YFP REI 134: From Pharmacy To Real Estate: Why This Couple Invests in Raw, Vacant Land


Quynh and Tri Vu, two professionals who transitioned from pharmacy and IT careers into real estate, share their journey into investing in raw, vacant land and building Secure Land Co.

Episode Summary

Quynh and Tri Vu, two professionals who transitioned from IT and pharmacy to real estate, share their journey into investing in raw, vacant land in this episode of the YFP Real Estate Investing Podcast.

Joined by hosts Nate Hedrick, PharmD, and David Bright, PharmD, Quynh and Tri walk through their early steps in real estate, starting with single-family rentals and moving into the world of short-term rentals like Airbnbs. As their experience grew, so did their ambition, leading them to explore diverse markets and ultimately carve out a niche in the often-overlooked space of raw, vacant land.

They break down what makes land investing unique, detailing the due diligence required, the creative value-add strategies they use, and how they evaluate properties with potential. Along the way, they also share how they balanced their demanding careers while building a real estate portfolio, leaned on community and mentorship, and eventually took the leap into full-time investing through their business, Secure Land Co.

Whether you’re just getting started or looking to diversify your real estate strategy, this episode offers valuable insights, encouragement, and practical advice from two people who made the leap and never looked back. 

Key Points from the Episode

  • 00:00 Welcome and Introductions
  • 00:21 Quynh’s Pharmacy Journey
  • 01:43 Tri’s IT Background
  • 02:12 Diving into Real Estate
  • 02:32 First Steps in Real Estate Investing
  • 03:45 Transition to Land Investments
  • 12:44 Balancing Careers and Real Estate
  • 19:04 Starting a Land Investment Company
  • 19:57 Why People Sell Their Land
  • 20:12 Methods of Acquiring Land
  • 21:35 Becoming Private Lenders
  • 22:17 Due Diligence in Land Investment
  • 23:40 Understanding Mineral and Water Rights
  • 25:46 Value Add Potential in Raw Land
  • 26:50 Owner Financing and Selling Notes
  • 31:17 Diverse Uses for Raw Land
  • 34:18 Getting Started in Land Investment
  • 35:31 Final Infusion Questions

Episode Highlights

“If someone doesn’t want their property, sometimes they’re just happy for someone else to take it over. And a lot of the opportunities that we’ve gotten are from people, sometimes they don’t  want the land anymore.  They may have inherited it, and they’re  just paying back taxes on it. They never wanted it to begin with. Or maybe they bought land thinking that one day they’re going to move there and retire, but their retirement plans might have changed.” – Quynh Vu [19:41]

“When I first thought about land, too, I was thinking beautiful farmland, really green rolling hills. We don’t have that. We have mostly a lot of land that’s in the desert, and people who want land in some of those areas, it’s high desert, higher elevation. So they may want the land to go camping. They may bring out their RV there for, you know, a weekend, a long, like a week trip, or something like that. But they just want land for  that purpose.” – Quynh Vu [31:54]

“ We have properties that are as low as  $2,000 and some of them around $20,000. So there’s a huge range in terms of the cost of the land. So, for a lot of families, it may be more reachable for them.”  – Quynh Vu [33:50]

Mentioned in Today’s Episode

Episode Transcript

[00:00:00] 

Nate Hedrick: Hey, Quinn, try welcome to the show.

Quynh & Tri Vu: Hi. Thanks for having us. Hey.

Nate Hedrick: Absolutely. Yeah. Really excited to have you guys here. Uh, Quinn, you and I got the Connect a couple weeks back, and I just, I loved your story, loved that you guys were doing this together. And so we wanted to have you on to discuss, uh, all things real estate, all things pharmacy, and, uh, uh, why don’t we start there then with pharmacy.

Nate Hedrick: Tell us a little bit about your background, um, your, your professions and kind of, uh, uh, how you got there.

Quynh & Tri Vu: Okay. Um, well, I graduated from the University of Texas in Austin and when I graduated I became a pediatric clinical pharmacist. Um, so I worked as a pediatric pharmacist for most of my career. And then even within pharmacy, I was like super involved. Like I did, um, you know, the C-B-I-C-U, the PICU worked night shift, IV room.

Quynh & Tri Vu: Just pretty much everywhere. And I also worked in retail too. So I worked in a community pharmacy ’cause I was a intern, a tech, like all of that stuff, even before pharmacy school. Um, and then back in like 2014, I started kind of [00:05:00] like getting really tired of like working night shift, weekends, holidays, all that stuff.

Quynh & Tri Vu: And my kids were pretty young. I. So I transitioned into like being a manager in the inpatient pharmacy. ’cause I thought it would be like a little bit easier to be a manager, but it was still like pretty crazy. Um, uh, so then after that we went, I worked at an adult hospital too. Went into management, worked, did healthcare administration at adult hospital.

Quynh & Tri Vu: And then the last few years of my career, I worked at a biotech company and did, um, you know, worked with the development team so they can create software for analytics for healthcare organizations.

Quynh & Tri Vu: Yeah, that was for pharmacy. We had a sweet Walmart, 10% discount back, back in the day. Really helpful.

Nate Hedrick: Tri, you are, you are not a pharmacist, right? So I, that doesn’t exclude you from the podcast, obviously. But we still, we still love hearing everyone’s background, so.

Quynh & Tri Vu: Yeah. Um, I’m a recovering IT guy. I was doing it in Dallas and then Austin doing the big boom with [00:06:00] Dell. And uh, then we moved out to California and, uh, yeah, just stayed in that space till about two years ago.

Nate Hedrick: Yeah, we’re gonna dive into that for sure. So it’s great. Thank you.

David Bright: Yeah, both of those careers at face value don’t really scream like real estate, so I’d love to hear how that jump happened. Or how that expansion happened, or what got you excited about real estate. Maybe just give us like the 32nd overview of the things you’ve done in real estate. Just like you gave us the 32nd overview of the variety in your career.

Quynh & Tri Vu: Yeah. So, um, I think we just bought single family houses just for ourselves, right? Just as a owner. And then maybe about eight years ago is when we broke into like Airbnbs and, uh, all the bigger pocket stuff kicked in. Like we did it all like long term rental, short term, midterm. And then, uh, out of state we got into doing burrs and flips.

Quynh & Tri Vu: And uh, I think the last one was like commercial with [00:07:00] partnerships. We moved into, uh, uh, vacant land, raw vacant land. No power, no literacy, nothing. The best one.

David Bright: So. And I feel like that is a, a departure, like you hit long-term rentals, short-term rentals, midterm rentals. We’ve talked about those on different episodes, and we can link to some of those in the show notes where that feels like the very kind of traditional real estate investing, a residential house just like you had bought personally, and then you buy that to rent it out outta state.

David Bright: Flipping those kind of things make sense, but vacant raw land. Is such a departure. So can you just give us the quick pitch of why anyone would invest in raw vacant land?

Quynh & Tri Vu: Okay, so I was actually, so I had left pharmacy, um, back in 20. Was it 2022? Yeah, 2022. And during, when I left pharmacy, I was working as a residential [00:08:00] real estate agent. And part of it was because our friends kept asking us like, Hey, what are you guys doing? And I was referring a lot of. Clients to my realtor and he was like, why don’t you just get a license?

Quynh & Tri Vu: And then I was like, okay. So I got a license and I started selling houses and um, I was also in a mastermind, so twice in like GoBundance men, and there was a female mastermind, GoBundance women. And I had a good friend who was a land investor. She was doing like Airbnbs, she had long-term rentals, short-term rentals, commercial property, all that stuff.

Quynh & Tri Vu: But she said the thing that she liked the most was land. And I actually didn’t really understand it at all. And she told me she just, you know, bought land from people. She didn’t really, um, she bought land from people who didn’t want it anymore, and then she would sell it to someone else. I was like, well, what would you do with it after you buy it?

Quynh & Tri Vu: Like, do you have to improve it, make it better? And she’s like, no. She just remarket it to someone who’s looking for that type of property. And I was just really [00:09:00] fascinated by it. So then I was like, well, I wanna do what you’re doing. ’cause it sounds to me like you’re just a bank that happens to sell land.

Quynh & Tri Vu: ’cause she told me she also did own our financing for those properties as well.

Nate Hedrick: Hmm. Yeah, and I wanna dig into that because I feel like there’s so many things to unpack there. So, so again, this journey of like. Short-term rentals, long-term rentals, traditional real estate, all the way to this, this step that really we haven’t discussed before in the show. I think it’s unique to a lot of people. Um, but how did you make that initial switch? Like whose idea was it to say, you know what, pharmacy it, like, it’s fine, but let’s think about adding real estate into our, into our portfolios.

Quynh & Tri Vu: We, I think Quinn read like Rich, that poor dad way back in the day and uh, you know, the four hour work week. And we were like, we’re, we’re too poor to do this. Right? We didn’t have any money. We had, we had like a thousand bucks savings after two years or something, and we were like, we can’t afford it. So it just kind of sat there in the back of our heads thinking.

Quynh & Tri Vu: Awesome. And, uh, you fast forward to about [00:10:00] eight years ago, nine, nine years ago, I had, uh, probably my second or third midlife crisis and, uh, she went into management and then first and like 10, 11 years ago. And then I went like shortly after. But, um, man, they don’t, sometimes they don’t train you and you just, you know, ’cause you’re, you’re doing technical stuff, you’re doing well and then you just kinda.

Quynh & Tri Vu: You know, uh, get promoted. I’ve seen a lot of pharmacists too, right outta high school. They’re managers now. Like, how did that happen? You know, you know, so it’s kind of the same situation where like, uh, you’re doing well, they think it would transfer over to other areas. And, uh, we had just a lot of issues with, um, with a lot of outages.

Quynh & Tri Vu: ’cause I was doing operations and um, I was just pulling, I was working like 9:00 AM to like 9:00 PM and after about six months, Quin was like. You gotta find another job. Like it was just, this is too much. And uh, that was like, all right, I gotta do something. I can’t keep, I can’t sustain [00:11:00] this. And years of bigger pockets, like all that.

