideas, how we can start tackling it.

[00:13:37] TU: A couple things I heard there which are really good. You mentioned, obviously, the budget being an important part for the two of you. I suggest if you are like most couples, right? Budgeting is a process that takes time to make sure that you’re in alignment with the bigger vision and the goals. But such an important part of, hey, this is the shared vision that we have for our financial plan. I think that was really key.

The other thing you mentioned which I thought is really important is breaking it down into smaller goals, right? So $208,000, that’s big. It’s scary. It’s overwhelming. We talk about the same thing when it comes to saving for retirement 20, 30, 40 years in the future. If you punch numbers in the calculator that show you’re going to have to save two, three, four, five million dollars, whoa, like what do I need to do? What does that actually mean today, right?

So that $5,000 milestone, these goals that are along the way can really help with making it not only realistic but also providing some of the momentum along the way of, hey, we accomplish that. Let’s take a moment to pause, stop, celebrate. Maybe there’s even something that’s planned in there. Maybe there’s not. But just to realize that, yes, this is going to take some time. But we are making progress towards this journey.

Paul, what about for you? Anything else here to add as it relates to the motivation and the momentum?

[00:14:51] PB: Yes. Everything that Jackie said was great. The small wins. I was not the one who was looking at the number quite a lot because she is the bill payer for us. So I would check in every once in a while and be like, “Where are we at,” and kind of provide emotional support throughout that part of the journey because I never wanted her to feel like – and, again, as the person who kind of inherited this debt with her, like, well, it’s not her fault or anything like that. That I want to feel like it was hers. It was ours together. Yes. But seeing those numbers kind of go down.

It was nice throughout the whole process, at least for me, to realize, okay, we have a budget. It’s not a very serious budget. We’re not always letting that hang over our heads like, “Oh, we’re out somewhere doing this. Is this in the budget or not?” We never really had that pop up for us. So throughout this whole time, reaching many milestones, while also kind of living the life that we wanted to at that time, we never felt strapped or that we had to eat ramen for the next couple years to achieve this. That made things better, and that’s motivating in its own. Well, you could see, hey, we’re doing great. We could kind of keep this up as we’re going, right?

[00:16:07] TU: Yes. I’m really glad you mention that, Paul, because I think that’s a good segue into everyone’s journey is different, right? So there’s a spectrum of how you can tackle these loans. You could be very aggressive. It could even be more aggressive, right? Someone could pay off $208,000 of debt in three, four, five years. Maybe in that case they say, “Hey, debt is the only thing I’m focused on. I’m not buying a home. I’m not investing. I’m not saving. I’m not doing other things.” We could debate like what are the pros, what are the cons of that approach.

There’s the other end of the spectrum. You can take federal loans out 25 years, right? It could be a longer period of time. For some people, that is the pathway they choose, whether it’s a forgiveness pathway or not, so that their monthly payment is as low as possible, and they’re able to allocate dollars towards other parts of the financial plan. It sounds like for the two of you, it was somewhat in the middle, right? It was a fairly short timeline. That’s a large chunk of money in a 9, 10-year period.

But, Paul, to your point, it sounds like, hey, there was also still the life that you were living, and there was some sacrifice, obviously. Otherwise, you wouldn’t have gotten to this point in time. But you were able to do some other things that you wanted to do, whether that be buy a home, whether that be investing, saving for the future, going on vacation, investing in experiences as a family. If I heard you right, Paul, it really felt like you were able to do both of those at once. Is that fair?

[00:17:30] PB: Yes, absolutely. I think it never reached the point at any moment for me like where we would have to make any kind of major lifestyle change or change up what we were doing throughout the whole process.

[00:17:42] TU: Jackie, and this is one of the most common questions I get from new grads is should I pay off the debt or should I invest in the future. Then you add on top of that a home purchase is often a common thing, very challenging right now with what’s happening with home prices and interest rates. I think there’s this or mentality. Should I do this? Or should I do that? Or should I do this? Typically, as is the case in your journey, it’s more of an and often. So tell us about your feelings surrounding the aggressiveness or the length of time for the debt repayment.

[00:18:15] JB: Yes. I think to your point, Tim, like the and and trying to make some financial compromises could help you set up your situation to be what you want it to be. So for example, like we got approved for a home loan of like $445,000 when we were looking at houses. Paul and I were like, “Wow, that’s a lot of money.” Then looking at homes at that time in 2014, the market was a bit different for houses. The houses that were at that value, we’re like, “We don’t need a home that’s $445,000. We can look for homes maybe around half that level and still get a really nice place to live and grow our family and everything.”

So we ended up finding our house. Our purchase price was 225. So that alone was huge savings, compromising with we wanted discretionary funds to be able to go out and do things. Just we love like going out to eat, and hanging out with friends and family, and spending a little bit of money on things for vacation. That’s really important for us to have experiences with our family as well. So I think it’s talking with your partner. Or if you don’t have a partner, like thinking for yourself and your priorities in your life and where you want to allocate your finances.

I think, for me, because I was so interested in like still getting this paid off quickly on a single income for most of the time, honestly, was to think of other outside-of-the-box ways to be able to make those extra payments happen. So picking up that side hustle of coaching, which, honestly, doesn’t feel like a job to me. It’s really fun. But all of the extra income we earn from that went towards typically our student loans.

There are things we could have done differently with that as well with contract work and taxes and tax planning. There’s still so much that I have to learn that, thankfully, again, the YFP team is going to be helping us with. But thinking of how can you increase that income dollar for yourself and your family to work more aggressively if you want to or if you’re motivated by that as well.

[00:20:32] TU: Yes I’m. glad you mentioned the extra income, right? We see that often where people are going through a debt repayment journey, and it will be a side hustle, extra shifts, extra income maybe for a long period of time, maybe for a short period of time. But that can really be a boost to, wow, we feel like we’re making some more progress, and maybe this is now a 9 or 8 or 7-year instead of a 10, 11, 12-year. Sometimes, the extra 100 or 200 bucks or 300 bucks, whatever the dollar amount is, may not seem significant. But we tend to forget the momentum that that can provide behaviorally, as well as a part of the plan.

I just love what you guys shared about for you, for the two of you, for your family, you decided on that this was best, right? This approach of, hey, we’re going to pay off the debt. It’s pretty big payments. But we’re also going to find this balance of living our life. There’s no right or wrong answer here, and I think it’s so easy to fall into the trap of, hey, what’s the right way to do this.

There’s a mathematical quote right answer, but we don’t live our lives according to just mathematically correct answers, right? So we’ve got to run the math, true. But we also have to think about what does it mean to live a rich life, and how do we find the balance between these two things? That’s true not only for debt repayment, but that’s true for all parts of the financial plan.

[00:21:46] PB: If I could add to that, for me, kind of the extra money, the side hustle type of thing, we’ve always kind of thought of our income kind of separating those things. So before I left work, in my job, we had a bonus structure that we had a pretty hefty bonus that came at the end of the year. So what I found a lot of people running into trouble is that they relied on that bonus to pay for their regular everyday every year budget. For me, you take that mentality. Okay, here’s my salary. That’s my salary for the year. Let’s pretend that the bonus doesn’t exist, right?

The same thing with side hustle money, then when that becomes extra like, okay, that’s all of our goal money, right? It’s stuff to – like we paid for our wedding from my bonus. So any of those extra things that we know they’re going to cost a little bit extra more, that’s where kind of that side hustle, the extra income goes straight to that stuff.

[00:22:41] JB: One other thing I wanted to mention here was that we refinanced our loan twice throughout the journey. So that savings on interest rate declined, which I know that interest rates are not great right now. But when we refinanced, well, I basically just kept checking every two years or so to see, okay, are there better interest rates available. Can we decrease that if possible? Because over time, that interest just adds up. Oh, there’s nothing that could make you more fired up than extra interest on your student loan. That was something that was also a great change to the process.

[00:23:19] PB: Yes. Her last refinance. Sorry, Tim. Her last refinance was a big motivator, at least for me, because when she said, “Hey, look how much we knocked off,” and we looked at like the saving that we got through there, and I’m like, “Holy cow.” It was a significant amount. We’ve always kind of –

[00:23:35] JB: I think it was $33,000.

[00:23:37] PB: Yes. It was crazy. So that was a big, big win, again, extra motivation to say, “Hey, we’re on the way. We’re going to do this.” Yes. Because I’m a big fan of paying off higher interest stuff first and kind of – she hates debt no matter what, so I always try to have that conversation like, “Well, if it’s a low, like we got 0.9 on our car right now. It’s like, hey, being ultra-aggressive may not be the best way, but we like to kick it out. But, yes, I mean, seeing lower interest rates is huge.

[00:24:08] TU: Yes. Hopefully, we see those interest rates come back down. Right now, it’s – especially for those that only have federal loans, that’s probably the best place to be for most people, just because of some of the benefits that come with federal loans. But I’m guessing your first refinance was way before the pandemic. Is that correct?

[00:24:24] JB: Oh, yes. Yes.

[00:24:25] TU: Okay. So you already kind of had pulled yourself out of that where you weren’t negatively impacted in any significant way through the freeze because that decision was already made. Then at that point, it was really about, hey, how can we get the best interest rate that we can. It sounds like that led to some significant savings.

At the time of this recording, we’re at the time period where student loan interest is turning back on. Payments are going to start back up after three and a half years, right? Dating back to March of 2020. I do really feel for the graduates [inaudible 00:24:59] classes that really haven’t yet had to make student loan payments, and this is going to be a somewhat of an abrupt transition. I’m hearing a lot of things like, “Tim, I’m overwhelmed. I’m confused. I’m frustrated. I’m anxious.” Not just about the student loans but also because of things we’ve already talked about. “I want to buy a home. I’ve got other goals I want to achieve. The six-figure income just isn’t really going to go as far as I thought it had.”

I’m just curious to hear from both of you. Jackie, let’s start with you. As you look back on your own journey and things that you’ve either said, “Hey, we did this really well, or maybe these are some things that we’ve done differently,” what advice would you have for these new graduates coming out?

[00:25:40] JB: Oh, so many things. I wish I would have done differently. Just get your budget in line first. I think knowing where you are spending and where you can cut back on expenses and even getting a wrap around that is really helpful and can maybe dismantle some of the doubts that you have about the fact that you can do this, I think. No, I didn’t get – I have no in incentive to say this. But like working with a financial planner like the team at YFP and like the resources that you all have, just even on your website, to check out.

I remember looking at the student loan calculator and the change in interest rate and just playing around with the tools that are on there on your website. Just educate yourself. Find a mentor or a financial planner to work with. Get a budget in line. Those basic tools can be really helpful in giving you the motivation to realize that you can do this with a better understanding of your own personal situation and what’s possible.

[00:26:43] TU: Paul, how about for you?

[00:26:45] PB: Yes. I would add, for anybody who graduated kind of during the pause, you haven’t had to experience like any of your payments kicking in yet. Having a – just budgeted in there, whether you’re paying it or not, right? Kind of figure out what method is best for you. Obviously, tons of research and I have an inside look at this stuff now as far as all the repayment plans. I mean, we’re kind of on fire with it right now. There are so many different ways.

I love seeing how we can save people money because, again, we talk about our experience with, hey, we probably could have done student loan forgiveness. Find every option that’s available to you. Then don’t let it cripple you. Like I said, we lived a comfortable life on a single income; starting new family, buying a new house, getting married, getting married through residency. Just the busyness through that part of your life, there’s ways to do it. Yes. I just – stay motivated. Don’t be intimidated by that big number is kind of the best advice that I could give.

