financial planning

The FIRE Prescription: How to Retire Early as a Pharmacist

Posted on May 14, 2019May 2, 2023 by yfpadmin

The FIRE Prescription: How to Retire Early as a Pharmacist

The following is a guest post from Dr. Jeffrey Keimer. Dr. Keimer is a 2011 graduate of Albany College of Pharmacy and Health Sciences and pharmacy manager for a regional drugstore chain in Vermont. He and his wife Alex have been pursuing financial independence since 2016.

If you’ve started going down the internet’s personal finance rabbit hole, you’ve no doubt crossed paths with the FIRE movement. FIRE (financial independence, retire early) is a concept that’s been gaining a lot of traction lately. What was once considered a fringe topic, mostly covered by blogs such as Mr. Money Mustache or Early Retirement Extreme, has morphed into a widespread movement with mainstream coverage. Some are even calling it “the ultimate life hack.”

But what is it and why should it matter to us, pharmacists?

What is FIRE?

FIRE is based around the concept that it is possible to retire early (ie. before 65) by living off the income generated passively through investments. This is not a new concept. All throughout history, people have done this. You might think of this crowd as the 1%. So why all the buzz now?

Because it turns out, you don’t have to be a 1%’er to make it happen. Say what?!

How?

Because one of the core tenants of the FIRE movement is that the amount of money you need for retirement is purely a function of your expenses and NOT your income. You can control your expenses.

Should You Join the FIRE Movement?

But what about us? As pharmacists, we’ve sunk a lot of time and effort into getting where we are. So much so, that when people ask you what you do, you don’t respond with “Well, I work for company _____ in the _____ department,” you respond with “I’m a pharmacist.” What we do is embedded in our identities. So, you may ask yourself, why should I get into the FIRE movement? Surely, this whole retire early business is something only a cubicle worker who files TPS reports all day would dream about right?

Maybe, maybe not.

Maybe you feel burned out or you’ve just become disillusioned with our profession. That’s what one pharmacist, Jason Long of Tennessee, felt and decided FIRE was the way to go. In a NY Times article covering the FIRE movement, Jason cited burnout and job dissatisfaction as the primary reasons why he adopted a FIRE mindset and called it quits early.

He’s not alone in his feelings about the profession either. According to a recent article in Drug Topics, job satisfaction in pharmacy overall isn’t great with 29% of respondents to their survey indicating that they’d be looking for a new job in the next 12 months. Reasons cited: increased work volume and less help to do it. Factor in a more saturated job market, lower compensation packages, and the potential for Amazon to disrupt the whole industry with its Pillpack acquisition and there are plenty of reasons for a pharmacist to feel like their profession is on the ropes.

But maybe that’s not you. Maybe you love your job and love being a pharmacist. What then? Well, FIRE has something to offer you, too. In a word: options. Personally, I love being a pharmacist (I even work retail if you can believe it). Financial independence without the retire early angle can give you the flexibility to get more from your career. Mid-career residency? Part-time by choice? Want to start a business? In short, there’s a lot of power in not needing a paycheck.

How to Retire Early as a Pharmacist

Now that I’ve talked it up, it’s time to get down to brass tacks and layout a roadmap for FIRE. There are a few important concepts to understand, but before we get into that, I think it’s important to highlight some of the things that FIRE isn’t:

A get rich quick scheme
Some guru’s course
A set formula
Easy

That last one is the big one. FIRE is not something to go for on a whim or halfheartedly. It will not happen overnight. It will involve sacrifice and, probably, a fundamental change in your relationship to money. You need to have a good reason for pursuing FIRE if you’re going to be successful. In short, you’re going to need one heck of a WHY.

Got it? Great.

So how does it work? Like I said before, there are a few concepts that form the basis of the FIRE movement and here’s a good order to introduce them:

Safe Withdrawal Rates and the “4% Rule”
Reducing Expenses and Increasing Savings Rate
Investing
Drawdown

Safe Withdrawal Rates and the “4% Rule”

As mentioned before, FIRE philosophy focuses on expenses being the main variable in determining how much you need to retire. But the question remains: how much do I need? Luckily, the academics have provided that answer with what’s called a “Safe Withdrawal Rate” or SWR.

So what’s that? First, the long answer.