Quynh & Tri Vu: So subconscious stuff was kicking in, like, try, sell everything, get into real estate. And, uh, I went to meet up, met a realtor that was pitching an invest, like how to invest in, you know. And, uh, single families. And I was like, all right, sign me up. And I didn’t know about loans, I didn’t know about anything.

Quynh & Tri Vu: And then he was like, you don’t have any money. So I had to get a heloc. It took another month. I came back to him, I got money now, and he’s like, all right, let’s go find land, or, uh, let’s go find a house. And I was pretty much making an offer in every house. Like the walls were crook and all sorts of stuff.

Quynh & Tri Vu: We had like GCs coming by, they were walking away like, don’t get it. And I was like, no, we have to do it. We have to do it now. Um, yeah, we was just like, you know how like when you suffer and struggle so much, like the pain is so like you had to do, like, it causes the change. And we were kind of at that point where we were just like struggling with like just too much work and uh, and we didn’t [00:12:00] know how to manage other, and we had to change something.

Quynh & Tri Vu: So that’s kind of when the, when all the equity was like, you gotta do something with equity, it just sits there. It makes no no sense. And all those books and podcasts just kind of kicked in.

Nate Hedrick: I love that we’ve got both of you guys on the show because one of the things that we don’t get to talk a lot about is like, what that was like as, as a couple, like figuring that out as partners. So Quinn, were you immediately on board, like, no, no reservations, like he’s taking. The HELOC and you’re like, yeah, let’s do it.

Nate Hedrick: Buy a house.

Quynh & Tri Vu: No, I was like very, very nervous ’cause I was not listening to BiggerPockets and I was scared and he kept like leaving to go to these meetups and come back, like really excited. And um, every time he would. Know, find a deal. He would like show me. And he was like, oh, what do you think? I’m like, oh no, that’s not good.

Quynh & Tri Vu: Not a good deal then. And then he would like keep coming back to me and say, Hey, like, what questions do you have about it? Let’s talk through that. And then, you know, I felt like that was, he was really patient with the fact that I was like still like nervous and trying to work it through [00:13:00] it with me. And then eventually he was like, okay, well at what price would it make sense?

Quynh & Tri Vu: So I like couldn’t say, no, it’s not a good deal. He was like, what price would it make sense where like all of the risk and stuff would not feel like risk. Um, so then I started like doing like more research and kind of like reading some of the books that he was listening to, listening to the podcast and just getting a better understanding of it.

Quynh & Tri Vu: And I was so nervous because I, I even told him like, we already have one mortgage, like, why would we want another mortgage? And we have four kids. So we wanted to live like in a nice neighborhood, good school district, flat street, cul-de-sac, like very traditional. We never wanted to even get a fancy house where we could only afford under two incomes.

Quynh & Tri Vu: We wanted a house we could afford under one income. ’cause that’s how conservative we were. Um, financially, I. So I was really, really nervous when we started, but I’m, I’m glad that I didn’t like just say, you know, I had to like, learn [00:14:00] more about what made me nervous. But I do think that if you’re at the point where you don’t know the difference between a good deal and a bad deal, you shouldn’t do anything.

Quynh & Tri Vu: You need to figure out at least that much.

David Bright: Yeah.

Nate Hedrick: think that’s great advice and I really like how try approached it of like, Hey, what is the number that makes sense? Is it a dollar? Are we buying this house for 10 bucks? Like, is that the only way this makes sense? Like, well no. Okay, so what is the number? Right? Rather than just none of these work, we’re not buying anything.

Nate Hedrick: I think that’s a great, like bring you along sort of a thing. And then you took the initiative to actually learn the pieces and do the deal analysis and I, I, I think that’s great. ’cause that’s hard for a lot of people out there and I’m sure there’s a ton of people listening right now. One of them is super interested in real estate.

Nate Hedrick: The other one has. No radar for that at all. And so how do you bring those pieces together?

Quynh & Tri Vu: And you know, the other thing too, Nate, that I was, I thought I was being like very conservative because, um. I didn’t wanna invest and try was like saying, well, you know, having only one source of income is kind of risky too. And I never looked at it like that until [00:15:00] he said that.

Nate Hedrick: great point.

David Bright: Yeah, that I, I love that mindset shift of what really is risk. And I think taking that on the question of like, what questions do you have? Creating a lot of that conversation, open communication, I. Sounds like that was all part of this trick that got you to buy the first house, right? And then eventually, it sounds like there was more than that, right?

David Bright: So how did that growth look? And uh, and particularly from a pace standpoint, like you guys described eight or nine years and you’ve already done all these different things, like I think that feels really intimidating to a lot of people. So I’m curious how that story evolved, uh, into the next house, the next house, the next house.

Quynh & Tri Vu: We were just all in. So we got the HELOC that first year, and we bought a house. Then six months later, we’re like, all right, it is working. Just do it again. We spent the rest of the HELOC and then we had to save up ’cause we ran outta money. We’re like, all right, let’s do it [00:16:00] again. So. I saw this chart, you can’t see it back here, but it was a little pyramid, like one year, two doors next year, four doors next year.

Quynh & Tri Vu: It was just a stack, right. It just stacked up and I loved it. And uh, it was two doors, four doors next year, eight doors, and then there’s a little break ’cause we were literally broke. Right. And, uh, ’cause like when you’re in real estate, you’re just stacking money away. All the money you make just goes right back into more property.

Quynh & Tri Vu: It’s delayed for, for sure. Uh, yeah. So that, that little pyramid really helped us, like kind of see the vision and it was kind of gamifying it. Um, but yeah, so we just saved money and reinvested everything.

Nate Hedrick: And during all that, like again, you’re both pretty serious careers. I mean, again, really involved in your careers at the time, even though you’re trying to start making this transition out like. Did you manage that? How did you maintain the balance? Like, was that, was that difficult or, or try, did you just totally step away and say, okay, I’m all in on real estate, let’s make this happen.

Quynh & Tri Vu: Well, the first [00:17:00] couple were Airbnbs and they were local and.

Quynh & Tri Vu: Pretty, um, assertive, uh, property manager helping us. We hired a property manager before we self-managed, and then, uh, we’re like, she’s not doing anything. We could do it. And we got greedy and we started doing rentals by the room. And, uh, that made a ton of money, but that was a ton of work too. Um, so we’re like, all right, we can’t, this is not sustainable.

Quynh & Tri Vu: We had like four listings outta one property. Like it was like four times as much work. But, uh. Was it the Bur book or the long distance investing book? Um, we started like looking, uh, out of state. It was a commercial and BiggerPockets, one of the intros or outros they had is promo, Hey, we do it all. We buy, flip and find a person and then you just buy it from us and we manage it.

Quynh & Tri Vu: And I was like, easy button, let’s do it. And uh, we went the, the property managed route, they find flip property, manage it. And we just did that for, uh, the next couple. [00:18:00] Um. We, we had this problem of shiny object syndrome. So you’re one market and you just keep on buying in that same market. So we got into like eight states or something, uh, just because that looked cool.

Quynh & Tri Vu: That looked cool. Okay. That number looks right, just buy, buy, buy. And um, so yeah, that’s how we kind of scaled, uh, unnaturally through all these other states and through property managers helping us scale.

Nate Hedrick: That’s awesome. Wow.

Quynh & Tri Vu: As far as the balance, yeah, we just had to leverage the, the other, uh, the teams and the, uh, the property managers teams to, to take care of everything.

David Bright: It sounds like it’s part of your story because you hinted earlier, like up until a few years ago, you were doing these things, so it sounds like there. Was some kind of like titration away from your careers and into more real estate. Um, and I know that there are some people out there that are looking to that.

David Bright: There’s some people out there that love their, their pharmacy job and they wanna stay in that. And I can totally [00:19:00] respect both of those avenues, but you guys have done both. So I’m just curious, since you’ve been in, in both of those, you know, the kind of the pros and cons or what made you think now is the time to make that jump?

Quynh & Tri Vu: I, I love this question because when we got to the point where we’re so busy between work and family, and then even if you’re not managing the rentals directly. Everything bubbles up to the owners. If there’s an insurance claim that needs to be made, if there’s some type of complaint, sometimes Airbnb calls us directly.

Quynh & Tri Vu: So we were still like involved and try kind of mentioned like, Hey, one of us needs to leave our job. Do you wanna go first or do you want me to go first? And I was like, I definitely wanna go first. I don’t even know what going first means. I,

Nate Hedrick: That’s awesome.

Quynh & Tri Vu: and then shortly after the following year left his. Those, those good advice that someone gave us. Like if you both were gonna check out and leave your careers, don’t do it the same year. Like one person [00:20:00] does it one year, someone else do it the next year. And um, I guess we were in the circles where like everybody was entrepreneurs and it was like, man, I gotta be one.

Quynh & Tri Vu: I need to leave my job. But. You know, I still, I, I really liked it and, um, it was kind of like a part of a identity thing, to be honest. It’s hard separating it. I’m sure you guys know, like, you know, what do you do? Who are you? You just naturally say, Hey, I do a tech, or I, I’m a pharmacist, and separate. It was hard.

Quynh & Tri Vu: And then when you all in as a entrepreneur, you still kind of miss it. So, um, I don’t think it’s for everybody, like some people are, if you’re good and you like what you do, just stick with it and give someone else money. And then invest passively. Like, you don’t need to like, figure out how to do real estate.

Quynh & Tri Vu: It’s a, it’s still a job until it isn’t a job. Right? So, um, I didn’t think about that initially. Like, flipping houses is literally another career. Like, why would you, if you’re good at tech, why would you learn another skill and have to like rema, you know, take [00:21:00] years to master that before you get good and great at it when you just gave someone the money and then they do it and still enjoy your job.

Quynh & Tri Vu: So. In hindsight, like you didn’t have to follow, we had like shiny object syndrome where I did at that point, like, I need to leave, I need to do, you know, entrepreneurship, give it a shot when like, I liked tech still, like even though it was like operations support, long hours, like it was super fun with the team fixing stuff.