[00:27:48] TU: Yes. I think it goes back to full circle. When you were talking earlier about the budget and breaking it down to smaller goals, making this number mean something today is such an important part and until you work the budget to know what capacity is or isn’t there and how this big rock is going to influence everything else you’re doing. We tend to live in that mental state of frustration. I’m confused. I’m overwhelmed.

I often say, hey, when we put it all on paper, and, Paul, you’ve seen some of the behind the scenes of this, and you look at all the analyses, and we nerd out in the spreadsheet, we may not like the numbers. Nor will they change from this month to the next month. But the peace of mind that comes from knowing we’ve looked at these numbers, knowing what our options are, and knowing what the monthly payment will be. All right. Now, we can work on a plan, right? That is so important to understand. Otherwise, it’s a hope. It’s a wish. It’s a dream. It’s a guess, and that leads to frustration, right? We’re talking here about student loans, but that’s true with all parts of the financial plan.

Let me ask you guys this. This is a huge milestone, a huge milestone. But it is one of many milestones that you’re going to accomplish on your financial journey. I think that for the pharmacists that are listening that are earlier in their career that are feeling some of the stress and the weight of their own student loans, they’re like, “Man, I just can’t wait until I get to that finish line, right?” That finish line where Jackie and Paul are. It’s a great accomplishment, but it’s not the finish line. You guys are just getting warmed up.

So my question here is what’s next for you. Now that we’ve got the student loans behind us, when you fast forward and say, “Hey, five years from now, September 2028, like what does success look like for the Boyle family? Now that we’ve moved this big rock out of the way, we can start looking towards other parts of the plan.” Paul, let’s start with you.

[00:29:34] PB: Yes. I’d say getting our retirement on track, that’s kind of top of mind. We still have our mortgage as far as debt, and we still have one car payment. But we’re going to knock out our car here pretty soon, and that’s going to be another win that gives us like, “Hey, we only have a mortgage.” That we don’t necessarily – you don’t need to pay that off as quick as you would think so. Just with that freedom, it’s like, “Holy cow, what are we going to do with this extra income?” I’m working again. That’s extra income.

So, yes, I think saving for retirement, making sure that that is lined up and then maybe some home projects. I don’t know. Maybe I get something recreational or fun for me as a short-term goal if Jackie lets me. But we really don’t splurge on a lot of things and we haven’t for the past 10 years. So maybe it’s discussing do we have any kind of bigger fun things that we want to do within the next five years, and then look at the time beyond that, and make sure that us and our children kind of are set up for a comfortable life, our vision of what a comfortable life is.

[00:30:42] JB: Oh, yes. I think to add, figuring out – I have so many questions about like investing in 529s or educational funds. We don’t really know what to do with that piece yet. We know we want to set up our kids for success for the future and whatever that looks like for them. I’ve always had dreams of like having a vacation home and somewhere we can go or rent out or like collaborate with friends or family on to have a place to make memories.

Then I think the last piece is like giving back and determining where we can contribute to our community and just pay it forward in that direction as well. So, yes, we’re really excited. We just started working with the planning team at YFP. Yes. It’s been so enlightening so far. We’ve only had one meeting and I’ve just – I’m like in awe of how much we’ve learned in one short hour. So I’m sure it’s just the beginning of an awesome journey and lots of great things on the horizon.

[00:31:41] TU: Well, this has been fantastic. Again, congratulations to the two of you. I am super excited to follow your journey and see where things are going. As I mentioned, I think you’re just getting warmed up. This is a huge, huge accomplishment, one that is certainly worth celebrating but lots of exciting times to come ahead. So, Jackie, Paul, thank you so much for taking time to join the podcast. I appreciate it.

[00:32:01] JB: Thank you.

[00:32:02] PB: Thank you so much, Tim.

[END OF INTERVIEW]

[00:32:04] 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 Pharmacist, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward-looking statements that are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

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

[END]

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YFP 330: How One Physician Had $550k+ of Loans Forgiven via PSLF

Posted on by Tim U

On this episode, sponsored by FirstHorizon, Brenna Roth, MD, MPH, shares her journey of having over $550k of student loans forgiven tax-free via Public Service Loan Forgiveness (PSLF).

Episode Summary

Are student loan forgiveness programs a beacon of hope for graduates drowning in debt? Joining us this week is Brenna Roth, MD, MPH; a physician who achieved an incredible financial milestone – over $550,000 of student loans wiped clean through the Public Service Loan Forgiveness (PSLF) program. In our conversation, Brenna discusses her background in medicine, the accumulation of her student loan debt, her initial feelings about the debt, and her journey to tax-free forgiveness. She also shares advice for individuals facing high student loan debt and considering PSLF as an option. We also unpack the challenges of dealing with loan servicing companies, the impact of the COVID-19 payment freeze, and the benefits of lower monthly payments through income-driven repayment plans for those pursuing PSLF. If you’re curious about the PSLF program or facing significant student loan debt, Brenna’s inspiring story sheds light on the potential benefits of pursuing loan forgiveness and highlights the changing landscape of student loan repayment.

About Today’s Guest

Brenna Roth, MD, MPH is an infectious disease doctor and public health specialist who works in academic global health and research. She lived and worked in Tanzania for 3 years and has continued to work on international programs and research projects across sub-Saharan Africa since. She has successfully navigated the Public Service Loan Forgiveness Program across multiple loan servicers, jobs, and continents.

Key Points From the Episode

Background about Brenna and her medical career journey.
Discover how Brenna accumulated a large amount of debt.
She shares her approach to tackling the student loan debt mountain.
Her hesitancy toward PSLF and what ultimately changed her mind.
Common pitfalls and mistakes people make regarding repayments.
Challenges with loan servicing companies and documentation.
Recent changes that have improved the PSLF program.
The pros and cons of the PSLF repayment plan.
Ways COVID-19 impacted student loan payments and the freeze on payments.
Brenna’s experience making minimal payments during her time abroad.
Benefits of lowering adjusted gross income through retirement contributions.
How PSLF allowed Brenna to shift her focus towards long-term financial goals.
Advice for recent pharmacy and medical school graduates considering PSLF.

Episode Highlights

“Those high-interest rates building up over the years really impacted the amount [debt].” — Brenna Roth [0:04:53]

“My hesitancy was not knowing for sure, if after all of those years, [my debt] would actually be forgiven.” — Brenna Roth [0:10:51]

“It makes sense to, if you’re going to do PSLF, to pay during residency, fellowship, those kinds of years when you’re not making very much money.” — Brenna Roth [0:20:34]

“I think I would say, definitely give PSLF some serious consideration. I won’t say it’s the right thing for everybody. Obviously, it can depend on how much debt you have and what kind of job you are going into.” — Brenna Roth [0:25:04]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, for each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, I welcome Brenna Roth, a physician onto the show, to talk about her public service loan forgiveness (PSLF) journey, where she recently had more than $550,000 of loans forgiven, tax free.

Yes, you heard that right. More than $550,000 of student loans forgiven, tax-free. We talked about how she accumulated that large debt load, her feelings toward the debt, what went as planned, and didn’t go as planned along the way, and advice that she has for those that are facing high student loan debt.

Let’s hear from today’s sponsor, First Horizon, and then we’ll jump into my interview with Brenna Roth.

[SPONSOR MESSAGE]

[0:00:45] TU: Does saving 20% for a down payment on a home feels like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities, including high student loan debt, meaning that saving 20% for a down payment on a home may take years. We’ve been on a hunt for a solution for pharmacists that are ready to purchase a home loan with a lower down payment and are happy to have found that option with First Horizon.

First Horizon offers a professional home loan option, aka doctor or pharmacist home loan that requires a 3% down payment for a single-family home or townhome, for first-time homebuyers, has no PMI and offers a 30-year fixed rate mortgage on home loans up to $726,200. The pharmacist home loan is available in all states except Alaska and Hawaii and can be used to purchase condos as well. However, rates may be higher and a condo review has to be completed.

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

[INTERVIEW]

[0:01:58] TU: Brenna, welcome to the show.

[0:02:00] BR: Hi, thank you.

[0:02:02] TU: Well, it’s been a while since we’ve shared some PSLF stories on the podcast. In fact, over a year and a half ago on episode 248, we featured three pharmacists that collectively had more than $700,000 in student loans forgiven. We’ll link to that episode in the show notes. But all that to say, it’s been a while, and I’m certainly excited for this conversation, which came to be after YFP Planning, Financial Planner, Kim Bolton, shared the good news with our team, about your MOHELA account officially showing a $0 balance with over $550,000 that was forgiven, tax-free. And as soon as I heard that, I thought, we have to share this story with our community.

Brenna, as I mentioned to you before we hit record, there still is a lot of skepticism, a lot of questions, a lot of unknowns, surrounding public service, loan forgiveness. I think the more stories that we can share, the more information that we can get out the better. So, before we dig into your specific journey, tell us a little bit about your background, including your journey into medicine, where you went to school, and the work that you’ve been doing since?

[0:03:07] BR: Yes. So, I’m a trained infectious disease doctor. I did my undergraduate work at Tulane University. I also got a Master’s of Public Health there. Then, I worked for a couple of years in public health work research, and then I went on to medical school at Ross University. I did my residency at York Hospital in Pennsylvania, and I did my infectious disease fellowship at the University of Maryland, and I’ve been working since then.

[0:03:40] TU: A lot of years of training. Certainly, our audience can appreciate that. You know, $550,000 of debt that’s forgiven, tax-free, that’s a big number, and I think even quite shocking to our community who’s used to high debt loads, but not that high, right? Maybe $150,000, $200,000 or $250,000. But over $550,000, again, that is a large amount. I assume, and one of my questions about your brand as we get started is how did that debt load come to be as big as it was? Is that a function of medical school, as well as the master’s degree? Tell us a little bit more about the accumulation phase of that amount of debt.

[0:04:19] BR: Yes. It’s from the loans that I took out for my Master’s of Public Health as well as medical school. I was paying off the Master’s of Public Health, initially, when I left school. But then when I started in medical school, that repayment was paused. But during that time, still, the loans were collecting interest. So, it was really that accumulation over all those years of the loans plus — and I’m sure people are familiar with, they have rather high-interest rates, and I was no exception. So yes, just those high-interest rates building up over the years really impacted the amount.

[0:04:58] TU: Yes. The accumulation of interest, on a couple $100,000 or more of debt adds up pretty quickly, especially over periods of time with training involved. I think that while most people know that, we have, somewhat Brenna forgotten that, just because of the last three years, we’ve been on this freeze. So, I think for those of us that graduated, many of my loans are at a fixed 6.8% interest on the federal side, and you quickly realize, like, whoa, and you’ve got a couple $100,000 of debt. If you’re not making payments that are covering that interest, that loan balance grows pretty quickly, and all of a sudden, 200 becomes 250, becomes 300.

Now, if we’re pursuing public service loan forgiveness, and we get to the finish line of tax-free forgiveness, that’s not a bad thing. The goal is that we pay as minimum out of pocket as we can, to have as much as we possibly can, forgiven, and tax-free. But obviously, for those that go through the journey of paying those out of pocket, not through our forgiveness plan, certainly that can be a concern.

Brenna, I’m curious about your feelings surrounding the debt. No right or wrong answer. But I often talk with pharmacists. I joke it’s the student loan debt pain scale, 0 to 10. I talked with some pharmacists that may have a couple $100,000 of debt, and they describe it as a 10. The house is on fire, it’s causing anxiety, they’re frustrated, they’re worried. Even something like a PSLF strategy, they want these gone tomorrow. Even though the math shows it’s going to be favorable, it’s causing that much stress.