SWR refers to the rate (expressed as a percentage) that a retiree can realistically take out of their retirement portfolio, adjust for inflation every year, and never run out of money. Based on academic research, notably the Trinity study, this number has been said to be 4% when applied to a portfolio consisting of 50% stocks and 50% bonds. In that study, the authors looked at different mixes of stocks and bonds over different 30 year stretches from 1925-1995 to determine the probability of portfolio failure (ie. running out of money) when different withdrawal rates were applied. In all those scenarios, it was determined that a person who took out 4% of the portfolio and then adjusted their subsequent withdrawals for inflation going forward had a 0% chance of running out of money at the end of the 30-year period. From this, we get what’s known as the “4% rule.”

In short, if you divide your yearly expenses by 0.04 (or multiply by 25!) you come up with a portfolio balance (your FIRE number) that can provide a stream of income to cover your expenses for at least 30 years, if not indefinitely. Now, this is somewhat of an oversimplification, which is why 4% being a “rule” needs to be taken more as a guideline, but you get the gist. In today’s environment, SWRs might be lower, but for now, you can estimate your FIRE number like this.

Yearly Expenses*25 = FIRE Number

For perspective, that means $1,000,000 can provide you with a $40,000/yr (plus inflation) forever.

Reducing Expenses

Since how much you spend is what determines how much you need to save, cutting expenses really accelerates the whole process. Frugality is your friend. Just think, if you’re spending $100/month on cable and decide to cut the cord, that’s an extra $30,000 you DON’T need to save. What about a car lease payment? Or a McMansion? Then we’re talking in the hundreds of thousands to MILLIONS less.

Note too, that by cutting expenses, you also free up money to save. The rate that you save (taken as a percentage of income) is what really determines how long it will take for you to reach financial independence. To illustrate this point, we’ll use an early retirement calculator.

Assume Bob is a 24-year-old new practitioner making $120,000/year gross with no prior savings and a 5% rate of return on investments.
If after taxes and expenses, Bob can save $18,000 per year (15%), he will hit financial independence in about 43 years at the age of 67. This is pretty standard retirement savings advice, by the way.
However, if Bob can jack up his savings rate to 30%, he can now retire in 28 years at the age of 52.
And, if Bob goes all-in on FIRE and gets that rate up to 50%, he can retire in a little under 17 years. Just after he turns 40. Bob wins.

See, math can be fun!

But cutting expenses isn’t just about choosing to go without cable or driving a more sensible car, it’s also about getting out of debt. Debts are expenses just like any other and should be dealt with as part of your FIRE plan.

Unfortunately, this is the stage of the FIRE journey that involves the most pain. In a way, it’s like committing to losing weight. Your budget is your diet and you’re only going to get the results you want by sticking to it. Thankfully, maintaining a budget is easier than ever thanks to apps such as YNAB and Mint.

Speaking of debt, even if you’re not fully sold on FIRE, getting out of debt is transformative and something everyone should strive for. I don’t agree with Dave Ramsey on much, but he is right when he says, “the borrower is a slave to the lender.” Debt such as student loans, car loans, credit cards, etc., chains you to work in a way that’s just unhealthy. You can have the greatest job ever, but if you need your whole paycheck to service your debts, your relationship with your work is going to suffer and you’ll probably start resenting it.

That said, there’s one important caveat to getting out of debt that pharmacists should keep in mind. Bringing the full-on beans and rice diet intensity to your student loans may not be the best course of action if you can qualify for loan forgiveness. With FIRE, optimization is key. You may find it more profitable in the long run to forgo paying off your student loans outright if you qualify for some of these programs. Check out this YFP podcast episode on how to optimize forgiveness.

Another way to reduce your expenses could be refinancing your student loans or mortgage. Lowering your monthly payment on your mortgage or student loans will likely save you a lot of money each month. With these additional savings, you could put even more toward knocking out your debt! While student loan refinancing isn’t for everyone especially if you’re pursuing PSLF or non-PSLF loan forgiveness, you could earn up to $800 in a cash bonus from a reputable company YFP has partnered with!

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Investing

The umbrella of “investing” covers a wide range of topics but in this article, I’m only going to briefly touch on the two major types of investments most pharmacists will encounter on their journey to FIRE: paper assets and real estate.