Quynh & Tri Vu: So it really depends on your person.

Nate Hedrick: Yeah. I’m glad you mentioned the identity thing too, because I think a lot of people struggle with that. Even just in like, like for example, like when I got my real estate license, people were like, oh, so you’re done being a pharmacist? Like, well, no, hold on. Like I’m still working. Like you can have two things, but nobody talks that way.

Nate Hedrick: You just like, what is the thing you do for work? Like, or what is what? What do you do? Right? It’s not like. And everyone expects you to be like, I got a degree in blah, blah, blah, and I do x like, and that’s it. Uh, and so I think that’s, that’s a good thing for people to hear is like, it, it can be many things and that’s, that’s enjoyable as well.

Nate Hedrick: So I [00:22:00] think that’s, that’s a really good point. You, you, you landed on.

Quynh & Tri Vu: Yeah. And you know, there’s a lot of skills that I think we learn in our professional careers that translate into real estate investing, which it’s not like, okay, completely foreign. I mean, it’s very data-driven, which pharmacy is. Um, and just like kind of following, hey, what worked well for other people?

Quynh & Tri Vu: So like, just looking at actual case studies, um, other people who have been successful around us, I felt like has really helped us. So having that professional background, I feel like I. Really did kind of give us an advantage. Um, but if you were to just start researching and learning, like we didn’t go to school for, for business, so we kind of felt like when we’re learning about real estate, we had to like learn, we had to read books, we had to listen to podcasts, we had to like go to like a different type of school to learn about it.

Nate Hedrick: I think that’s great though. Like, and, and you have the skills. Both of you like to go in, out and do that, right? We’re all lifelong learners if [00:23:00] we, if we believe that, so that there’s a way to go out and, and get that information, so that’s great. So, so I know now you guys, today you run this, this, land investment company.

Nate Hedrick: I, I want to dig into that. ’cause again, that’s something we’ve not discussed on the show in the past. I think there’s a lot to a lot there. Um, so those listening are probably more familiar with, again, the long and short term rental stuff. But, but give us kind of the background of like, what does it look like to flip raw land?

Nate Hedrick: Like you’ve mentioned it a little bit, but like give us the kind of the, the details of like, looking for these properties and, and how you turn that around.

Quynh & Tri Vu: So great question. Um, in terms of like land, it’s very similar to traditional real estate in that you wanna buy low and you wanna sell high, right? And if someone doesn’t want their property, sometimes they’re just happy for someone else to take it. Take it over. And a lot of the opportunities that we’ve gotten are from people.

Quynh & Tri Vu: Sometimes they don’t want the land anymore. They may have inherited it, they’re just paying back taxes on it. They never wanted it to begin with. Or [00:24:00] maybe they bought land thinking that one day they’re gonna move there and retire. But their retirement plans might have changed. They may have had grandkids in a different part of the country and now they wanna live closer to their grandkids.

Quynh & Tri Vu: So, um, in terms of like how we get deals, we similar to like, you know, people who are doing flips and developments, they’ll send out letters to people asking like, Hey, do you still want your property? Or Have you ever considered selling? Do you know how much your property’s worth? So we do those things in terms of outreach.

Quynh & Tri Vu: In order to acquire land and acquire is sometimes people, even within the land space. They want a change, like everything looks greener on the other side. So they might like, Hey, I don’t wanna be in this state anymore. I wanna be in another state to buy my land. So then they’ll sell us all of their land.

Quynh & Tri Vu: So that’s another way that we can, you know, acquire property. So there’s a lot of different ways. Um, sometimes we buy land from wholesalers. Sometimes [00:25:00] we buy land from tax auction, and sometimes we buy like loans from people. So a lot of different ways in which we can acquire land.

Nate Hedrick: So really similar, honestly, it sounds like, again, we’re talking wholesalers, talking, you know, multiple people that want to get out of a tired investment. Like it almost sounds like you could be talking about single family rentals. That’s cool.

Quynh & Tri Vu: The same thing. So we were doing like cold when doing residential, and it’s literally the.

Quynh & Tri Vu: And then, um, on the tail end, which is kind of new, is like we unintentionally became private lenders when we sell or finance these lots. Um, you could buy lots just like your mortgage gets transferred or sold to another service provider, right? We just found that out recently in the last like six months, a year, that you could buy and sell these notes.

Quynh & Tri Vu: So as we build our portfolio of notes, so we sell our [00:26:00] financed. Buy or sell these things as well. So it’s a new niche that we,

Nate Hedrick: Yeah, that’s interesting. So, so just like, again, like people are buying and selling notes on, on other properties, it’s kind of the same sort of strategy,

Quynh & Tri Vu: yeah, they don’t have to wait as long to recoup.

Nate Hedrick: I. Tell me about, um, due diligence. Like, I’m trying to think of a difference now, right? Like you’re, you’re, you’re teaching me how, how similar it actually is, but like, what about due diligence? Like, you’re not sending out an inspector to see if the roof is collapsing, right? ’cause it’s just trees and bushes and like, so what is that process like for you guys?

Quynh & Tri Vu: Yeah, I mean we have like a team that does like due diligence for us, and what they do is they fill out a report and it has things on there, very basic. Like, Hey, what, how big is the property? What is the parcel number? Um, what is the zoning, what’s the legal description? Is there back taxes owed on it? Um, are there any easements on the property?

Quynh & Tri Vu: Um, you know, [00:27:00] does it have like legal access? Does it have direct road access? So the, the questions that we’re kind of looking at are a little bit, they’re similar to residential real estate, but it’s actually a little simpler because we’re like not worried if the the roof is old. We’re not worried if Central or not No.

Quynh & Tri Vu: Of that stuff. Easier. Yeah. We’re selling one of our rentals and they’re like, Hey, how this list right now? And they’re asking, how old’s the roof again? What about the hvac? What year? I’m like, man, I haven’t heard about that in a while. Have to worry about that. You know? Is there power? No isity, no water. No.

Quynh & Tri Vu: You know, so.

Nate Hedrick: The, the one thing I’ll, I’ll ask then, what about like mineral rights? Does that come up or does it vary based on the property? Like if you know that it doesn’t matter for this property, you just kind of ignore that, or like how does that work for you guys?

Quynh & Tri Vu: That’s, that’s actually a really good question and that’s a common question that we actually get from clients that are, and many [00:28:00] times, like when you buy property, it’ll say something very vague, like if there’s.

Quynh & Tri Vu: It doesn’t say whether or not they actually have mineral rights and most of.

Nate Hedrick: Right.

Quynh & Tri Vu: And if you actually want to have mineral rights, you may have to go through a, like a separate search. Like there’s a specialized company who will kind of trace back through and similar to like title being transferred, mineral rights being transferred, and um, there’s like an hourly rate that they charge just to check.

Quynh & Tri Vu: And even if nothing comes up, you still have to pay that. So we haven’t really. Um, trying to get mineral rights in any area. We just tell people like, we, we don’t know if we have anything, and we just kind of leave it at that. But the other question people do ask though is, do you have water rights? And most of the properties that we do buy.

Quynh & Tri Vu: You know, they’re asking for water rights because they wanna have a well, and many times you can have a well without having any special water [00:29:00] rights. So it may not even be necessary, but they think it’s necessary to ask. So it’s just a good question that comes up pretty often.

Nate Hedrick: Yeah. Cool.

David Bright: I would imagine a lot of these are are like state dependent or area dependent, where there’s probably nuanced questions that exist in certain areas and not in others. Then as well.

Quynh & Tri Vu: Yeah, so we’re in, I think 11, 11 different states now for our land, and every county has different rules and regulations. Every state has regulations too. So depending upon the zoning where the property’s located, we have kind of like a little quick. Tip sheet sheet on each of the properties when people call, ask about it.

Quynh & Tri Vu: Um, our sales team, it.

David Bright: Okay. Um, we’re making so many comparisons to the single family space, one of the other things that I think about is, is the value add. Like, I think we’ve all done the, the thing where you buy an ugly house and you make it pretty and suddenly it’s worth more. Is there a lot [00:30:00] of value add potential with raw land, or is it even easier than that where you’re simply buying and selling without making any improvements or doing any direct added addition to value?

Quynh & Tri Vu: Yeah, there’s opportunities for sure. You get entitled. Subdivided, you could put in easements when they don’t have an easement, you talk to the neighbors to negotiate that kind of stuff. So there’s definitely opportunities to do all that stuff, just like residential, where you could just buy and just sell it to another wholesaler, to another flipper, and then just make the, you know, the margin and the sale or the assignment.

Quynh & Tri Vu: You could do literally the. And, um, because we are buying property from people who don’t want it anymore in, we’re buying it below market value substantially. So the value is.

Nate Hedrick: Hmm. And you mentioned earlier too, about owner financing. Are you, are you doing a lot of the, uh, those properties in that way where your, your finance. It through the owner because they’re [00:31:00] just, they’re looking to do anything with it, or are a lot of those being bought outright and then you’re financing them yourselves, or how does that work?

Quynh & Tri Vu: We started out by, um, when we wanted out a new market, we would get properties.

Nate Hedrick: Mm-hmm.

Quynh & Tri Vu: we weren’t like a lot money in a new area that we, uh, experienced in. And then after we started doing well. Those areas, then we would start buying and mailing out. That’s how we kind of break in by, um, buying owner finance properties.

Quynh & Tri Vu: And then, uh, we, when we acquired the properties, we would own it outright and sell it. A majority of ’em we would own outright and sell it, uh, on terms or sell our finance. That’s probably like 90% of, uh, the business initially. And, uh.

Nate Hedrick: Wow.

David Bright: Wow.

Nate Hedrick: That’s awesome.

Quynh & Tri Vu: Yeah, a lot of sales through, uh, owner finance. I think we sold like 30 last year, and I like, oh, we went crazy. That that was a little too much. Like [00:32:00] we didn’t mean to sell. We were like, man, that’s a lot of money. We just, you know, a little pocket of change right there. So we kind of got gungho selling notes.

Quynh & Tri Vu: And then, uh, we recently started buying notes as well. Um, this year we picked up, I don’t even know, 20.