Other end of the spectrum, I’ll talk with pharmacists to say, I’m closer to a one or two or three. I recognize it’s a big deal, but they kind of are what they are. If it’s a longer payoff or forgiveness strategy, they may be more comfortable with that, to be able to maximize whatever they can dollars-wise. So, for you and your journey, what were your feelings surrounding the debt load, and did that change at all, as you were going through this PSLF journey?

[0:06:48] BR: It definitely changed over time. I mean, I would say it was at a tenant point. But honestly, I got to a point where, at one point, before I sorted into PSLF, I really just thought I will just have these debts forever, and it’s just going to be a part of my life and better to just accept it, and know that it’s just going to be there. So, I would say it went from a 10 to maybe more like 5 or 6, because I won’t say that I wasn’t at all concerned. But it kind of diminished. But with PSLF, I think it – well, initially, I won’t say it decreased, because I was a little skeptical about whether it was the best choice and I also, over time, I switched the companies that were handling my loans. That never proved to be a really great transition.

So, that was always stressful, because I was always worried that documentation or information would be lost, and the efforts I’d been putting in would not show up at the end, like something would go wrong. So, there were moments where stress kind of went up about all of it. But I would say overall, maybe it was only the last probably few years that I kind of – it dropped below a five for me when I started to have more confidence that things were really moving and things were really going to actually be forgiven.

[0:08:29] TU: Yes. I’m glad you brought that up with the loan servicing companies, right? That’s something we hear often, which is, those can be headaches to navigate. I mean, even right now with the new safe plan that’s coming out, people’s payments are being calculated incorrectly. For good reasons, people are freaking out, wanting to get the right information. Might have to recertify income. Should I recertify an income right now? I mean, there’s just so many nuances and wrinkles. I think as you go through some of the pain of those, and you get over those speed bumps, you tend to get a little bit more comfortable knowing how to navigate it.

But unfortunately, the difficulties with the loan servicing companies, that hasn’t gotten a whole lot better. I think people have gotten more comfortable with PSLF, because of hearing stories like yours, or we’re getting more education and information to make sure that they’re crossing the T’s and dotting the I’s correctly. But we would be lying if we said it’s going to be a clean journey for everyone, right? Just 10 years, 120 payments, you wake up, it’s tax-free. That’s the goal. But it doesn’t mean there’s not going to be some bumps along the way as well.

[0:09:34] BR: Definitely.

[0:09:35] TU: You mentioned reluctancy. I want to talk more about that. Is that something we hear a lot? I often will present on student loans, and when I show the calculations, I think, people nerd out and they get really excited about, “Oh, I can optimize this, and maybe it allows me to achieve other financial goals because I’m not having to put as much towards my student loans.” But there still is very much a sense and feeling of, what if? What if the rules change? What if this isn’t everything that I think it’s going to be? So, I want you to talk a little bit more about your reluctance, what were some of those questions, and then what ultimately changed, that allowed you to say, “Okay, yes, this is the path that I’m going to pursue.”

[0:10:17] BR: So, it should be noted that I was first presented really seriously, shortly after signing up with them with Tim, with YFP. Because this was, my loans were probably my major financial concern at the time. This was 2016, 2017, and I’d heard about the program. But I hadn’t really heard of anybody successfully navigating it, for sure. So, I think it was just not really knowing – my hesitancy was not knowing for sure, if after all of those years, things would actually be forgiven. Of course, as you mentioned, the strategy really is to lower your payments as much as possible and to get through those 10 years, meeting the requirements. But taking as little financial hit as possible.

Which the alternative to that would be, okay, let’s focus on making paying off as much as we can each month, and getting this paid down as quickly as possible. So, you’re accumulating as little interest. Those are like the two options that were presented to me. While it was clear that PSLF made the most sense, on paper, my reluctance came from not being totally sure that at the end of that 10 years, and that would be 10 years wasted in accumulating interest. All of these things, and that was really where my hesitancy came from. Again, this was a number of years ago, when there wasn’t as much evidence that the program was really going to definitively work. I even – I didn’t know if – I even had the concern of what if they just up and decide to cancel it for some reason?

So, it was really that. And you did hear horror stories of people thinking that they were doing everything right for years, and then getting nine years in, and being told, “Oh, no, you were in the wrong repayment plan”, or whatever it may be. During one of my switches from – actually, no. I was checking in with my loan servicer, and just to see is everything on track, is everything look okay. I felt pretty comfortable because you guys were helping me. So, I felt like I’s were dotted, T’s were crossed, but I was still checking in, and they actually told me, “Oh, we don’t go back and check that stuff until it’s like the last year of repayment.” And suddenly, I realized, “Oh, that’s why people get to the end, and they don’t know, because nobody’s really reaching out and communicating with them that this isn’t correct, or this should be.” So, people were getting really far along before getting any feedback that anything was not correct.

[0:13:12] TU: Yes. And when you mentioned the skepticism for good reason, that was around 2017. Is that correct?

[0:13:17] BR: Yes, 2016 or ’17, somewhat in there.

[0:13:21] TU: Yes. Which totally makes sense, right? This program was legislatively enacted in 2007,10-year timeline to forgiveness. That first group to be forgiven would have been in 2017, 2018. This is where a lot of the initial negative press came out. To be fair, the Department of Ed could have done a lot better job in terms of, communicating this and preventing some of these problems that people were identifying it to your point, at the end, when they’re getting near the finish line. Even in the six, or seven years since then, the information has gotten a lot better, the education has gotten a lot better. I think the loan servicers are more comfortable. Still not necessarily easy to always work with, more comfortable. The path, even with employers, now there’s a, through the studentaid.gov profile, you can punch in the EIN of your employer and see if there are qualifying employers. Even those questions in the past were like, “Am I 100% sure that I’m working for a qualified employer?”

For a good reason, you had skepticism, and when you’re talking about the horror stories, I’ve mentioned to you before we hit record that there was an article published by NPR. I think it was 2018, 2019 that the headline was “99% of PSLF applicants are denied.” Somewhat of a misleading story. We haven’t actually looked into the details in terms of the number of people who didn’t fully complete their application and the paperwork. But there were fair issues, and those issues being, “Oh, I didn’t realize that I had to maybe first consolidate my loan into a direct loan, to be able to then unlock a qualifying repayment plan so that then it counted as a qualifying payment.” It’s even crazy when I present on this topic, Brenna, like, I even catch myself like, well, if you do this, and then you do this, and then you do this, then it counts as a green checkmark, right? Then we’re good.

It’s kind of crazy that we have to jump through all these hoops. But that’s just the system that we’re in and the cards that we’ve been dealt. Now, thankfully, you were positively impacted by some of the changes that the Biden administration implemented where for individuals that maybe didn’t have all those T’s or I’s crossed because they didn’t necessarily know from Jump Street that they were going on a PSLF pathway, that there was a reconciliation process for those payments to count as qualifying payments, which you benefited from, is that correct?

[0:15:33] BR: Yes, because when I consolidated and got everything in order, and that was actually another thing. I didn’t realize, because you mentioned employment and the employer’s account. I really did not think that my residency training would count, and it was actually, again, Tim, who pointed out that he really thought it would. So, that was another thing that pushed me once I realized that that period of time also counted, that that shifted, I think, my willingness to go into PSLF.

But yes, I did benefit because I did have a – some of my loans were in the correct repayment plan, but I had some that were not. So, there was a gap of, I don’t know, maybe four or five years between some of the loans just because once I got those into the correct repayment plan, you know, it started from zero. So, it didn’t matter that I’ve been paying those loans for years, none of those previous payments had counted, because they weren’t in the correct repayment plan.

But luckily, with that Biden, that like one year, going back and counting, a lot of those payments that hadn’t previously counted towards the forgiveness were counted, which was great.

[0:16:48] TU: Yes. I think it was really helpful, especially for people Brenna, like you, that maybe necessarily didn’t start with a PSLF journey in mind. We are seeing more people now that they come out, they go into residency, they know, “Okay, I’m not going to defer, so I can count those as qualifying payments” and they’re thinking about PSLF as a strategy right away. But that hasn’t always been the case. Again, just based on the age of the program and the information that we have available.

One of the things that is beneficial about the strategy, as you’ve mentioned, as I’ve mentioned, is to try to pay as little out of pocket so that we can have as much forgiven tax-free. You mentioned before we hit record that you were able to have about five years, about half of the 10-year timeline of payments, actually, where you weren’t having to make payments at all. Tell us more about what was happening, where you were able to have such a large chunk of time where you didn’t have to make those payments.

[0:17:40] BR: Yes. So, everybody has been affected by the pause in payments with COVID. So, I was also affected by that. But I moved to Tanzania, actually in 2017. I was living there, full time. Because of that, it affected my taxes, and basically what it looked like, what my income looked like, and thus my repayment. So, if I remember correctly, there were a couple of years there where technically I could have been paying zero. I was still paying a small amount on my loans. But yes, I had a couple of years there, where just because of living internationally and working internationally. My income appeared low enough that – because it’s income-based, and so basically, my payment was functionally zero.

[0:18:33] TU: Yes. You had a few years of the pandemic freeze, as did other borrowers, were those counted as qualifying payments. That was one of the big questions when that freeze started, and that was good news that people that were pursuing PSLF, those counted as qualifying payments to the freeze that just ended here in September of 2023. Then, you have a couple years in Tanzania, you mentioned, perhaps this could have been zeroed out payments. You’re making small payments.

I’m glad you mentioned that because one of the most common questions that I get is should I defer my loans during residency, or in your case, residency and fellowship. While not blanket advice, generally, my answer is you don’t want to defer, and the reason you don’t want to defer is that typically because you’re earning such a low income while you’re in residency or fellowship relative to what you will earn, and how they do the calculations on these, often these will be very low, and sometimes $0 monthly payments. But as long as you’re inactive repayment, those count towards qualifying payments of the 120.

So, I still think there’s a lot of advice out there from maybe my generation of pharmacists or those even older. I graduated in 2008, where it was kind of blanket advice. Like differing residency, differing residency, and often the case may be actually not to defer, so you can get those accounts as qualifying payments.

[0:19:54] BR: Yes. It’s funny that you mentioned that, because you just triggered – that was – I think that’s actually, because I still had that had a feeling of what if something goes wrong with a PSLF. So even though I was being told those couple of years, “You don’t have to make a payment, it’s zero, it will still count.” I made the decision to make a small payment because I didn’t want anybody to be able to come back later and say, “Oh, you weren’t paying during these times.” So, I still had my own little, is this really going to work the way it’s supposed to work even at that point? But definitely, it makes sense to, if you’re going to do PSLF, to pay during residency, fellowship, those kinds of years when you’re not making very much money.

[0:20:44] TU: Yes, and one of the other, we won’t spend much time on this now. We’ll talk about it in another episode. But one of the advantages of the new save plan that was announced by the Biden administration here in the last couple of months, and certainly, it’s not the right fit for everyone. But especially those that are new graduates, new trainees in residency, there’s a provision as a part of that safe plan where as long as you’re making the minimum payment, whatever that is, based on your income, that your loan balance can’t grow, which is really nice. Because if you’re in deferment, like interest can still accumulate, you’re not making any payment technically. So, especially for those that are in one or two or more years of residency that can be, that can be really valuable.

Brenna, what did PSLF allow you to do in terms of other goals. Typically, if we’re optimizing the strategy, we’re hopefully paying less out of pocket than we normally would have with other strategies. And therefore, that gives us options to invest and save, or pursue other financial goals, where we don’t have to just solely focus on our student loans. So, for your situation, for your financial plan, what did PSLF allow you to do in terms of other goals?