Paper assets are those such as stocks and bonds that you can invest in using 401(k)s, 403(b)s, 457s, IRAs, and brokerage accounts. These are the types of assets that generate truly passive returns and, with a properly diversified portfolio, can make FIRE possible. That said, there’s no one way to go about investing in these.

Within the FIRE community, index investing strategies (aka. indexing), such as those advocated by JL Collins, are quite popular. Central to indexing is the focus on low-cost index mutual funds. What are those? Without getting too much into the weeds, they’re mutual funds that give investors a diverse basket of stocks or bonds (sometimes all of them) at little or no cost. In general, these strategies call for a gradual decline in the proportion of stocks (high risk, higher return) to bonds (low risk, lower return) over time. And, while this isn’t different from the conventional approach to investing, the emphasis on using funds with low costs can make the whole process more efficient. Is indexing the best way to go about FIRE? Maybe, maybe not. However, it is one of the most accessible and can get you started.

Beyond stocks and bonds, many FIRE devotees choose to invest in real estate. In addition to acting as an asset that isn’t correlated with either the stock or bond markets, real estate investing can provide a level of passive income that can decrease the amount of money you need to save in paper assets. While not necessary to FIRE, many investors find real estate to be a worthwhile pursuit and can accelerate your path.

Drawdown

Finally, after amassing your war chest, you need a way to get at it. Since the primary vehicle most people use is a retirement account, how do you get the money out before regular retirement age? Fortunately, the FIRE community’s good at finding loopholes. Between Roth IRA laddering, 72(t) distributions, or simply taking the money out at a lower tax rate and paying the penalty, there are ways to jailbreak your money in a way that makes sense.

How to Join the FIRE Movement

So how do you get started? First and foremost, make a commitment to taking control of your finances and making them a priority. Second, get your spouse or significant other on board (super important!). Third, take action in a way that makes sense for you. Lastly, join others in the FIRE movement by connecting with groups online. FIRE isn’t just a movement but a community.

So, if this all sounds good, I invite you to take charge and change your life.

Welcome to FIRE!

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The 6 Biggest Factors Affecting Credit Score Right Now

Posted on April 29, 2019 by yfpadmin

The 6 Biggest Factors Affecting Credit Score Right Now

You often hear how important your credit score is especially leading up to a large purchase. Mom taught me it is important to pay my credit card balance each month, but I never really understood why except for the fact that I didn’t want to pay interest on an outstanding balance.

Yet this little number can have far reaching effects, such as the ability to even get credit or how much you’ll have to pay back based on the interest rate you’re afforded. The latter can move the needle tens of thousands of dollars, if not more. If I asked you what the biggest factors affecting credit score are, you might look at me like this:

It’s important to understand what goes into this score, so you can improve it if need be. Before we get into the six different factors, let me drop a little background knowledge on the subject. In 2003, Congress passed legislation called the Fair and Accurate Credit Transaction (FACT) Act that affords U.S. residents to receive one free credit report every 12 months for each of the three major credit reporting companies, which include Equifax, Experian and TransUnion.

These credit reports, populated by all those lenders/creditors out there, determine your credit score. One misnomer is that the law does NOT require these companies to give you your credit score for free (just the credit report).

Let’s first breakdown what your credit score is and why it matters. Your credit score is a number that summarizes your credit risk, based on a snapshot of your credit report at a particular point in time. So, for those of you that have a less than perfect score, fret not! There are things you can do immediately that can have a positive impact on your score.

Your credit score tells creditors how able you are to pay back your debt over the next 2-3 years. Credit scores are like batting averages, not golf scores, so the higher the better. Higher credit scores equate to the best credit approval rates (so you don’t get denied to finance that new whip), the best interest rates and the possibility of being extending unsecured credit (meaning there’s no collateral like the aforementioned whip that the lender can take back).

It is worth noting that there are different types of credit scores out there with FICO® being the most common. Others include the VantageScore or PLUS Score®. Typical credit scores range from 300 to 850 with 850 being the best. Okay, now that we have a little background information, let’s dive in to see what factors determine your credit score.

1. Credit Card Utilization (High Impact)

This is a high impact factor, which means it’s very important to your credit score! The lower the utilization, the better. Lenders like to see that you’re not using too much of the credit available to you. The tip here is to keep your balances low. Another trick is to ask for a credit limit increase, which will help keep your utilization low.