Nate Hedrick: that’s great.

Quynh & Tri Vu: But yeah, the notes, um, we haven’t played too much in it. Like we’re just kind of winging it, literally. Like it works, let’s just do more of it. And, uh, yeah, so we like notes, but, um, it’s great for cash flow. You’re just getting passive, kind of like passive money, right? You just, you know, they’re just making payments on it.

Quynh & Tri Vu: Um, but the big liquidity events of, uh, if you do a flip or a cash, uh, those are nice too. So I think we’re, our new focus is to balance that out more with more cash flips and, uh, where, um, cash retail prices as well. Yeah. Um, I kind of wanted to mention that because of the space that we’re in, [00:33:00] most people, they cannot go to a bank.

Quynh & Tri Vu: To get a loan. So we’re, we’re lending to them and you know, we’re not doing very many checks on like their credit and their how worthy they are to be a buyer. However, we’re holding onto the deed, we’re selling to them on contract. So if they stop paying us, we still hold the deed and we have the ability to remarket that property.

Quynh & Tri Vu: And it’s now at a lower cost base. There’s no process because. Never had title.

Nate Hedrick: Yeah.

Quynh & Tri Vu: So it’s a nice, it’s a weird way. There’s a, there’s a few nuances that you’re gonna have to undo. Uh, think about residential, like re residential. Like you have when you buy the house, you get a loan, you have the title to the house, right?

Quynh & Tri Vu: Like it’s in your name. And then if you stop paying the bank with foreclosed to get it back, not like that land in our situation. And, uh, there’s a few other like weird things, [00:34:00] residential.

Nate Hedrick: I think it, it’s funny you mentioned that because like one of the things I think about with residential especially is like if you buy a house and like even if it. It goes really sideways, right? Things, things are way more expensive than you thought. Like at least you still have a property that you can sell.

Nate Hedrick: Like in my head, my first thought is like, I bought this raw farmland from this guy and now nobody wants to live here, and I’m stuck with this big parcel of land. Like, what do I do? Like, do you guys go through that? Is that ever, like, is that a problem? Or are you just like, no, we find perfect land every time.

Quynh & Tri Vu: So what do you usually do, right? You find markets that, uh, do well? How do you do that? You run comped. What has sold in last six months, 12 months compared to what has listed days on market? You literally do the same thing. Uh, the only caveat is if I own finance it. It’s not recorded. The title doesn’t change, so you don’t know I sewed it at all.

Quynh & Tri Vu: So when you run comps, you may have to run comps on what’s listed versus what’s been sewed because it hasn’t been like recorded yet. So it’s a little bit of a [00:35:00] twist. Like you, you know, I don’t know how long it’s been listed. It’s still listed like, you know, as it been sewed. So you’re gonna have to kind of play with other investors in that market to figure out if they’re really selling it, if they’re not selling it or financing it, or, you know, they just, they don’t sell.

Quynh & Tri Vu: So that’s the tricky part.

David Bright: I, I feel like another thing I would have to undo. From the, the residential side is, I feel like from everything I’ve done on the residential side, the purpose of land is to put a residential structure on it. You know? So, and it sounds like not everything would, even in this world, would even, like, the purpose would be to build anything on it, residential, commercial, anything. It sounds like some of the, the land uses. Outside of that, can you help people kind of get outta this box of residential and think about what other land uses may be where someone would want to rent or buy land for, for different purposes?

Quynh & Tri Vu: Yeah. No, that’s, that’s such a good point because when I first thought about land too, I was thinking like [00:36:00] beautiful farmland. Right, like really green rolling hills, we don’t have that. We have mostly a, a lot of land that’s like in the desert and people who want land. Um, in some of those areas it’s like high desert, like higher elevation.

Quynh & Tri Vu: So they may want the land to go camping. They may bring out their RV there for, you know, a weekend, a long, like a week trip or something like that. But they just want land for that purpose. Or maybe they have dirt bikes or atv. And they want a place to kind of like romp around without being bothered by people.

Quynh & Tri Vu: Um, other people want land as like for off-grid living. They may be planning to build like a tiny home. They do not want to be on any type of public utilities. Like they want to be on septics solar. They don’t want to be, um, subject increases in. Like increases in rates, like, you know, your water bill, your [00:37:00] electricity bill, like as those rates increase, like they don’t wanna be to deal with that kind of thing.

Quynh & Tri Vu: They wanna live off grid. Um, the other type of person that might wanna buy land is someone who is thinking about doing homesteading. They’re really worried about where their food comes from and what’s going into that food. So they may want to, you know, just have land just to know where their food is coming from.

Quynh & Tri Vu: And then other people want land for legacy. We have a lot of grandparents that are getting land just to pass on to their kids, and they don’t really care what you can do with the land. They just wanna say like, Hey, I’m giving this to you when I pass away. And the costs, you know, it, it would be hard for a grandparent to give like.

Quynh & Tri Vu: 20 pieces, 20 properties, 20 houses away. But because like some of the properties that we do have in the vacant land space, I mean, we have properties that are two, [00:38:00] 2000 as low as 2000. And some of them, you know, like around 20,000. So there’s a huge range in terms of the cost of like the land. So it’s, for a lot of families it may be more like, like reachable for them.

Nate Hedrick: So if you’re out there, and I guarantee there’s somebody listening right now that’s like, okay, this sounds like my thing. I don’t want to deal with leaky roofs and tenants and stuff. Like I’m in, like I, you guys have sold me. Like how do you get. on this. How do you get started? Is like, like you said earlier, like is it all just education or do we like where, where, where’s the first step?

Quynh & Tri Vu: I mean to school for it. Like I signed up for like a.

Nate Hedrick: Mm-hmm.

Quynh & Tri Vu: Program. We went through flight school and then we did, that was like a 12 week program where we learned like kind of the basics about land investing. And then after that we signed up for a one year coaching [00:39:00] program where we had like a land investment expert kind of walk us through as we grew our inventory and portfolio.

Quynh & Tri Vu: We just wanted like a double check and guidance as to like where we should buy.

Nate Hedrick: I love that. I think that’s so relevant to so many people. Listening is like, you don’t, it doesn’t just magically show up in your head like, you have to go out and, and learn this stuff. Like, I think that’s super important. Yeah, I love that. it. Alright, well we wanna take you guys. This has been great.

Nate Hedrick: I wanna take you to our, our final infusion questions, three questions we ask all of our guests that come on the show. So a bit, bit of rapid fire here. Um, but if you, uh, could each, each respond we’ll have, we’ll have Quinn go first on each one of these. Just kinda give you your response. Um, so the first one is, what’s one tangible strategy that you used to make sure that your investing was working hand in hand with your career?

Quynh & Tri Vu: I. It [00:40:00] should match your lifestyle, right? So if you are at the point where you’re so busy, right, like you’re driving kids around and you’re working a ton of hours, evenings, weekends, holidays, it might not be a good idea to start flipping houses, right? Because, you know, like you have to, there’s a lot of like management.

Quynh & Tri Vu: And you, it’s hard for you to physically be there if you’re like at your other job, or even if you decide you wanna take on property management and you’re working like at the hospital or at a community pharmacy, that’s probably not a good idea either, because you’re gonna keep getting interrupted. So I would say whatever you’re deciding to invest in, I would say to see if it aligns with your lifestyle.

Nate Hedrick: I like that.

Quynh & Tri Vu: Yeah, I, I would build on that and say, you gotta know yourself too. So if you’re anxious and you’re, uh, you get nervous, like, and you’re indecisive, right? And then you need like [00:41:00] the black or white answer, maybe not entrepreneurship right? Is a thing for you. Maybe give the money to do it passively. So know your, uh, know your personality.

Quynh & Tri Vu: And, uh, the second part is like, do it with, do it with the community or tribe, whatever that looks like to you. Right? So if you have a friend that’s doing it, or you could join a, a mastermind group, like do it, like, don’t, you don’t, you don’t have to suffer alone. Uh, if you’re still gonna make the plunge and decide to go that route anyhow, and, you know, start investing actively, like do it with some, some friends or NA community to, to help guide you along that journey.

Nate Hedrick: I like

David Bright: Yeah, I love the team sport mentality ’cause there’s so much of that in healthcare that we’re all used to and uh, as you mentioned on your IT team, like how much fun that can be to do this, to do whatever you do with a team. So finding that same in real estate, I think that’s powerful. second question is, what’s one resource that’s been most helpful to you in your [00:42:00] real estate journey, whether that’s a book, podcast person, author, website, whatever that would be?

Quynh & Tri Vu: Um, I would say for me. I think it was bigger pockets when I first, um, when TRI started listening to it, and then I started listening to it. I think the stories that really resonated the most with me were when someone was still working their regular job and they could still do something on the sides.

Quynh & Tri Vu: Like there were stories about bakers that were, you know, doing like rehabs and. I don’t know. The more similar that person was to me, like if they had a family, if they had kids and they were working and they could still invest in real estate, I felt like that really made me feel like it’s possible for a regular person to learn this, uh, for me and my latest craze is, um, podcast this guy.

Quynh & Tri Vu: He reads these fat [00:43:00] biographies of these greats, these legends, right? It could be, uh, new people like Elon and, and Bezos, but it could be like OGs, like old presidents and stuff. So he reads like a ton of these books and dissects it for you. So you’re getting like free mentorship cliff note version with a guy that knows a bunch of adjectives.

Quynh & Tri Vu: So it’s super like, you know, just fun and like, man, that, that wow me. So I.

Quynh & Tri Vu: All the little thing nuances. You know, in the classroom someone raises their hand, they have a question. Yeah, that’s a great question. That’s what’s doing.

David Bright: Yeah.

Nate Hedrick: That’s a great tip. We’ve not had that on the show, so that’s awesome. Alright, and then you guys have already dropped a bunch of this, but I’ll ask it anyway. What if you had to give one piece of advice to somebody just starting out in real estate investing, what would be that one piece of advice?