[0:21:51] BR: I really, for the most part, focus a little bit more on investment retirement, and because really, I hadn’t been too focused on that until I was finishing a fellowship, going into an actual job, and I’m feeling like I had that money. So, I think that allowed me to focus a little bit. Because as I said, I sort of always thought that these loans would just be part of my life. So, it shifted my long-term thinking, and as we discussed before, having the loans forgiven didn’t really change my day to day. But even during that process, I think, instead of being so focused on I’m going to have to repay this at some point, I could really focus on that longer term, where do I want to invest my money.

I mean, yes, it did allow, because I think I would have been far more reluctant to maybe take this trip or that trip, for fear of what that meant longer term. So, it probably did allow me to feel a little more free to do those kinds of things. But for me, it was really more about the longer-term goals and being able to focus more on investments and retirement plans and those kinds of things.

[0:23:16] TU: That’s one of the things I love about this strategy is when we’re optimizing this, one of the goals we’re trying to achieve is to lower our adjusted gross income, the best that we can, which is the factor they’re using in the payment calculation to determine what your monthly payment is. One of the ways we can do that, kind of the low-hanging fruit, is making sure we’re maxing out traditional retirement accounts like a 401(k), a 403(b), and maxing out HSAs. So, there’s this beautiful double effect of not only are we then saving more through those vehicles, which are going to be able to grow and compound and time value of money, make sure we start that as early as we possibly can. But it’s also at the same time, lowering our monthly student loan payment, and that’s really cool. When we can see that working, and we all know our listeners know well, that when you’re saving even just a little bit more early in your career, and that money has a long time period to grow, that’s going to have a significant impact and effect.

Brenna, I’m curious, we have a group of graduates coming out right now that many may be listening to the show. We have three graduating classes now that haven’t had to make any payments on student loans, because of the freeze. Interest just started back up in September. Payments are resuming here next month in October. I think it’s fair to say, there’s a decent amount of anxiety. Maybe people that were making payments that didn’t have to, and now they’re having to make payments again. Or for new graduates, or just on the front end of this journey, and not really sure what is ahead, but certainly there’s some anxiety surrounding that. As you look backwards now, finish line has been crossed. You’ve had a large amount of debt forgiven, tax-free. What advice would you have, whether it’s pharmacy graduates, or medical school graduates, that are just getting started and they’re looking ahead and saying, “This feels big. This feels scary.”

[0:25:03] BR: I think I would say, definitely give PSLF some serious consideration. I won’t say it’s the right thing for everybody. Obviously, it can depend on how much debt you have, and what kind of job are you going into. How much are you going to be making? I’m in infectious diseases in medicine. That’s not a subspecialty that is known to make a lot of money compared to some others. So, for others – and I don’t know as much about pharmacists, and their training, and different specialties within that. But I would assume there’s some variation as well.

So, I think it is a very individual decision. And for me, though, as I said, having a financial planner, being able to discuss it, really just my income to debt ratio, PSLF was just very clearly the best option for me. So, I think, just really give it some serious consideration, and don’t talk yourself out of it immediately. It is working. Just my experience over many years, and with many different – having my loans switched from different companies, I can tell you, it’s been so much easier recently to be able to track things, to get information about things. It’s gotten so much easier over the years. I mean, it does work. There are more and more people with loans being forgiven. So, I hope that the concern and the fears are diminishing over time. I won’t say everybody needs to go out and do it. But I think it should be definitely a serious consideration as an option.

[0:26:52] TU: Yes. I’m glad you said that. We estimate in pharmacy, and I know it’s higher in medicine, just based on the distribution of practice, and where people are at nonprofit to for profit. But we estimate that about 25% to 30% of all pharmacy graduates are eligible or qualify for PSLF.

Now, they may not have the right debt-to-income ratio. It may not make sense. They may be unsure about how long they’re going to be in the nonprofit space, and there’s other questions. But to your point, Brenna, I think the take-home point I hear there is making sure that you’re considering it among all of the options, and running the numbers, how do we feel about it? What does this mean for other parts of the financial plan? And making sure that we feel that we’re making an informed decision, looking at all the different options that we have on the table. For some, that’s PSLF. For some, that could be a non-PSLF strategy over a long period of time, if they’re working for a for-profit. Or we have some individuals that say, “Hey, I really want to aggressively pay these off.” And they have reasons and a rationale that may make sense for them.

So, this is certainly an area where, whether we like it or not, student loan repayment is a somewhat complicated topic, and it’s something that we’ve really got to dig into and make sure that we’ve got good information as we look at and evaluate all the options that are available.

Well, Brenna, this has been awesome. I really appreciate you taking the time coming on the show to share your journey of having over $550,000 of debt that was forgiven, tax-free. As I mentioned at the beginning, we’re going to share some other resources in the show notes of where we’ve talked about public service, loan forgiveness, as well. And to the Department of Ed’s credit, as you gave them credit here, I think recently, of information getting better in the loan servicing companies. They have updated a lot of information and resources, and especially with so much changing right now, make sure to check that out at studentaid.gov.

Again, Brenna, thank you so much for taking time to come on the show.

[0:28:38] BR: Thank you.

[0:28:40] TU: Before we wrap up today’s show, I want to again, thank this week’s sponsor of 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 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 yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

[OUTRO]

[0:29:24] 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 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 post, and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis 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 329: Medicare Selection & Optimization: Common Mistakes, Tips & Tricks

Posted on by Tim U

On this week’s podcast, sponsored by APhA, Certified Insurance Counselor, Insurance Agent, and Medicare Specialist, Josh Workman, joins the show to cover Medicare 101 and considerations for selecting your Medicare coverage plan.

Episode Summary

Many people (including pharmacists!) aren’t fully informed about Medicare, the options they need to consider, and the pros and cons of each option. That’s why, in this week’s episode of the podcast, we brought on Certified Insurance Counselor, Insurance Agent, and Medicare Specialist, Josh Workman to give us a Medicare 101! Tuning in, you’ll hear about Josh’s role in the world of helping seniors navigate Medicare benefits, options for coverage, and the five main differences between Medicare Advantage and Supplement plans. Finally, he shares some words of wisdom for pharmacists struggling to answer Medicare questions for themselves, family members, and even clients.

About Today’s Guest

Located in the Akron Ohio area Josh Workman has been an insurance agent since 2010 with Medicare planning being his main area of focus. He started his career with Nationwide, but then moved to an Independent agency in 2014. Aside from helping individuals who are new to Medicare, he also works with professionals such as care facility coordinators, doctors and pharmacists as they assist their patients with Medicare plan decisions. Medicare can be extremely confusing so instead of the salesman angle, Josh takes an educational approach when helping his clients with Medicare Supplements, Part D Plans and Medicare Advantage Plans. One of his favorite parts of the job is teaching Medicare 101 classes to people who are new to Medicare.

Key Points From the Episode

What Josh does in the Medicare world.
The basics of Medicare and the timelines for selecting coverage.
Two main options for coverage when going onto Medicare.
Five differences between Advantage Coverage and Supplement Coverage.
A quick summary of the two plans and the pros and cons of each.
The kinds of plans Josh sees people choosing and why.
Some of the dangers of being influenced by marketing when choosing a Medicare plan.
Mistakes that Josh sees people making when buying a plan.
Advice for leveraging the help of a Medicare agent for pharmacists.

Episode Highlights

“A lot of people make an assumption that original Medicare – Part A and Part B, includes prescription drug coverage. It actually does not. The only way you can get Part D is through an insurance company.” — Josh Workman [0:10:46]

“If you have to pay medical bills, if you have a network, you’re probably going to be paying less for your insurance because you’re subjecting yourselves to these medical bills and to this network.” — Josh Workman [0:15:21]

“Medicare Advantage is less expensive. There’s a network and there’s medical bills. Supplement is more expensive, but it doesn’t have a network and it doesn’t have medical bills.” — Josh Workman [0:20:20]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, for each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, I welcome to the show Josh Workman, a Certified Insurance Counselor, Insurance Agent, and Medicare Specialist.

Aside from helping individuals who are new to Medicare, he also works with professionals such as care facility coordinators, doctors, and pharmacists as they assist their patients with Medicare plan decisions. We tap into his Medicare experience to discuss five key considerations for evaluating Medicare benefit options. You’ll find this episode insightful and helpful, whether you are evaluating benefits for yourself or helping patients or other family members navigate this process.

All right, let’s hear from today’s sponsor of the American Pharmacists Association and then we’ll jump in my interview with Josh Workman.

[SPONSOR MESSAGE]

[0:00:50] 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.

[INTERVIEW]

[0:01:37] TU: Josh, welcome to the show.

[0:01:38] JW: Thanks for having me, Tim.

[0:01:40] TU: Well, this is a treat. You and I have known each other for a long time when Jess and I lived up in Northeast Ohio. Our families got to know each other well. I’ve always appreciated the work that you’ve done on the Medicare side. It’s taken us over 300 episodes, but I’m excited to finally bring this together to be able to tap into your Medicare experiences and knowledge. Thank you so much for coming on.

[0:02:03] JW: Yeah. Thanks again for having me, Tim.

[0:02:05] TU: Josh, as we were planning for this episode, and here we are in the month of October, we’re talking about all different aspects related to the health insurance part of the financial plan and we realize that Medicare really isn’t a topic that we’ve talked really much about, maybe not even at all, but it’s such an important part of the financial plan for those that are making that transition into retirement.

As we were planning for this episode, we were thinking about a few different groups that may find value in this, right? Of course, there’s individuals listening that are getting ready to make that Medicare decision for themselves and making sure that they’re optimizing that benefit selection. But perhaps, even a bigger group would be, “Hey, I’ve got aging parents that are going through this phase.” Or, “I work at a pharmacy and often I have patients that come looking for help in terms of Medicare selection and what are some of the things that I should be thinking about.” I know, Josh, in your work as well, you consult with individuals that are going through selection, but also work with other providers and facilities as well. Is that correct?

[0:03:05] JW: Yeah. Yeah, that’s correct. I’m working with individuals or maybe in a group setting, like a seminar setting is a lot of what I do. But then, yeah, working with pharmacists, working with doctors, working with assisted living facilities, all those types of professionals have questions and I’m able to help their patients as well.

[0:03:25] TU: Let’s start with some of the basics of Medicare, Josh. Pharmacists get really a slim amount of this in pharmacy’s glamour. We talked about health insurance at large. We talked about the different parts of Medicare. It’s been 15 years for me, perhaps more for others that are listening as well. Let’s start with some of the basics, Medicare 101, Parts A through D. Just break down for us what those different parts cover.

[0:03:49] JW: Yeah, sure. There’s two parts to what’s referred to as original Medicare. That’s Part A, like Adam. Part B, like boy. A would be hospital benefits. You’d use your Part A coverage, for example, if you were in the hospital staying overnight for a surgery. Let’s say, Part B, like boy, that’s going to be medical benefits. Think of that as more outpatient-related things, specifically, like just going to the doctor, seeing a specialist, an outpatient surgery, those kinds of things. But then there’s a couple other parts as well, Medicare Part D, like David, or I like to think of it as D for drugs. That’s the easy way to remember that one. That’s going to be the prescription drug coverage. Part C is another way of saying Medicare Advantage. We’ll get into this, I believe in a little bit, but that would be Part C, which combines A, B, and D benefits into one plan.