Use caution though! Don’t think that an increase to your credit limit is an invitation to spend more. A general rule of thumb is to keep your utilization under 30% for good credit and under 10% for excellent credit. This means that if you have a total $10,000 credit card limit, you should carry no more than a $1,000 balance to have excellent credit card utilization. See below for the utilization percentages.

2. Payment History (High Impact)

This is also a high impact factor. Lenders look at this factor to determine how likely you will make future payments on time. A payment that is more than thirty days late constitutes a late payment and, believe it or not, one late payment could hurt your credit score. Also, the credit report keeps track of payments that are 30, 60, 90 and 120 days late, so if you go beyond thirty days, go ahead and get a payment in so you don’t get hit for a sixty-day lateness. A tip here is to set up automatic bill pay so you’re never late.

3. Derogatory Marks (High Impact)

This is the last high impact factor with less derogatory marks being better. A derogatory mark on your credit report could include something like the aforementioned late payment, repossession, a debt going into collections or even bankruptcy. The general rule of thumb is that these derogatory marks can camp out on your report for up to seven years, so do what you can to avoid them. Again, establishing automatic bill pay or setting reminders in your calendar to make a payment are crucial to avoid these on your credit report.

4. Age of Credit History

The higher (or longer) credit history, the better. Lenders like to see that you have experience using credit. This isn’t always fair to the young consumer out there but look at it from the lender perspective. Would you be more comfortable lending to someone approaching retirement that has an expansive credit history or someone who just graduated high school?

It’s a no brainer. One thing consumers often do is close paid off cards or zero balance lines of credit. This isn’t always the best method with regard to your credit score. You can actually improve your age of credit history over time by keeping your accounts open and in good standing. After all, it takes nearly a decade of history to be considered excellent in this regard!

5. Total Accounts

The total accounts are also important to lenders. This factor suggests that other lenders have trusted you before. When I first learned about this, my thinking was backward. I thought lenders would like to see fewer accounts, not more. However, lenders like to see several varying accounts, such as revolving, installment and open accounts because of the behaviors that are associated with them.

Revolving credit accounts (like a credit card) have varying payments and anything you don’t pay is carried over to the following month with an agreed-upon interest charge. Installment credit accounts (like an auto loan or home mortgage) are accounts that typically have fixed payments with balances that amortize on a fixed schedule over time. Open credit accounts (like utility payments or cell phone bills) are paid in full each month and don’t carry over.

These particular types of accounts rarely show up on a credit report unless you decide against paying the water bill or Verizon for all that data you mistakenly used last month. You can improve your credit score by adding another type of account, however, use caution. Think twice before adding an account just to improve your overall number of accounts. Sometimes it isn’t worth the additional risk of taking on more debt.

6. Hard Inquiries

The last factor is hard inquiries with less inquiries being better for your overall credit score. Hard inquiries hit your credit report when you apply for credit. Although they are unavoidable, try to avoid unnecessary hard inquiries because they stay on your credit report for 2 years.

One trick to practice is to take advantage of pre-approved credit card offers instead of applying for them. Pre-approval means the credit company doesn’t need to check your credit so you can avoid the hit. Buying a car or some household furniture and need financing? It’s still okay to shop around for the best deal because multiple inquiries in a short period of time are grouped together and viewed on the credit report as one incident.

A few more things to note about the credit score. Often times you will see that there are differences in your credit score among the credit reporting companies. It is worth noting that each of the reporting companies uses its own proprietary formula for calculating credit scores that are not available for public view (or scrutiny).

This means that the way Equifax calculates your credit score will be different than how TransUnion does it. Another variable to consider is that creditors do not always report to every credit reporting company, which could alter a score for a particular reporting company. Oftentimes, scores are fairly close, but if your scores have a wide range, you may want to research why (that means digging into your credit report for some answers!).

Now if you’re a big Dave Ramsey fan, you know that he advocates striving for a zero or indeterminable credit score. This is because he strongly recommends paying off all of your debt and never using a credit card, ultimately leading to that situation.