Quynh & Tri Vu: For me, it would be just learning. Like, don’t [00:44:00] feel like it’s too much to take on. Um, you know, it’s okay to be a beginner and just like, enjoy being a beginner part of, um, part of it’s just learning and making mistakes. Making mistakes, and I feel like, um. Being an expert is someone who has made the most mistakes in an area.

Quynh & Tri Vu: So learning about other people’s mistakes and you know, just learning, always keep learning. I feel like that’s the best way for you to feel better about what type of investment makes sense for you. Yeah, for me, um, you are the average of the five closest people you time with. Man, when you’re flipping the switch and you’re investing and you’re pulling out money outta your heat, like you’re taking a second loan and all that stuff, you’re gonna have family and friends that are like, you’re nuts.

Quynh & Tri Vu: So you gotta protect yourself and surround yourself with people that, you know what? I’ve done it and yeah, let me double check you. It looks good. So I wouldn’t say I had a lot of that in my [00:45:00] life. I was like, don’t. Um. Your target shouldn’t be, your goal shouldn’t be to avoid people like that. Your goal should be going towards people or doing what you wanna do, right?

Quynh & Tri Vu: So, um, you know, we were just looking forward towards like, man, this guy did like all these guests that you guys have on your show. Like, lemme talk to them and then next thing you know, you have a little local chapter meetup or something, or remote chapter meetup. And you get that inspiration, passion up early

Quynh & Tri Vu: versus avoiding, you know what away.

David Bright: I love it. I love it. If people wanna reach out, learn more about y’all, find you, where can they find you?

Quynh & Tri Vu: Okay, so they can, you guys can find us on Instagram. We’re secure Landco, we we’re also on YouTube at Secure Landco. Um, we’re also on Facebook, uh, or you can find [00:46:00] [email protected]. So we’re, if you start us, I think you’ll find us.

Nate Hedrick: Perfect. Well guys, thank you so much for coming on the show, sharing all your knowledge. I, uh, as usual when we have a really good guest, my head is spinning with new ideas and now I’m gonna like go out and send mailers to go buy raw land. Like I just, this has been great. So thank you guys so much for coming on and sharing all this with us.

Nate Hedrick: I.

Quynh & Tri Vu: Oh.

David Bright: Thanks so much.

 [END]

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YFP 407: Ask YFP: Using 529s for Student Loans & Buying Bitcoin Efficiently


Tim Ulbrich and Tim Baker answer two questions from the YFP community on using 529 funds for student loans and the most cost-efficient ways to invest in digital assets like Bitcoin.

Episode Summary

In this episode, YFP Co-Founder & CEO Tim Ulbrich, PharmD, is joined by YFP Co-Founder & COO Tim Baker, CFP®, RLP®, RICP®, to answer two insightful financial questions from the YFP community.

First, they explore whether it makes sense to use 529 plan funds to pay off student loans. Tim and Tim break down the relevant provisions of the SECURE Act, highlight key limitations and tax implications, and discuss scenarios where this strategy could be beneficial—or not.

Next, they tackle a question about buying Bitcoin efficiently. They compare the most cost-efficient ways to invest, including using various platforms, ETFs, and tax-advantaged accounts like IRAs. They also weigh the pros and cons of each approach, including fee structures, accessibility, and long-term considerations.

Whether you’re considering how to best use your 529 funds or exploring your first steps into cryptocurrency, this episode provides practical, pharmacist-specific guidance to help you make informed financial decisions.

Key Points from the Episode

  • 00:00 Welcome to the YFP Podcast
  • 00:42 Question 1: Using 529 Funds to Pay Off Student Loans
  • 03:35 Options for Overfunded 529 Plans
  • 16:56 Question 2: Buying Bitcoin and Digital Assets
  • 33:24 Conclusion and Listener Reminder

Episode Highlights

”This is not your dad’s 529 plan anymore. What I mean by that is that they continue to make these, I think, more favorable. You have more exit opportunities, if you  will, right, in terms of how these funds might  be used if you run into a situation like an oversave situation, which I would argue is a good problem, right?” – Tim Ulbrich [11:40]

 ”When you buy a spot Bitcoin ETF, you don’t hold the Bitcoin directly.

You just have shares of that fund. But the fund essentially  owns it and you have a partial ownership of the fund. So when you buy it on Coinbase or Robinhood, you’re an owner, right? Your keys are on that ledger. And it’s there for public consumption.” – Tim Baker [19:44]

“ I own Bitcoin both ways. I own it through an ETF, and I own it directly. And part of me is worried that one day I’ll wake up and I’ll hear a story that X, Y, Z was hacked, and all of my Bitcoin is gone. It’s just the reality, right? And that’s one of the downsides of digital assets.” – Tim Baker [20:48]

Mentioned in Today’s Episode

Episode Transcript

[00:00:00] 

Tim Ulbrich: Hey everybody. Tim Ulbrich here and welcome to this week’s episode of the YFP podcast where we strive to inspire and encourage you on your path towards achieving financial freedom. YFP co-founder, COO and Certified Financial Planner, Tim Baker joins me to answer two questions. I. Came in from the YFP community one on whether or not it makes sense to use 5 29 funds to pay off student loans. And another question on the most cost efficient way to buy digital assets like Bitcoin. you have a question that you’d like us to feature on an upcoming episode, head on over to your financial pharmacist.com/ask yfp to record your question or send us an email [email protected]. Alright, let’s take our first question from the YFP community, which came to us via email. Tim, what are your [00:01:00] thoughts on using 5 29 savings as a vehicle to pay off student loan debt? Tim, we were talking before the show, maybe a couple different ways to interpret this question. So what? What are your thoughts?

Tim Ulbrich: I.

Tim Baker: Yeah, and we actually interpret it differently. So, um, you know, I. You know, I, I think I, I was looking at this question as almost like, um, using the 5 29 as like a pass through. So like I, I’m a student loan borrower and I have, you know, let’s just say I have $50,000 left to pay off. You know, one of the things that you could do is I could open a 5 29 and I’ll use State of Ohio, which was where we lived, Tim.

Tim Baker: I could put in for this year, $4,000 in my own name, get a state tax deduction for that, and then, you know, if it grows, great, if not, but I can basically just take that $4,000 out and then pay off, you know, 4,000 out of the 50,000 that I still have, [00:02:00] you know, left to pay. So. That is an option, right? That you, you can, you can absolutely do.

Tim Baker: Um, I think the way that you interpreted, and correct me if I’m wrong, it’s like, you know, you were thinking about it from the, the standpoint of like, Hey, I have student loans, but I’m also saving for my kids’ education. Could I potentially use some of what I, you know, am put in towards the boys’ education for my own student loans?

Tim Baker: And I think that is actually an option as well. Now, the big thing, this was one of the, the big things that. Um, either the Secure Act, uh, in 2020 basically allows for, you can now use up to $10,000 lifetime per beneficiary from a 5 29 to pay qualified student loans. So I, I’ve kind of been on record like to say like, I don’t love the the 10,000 lifetime beneficiary ’cause it’s such a drop in the bucket, especially with the kind of loans that we see, but.

Tim Baker: You know, I think that, I think that cap should be higher, but I would imagine that like [00:03:00] lawmakers are trying to preserve the intended use of the 5 29 and not turn it into like a tax loophole or safe haven for like wealthy families. So I would imagine that’s why, um, it just feels like it’s very inconsequential.

Tim Baker: Um, but yeah, so I think you, I think both of those scenarios, Tim can actually. Like happen, right? So you could say, you know, you, you could say, Hey, this, this, you know, maybe you, maybe, you know, your, your youngest has like the least amount. You could say, Hey, this is now my 5 29. You know, I peel off the 10,000 lifetime amount.

Tim Baker: Apply that to my, um. My own loans and then maybe, you know, recategorize that 5 29 back to your youngest. So I think that’s an option. I, I think what I, what the way I want to answer this question, you know, it’s kind of similar to like, you know, when you leave an employer, like what do you do with your 401k and there’s like a, a myriad of options.

Tim Baker: Like you can leave it, you [00:04:00] can cash it out, you can transfer it to an IRA, you can, you know, roll it over to your current employer. So I kind of wanna look at that. This question this way. So like what are the options if you’ve overfunded a 5 29, um, and let’s us just assume, Tim, that there’s no more school for your child, right?

Tim Baker: So I’m gonna use Olivia as an example. Olivia Baker, great student, great swimmer, she’s a junior Olympian. And the breaststroke great kid. But like, I think the way that I would look at this is, um, if she goes to school. And let’s say, you know, she has money left over to me. The, the, the, the, the number that I’m looking at right now is the magic number for Overfunded five 20 nines is 45,000.

Tim Baker: And I’ll kind of break that down here in a second. So the options that we have with Olivia, so let’s assume she goes through school and maybe she gets scholarships or whatever. What do we do with that Overfund at 5 29? The, the one thing that you [00:05:00] could do is you could change the beneficiary, which is kinda what we just talked about.

Tim Baker: Like, yeah, I could change, you could change it in your name, pay off your student loans, and then change it back so you could change the beneficiary to siblings. So I could, I could change it to Liam. I could change it to Zoe. I could change it. To, uh, grandchildren that might not be here. I could change it to aunts and uncles, my parents, nieces and nephews.

Tim Baker: I could change it to Shea if you decide to go back to school or even myself, like we talked about that. So there’s a lot of, there’s a lot of flexibility. What, what to do with that. Um, this, the second option, which we just talked about is what you, you can use $10,000 to pay down student loans. So this applies to the original beneficiary and each of the symbol.

Tim Baker: And so I, this is one of the things I have to clarify. It’s like I, I think I would be able to use it for myself, but I’m not clear on that. You know, one of the, one of the things I was recent researching it says is fors. So if we look at it from that perspective, then for the Baker family, I see this as like a $30,000 benefit, right?

Tim Baker: 10,000 for Olivia, 10,000 for Liam’s student loans, 10,000 [00:06:00] for Zoe student loans. The other option that also opened up in the Secure Act was. The rollover to a Roth IRA that started in 2024. So you can now roll up to 35,000 lifetime from a 5 29 to a Roth. Um, and there’s some contingence, but that’s where I get the, the 45,000.