[0:04:47] TU: Awesome. Timeline for coverage. This is something that I remember learning about this and just having the takeaway of like, this is important. You don’t want to mess up in terms of when you’re selecting coverage, making sure you’re not missing a deadline. What is the timeline for selecting coverage?

[0:05:03] JW: Yup. There’s going to be three main election periods if you want to think of them that way. Three times when you will be signing up for your plan, making decisions on your plan. I will say, there’s a lot of narrative out there that makes this a little scarier than it needs to be. It’s not that intimidating, but the first one is what’s called your initial election period. This is when folks are turning 65, they’re new to Medicare.

Another thing when someone could be using their initial election period is if they’re been on social security disability for 24 months, or if they develop end-stage renal disease or ALS, that’s another time prior to age 65, they can go on Medicare. Let’s use the turning 65, example because that’s the most common. It’s a seven-month window. It starts three months prior to your birth month, runs the month of your birth, and then three months after. A seven-month window when you can sign up. Most folks will use the three months prior and then start their benefits, the month of their birth. That’s the most common.

[0:06:12] TU: That is a pretty – I didn’t actually realize it was that long in terms of the seven months or the three months prior, the month of your birth date, and then the three months after. Then the other piece I’m thinking about here would be the transition or change, right? I had initial coverage I selected here. We’re using the example of 65, but I’m looking at other options in the future in terms of renewals. How does that work timeline-wise?

[0:06:33] JW: Yeah. Great question. That would be what’s referred to as the annual election period or annual enrollment.

[0:06:39] TU: Okay.

[0:06:40] JW: That is a window of opportunity towards the end of the year, getting into it now. October 15th through December 7th of the specific dates. That’s for folks who, yeah, let’s say, for example, they’re 67, they’ve been on Medicare for a couple of years now, but they want to reevaluate and see if the plan that they’re on now is going to be the best one for the coming year. They can evaluate that during the weeks, again, of October 15th through December 7th. Then their change, if they do make a plan change, it would start taking effect on January 1st of the following year.

[0:07:17] TU: Okay. Those are the two main ones I’ve heard you mention so far. So, that initial election and then the annual enrollment process. Anything else important to remember around the timeline for selecting coverage?

[0:07:30] JW: Yeah. There could be a third election period. Just think of them as special election periods. We do run into these. I do run into them every now and then, but if someone moves, for example. Moves out of state maybe or it could even be a move to a different county within the same state, they would qualify for a special election period to make a change. If someone gains or loses Medicaid eligibility, we recently saw a lot of that with the COVID benefits that were extended for folks on Medicaid.

They basically, couldn’t lose their Medicaid eligibility, but that stopped. I believe it was in April of this year. That qualifies for a special election period to make a change or if there’s other things too, like you have a parent who moves into an institution for lack of a better word, where they’re moving into a long-term care facility or a nursing home. That would also qualify as a special election period to make a change outside of annual enrollment. October 15th through December 7th.

[0:08:31] TU: Awesome. With that background information, let’s spend most of our time here talking about evaluating benefit options, what to look for, what to consider. Before we get into five main areas that you’ve seen, five big differences based on your experiences. I think it’s important that we differentiate at least at a high-level Medicare advantage and Medicare supplement plans because when we talk about some of these areas here in just a moment, we’re going to be referring to both of those and the different sides to consider between them. Define those further, for us.

[0:09:00] JW: Yeah. So generally speaking, you have two main options for coverage when you go on to Medicare. I should say this is what most folks do. Most folks will either go with a Medicare Advantage plan or a Medicare supplement. Medicare advantages is much more heavily advertised. Sometimes folks think that’s the only option they have, but they technically don’t. Supplements are an option as well, but there’s going to be five major differences between those two plans that can really impact how you receive your care, what you’re going to pay out of pocket when you use your insurance, how you get your drug coverage, if it includes perks like dental, vision, hearing, all those kinds of things.

Yeah. There are some pretty major differences between those. That’s what I spend most of my time with my clients who are new to Medicare, so they can make an informed decision on what’s best for them.

[0:09:53] TU: Yeah. I remember Josh, you shared with me as we were preparing for this episode. The worksheet that you have of the two sides of the street, right? Choosing a plan. Advantage versus supplement and going through these, which I really like, because I think this can become very overwhelming, either as an individual choosing coverage, helping a family member, helping a patient, especially when so often, as you mentioned, especially on the advantage plan side, there’s just a lot of advertising, right? That’s behind this.

The mailings, the commercials, etc. so really being able to take a step back and say, “What are the options and how can we objectively compare these. What do we need? What do we not need to make an informed decision?” I think is so important, not only financially, but also just have the peace of mind and being able to navigate some of the nuances involved here. Let’s start with those five big differences. Number one, Josh, is Part D in terms of how one receives Part D insurance coverage. Tell us more there.

[0:10:44] JW: Yeah. It’s important to know a lot of people sometimes make an assumption that original Medicare, what we talked about before, Part A and Part B, that includes prescription drug coverage. It actually does not. The only way you can get Part D is through an insurance company. Now, how it would work on either side of the street. Yes, the way I like to describe it. If you go with a Medicare Advantage plan, most of the time, those are going to include prescription drug coverage at no additional cost. If you go with the Medicare Supplement plan, however, it does not include prescription drug coverage or Part D, you have to buy that separately. Advantage is included. Supplement, it’s not included. You have to pick it up separately.

[0:11:27] TU: Number two, it relates to the network here. We’re thinking of options for providers, access to hospitals, something that folks are familiar with from other experiences with health insurance, but what are some of the factors to consider here as relates to network coverage and the two sides of the street?

[0:11:43] JW: Medicare Advantage plans are going to have a network. Meaning there’s a list of specific doctors, hospital systems, specialists that you need to stay within in order to have coverage or to pay the least amount possible. Medicare supplements, one of the big benefits of them is they do not have a network of any kind. You can literally go to any provider in the country, in the whole United States, that takes original Medicare and they have to accept your supplement. It doesn’t matter what insurance company you have. You could be in the Northeast Ohio area like we are and have an insurance company that’s local here and receive care in California and they’ve never heard of your local company, but they have to take it, because it’s a Medicare supplement.

[0:12:32] TU: That network piece, obviously, very important to folks. The third area, which I’m sure is the one we’re often focused on is the cost side of it, the medical bills or the cost-sharing, ultimately what we have to pay out of pocket when using insurance. What are some of the key differences here between the advantage and the supplement?

[0:12:50] JW: With a Medicare Advantage Plan, you will have medical bills along the way as you use your insurance, or just you could say if you use your insurance. By medical bills, I’m referring to deductibles, co-pays, and co-insurance. You may have a deductible. Honestly, most plans I offer, Tim, don’t have a deductible, folks have to reach, but they could.

A co-pay, you know how that works, most likely you pay $25 to your primary care, 40 to a specialist, those kinds of things. Then co-insurance is a percentage, right? You may have to pay 20% for durable medical equipment or 20% for chemo and radiation. The nice thing about Advantage Plans is that they do put a limit on what your medical bills can be. Most folks have this with your current insurance, even if you’re not on Medicare, called an annual maximum out-of-pocket expense.

All of your medical bills for the year can’t exceed your plan’s annual maximum. But know that, again, you will have them along the way, medical bills, that is. Whereas Medicare supplements, they don’t really have any medical bills that you’re going to have to worry about. Okay. Really, the biggest medical bill for the most popular supplement that I write out of my office is the Part B, like boy, deductible. Currently here for 2023. It’s $226, so you pay that for any Part B service. Once that’s paid though, Tim, the medical bills are done for the rest of the year.

[0:14:26] TU: Wow.

[0:14:26] JW: So that $226 deductible is your medical bill and it’s also your annual maximum. If you want to think about it that way.

[0:14:34] TU: Okay. So, very naive on this topic, Josh, but you’re just describing the differences and obviously when you talk about the Supplement plan and the lower amount, what I seem to hear is not insignificant, but a much lower amount on the deductible, less potential out of pocket versus when you reference the Advantage plans more out of pocket. What we tend to think of from our experiences right now for many of us with the insurance. So, is it fair to say that cost-wise monthly premiums, you typically see a vast difference between these two, because of that or is that – it depends?

[0:15:11] JW: No, you’re right. There’s a difference in cost. So, that would be the fourth big difference here between these two. As I’m sure listeners are putting together, if you have to pay medical bills, if you have a network. Well, you’re probably going to be paying less then for your insurance, because you’re subjecting yourselves to these medical bills into this network.

Medicare Advantage is going to be your less expensive route to take. It could even be, and folks may have seen this advertised. You could even see that these Medicare Advantage plans are zero dollars per month. Okay. Those are actually some of the most popular advantage plans.

[0:15:46] TU: Interesting.

[0:15:48] JW: Some of my clients will choose is the zero-dollar premium plan. Okay. Now with supplements, though, these are going to have a monthly cost. There aren’t any zero-dollar Medicare supplements. This currently, I mean, it all really depends on the area that you live in. I just work here in the state of Ohio, but here in Ohio, a good rule of thumb for a turning 65 mail for a Medicare supplement, depending on the plan letter that’s chosen is probably going to be somewhere between $130 to $150 a month for a Medicare supplement. Female would be a little bit lower. Again, that’s a pretty rough estimate, Tim, just depending on the service area that you’re in.

[0:16:37] TU: Yeah. It’s really helpful, though, Josh. I’m thinking about how this integrates back with the financial plan. It’s taking me back to episode 275. Tim and I talked about how to build a retirement paycheck, right? We’ve been accumulating funds. Hopefully, for the majority of our careers. Now we have to be able to replace what was coming from our income through the different retirement vehicles that we’ve built, right? 401Ks, IRAs, maybe we have some HSA funds that can come into play here, as well.

This is important, right? Because if you’re in the plans that you were just referencing on the supplement side, where let’s say you’ve got a monthly premium of $150 a month, and then you know what the deductible is going to be, like we can start to build those numbers into the monthly paycheck that we’re going to be receiving during retirement, essentially paying ourselves or if we’re on an advantage plan, and let’s just say there’s an advantage plan with the example you gave where there’s a zero-dollar premium, but we know what the out of pocket match your limit is, like, okay, we need planning for that, right, or planning for some of the other expected expenses from cost sharing of the healthcare.

You can really start to see how and understanding of the options and the plans and what the impact could be annually, as well as monthly when you talk about something like a monthly premium, could build into the financial plan, build into building that retirement paycheck as we make that transition into that phase.

[0:17:56] JW: Yeah, exactly.

[0:17:58] TU: All right. Number five, Josh. This is one that I didn’t think about that was really interesting when you were talking about this in our preparation for the show. With some of the variances between the plans, when it comes to things like dental, vision, hearing, or the extras, tell us more here.

[0:18:14] JW: When it comes to dental, vision and hearing, this is becoming a much bigger issue, I would say than it used to be. I’ve been doing this for several years now, and back when I started, folks weren’t that concerned about dental, vision, hearing. However, advertisements on TV, the mail that folks are getting that are turning 65 heavily focuses on this side of things. Medicare Advantage plans are going to include dental vision and hearing benefits, as well as other things too, like over-the-counter items, allowances that the plans give people several dollars a month that they are a quarter rather than they can use to buy Tylenol or Advil or Band-Aids and Toothpaste, that kind of stuff.

Advantage plans are going to include those kinds of things. Again, it’s usually at no additional cost. Even a zero-dollar plan would include these things. Whereas Medicare supplements do not include any of these kinds of things, but you can buy them separately, just like you buy the Part D, separately. You can pick up dental vision hearing benefits at an additional cost if you’d like them.