While the intention is good in that it promotes reduced reliance on debt utilization, the reality today is that many organizations and financial institutions strongly consider credit score, regardless of your net worth and the rest of your financial picture. Therefore, it can be more difficult to get approved for a mortgage, investment properties, a lower rate for refinancing student loans, and sometimes even rent if you have a low or no credit score.

Conclusion

I’ve outlined the six factors that determine your credit score, coupled with a few nuggets that are hopefully useful to your own situation. Your credit score is a glimpse into your financial life and your ability to make good on your debts. Know your credit score, know your shortcomings with regard to your credit score and take the necessary steps to fix them to get that score as high as possible!

Need help navigating your credit or finances?

Figuring out how to navigate your finances and improve your credit can be tough if you have student loans and a lot of other competing financial priorities. If you need help improving your financial health, you can book a free call with one of our CERTIFIED FINANCIAL PLANNERS^TM.

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5 Key Financial Moves To Make With A New Baby

Posted on April 9, 2019June 16, 2023 by yfpadmin

5 Key Financial Moves to Make with a New Baby

The following is a guest post by Karen Berger, PharmD. Karen is a pharmacist and medical writer in Fair Lawn, NJ. Her husband has been trying unsuccessfully to put her on a budget for many years.

This post contains affiliate links through which Your Financial Pharmacist may receive compensation

In an earlier post, we talked about how to prepare financially when expecting. Once your little one makes his or her big appearance, though, the financial planning is not over – it has just begun. Continue to work on those important financial moves we talked about earlier, and start to incorporate these additional tips.

Nothing can prepare you for life with a baby. Whether this is your first or fifth baby, the first few months are exhausting. You walk around on a few hours of sleep every night – getting more than four hours of sleep in a row is cause for celebration. You might not remember the last time you showered or sat down for an uninterrupted meal. Although it is the last thing on your mind, financial planning for new parents is key to ensuring a strong financial position for the upcoming years.

1. Start Saving For College

With the average cost of college for 2017-2018 at $20,770 for in-state public schools and $46,950 for nonprofit private schools (including tuition, fees, and room and board), and prices increasing every year, it is never too early to start saving for college. Don’t forget to multiply these numbers by six (years), the average length of time students take to earn a bachelor’s degree, and also by the number of children you have.

Having a monthly savings goal is a fantastic way to help your children pay for college. NerdWallet estimates that saving $500 a month, per child, earning 5%, should be adequate for you to cover $50,000 of college costs per year for four years once your child turns 18. Obviously if you’re planning to pick up the tab for potential graduate or professional school, you’re going to need to save a lot more. You can find calculator tools online to tweak the numbers to your personal situation. Often, saving for college will involve a combination of several of the strategies below:

529 College savings plan: The 529 is the most popular savings plan geared toward education; there are two types. The first type is the 529 investment savings account. With this plan, you invest with the same risk/return profile of other stock investments. Check your own state for tax breaks or matching funding before looking into 529 plans offered by other states.

The second type is the 529 prepaid tuition plan. This method locks in tuition costs and avoids the yearly increase in tuition. Paying for 6 semesters now, at today’s cost, will pay for 6 semesters in the future, even if the costs are higher at that time. These plans are starting to have more restrictions.

Pros of the 529 include: high contribution rates (plans typically allow up to $300,000 in lifetime total contribution), the ability to change beneficiaries, and the benefit of tax-free growth. Also, if the parent is the account holder, the 529 is considered a parental asset and it will have a minimal impact on financial aid as compared to other education savings options.

On the other hand, there are a few cons of the 529. It is strictly to be used for education, so if your child does not go to college, the money may be unavailable for other purposes. However, depending on the plan, you may be able to change the beneficiary or pay tax and a 10% penalty on the growth of assets. There is also the inherent stock market risk.

Savings Accounts & Other Low-Yield Options: Savings accounts are flexible, but provide little in the way of interest. Using a regular checking/savings account with the intent to save for college may backfire, as money may be tapped into and not replaced. Not only that, but because of inflation which is typically around 2-3% per year, you may actually be losing money keeping it parked here. Certificates of Deposit (CD) and US Savings Bonds are other options, but these are mostly out of favor due to low interest rates. Sometimes, a very conservative contributor may favor this option.