Tim Baker: So in my mind, those dollars in all intents and purposes are for Olivia’s education. However, to me, if she has. $50,000 in that account when she’s kind of through school, then I think I would probably leave 40, 45, 10 for potential student loans if that were to pop up. And then 35 to roll over to kind of get started on her retirement saving.

Tim Baker: And then I might take that five. And apply it for Liam or Zoe or something like that. The big conditions here, Tim, is that the, the five 20 for us to be able to roll over to a Roth, the 5 29 has to be open for at least 15 years. So we’re thinking like a long-term play. The rollover is limited to the [00:07:00] annual Roth IRA contribution each year.

Tim Baker: So right now that’s seven. Thousand dollars. So you’d have to do it, you know, um, over basically a five year period, seven time, 7,000 times, five years. Now, those, those limits will be different in the future. And the beneficiary of the Roth IRA must be the same as the 5 29. So there’s some hoops that you have to jump through.

Tim Baker: Um, but outside of that, the two other options that I see, and we kind of talked about this. Um, is you can save for future generations. So there’s no time limit on when the funds must be used. So I’ve always looked at this as like the last resort. So like if we, you know, and that’s one of the big fears, people like, I know about five 20 nines ’cause it’s limited in use, blah, blah, blah.

Tim Baker: In my mind, like if I’m given money to grandkids in the future, I’m good with that, right? Like. It’s a good problem to have. Right? And it’s a great tool for multi-generation wealth transfer for the purposes of education. And then the last one that, which I know you’ve brought up that’s like it’s not the end of the world, is like you can always make a non-qualified [00:08:00] withdrawal and pay taxes and penalty, the 10% penalty.

Tim Baker: You typically pay ordinary income tax on the earnings, plus a 10% penalty on the earnings, um, which is not, again, the end of the world. So to me, like the 5 29 as a. Tool to pay off student loans. Yes. Like you can do that. The, the problem is, is that it’s a $10,000 lifetime limit, but I’m also looking at these other avenues potentially, you know, and, and again, like the 45,000, you know, dollar limit.

Tim Baker: Like I’m, I’m thinking of this as like, if there is money left over. It’s probably because Olivia did something that allowed her to kind of not pay as much for, you know, like, I’m thinking like scholarships, right? So I don’t wanna, I still would wanna reward her. So like, you know, I was just kind of checking our numbers of like what we will project to have for her.

Tim Baker: Um, I think we did this exercise in a previous episode. Um, so I just updated those [00:09:00] numbers and, you know, we’re, we’re about 60, you know, we talked about the one third rule. Right now we’re on track to save about 60%. Um, so for her, the future value of her four year education, um, so she’s 10 and a half now. So really in seven and and a half years, we’ll pay about 175,000.

Tim Baker: We’re on track to save about a hundred, we’ll call it 105. Um. So, but we could, we could get there and she could get a swim scholarship and now we have 105,000. And we’re like, what do we do with that? You know? And I think that’s when we start kind of going down that decision tree of like, let’s, you know, let’s keep that 45 for her for potential 10,000 student loans for, you know, 35,000 in Roth.

Tim Baker: And then potentially peel some of that money off for Liam, for Zoe, for whatever. Um, so I think it’s a great question and kind of, you know, again, we interpret it very differently, but I think there’s, I think one of the, the, the feelings for a lot of parents is like, am I locked into this? And I think there’s just a lot [00:10:00] of wiggle room of what you could do with those dollars.

Tim Baker: Um, and I think we’ll continue to be, you know, opened up and, and flexible. But at the end of the day, I think the very last thing that you could do is just pay the 10% penalty. It’s not the end of the world.

Tim Ulbrich: Yeah, and I think, um, a couple things of reference. Great stuff, Tim. Um, you know, as you were walking through your example calculations for Olivia.

Tim Baker: Yeah.

Tim Ulbrich: reminded me of that episode we did previously, which I wanna make sure we have reference. So that was 360 8. How much is enough for kids college and and the premise of that was we talk all the time about saving for retirement, determining your nest egg. I remember one day, a couple years ago, you had this aha of like, why don’t we apply this same mindset to kids college, right? We have

Tim Baker: Right.

Tim Ulbrich: of thumb framework, the third, a third, a third. We’ve talked about that on this show before, Same for kids. College is a mathematical set of assumptions.

Tim Ulbrich: Just like we think about retirement, sure things may change, will change. Markets will kind of do their thing depending on how we have those invested, but we should be able [00:11:00] to plan. In a similar fashion, especially if we’re looking at this over a long period of time, you know, 15, 18 years that we’re, we’re saving.

Tim Ulbrich: So, um, I wanna make sure we reference that episode as well as two 11 when we talked about the ins and outs of the 5 2 9 college savings plan. So I know some of our listeners, especially may, maybe mid, mid-career pharmacists that have some kids that are in high school, a little bit older, getting ready to go to college, perhaps well versed in this topic, but for others that. Maybe younger kids are wanting to learn more about what, what is the 5, 2 9 and, and how might it fit as a priority of investing in the financial plan given all these other things I have going on, right? Whether it be just starting a family, buying a home, saving for retirement, student loans that are hanging around, how might this fit in as a priority with other. Investments and other things, other goals. So make sure to check out that episode as well. you know, one of the thoughts that came to mind as you were talking is like, thi this is not your dad’s 5, 2, 9 plan anymore. What, what I mean by that is we’ve talked at length the show [00:12:00] that they continue as you highlighted just a few moments ago, to make these, I think, more favorable.

Tim Ulbrich: You, you have more exit. Opportunities, if you will, right? In terms of how these funds might be used if you run into a situation like an over save situation, which I would argue is, is a good problem, right? Whether it be because, hey, my kid got a scholarship, they didn’t think they were gonna get a scholarship or, you know, perhaps they decided that it was a different career path than than college and, and now we’ve got funds, we gotta figure out what to do it.

Tim Ulbrich: There are more exit opportunities now than ever, including some of the most recent ones you mentioned, like the Roth. Conversions, and we’ve got a plan and, and there’s certain details that we’ve gotta think about in doing that. Um, but there are more options than we’ve had before in terms of how these funds can be used.

Tim Ulbrich: And of course, everyone’s situation is different. You know, I’m thinking about parents that might have larger families where there’s multiple kids, or the likelihood of more grandkids versus a single child and what that might look like. So everyone’s [00:13:00] situation, of course, is different, but. I wanna reemphasize that because I, I had a conversation just last week, Tim, with a faculty member at a college who was given advice by a non fee only financial planner.

Tim Ulbrich: And so a shout out to the most recent episode we did on five questions Ask when Hiring a financial planner. the advice was, Hey, you work at a university. Your kids could go to the university of which you work and, and go there for free, which could happen and that’s an awesome benefit, but also may not happen. Um, and therefore like, don’t put money in a 5 2 9 and instead buy a whole life insurance policy. And you know, I,

Tim Baker: I’m shaking my for. Yeah, for, for those that are not watching the video, I’m shaking my head. I, I had a, I had a similar conversation where, you know, somebody was talking about a 5 29 and the advisor was saying, um. They were saying two things. They were saying, don’t put money in a 5, 2, 9, and actually don’t put money into your 401k, [00:14:00] put it in a brokerage account.

Tim Baker: Um, or like an IRA and, and I was like, I was asking the, I know this is the tangent, but I was asking the question. I’m like, you know why they said that, right? Like, not to put money in the four five, the 401k, and not to put money in a 5 29. They’re like, no, why? And I’m like, because they don’t get paid on those accounts.

Tim Baker: So you get. Yeah, like they’re held away accounts, you don’t get paid. I mean, advisors can get paid on a 5 29. Um, like when I was prac, when I was practicing my first, you know, job in financial services, there was a Maryland 5 29, but we used the Virginia 5 29 for most of our, our clients. And you know why that was, Tim, is because Virginia 5 29, at least at the time, like it was open to advisors to get to, to set up and get paid.

Tim Baker: So even though the Maryland. Uh, clients weren’t getting the state benefit like we were. We were be, we were benefiting because we could like earn commissions on that. So like, yeah. I mean, [00:15:00] yeah. Not to cut you off, but like, it’s that, that kind of stuff just like makes me angry.

Tim Ulbrich: Yeah, and what was frustrating about that is, you know, we talked about this when we did the episode on five key key questions to ask for hiring a financial planner is, you know, there’s some half truth slash good

Tim Baker: I.

Tim Ulbrich: in there. Like of course, you know, if I were to still be working at Ohio State, my kids can go to Ohio State.

Tim Ulbrich: Awesome. Like, that’s a great benefit, but one that may not happen. You know, they might say, Hey dad, by the way, like. not cool. I don’t want to go to Ohio State

Tim Baker: Right.

Tim Ulbrich: or, you know, whatever would be the scenario. Um, then also, like that doesn’t just mean like, okay, go, go buy a whole life insurance policy instead because I’m gonna earn a commission off of that.

Tim Ulbrich: So, you know, I, I think it was one of those things that there’s still a lot of advice out there that I hear in talking with pharmacists. I know you hear as well, not, not just that related to the example I gave, but that are operating under. of the older rules in construct and framework around 5, 2, 9 plans.

Tim Ulbrich: [00:16:00] It didn’t have the flexibility and options that it might have today.

Tim Baker: Yeah.

Tim Ulbrich: and so, you know, I think that’s something to be aware with.

Tim Baker: Yeah. And I think the last thing that I would, I would just interject here that I didn’t say is that like. You know, if your student gets a scholarship, you can withdraw up to the amount of the scholarship without penalty. You’ll still owe income tax on the earnings. But like, you know, like if, if your, if your kid gets a, you know, a $30,000 a year scholarship to go to x, y, Z school, like, you can take out $30,000 a year without, you know, without, you know, paying that 10% penalty.

Tim Baker: So, again, like it just, you know, there’s just lots of different avenues. To go down to potentially, um, you know, exhaust those funds before you, you know, you get to the point of like, with, you know, making a non-qualified, you know, withdrawal. So, but it’s, it’s a preference, right? Like, you know, I’m just thinking about this whole like, you know, buy a whole life policy.