[0:19:17] TU: Josh, before we wrap up by talking about some of the common mistakes that you’re seeing, folks making when it comes to evaluating benefit options and selecting a policy. Summarize here for us the five points that we just talked about as, again, individuals may either be choosing their own policy, working with a family member or working with patients that they can take away this information.

[0:19:36] JW: Yeah. The easy way that I like to describe it is this. If you go with a Medicare Advantage plan, this is going to be your less expensive route to take. It’s going to include Medicare Part D. It’s going to include dental vision hearing. However, you are going to have a network and you are going to have medical bills along the way as you use it. Medicare supplements are your more expensive route to take. They don’t include drug coverage. They don’t include dental, vision, hearing, although you can buy them separately if you’d like. However, you don’t have the medical bills and you don’t have the network to be concerned with.

If you’re a pharmacist out there and you’re trying to quickly explain this to a patient, maybe just go about it that way. Medicare Advantage is less expensive. There’s a network and there’s medical bills. Supplement is more expensive, but it doesn’t have a network and it doesn’t have medical bills.

[0:20:29] TU: Great summary, Josh. I’m curious, like rough numbers. What do you see as like a distribution between these two buckets as you work with those going into Medicare enrollment?

[0:20:39] JW: Yeah. That is a great question. That’s one that’s become very common as my clients are sitting down trying to make a decision on what they want to go with. I’m finding now, Tim, and it didn’t used to be this way, that it is about a 60-40 split. About 60% are going the Advantage plan side and about 40% are going the supplement side. When I first started, it was probably 70-30 the other way or heavily weighted on the supplement.

I think one of the big reasons for this is the marketing. Advantage plans are much more heavily marketed to people who are new to Medicare. I said before, a lot of people think that they are the only option. Not that they’re a bad option, but again, folks are just having much more education, getting much more education about Advantage plans than they are supplements.

[0:21:32] TU: Let’s talk about that marketing because I think that’s one of maybe a little bit too harsh to call it a mistake, but I think the influence of the marketing can be real. I’ve seen many of these commercials, Josh. I think I know the ones you’re referring to and just the impact that whether it’s mail marketing, TV, radio, a combination of can have and sway in someone in one direction or another. Tell us more about that. Even some of the other common mistakes you may see folks making when they’re going through the selection process.

[0:22:03] JW: Yeah. Those commercials are becoming very popular. We’re talking about like the Joe name, this commercials guys that you can’t help but see, especially getting here into the fall into annual enrollment. Those commercials, the mistakes I see people making is buying a plan based off of what they’re seeing just on those commercials alone. If you actually pay attention to one of them, they are referencing primarily the perks of the plans.

The dental, vision, hearing benefits, they may even say things like call and check your zip code, because you could get a plan where you don’t have to pay for your Medicare premium and at all. The plan will pay for it for you. In my opinion, those aren’t the only things you should factor in when you’re buying health insurance. You should factor in other things too, like does your doctor take the plan? That’s a pretty big one.

Yeah, you might have a nice dental benefit, but when you need to go to your primary care physician and they say, “No, we don’t take this.” How valuable is that dental benefit now? Other things, folks don’t necessarily consider, especially on, and we can get into this more if you’d like, but these relatively new to the game Part B, give back plans that pay some or all of your Medicare premium. You got to think from an insurance company’s perspective, if they’re willing to pay your Medicare premium for you, what do you think that’s going to say about the benefits they’re going to provide in the plan?

[0:23:31] TU: Yeah.

[0:23:32] TU: Primarily translates to higher medical bills to you. These are just things that I feel like are important for people to consider that you’re buying a health insurance plan, you want it to be solid when you need it. You don’t necessarily want to buy a plan, because it gives you $100 every quarter and over-the-counter items limit. Those are some of the mistakes I see people making. They buy a plan based off of perks, not necessarily on the day-to-day usage of the plan that could be more important.

[0:24:04] TU: Yeah. Which is, it’s a different form of marketing, right? It’s not necessarily a commercial, but it’s a different form of marketing to hook someone into a policy. That’s a good a good call out. I think both of those Josh, to me highlight the value and you showed me that worksheet, that side-by-side worksheet of, “Hey, we’re looking at supplement plans, we’re looking at advantage plans.” We’re applying somebody’s personal situation. You’re sitting down with them one-on-one, talking through the benefits and the options.

That really brings the life to me, the value that an agent, especially someone specializing in Medicare, such as yourself can be helping, whether it’s the person directly that’s selecting the benefits, whether it’s family members that are involved, or for our pharmacist community, again, especially those working in community practice. I know these questions come up all the time in terms of, “Hey, I’m a patient, I go to the pharmacy, I ask my pharmacist about the policy or what should I be thinking.”

My question here is your work is obviously in Ohio. If we have pharmacists in Northeast Ohio, shout out to Josh, get connected with him for sure as well, but much of our listeners may be across the country. So, words that you would have to share in terms of what are some things that folks can look for in trying to develop a relationship with an agent as a pharmacist or for those that are looking to select a policy for themselves or a family member and partnering with an agent that way, as well.

[0:25:23] JW: Yeah. I mean, first of all, from the pharmacist’s perspective, I do work with several pharmacists and chains and whatnot. I would say from your perspective, don’t feel like you need to be the expert on Medicare Part D, specifically. You can say, “Hey, I don’t know all the answers on what plan you should pick, but here’s a guy you can call, or here’s a girl you can call, they know. They do this for a living.” The other thing too, guys, is it saves you time.

I mean, I see, I’m in and out of pharmacies a lot. I see how busy you are. I can imagine how stressful it is when you have 10 or 20 prescriptions you need to fill and somebody asks to go into the private room and say, “Hey, what prescription drug plan is going to be best for me next year?” It can just take up a lot of a lot of time I would imagine. Again, having an agent you can refer to, to handle those questions for you would save you a lot of time and alleviate that pressure of having to feel like an expert.

[0:26:26] TU: Yeah. Well, this was great, Josh. I really appreciate you coming on the show sharing your expertise. As I mentioned at the beginning, it’s been a long time in the making covering the topic we haven’t done much about before. We will link in the show notes. Josh’s LinkedIn profile, email. If folks have questions, as well as a link to the insurance firm that he works with right now. So, you can check all that information out in the show notes. Josh, thanks so much again for coming on. I really appreciate it.

[0:26:51] JW: Yeah. Thanks for having me, Tim. Go Bills.

[0:26:53] TU: That’s all. This is the year. Let’s do it.

[0:26:55] JW: This is the year, Tim. It’s the year.

[0:26:57] TU: Awesome. Thanks, man.

[0:26:58] JW: Yup.

[0:26:59] TU: Before we wrap up today’s episode of the Your Financial Pharmacists 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 forward slash join using the coupon code YFP.

[DISCLAIMER]

[0:27:39] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our 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 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.

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YFP 328: How to Navigate Open Enrollment & Employer Benefits

Posted on by Tim U

Tim Baker, CFP, RICP, RLP joins Tim Ulbrich, PharmD to discuss open enrollment & evaluating employer benefits.

Episode Summary

This week on the podcast, Tim Ulbrich, PharmD sits down with YFP co-owner and Director of Financial Planning, Tim Baker, CFP, RICP, RLP to discuss open enrollment and the process of evaluating employer benefits. They discuss considerations for choosing a health insurance plan, how to determine whether or not your employer-provided life and disability insurance is sufficient, the differences between an FSA, Dependent Care FSA, and HSA, and what to be looking for when putting money into your employer-sponsored retirement plan.

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Tim, glad to have you back on the show.

Tim Baker: Yeah, good to be here, Tim. Looking forward to getting into open enrollment discussion. ‘Tis the season. So yeah, I’m ready for it.

Tim Ulbrich: ‘Tis the season indeed. Fall is in the air officially here in Ohio, which does mean it’s almost time for open enrollment and ensuring that we’re taking the time to understand and maximize employer benefits. And I think whether someone is reviewing their benefits for the first time, whether that’s accepting a new position, going through another round of open enrollment, a lot to consider here, including insurance, retirement accounts and HSAs, FSAs, to name a few. So Tim, our team at YFP Planning includes employer benefits as a part of the planning process, perhaps an area that folks don’t necessarily associate working with their financial planner on. So how does this part, employer benefits, factor into the financial plan? And why is it so important that we’re looking at it in the planning process?

Tim Baker: Yeah, I think this is another area, Tim, where like when we say, “comprehensive,” we mean comprehensive. And it’s just like kind of the same conversation with things like home purchase. Most financial advisors are not going to kind of walk you through kind of the A-Z of buying a home because most of the time, a financial advisor is working with people in their 50s, 60s, 70s, right? And the reason for that is because those are the people that have assets, and that’s how they charge their fee. We have many, many, many clients that are in their 20s and 30s. And things like home purchase is really important and is often a big step in their financial journey and their financial plan. So we kind of take the time to go through that based on, I know you’ve said it, I’ve said it, we’ve messed those transactions up in the past, and we just don’t want to see our clients do the same thing. So open enrollment is kind of the same thing. A lot of financial advisors don’t really talk about this stuff because if you’re working with people in their 50s, 60s, like they’ve done it dozens of times, right? So they’ve gone through this. And a lot of our clients haven’t. You know, it’s not something that is kind of what we understand. And so to define open enrollment, open enrollment is the period of time where you can purchase or apply for health insurance for the upcoming year without a qualifying event. And usually a qualifying event is something like a marriage or a divorce or a birth of a child. So it’s typically very centered on the health insurance plan because that’s the big piece of the benefits. But then what the employer does is kind of have you opt out of other benefits that they might offer, which might be life insurance, disability, I’ve even seen things like pet insurance and things like that. You know, some things that are not insurance-related could be like a legal benefit. So that’s what this is is open enrollment. And it’s important because your employer benefits are a major component of your compensation package. And you know, this is kind of the conversation that goes back to things like salary negotiation is I’ve seen clients, they’ll say, “Hey, I’m making $110,000,” and they get an offer for $120,000 but they take a major step back with regard to their total compensation because of the benefits that are associated with that. I think it’s really important to understand what the employer benefits are and how to assess that. So that’s really what’s at stake here is really understanding that piece. And we know this, Tim, because when we plan to hire someone, we know that it’s not just about the salary pay. We apply a multiple on top of that because we know that the benefits that we’re going to provide for the employee are going to be above and beyond that. So that total cost or what I would say is an investment in that person is really beyond the salary. So this is what is really that bell to that. We’re trying to assess an an employee to say, OK, how can I best optimize this part of my compensation. And I would say that there is a lot, you know, a lot of people that don’t necessarily fully optimize this part of their financial plan or give it the attention that it needs because it sneaks up on us or bad information or what have you. So that’s really kind of the overall picture here of what it is and why it’s important.