Roth IRA: A Roth IRA can be used as a combination retirement account and educational savings account. It allows you to invest with after-tax dollars while the earnings grow tax-free. Although this is typically used as a retirement account with a penalty for early withdrawals on any growth before 59 ½, if used for higher education, distributions can be taken tax- free and penalty-free. The biggest downside to this is that it could significantly reduce your overall retirement projections. In addition, the distribution must be made in the same year that the qualified expenses are paid. Another item to note is this distribution is considered to be income to the student and could reduce eligibility for need-based financial aid.

Coverdell Education Savings Account (ESA): This is like a smaller version of a 529: it offers tax-free withdrawals, and you can invest in the market. However, one of the biggest advantages is that you will have a lot more investment options to choose from, since you won’t be limited to what’s available to what a specific 529 plan offers. Contributions are limited to $2,000 per year, and until the beneficiary turns 18. ESA’s may offer more flexibility, and qualified expenses may include educational expenses from Kindergarten all the way through graduate school (529 plans also now allow up to $10,000 per year to pay for private elementary and post secondary school tuition).

Important to note with a Education Savings Account is that income limits apply, and depending on your salary/combined salary, you may not be able to participate. Currently, the income limit for a maximum contribution is $190,000 for a married couple filing joint returns, and contributions phase out at $220,000 in 2018/2019. The limit is $110,000 for those not filing a joint return.

If you are indeed eligible to contribute to an ESA, the cool thing is that you don’t have to choose between an ESA and a 529 – you can do both!

Trusts: These are structured as UTMA or UGMA. Assets are transferred to the child’s account and invested on his/her behalf until the child reaches the “age of trust determination,” which is between 18-21, depending on the state. As soon as the beneficiary becomes an adult, he/she can use the money however he/she wishes. As a custodial account, these assets are considered to be assets of the child/student and are included in calculating financial aid. These funds will stay in the custodian’s taxable estate until the child reaches the age of trust determination.

2. Make A Will

This is the happiest time of your life – who wants to think about something depressing like a will? Although it seems sad, a will is a very necessary part of life. Just think about the recent, unexpected passing of 90210 and Riverdale star Luke Perry from a stroke at the young age of 52. That was a major wake-up call for many people to get their affairs in order.

In your will, you will clearly and concisely state your wishes for the distribution of your assets after death, and appoint guardians for your children if both parents pass away. You will designate an executor, who will ensure the provisions of the will are carried out.

You can either hire an attorney to create your will or do it yourself. I would recommend hiring an attorney if you can afford to do so. The attorney handles all of the intricate details, making sure nothing is left out and can keep a copy on file. Attorneys may charge a flat fee or hourly rate, with an average cost of $300-$1000 for an uncomplicated will, or up to $10,000 if you have complex assets and an estate, or the need to establish a trust.

Many companies offer a very affordable legal plan for employees, where you contribute a small amount per paycheck for legal representation by participating attorneys. At the time, my husband and I were able to do both our will and closing on our house, and we did not have to pay anything above the regular paycheck contribution.

If you would rather create a will yourself, you can use an online program or software to make a will for less than $100. Requirements for witnesses or other specifications vary by state.

Another thing you need to do that falls under the “no fun, but necessary” category, that goes along with your will, is to create a living will, or advanced directive. This lets you set the terms for healthcare providers about the kind of health care you want or do not want to receive, in the event that you are unable to speak or make decisions for yourself. The living will sets forth your wishes on resuscitation, quality of life, and end of life treatment. The Durable Power of Attorney for Healthcare is a designated, trusted person who will make medical decisions for you in an emergency situation, in cases where the living will may not provide a clear answer. This person is there to fill in gaps that are not clarified by your living will, and cannot contradict your living will.

3. Obtain or Update Life Insurance

Now is the time to get a life insurance policy, if you do not have one already. Life insurance ensures that your beneficiaries (spouse, children) are financially taken care of if you die.

There are two types of life insurance:

Term Life Insurance: This type of life insurance offers coverage for a specified period of time. It is less expensive than whole life insurance and has a predetermined guaranteed death benefit. Your premiums will increase at preset time intervals, such as every 10 years.
Permanent Life Insurance: A number of policies such as whole life, cash value, and universal life, fall under this umbrella. This type of insurance has a death benefit that never expires as long as you pay your premium. In addition, there is typically a saving/investing plan baked in, which is one of the benefits that agents use frequently as a marketing tactic. The rates of return vary, depending on the policy, and they are generally filled with many different kinds of fees. Plus, these policies are often much more expensive than term policies. Because of these issues, the YFP team recommends that most people should keep their savings and investments separate and go for a term life insurance policy.