Tim Baker: It’s, you know, like, Hey, you don’t have to worry about education ’cause you, you know, you work at the university, it’s almost like don’t save [00:17:00] for retirement ’cause you know you’re gonna get an inheritance or something. I don’t know, just it, it’s kind of silly to me.

Tim Ulbrich: All right. Great stuff. I’m sure we’ll talk about kids college more. Um, second question, but, and before I go into this second question, which is around digital assets and, and buying Bitcoin, I wanna reference people, we did a two part podcast series on this topic, so especially for, for folks that. Cryptocurrency digital assets might be more introductory to where this does or does not fit into their financial plan. Make sure to check out those episodes. 3 86 3 87. We’ll link to those in the show notes. We talked about definitions of cryptocurrency, digital assets, some of the origins risks, investment considerations, tax implications, really good comprehensive overview of cryptocurrency, digital assets.

Tim Ulbrich: So great background information. Check out those episodes. Tim, with that backdrop, the question is. What is the best way to buy Bitcoin? What are the pros and cons of using a tax sheltered account versus a brokerage account? And what is a cost efficient way to buy Bitcoin [00:18:00] in a brokerage account using Robinhood versus an ETF?

Tim Ulbrich: What? What are your thoughts here? I.

Tim Baker: Yeah, so very three very different questions, so I’ll kind of unpack them in turn. So the best way to buy Bitcoin, I think this is kind of somewhat analogous to. Like real estate. So like if I’m a real estate investor, you know, I can be a direct owner where I buy a property, let’s say a single family home, and I’m dealing with all of the things, right?

Tim Baker: I have to deal with tenants repairs, contractors taxes, HOAs agreements, things like that, versus the other end of the spectrum, I can just buy. A reit, you know, a real estate investment trust, and that’s probably the most passive way to own a real estate. So a lot of listeners, if you’re not familiar with a reit, you actually might be an investor in a reit, you know, in your 401k or an IRA.

Tim Baker: It’s, it’s a, it’s a very, um. Popular way to invest in, in real estate passively. So if I, if I apply that analogy to [00:19:00] say Bitcoin, you know, purchasing a property directly is kind of like pur purchasing, you know, Bitcoin directly on a platform like Robinhood or Coinbase, Kraken, Gemini. But you’re dealing with a lot of the things and it’s private keys, hot and cold wallets, tax reporting, maybe some worry over, you know, a partial or.

Tim Baker: Permanent loss. So just, just a lot more, even though you’re a direct, you know, owner and there’s benefits of it for that to that like you just have more worry versus like you could just buy the spot. Bitcoin ETF, which launched, I think that was the beginning of last year and it’s probably the most passive way to own Bitcoin.

Tim Baker: So I don’t know if there is a best way. I think if you are more of the keep it simple stupid type of approach, like the spot Bitcoin, ETF is probably the better way. Um. If you like a little bit more of the hands-on then buying it directly I think is. Probably better, right? So when you buy a spot, Bitcoin, ETF, you don’t hold the [00:20:00] Bitcoin directly.

Tim Baker: You just buy sh you have shares or of like, of that fund. But the fund essentially owns it and you have, you know, a partial, uh, ownership of the fund. So when you buy it on Coinbase or, or Robinhood, you’re, you’re an owner, right? Your, your, your keys are on that, on that ledger. And, and it’s, you know, there for public consumption.

Tim Baker: So. Again, like when I talk about real estate, there’s often people that are like, oh yeah, I’m all about it. And then when, when we kind of get into the, the nitty gritty of it and I, I get to the end of like, my presentation, I’m like, if all of this is kind of overwhelming, and we kind of talk about like, you know, um.

Tim Baker: Different, different types of real estate investment. It’s not just like a single family home. There’s hacking and um, just different ways that you can invest in real estate. If you get to the end of that presentation, you’re overwhelmed. I’m like, just buy a reit. And actually, like most of our portfolios, we we’re in real estate.

Tim Baker: Um. I think it’s the, kind of the same, the same way. Because you know, I own Bitcoin both ways. I own it through an ETF and I own it [00:21:00] directly. And part of me is worried that one day I’ll wake up and I’ll hear a story that X, Y, Z, um, was hacked. And like all of my Bitcoin is gone. It’s just something that’s, it’s the reality, right?

Tim Baker: And that’s one of the, that’s one of the downsides of digital assets. So, um.

Tim Ulbrich: a thought here real quick to, to tack on what you’re saying. Um, and not, not an investment advice by any means, but, you know, I look at my portfolio, I’m, I’m interested in some exposure for the reasons that we talked about on previous episodes, but

Tim Baker: Yeah.

Tim Ulbrich: I. I have zero interest in, you know, kind of maintaining that myself, but I respect the people where this is partly a hobby, you know, like they, some people just geek out on like going through the transactions and, you know, dealing with the wallet, you know, stuff and figuring out how all of that, uh, fits in.

Tim Ulbrich: Just like, you know, sometimes people like to take a small percentage of their portfolio and do some individual stock type of trading and track that. So I, I think it’s a little bit of like, know thyself in terms of, [00:22:00] first where does this, might it fit overall in your, your financial plan. And I think, you know, for, for our clients, speaking about them in particular, it’s a great conversation to have your financial planner, with the financial planning team of like, is this something I want exposure to in my portfolio?

Tim Ulbrich: And then if yes, does that look like? Right. And I know you’re gonna continue on in terms of some of the types of accounts as well.

Tim Baker: Yeah. Yeah. I mean, it, it, it definitely is that there’s a lot of people that are like, you know, I’m, I’m at a point now where this is not a gimmick. I think, you know, digital assets are here to stay and, and I think the, the advent of the spot Bitcoin spot, Ethereum, ETFs, that launch is. A logical next step for them.

Tim Baker: Like they don’t necessarily have to be wanting to, you know, they don’t wanna deal with hot and cold wallets and private keys. And I completely understand that part of me, what you described is that nerd of like, you know, building, you know, I was invested in digital assets before the, the spot Bitcoin ets, but you know, even, even now, I’m like, eh, should I be doing that [00:23:00] a hundred percent there?

Tim Baker: Now I won’t sell my, I won’t sell my directly held coins, but like I know that there’s risk. If I continue to buy or if I continue to hold them, you know, because of what I just described. So, yeah, just it’s kind of understanding where, where you’re at in that spectrum. So the second question, you know, that was asked is like, what are the pros and cons of using a tax sheltered account versus like a brokerage account?

Tim Baker: And I would just answer, this is like any other investment, right? So like, well, let me just say this, like to, in most cases, the IRA. Um, are, unless, unless it’s a self-directed IRA, you’re typically not holding Bitcoin directly in those IRAs. It wasn’t until, again, the spot Bitcoin. That’s why Ethereum, I. Came out that, you know, the, the general, you know, the broad, um, based investor had access to that.

Tim Baker: So [00:24:00] once those happened, then it really opened up kind of the three main options for tech sheltered versus brokerage account. So the tax sheltered being the tax deferred, which is traditional gross tax free. It’s text coming out. After tax or Roth is tax going in, but you know, gross, tax free, um, and then not tax coming out.

Tim Baker: And then the taxable or brokerage account, which you’re gonna pay capital gains on, right? So, you know, short-term capital gains, if it’s, you know, bought, you know, bought and sold inside of a year and then long-term capital gains if it’s, um, held for longer than a year. So, you know, with an asset that is, that is potentially, um.

Tim Baker: Very much appreciable. I think that’s a word, meaning you buy it and then your hoping that, you know, what’s Bitcoin priced at it right now? Like 93. 93,000 per per Bitcoin. You know, there are some that believe. That, you know, [00:25:00] that it could go up to 250, 400 50,000 per coin, right? So in that case, like something like a Roth would be very, very attractive, if not a traditional.

Tim Baker: And then probably last but not least, the taxable. Now the, the problem with the, the tax sheltered accounts is that for you to access that, do those dollars. And actually spend and consume them. You typically have to be 59 and a half, or there’s a slew of other exceptions, whereas a taxable account, you can access that today.

Tim Baker: Right? So I would just answer this as like any other, um, any other investment. However, if you think that Bitcoin. Will continue to go up and it’s, you view it as a very appreciable asset and something like a Roth is probably the best thing to potentially, you know, pay the tax now, but that asset grows tax free.

Tim Baker: And then when you pour it out potentially in retirement, you know, you’re not having to worry about, you know, taxes then. Um. And then the last part of the question, Tim, was what is the co [00:26:00] the most cost efficient way to buy Bitcoin? So if we go back to the, the, the two best ways to buy Bitcoin, which is the spot, Bitcoin, ET, F, or directly on a PAT platform like Robinhood, Coinbase, Kraken, Gemini, I would say that probably the most cost efficient way would be the spot, Bitcoin, ETF, the expense ratios.

Tim Baker: For those ETFs that are out there, and I think there are, I don’t know, maybe a dozen or so, they range from 0.15% to one point a half percent. So, um, in terms of expense ratio, so this is what the fund takes the et f takes to basically pay their expenses to, to be profitable. So. If you have a hundred thousand dollars in a spot, Bitcoin, e, t, F, and I would say not to have that unless you are very, very, very wealthy.

Tim Baker: Um, you know, a hundred thousand dollars if you’re [00:27:00] paid paying 15 basis points or 0.15%, that’s $150 per year versus a. On the, on the higher end, one, one and a half percent is $1,500 per year that that fund takes, um, to essentially, you know, uh, allow you to have exposure to Bitcoin. Um, if you compare that to platforms like, um, the ones I mentioned, typically the way and every platform has a different price strategy, but typically the way that they price for kind of the smaller trades of said coin is that they charge a spread.

Tim Baker: Um, so, so if you’re buy-in, typically the spread is, um, what the coin is priced at, plus maybe half a percent. And it varies from platform to platform of what you actually buy it at. Um, so if, if, if Bitcoin is, is selling at. You know, 93,000, I might be buying it for 94,000. So you, you, you, you [00:28:00] purchase it on a spread, and then you also sell it on a spread.