Tim Ulbrich: Yeah, and Tim, I think when you say sneaks up on us, bad information, it’s important I think for folks, basic stuff before we jump into individual benefits, you know, know your dates, obviously what’s the time span. You know, a lot of employers, depending on how they organize this, will do informational sessions, open Q&As, one-on-ones, group, and some of that might be automated, depending on the system and the platform they’re using. But making sure, understanding the dates, you know, simple things, how much time do you have if you’re going to be on vacation, things like that, making sure you can coordinate with HR. And then also, you know, just taking a look at your pay stub and your benefits. What do you currently have? And really taking a pulse on — and I think just a chance to go back and what’s gross pay, what’s net pay, what’s coming out in benefits, and taking this time that comes around every year as a chance to revisit some of these things that we want to be looking at often. And then of course, just thinking about upcoming changes, right, that might be happening. You know, I think of things like children that might be beneficiaries on the healthcare side, aging out if you think about 26 or folks that might be expecting or perhaps getting married, things that might have an impact on their benefits, considering those things as you’re in the benefits selection. And then of course just refreshing and updating the evaluation of who are the beneficiaries that are listed on certain policies. Tim, I want to start with health insurance. You know, I think it’s the one that typically carries the biggest price tag as we think about it relative to the other insurance and typically carries more options than things like dental and vision and life and disability, which I think for many employers it’s more of a one-way type of option. So the big question here is how do I determine which one to get? And of course, all plans are created differently but when folks are looking at these and you’re evaluating the deductibles and maximum out-of-pockets and premiums and copays and coinsurance, unfortunately, it’s a system that even though our audience is comfortable with all of those numbers because they live in it in the job that they’ve done or have been trained in it previously, there’s just a lot to consider. And if you look at plans, let’s consider a three-tiered plan where you’ve got like a bronze, silver, gold option, you know, you’re looking at OK, less out of pocket, more out of pocket, better coverage, but perhaps I could have lower out of pocket and I could use that money elsewhere. Like general framework, how do you begin to help clients think through this decision and not just look at it in a silo but also consider it in the context of the rest of the plan?

Tim Baker: Yeah, so I think it’s — you know, everyone can say it with me — it depends, right? So you know, I think a lot of it depends on past history or — you know, you mentioned a few things like what’s kind of on the horizon? Is it getting married or having kids? And some of those will allow you to kind of elect insurance outside of the open enrollment period. But those are typically qualifying events. But you know, an example is when we had Liam, when Shea was pregnant with Liam, we opted out of the bronze package, you know, the HSA plan to more of a gold package because we knew that the doctor bills and the hospital bills were going to be there. Our thought process was, you know, although in most cases we’re not going to the doctor a lot, you know, during a normal year, well, electing to a higher deductible plan, which means less coming out of our paycheck but then when we do go to the doctor, there’s going to be potentially more coming out of our pocket. So we did that to get in front of it a little bit. And you know, that’s really important from a planning perspective and kind of mitigating as much of the costs — and we probably saved ourselves if we did the math $1,000 by doing that. So that’s an important part of the plan. Now, sometimes things are going to come up and you’re just not going to — you know, it’s kind of like that emergency fund. You’re just not going to know for the future. But I would say is it’s a little bit of an exercise in looking at your past history, so looking at how often you’re going to the doctor and how often you’re reaching into your pocket to pay for things like copays and things like that. But then also projecting it forward, so that’s kind of where the conversation starts is that, you know, if you’re a younger, healthy professional and you’re not really going to the doctor, then you probably should really consider kind of a bronze, high-deductible, HDHP plan and couple that with the HSA, which we’ve said is a great forum to stash dollars. If you’re looking at regular doctor visits because of a chronic issue or something like that, that’s not going to be for you, regardless of your age. You just know that you’re going to be in and out of the doctor’s office. So I think it’s really looking at, again, kind of the budget and seeing what money has been spent on healthcare costs in the past and then what you think, project those going forward. And like I said, like this is not — it’s important, but these are taking it like snapshots one year at a time. So you can — like after Liam was born and the medical expenses were gone, then we went back to the high-deductible plan with the HSA. So I think it’s really important to kind of take stock of kind of your history, your medical history, your spending on healthcare, to form the baseline of your decision in that realm. The other comment I would make, Tim, is not all 401k’s are created equal. And as many of us know, not all health plans are created equal. So some are really, really great, and some are really, really terrible. And sometimes, that has to do with the size of the organization, sometimes the economies to scale, the bigger that you are, the less that each participant pays, whether that’s the 401k or the health insurance plan. So you kind of have to work with the sandbox, you know, that you’re playing in, so to speak, and something that can be very much out of your control.

Tim Ulbrich: Yeah, and I think, Tim, your example of Liam is a great reminder of not putting open enrollment on auto pilot.

Tim Baker: Yeah.

Tim Ulbrich: And I think that’s what we’re trying to stress here is like, using this as a chance to re-evaluate each year, you know, what happened last year? What worked last year may or may not be what makes sense for this year for a variety of reasons. And I think this is certainly a place where we want to be evaluating what does the cash position look like? What does the reserves look like? And how do we feel about that? Especially if we’re going to be opting into a high-deductible health plan, you know, thinking worst case scenario — hopefully never happens — looking at those out-of-pocket maxes and really asking yourself, how comfortable are we with that happening? How does that make us feel? And could we weather that storm if it were to come?

Tim Baker: Yeah, and you know, and we’ve had some tough conversations with clients that are deep in credit card debt and they really need as much of their income to kind of like right the ship and get going, so sometimes it means sacrificing or being uncomfortable here. You know, one of the things I look at is like if we look at all the debts that are out there, medical debt is not necessarily a bad debt in terms of like they reformed a lot of things with it hurting your credit because it’s kind of been a nightmare, you’re typically not gouged with higher interest rates and things like that. So typically more forgiven. I would even say push back on a lot of medical debt because it’s wrong. I think Tim, you had a story about that when one of your sons was born. So there’s a little bit more give I would say than some of these other ones that goes like right to collections and you’re in a lot of trouble. So it’s kind of — this is all about like mitigating the risk and trying to understand where can we give a little bit so we’re OK.

Tim Ulbrich: I want to shift gears, Tim, to life and disability. Probably one of the most common questions that we get is, do I need to purchase additional life and disability insurance beyond what my employer covers? And of course the answer is it depends on a large part of the individual’s situation and what they have going on and what they’re trying to do with those policies and so forth. But you know, general thoughts and discussion on how one goes about making this decision in terms of understanding what coverage is there from an employer standpoint, determining what total coverage may be needed, and some of the gap and differences between an employer plan and if they purchased a policy out on the open market.

Tim Baker: I think if we look at most pharmacists out there, you know, professionals that are making a six-figure salary, I think there’s going to come a time when there probably is a need to purchase policies outside of what the employer provides. Now, the problem with the financial services industry is that a lot of “financial advisors” are trying to push those policies on a young professional when they probably don’t need them. That’s when you’re a pharmacist that has maybe six figures of debt that’s going to be forgiven if you die or are disabled with no dependents and really, you know, not much on your balance sheet. So there’s kind of like this gap of do I really need this? Or can I just make do with what my employer provides? I’ll say this about the employer-provided policies: Outside of health insurance, which is a health plan, I would say that things like life and disability insurance are not plans. They’re really perks. So they’re meant to supplement or meant to provide some type of benefit that will help the employee but also it’s a way to kind of retain you and things like that. So I really view these as perks and not necessarily plans. I would say, to your point, Tim, I think it’s really looking at the individual and say OK, does it make sense to buy a policy outside of that? Most employers will provide some type of life insurance benefit, whether it’s something like $50,000 or one or two times income, which you can then elect to either increase your coverage or not. I think the downside of that is, you know, if you’re working for an employer as a 30-year-old and you have all of your eggs in that basket and you’re saying, “Hey, I have $1 million” or a lot of times, they’re capped. Most times, pharmacists need a lot more than what their employer can provide. So that’s one of the drawbacks. But if you’re working with that company for 40 years and then you leave to go to another organization, which maybe that isn’t provided or it’s a lot less of a benefit, you have a gap, then you’re going out in the market 10 years older where you’re paying a lot more for that particular policy. So that’s one of the things that — sometimes they’re portable, meaning that you can take them with you, and sometimes they’re not. So for both the life and disability, you know, it’s really looking at your own situation. Just like open enrollment itself, this is one of the things that often overlooked, just insurance. And I know we’ve probably done a podcast in the past about what’s proper life and disability and things like that.

Tim Ulbrich: Yep.

Tim Baker: For the disability, the coverage is typically going to be a percentage of your income. And again, it could be capped, and some employers will offer both long-term and short-term disability. You know, both are great. But you know, oftentimes, because of one reason or another, there’s going to be a gap in the coverage either because of taxes or just that a pharmacist, what they make and what most professionals will say that you need to kind of cover down and typically, that can be anywhere from 50-80% of what your income is, that there is a need to go out onto the open market and buy individual policies. But from an open enrollment perspective, I think if you don’t have those policies, it’s really important to understand, you know, what is there for you? And what can at least tide you over until you get those policies in place? And again, it’s one of those things where it’s like, it’s not important to you until it’s important to you. And it’s really hard to kind of, to show that to clients unless they’ve experienced that pain themselves or a close family member.

Tim Ulbrich: Yeah.

Tim Baker: But it’s going to be a really important piece of protecting the overall financial plan, which is — this is really what this is all about is, you know, insurance is really protecting the financial plan from a catastrophic event and ensuring that you can continue to build wealth and survive into the future.

Tim Ulbrich: Episode 044, Tim, How to Determine Life Insurance Needs, 045, How to Determine Disability Insurance Needs, two that we’ll link to in the show notes. We’ve got more information on the website as well, YourFinancialPharmacist.com. Tim, I think one of the common mistakes I see made here just relating to that discussion on gap in coverage is not digging into the policies to really understand, you know, life insurance is maybe the most obvious example where if you have a policy — if you have a need for life insurance and you have a term policy that’s offered for $50,000 or $100,000 or one times salary or two times salary, typically, those have a cap on them. For many folks, there’s going to be a gap and a shortage. And I think this is where, you know, sitting down one-on-one with someone to really calculate the total need, think about the transferability issues that you mentioned and what does it mean if you pick up employment, tax considerations, and really getting into the weeds of some of the nuances of the policies and things like own occupation, we’ve talked about that before and its importance. And again, thinking about how this fits in with the rest of the plan. And just a shoutout here to our fee-only financial planning team at YFP Planning, this is really where I think the value of fee-only comes in in that really sitting down with someone to determine what is their true need in their best interests. Not too much coverage that there’s dollars being spent that could be put elsewhere in the financial plan, but making sure we’re also not exposing the plan to unnecessary risk.

Tim Baker: Yeah, I mean, you know, this — what we’re talking about here are products. Like insurance is a product. So any time that you talk about dispensing a device, “Hey, Tim, you need life insurance,” and you say, “OK, great. Like where do I get it?” Like we can sell you this product. There’s going to be a conflict of interest. So having someone that is a fee-only fiduciary that is not further enriched by the advice that they’re giving, you know, strips away a lot of that, well, am I being advised in my best interests or in the advisor’s best interests, the one that’s advising me. So that’s I think the beauty of fee-only.

Tim Ulbrich: One example I just want to give here, I just pulled up, Tim, our long-term disability coverage that we added recently for the YFP team.

Tim Baker: Yeah.

Tim Ulbrich: And you know, if you look at it on kind of the main benefits platform, it says, “60% monthly income up to $6,000.” But this is an example where digging deeper is so valuable. You know, you get into things like what is the definition of earnings? So our policy, it’s base wage. So how you’re compensated could have an impact here.

Tim Baker: Yep.

Tim Ulbrich: What’s the elimination period or the timeframe from when the disability happens to when the benefit starts to pay out? Here, it’s 90 days. But if it’s shorter than that, perhaps longer than that, what’s the game plan to fund. Does it have own occupation coverage? We’ve talked about the importance of that before. What’s the maximum benefit? Our policy goes up to age 65. And then things like coverage restrictions, other incentives. So really, just a reminder of this time period and using this point here to really dig into this information and read the policies.