Once you determine the term (usually 10-30 years) that works best for you, you need to decide the amount of coverage. Financial experts often recommend that your death benefit be 6 to 12 times your annual salary. However, this may not be enough and a number of factors will come into play, including what you can afford, homeownership, and number of dependents. For a more tactical approach, you can check out this calculator.

4. Obtain or Update Disability Insurance

Would you be able to support yourself and your family, pay bills, and achieve your financial goals if you became disabled and couldn’t work anymore? If your answer is no, then you need disability insurance.

Do you know your most valuable asset? Surprisingly, it is not a material possession such as your house, but it is the ability to earn a living. Disability insurance pays a portion of your regular income if you are unable to work for an extended period of time due to illness or injury.

Although it seems unlikely, more than 1 in 4 20-year olds will have a disability for 90 days or more by age 67. Often, people think of worst-case scenarios and assume that they are immune, but something as “minor” as a back injury can put an otherwise healthy person on disability.

There are two types of disability insurance – short-term and long-term coverage. Both replace part of your monthly salary up to a certain amount, such as $10,000, during a disability. Some long-term policies also may pay for additional services, such as training to return to work.

Short-term disability replaces 60-70% of your salary, and pays out for several months up to one year, depending on the policy. It has a shorter waiting period, about 2 weeks, between the time of disability and the time when payments are made to you.

Long-term disability policies typically can replace up to 40-60% of your salary. With long-term disability insurance, benefits end when the disability ends. If the disability continues, benefits end either after a certain number of years or at age of retirement. There is a longer waiting period, usually 90 days, between the time of disability and the time when payments are made

Disability insurance can get pretty complex as there are a number of riders and definitions that vary between companies. Besides your age, occupation, term, benefit amount, and waiting period, these riders will play a huge part in the cost of your policy. To get a better understanding of these and what to expect, you can check out this free guide.

How do you sign up for disability insurance? First, look at your workplace. Often, employers include coverage and contribute towards the premium. Even if your employer does not pay towards your coverage, you can often buy your own coverage through the employer’s insurance broker at a discounted group rate. You can also check with professional pharmacist associations. Another way is to buy an individual plan through a broker or directly through an insurance company. Your Financial Pharmacist offers a helpful service through Policygenius that shops multiple companies to find you the best disability insurance policy.

5. Start or Continue Contributing Toward Retirement

Although retirement may seem far away, and college savings for your children may be at the front of your mind, it is an inevitable event that requires planning. I always remember Suze Orman telling callers on her radio show, “You can take out loans for college but you can’t take out loans for retirement.” The sooner you start saving, the longer your money has to grow. Be sure to contribute to your company’s 401(k) plan, and if your company has a match, try to at least contribute that much since it’s basically free money. The maximum 401(k) contribution limit for 2019 is $19,000 unless you’re over 50 in which you can add an additional $6,000.

Even If your company does not offer a 401(k), or you are self-employed, you can open up an IRA (individual retirement account). For 2019, your total contributions to all of your IRA’s cannot exceed $6,000 if you are under 50 years old, or $7,000 if you are age 50 or older.

Besides an IRA or 401(k), a Health Savings Account (HSA) is another great way to save for retirement as it has triple tax benefits. It lowers your taxable income, grows tax-free, and can be distributed tax-free if used for qualified medical expenses. Despite its name, your contributions do not have to sit in a simple savings account, but can actually be invested aggressively. In order to get access to an HSA, you have to have a high deductible health plan (HDHP).

These financial moves to make with a new baby may not be the most exciting things to do and they can come with a high cost, but they will help you sleep better at night, knowing that you are taking care of your family. Now, here’s to hoping your new bundle of joy sleeps through the night!

Financial planning for a baby, and in general, life events, can be overwhelming. Often it is best to bring in an experienced financial planner to help you plan and prepare. If you are looking for some extra help, you can click here to book a free call with the YFP Planning financial planning team.

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