Tim Baker: Yeah, you know, and again, going back to those episodes you mentioned there, that’s where we kind of talk about the nitty-gritty, but I think the beautiful thing about this is like when we’re reviewing this and we kind of look at the — kind of go through the open enrollment optimization stuff is like as a planner, I’m looking at your balance sheet. So I’m like, alright, does it make sense to bolster — you know, because a lot of these, you can opt in. So like our policy doesn’t do this, but a lot of policies, they’ll say, “The employer pays for a 60% benefit of your earnings.” But then you can opt in to get that up to 80%. So you pay an additional — you pay out of pocket out of your paycheck for that additional 20%. If I’m looking at your balance sheet, Tim, and I’m saying, “Man, you have plenty of cash,” I would say, “Let’s not opt into that.” Or we might say, “Let’s do it,” because we know because the employer is going to pay for it, that that benefit’s going to be taxed.

Tim Ulbrich: Yep.

Tim Baker: If the employer pays for the benefit, it’s going to be taxed. That’s the gap. You know, so the idea is looking at your situation and overlaying what’s out there. I think the open enrollment, what I say is we want to look at the things that you’re paying for and say, does it make sense for you to be paying for it? I see a lot of AD&D insurance, and I kind of look at this as like — and again, this is not advice — but I kind of look at those as like when you buy something at Best Buy and they ask you about the warranty. You know, most of the time, you say no because it’s just not worth the money. Some of these things in open enrollment, it’s the same thing. It’s like AD&D, for those to pay out is very rare. So even if it’s $2 per pay period, I’m like, I just don’t think it’s worth it. So we’re trying to make sure that you’re not paying for things that don’t necessarily provide you much benefit, much utility. But then you are paying for things that do. And you know, kind of finding that Venn diagram of sorts to make sure that, again, we’re fully optimized with regard to this part of your compensation package.

Tim Ulbrich: AD&D, for folks that are wondering, Accidental Death & Dismemberment insurance.

Tim Baker: Oh yeah. Yep.

Tim Ulbrich: Tim Baker dropping some financial lingo here.

Tim Baker: Sorry about that. Yeah.

Tim Ulbrich: Tim, next I want to talk about FSAs, dependent care FSAs, especially since we’ve had some changes that have happened there as well as HSAs. And we’ve talked probably among these to the greatest extent, we’ve talked about HSAs because of the value of what that can provide as well as these other options. And we’ve talked about it on the podcast, we’ve got some blog posts, Episode 165, The Power of a Health Savings Account, also have an article on the blog, which we’ll link to, about really more of the strategic investing side of an HSA if you’re able to do that. So Tim, high level overview, FSA, dependent care FSA, HSA, and some of the differences and considerations for these accounts.

Tim Baker: The very crude way that I remember the difference between FSA and HSA is FSAs are really use-or-lose. So when you fund these with pre-tax dollars, if you don’t use those monies for the purposes of healthcare for an FSA for healthcare or dependent care for a dependent care FSA, you lose it. So it’s F-udge. Like I don’t get — you don’t get to use that money. Whereas the HSA, this is — can potentially be an accrual account, meaning that year over year, you can stack Benjamins and hopefully one day becomes that kind of stealth IRA that we talk about that has that triple tax benefit. So like I said, we’ve talked about the HSA ad nauseum. It has to be paired with a high-deductible health plan. You know, you can put the money in. It has a triple tax benefit, which means it goes in pre-tax, it grows tax-free so you can invest it like an IRA, and then you can distribute it in the near term for approved medical costs or when you reach a certain age, you can use it basically for whatever. So that’s the beauty of the HSA. But you know, again, it only works or you only have access to it when it’s paired with a high-deductible health plan. The FSA for healthcare is similar, but very different. So you’re allowed to use — you’re allowed to fund it with pre-tax dollars, meaning if you make $100,000 and you put $1,000 in there, you’re taxed on as if $99,000. So I think the limits for FSA for 2021, I think it’s like $2,750.

Tim Ulbrich: That’s right. Yep.

Tim Baker: Yeah. So the idea is that what you’re trying to do here — it’s a little bit of a game of chicken. So what you’re trying to do is really, again, see into the future and say, “OK, what do I know is a baseline that I’m going to use on my out-of-pocket healthcare expenses?” And if you know for sure that you’re going to spending $2,000 on that, then you should fund it with $2,000. And typically, there is a little bit of give at the end of the year where you can either carry some over or you have some time into the New Year to use it on.

Tim Ulbrich: Two months or —

Tim Baker: Yeah. And every plan is going to be different in its design. So you might be loading up on kind of some of the over-the-counter stuff. I’ve had a client buy a bunch of stuff for like contacts and things like that. So it’s going to be really important to kind of — again, this goes back to the spending plan, the budget, to understand what have you been spending in the past? Is that going to be indicative of what you will spend in the future? And then fund that with at least that baseline amount so you don’t lose it. The same thing can be said for the dependent care FSA. So this is a pre-tax account that you can fund that is used for care for your child who is age 13, for before- and after-school care, babysitting, nanny expenses, daycare, nursery school, preschool, summer day camp, and then also care for a spouse or a relative who is physically or mentally unable to care for themselves and lives in your home. So this money — this has actually been amended under the American Rescue Plan Act. So I think for single and married filing jointly couples, the pre-tax contribution limit went from where you could $5,000 a year, now it’s I think $10,500.

Tim Ulbrich: Significant jump. Yep.

Tim Baker: Yeah, very significant. So the higher limits apply to the plan year beginning Dec. 31, 2020 and before Jan. 1, 2022. So it is a temporary thing, but it allows you to park some dollars that you would otherwise — so if you’re in a 25% tax bracket, it’s as if you’re saving 25%, kind of thinking about it that way. So that’s what really — and for the FSAs, unlike the HSA, the FSA is — it has to be provided by the employer. I think we had a question on the Ask a YFP CFP about the HSA. And you don’t have to necessarily go through your employer. Sometimes, the employer doesn’t offer it. So you can go out and set up your own HSA. The FSA has to be provided by the employer for you to have access to it. So that’s really important. Again, these are all going to be — when you elect it, it’s going to take money out of your paycheck and basically fund these accounts for the appropriate purpose.

Tim Ulbrich: Yeah, and this to me is where when we’ve talked with Paul Eikenberg, our director of tax, and working with our clients, one of the things he talks about here is these being untapped areas of potential.

Tim Baker: Totally.

Tim Ulbrich: And so I think there’s a lot of low-hanging fruit in the financial plan. And I think really evaluating these and perhaps the dollars of any one don’t jump out as being super significant, but I think as we start to add these up with other strategies, there certainly is value. And Tim, you had mentioned we did tackle a question recently on Ask a YFP CFP 084. The question was about fees on an HSA account, but we did talk about the opportunity to access an HSA account independent of the employer. So we’ve talked about health insurance, we’ve talked about life and disability, we’ve talked about FSAs and HSAs and dependent care FSAs. I want to wrap up our discussion by retirement saving options. And I think, again, this is an opportunity to take a step back, look at the overall progress on the investing part of the plan, overall goals, perhaps gap between the goals and where you’re currently at, and then to evaluate where does investing fit in with the rest of the financial plan. And so when we think about, Tim, employer-sponsored retirement accounts, two main buckets we have, which are those that are Roth contributions and those that are traditional. So define for us the difference between those two for folks that are — maybe have some outstanding questions about those or unsure as well as the limits of what we’re able to do in 2021.

Tim Baker: Yeah, so — and I’ll preface this by saying that most of — you know, open enrollment is a good time to check in on your retirement savings options. You’re not necessarily bound to that because you can go in —

Tim Ulbrich: Correct.

Tim Baker: — really at any time and say, “Hey, I was putting in 5%. I talked to a YFP planner, and they said I should put in 8%. That’ll put me on track to get my $5 million nest egg, so that’s what I want to do.” I can really do that at any time. Or I can say, “I want less Roth and more traditional,” or whatever the case is. So it’s just a good opportunity, it’s a good checkpoint to say, OK, where am I at and should I make any tweaks? So — and one of the things that they often do here is they allow you to put in an escalator. So you know — and you can do this any time too, but it’s a good thing to do in open enrollment so every year, you can increase that by 1% or 2% or whatever that looks like. So to answer your question, Tim, the Roth v. traditional, so most employers will offer a 401k or a 403b or if you work for the government, a TSP. So when you elect your retirement options here, a lot of them will now — you’ll have a traditional — so think of two buckets. You’ll have a traditional 401k and a Roth 401k.

Tim Ulbrich: Yep.

Tim Baker: And they’re all under the same plan, but they segregate the monies because for a traditional, these are pre-tax dollars. So that example I gave you is if you put in $1,000 into your 401k and you make $100,00 — your traditional 401k — and you make $100,000, you’re taxed as if you made $99,000. For a Roth, it’s after-tax. So same example, if you put $1,000 into your Roth 401k and you make $100,000, you are taxed as if you made $100,000 because you’re not getting that pre-tax deduction. So for these dollars, the money is either taxed going in or coming out. So for a traditional, you’re not taxed going in, but then it grows tax-free inside of that account, and then you’re taxed when it is distributed, hopefully in retirement. For the Roth 401k, you’re taxed going in, so you don’t get that deduction, but then it grows tax-free and when it comes out, it’s not taxed because it’s already been taxed going in. So a lot of people will say Roth, Roth, Roth. And again, it’s going to depend on your plan. It’s going to depend on what you’re trying to achieve. And a lot of people get this wrong as well. So this is another good check on it to make sure that you’re putting the dollars in the right spot. Your match that your employer provides, if there is a match, is always going to go into a traditional account.

Tim Ulbrich: Yep.

Tim Baker: So if there is a match, you’re going to have — some people get it twisted like, I’m 100% in my Roth 401k, but I see money in my traditional, like what gives? And I’m like, well, this is the money that your employer is matching. It’s going to go there, you know, regardless. So it’s really important, you know — so to kind of give you some numbers with 2021, to max out a 401k, a 403b, it’s $19,500. So you can put that in regardless of how much money you make. So that’s really going to be the limit for the 401k. IRAs are a completely different animal. They’re $6,000, this completely separate accounting mechanism. And that’s going to be dependent on your income whether you can put it in directly into a Roth or a traditional IRA and if you get the deduction. And I know we’ve had podcasts on that as well. But the point of this, Tim, is that the open enrollment exercise is a great opportunity to kind of just do a once-over for your retirement savings options and just make sure that one, you’re in the proper allocation but then it’s also in the Roth v. traditional, and then just making sure that you don’t get stuck in that hey, my employer matches 3%, so for 10 years, I’ve just been putting in 3%. You don’t want to do that because more often than not, it’s not going to be enough for you to retire comfortably. So this is another way to kind of check those things and push the envelope a little bit.

Tim Ulbrich: Yeah, and I point folks back to Episode 074, when we talked about evaluating your 401k plan, also more recently, Episode 208, when we talked about why minimizing fees on your investments is so important. Certainly relevant here as we talk about employer-sponsored retirement plans where we can see a lot of variabilities in those investment options and in the fees. As we’ve said a couple times now throughout the show, open enrollment is such a great time to take a step back and evaluate the financial plan. And for folks that are going through this process and think, you know, I really see the value in working with someone one-on-one to look at the financial plan holistically, to determine how to prioritize the goals, make some of these decisions around open enrollment, could be debt repayment, investing, tax evaluation, and so forth. We’d love to have a chance to talk with you about the YFP Planning comprehensive financial planning services that we conduct on a one-on-one basis. And you can learn more about those services as well as schedule a free discovery call by going to YFPPlanning.com. As always, thank you so much for listening. We hope you have a great rest of your week and look forward to having you join us again next week.

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