Tim Baker: So again, the, the, the, the counter of that is, is true, but then you’ll also also pay typically a transaction fee, or it’s kind of like a commission. So on top of the spread, you’ll pay a, a flat fee. So that can be as little as like a dollar to $2, $3, or it can also be a percentage of what you buy. Um, like I said, every platform is gonna be different.

Tim Baker: Some are gonna be a little bit better than others. Um, you can actually like pay a membership fee, you know, at, at some of ’em to like get better pricing, but you’re paying a membership fee, right? So, um, there’s lots. So I would say just in, in general, even though you’re not holding the coin directly, it’s probably more cost efficient to hold it in a spot.

Tim Baker: Bitcoin, ETF. Than paying the transaction fees of holding the coins directly and the, and the, and the spread. Um, now the greater the volume, so if you’re, if you’re trading [00:29:00] many, many thousands, if not hundreds of thousands. That decision gets, you know, it’s a little bit ’cause because the big difference between like an expense ratio, you pay like an ongoing, like every year you’re paying that with a commission or a spread fee, you pay that one time.

Tim Baker: Right? So that’s, that’s a big difference. Um, so that’s something to consider as you’re thinking about cost efficiency.

Tim Ulbrich: Tim, I’m looking at, uh, the fees for some of the spot Bitcoin ETFs, to your point, ranging from 0.15. So I’m looking at. Options like, uh, the Bitcoin MIDI trust, um, I see some in the 0.2, 0.25 range. Point two, something like the Bitwise, Bitcoin, ETF, all the way up to 1.5, the grayscale Bitcoin trust. That’s a huge range. what is it No different than any other? Range that we look at when we talked about before on the show is, is does the same apply here? That you know, you’re gonna see a big range of fees and, and there’s a question that we have to assess [00:30:00] of like, what am I

Tim Baker: Okay

Tim Ulbrich: fees?

Tim Ulbrich: Why, why such a big spread on these, on these Bitcoin

Tim Baker: It’s a good question. The gray, the grayscale, um, from what I understand has been around even before like the, the grayscale Bitcoin trust that’s priced, its, uh, ticker symbol GBTC and non-investment advice. Um, my belief is that that was around even before the spot Bitcoin ETFs. Um, so I think they changed something when the.

Tim Baker: Like those came online, um, to kind of be like in the same bucket. But those were a thing. I don’t know if they were a mutual fund before, but they were, they were a thing before, like all of these other options came on, and I’m not sure why they’re priced so high. I, I, you could make a case that these types of funds, you know, and then Grayscale came out with the Bitcoin mini trusts, which I didn’t even know.

Tim Baker: Like that was a thing, like when these first launched, you know, the, the spot [00:31:00] Bitcoin, that wasn’t, that’s a newer fund. So I think they’re trying to be more competitive in the space, and I completely honest, I don’t know what the difference is between those two. Um, you know, we, we used two of these in our portfolios.

Tim Baker: Um, and part of it is because, like the, the one company we use is because that’s is all they do. Like they’re experts in digital assets. And I’m not saying like iShares or Fidelity are not. Um, but this is, you know what, this is their main, you know, um, business. This is the remain offer. And so, um, I’m not sure, but I, I, I think you could make a case because of how specialized and really how new these are that.

Tim Baker: You know, these are a, a bargain, and I’m not saying the one and a half, but I’m saying, you know, the 0.15 to, I’d say, you know, 25 basis points. Yeah. And I think, again, it’s competitive market. There’s lots of dollars that float into ’em, especially in the, you know, when they first launched, um, [00:32:00] you know, our expense ratios.

Tim Baker: Um, you know, even with some of these in our portfolios, typically 0.0 5.06. So super competitive and I think super low cost. Um, so I think something special. Typically, the more specialized the fund, typically the higher it is. And this is pretty, pretty dang specialized. So I, I view this as, even though it’s an ongoing cost, it, it gives you all of the things that we talked about that, you know, like you don’t, if I’m, if I hold one of these, like I’m, I’m not having to worry about.

Tim Baker: Cold wallets and security and things like that. This company, and they typically have themselves, and then there’s, they, they typically partner, like I know one of these funds actually partners with Coinbase to kind of do the, the verifying and all the things that they, they have to do per, I believe the SEC, um, and everything, from what I understand from most of these funds, all of these, all of the Bitcoin that they hold is in a cold wallet, meaning it’s off the internet, you know, it’s kind of in cold [00:33:00] storage, you know, which, which really, really.

Tim Baker: Lessens the, or eliminates the ability to like hack it, you know, to like, for someone to get in and steal it. Um, so all of that kind of worry and things that I have with the coins I hold directly, I don’t have that with, with these funds. So I would say for what you get for the price, I think it’s, it’s pretty good.

Tim Baker: Um, so yep.

Tim Ulbrich: Great stuff, Tim. And again, to the listeners episodes 3 86 3 87, we did a broad overview of cryptocurrency, digital assets. Make sure to check those two episodes out. We’ll link to those in the show notes. Thanks so much for listening. Have a great rest of your week.

 

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YFP 406: Should You Pay Off Your House Early?


Should you pay off your mortgage early? YFP Co-Founder & CEO, Tim Ulbrich, PharmD, unpacks the math, emotions, and big-picture factors in the mortgage payoff debate—plus 5 reasons when it may or may not make sense to pay extra on your mortgage.

Episode Summary

Should you pay off your mortgage early? It’s a question that comes up often in personal finance—and the answer isn’t always as straightforward as the math suggests.

In this episode, YFP Co-Founder and CEO Tim Ulbrich, PharmD, unpacks the numbers, the emotions, and the bigger picture behind this important decision. Using a real-life example and the YFP Early Payoff Calculator, Tim walks through how even small extra payments can shave years off your loan term and save you thousands in interest.

But here’s the twist: despite the financial benefits, Tim has personally decided not to pay off his mortgage early. He shares his thought process along with five compelling reasons why making extra mortgage payments might make sense for others.

Whether you’re deep into your mortgage or just getting started, this episode will help you evaluate your options and make a decision that aligns with your long-term goals.

Key Points from the Episode

  • 00:00 Introduction and Episode Overview
  • 00:12 The Big Question: Should You Pay Off Your Mortgage Early?
  • 01:41 Factors to Consider: Math and Emotions
  • 03:59 Using the YFP Early Payoff Calculator
  • 04:45 Real-Life Example: Mortgage Payoff Scenarios
  • 08:00 Opportunity Cost and Financial Decisions
  • 10:29 Personal Decision: Why I’m Not Paying Off My Mortgage Early
  • 11:39 Five Reasons to Consider Paying Extra on Your Mortgage
  • 22:00 Listener Engagement and Conclusion

Episode Highlights

 But as with many financial decisions that we make, there’s the math, there’s the emotions, and there are other goals that we have to consider in the financial plan. We don’t want to fall into the trap of making decisions in a silo.” – Tim Ulbrich [3:46]

“ We have to zoom out and always ask ourselves, what is the opportunity cost of making that financial decision of extra payments? Because anytime you make a financial decision, there’s always an opportunity cost that we have to weigh that against, and we have to consider the math of that opportunity cost as well as the emotions.” – Tim Ulbrich [8:04]

“ The emotional relief here is what we’re talking about where some people say, ‘Hey, that’s important to me. I want head into retirement with no mortgage,’ and that might be a trade off that’s worth considering.” – Tim Ulbrich [19:35]

Mentioned in Today’s Episode

 

Episode Transcript

Tim Ulbrich: Hey guys, so today I’m tackling a common question that I get and one that I’ve thought a lot about in my own financial situation, and admittedly one that I’ve gone back and forth on throughout the years, which is, should I pay off the house early by making extra mortgage payments? So, what’s the answer, right?

Tim Ulbrich: As I alluded to in the introduction, is it really depends. It depends on a lot of different factors in one’s personal financial situation, and we’re gonna unpack those individual factors today. And there’s both mathematical considerations as there always is, and there’s emotional considerations that we have to factor in when we’re making this decision.

Tim Ulbrich: I think sometimes in personal finance when it comes to topics like paying off debt versus investing, right? These, should I [00:01:00] do this or should I do that? Sometimes we can make these black and white when in fact there are a lot of iterations that we have to consider. And it’s my partner to make often says on the show, you are a unique snowflake.

Tim Ulbrich: Your financial situation is unique, right? And as we’re gonna talk about today, when it comes to paying off the house early, we have to factor in a lot of different things. Whether it be the interest rate, other goals that are going on, what’s the term of the loan? What’s the purchase price of the the house?

Tim Ulbrich: How much did you put as a down payment? All of these things are gonna impact, along with the emotions, how we’re going to approach this decision, and there is no one right answer, right? Because of everyone’s emotions can be different because of how the math can be different based on your individual situation.

Tim Ulbrich: So let’s start with the math. Okay. The, the math doesn’t lie. Making extra payments on your mortgage can cut off a significant amount of time from. [00:02:00] The amount of years you’re gonna be paying off this debt, right? From the term of the loan, especially if you have a 30 year term loan, which is probably for most listening, uh, is is the case.

Tim Ulbrich: Some of you might have a 20 or a 15, 20, not so common. Maybe more. More so on the 15 year side. And we’ve probably all heard something along the lines of, Hey, if you make an extra payment per year, if you make one extra payment per year, it can cut off so many years, right? You might hear four years, five years, six years, seven years off your mortgage.

Tim Ulbrich: We hear that and we’re like, wow, if I could have this paid off in 23, 24, 25 years instead of 30 years, that is significant, right? But as with many financial decisions that we make, there’s the math, there’s the emotions, and there’s other I. Goals that we have to consider in the financial plan. We, we don’t wanna fall into the trap of making decisions in a silo.

Tim Ulbrich: Now, if you use the YFP Early Payoff calculator, we’ll, we’ll make a link to that in our show notes. If you’re not already aware, if you go to our homepage, your financial pharmacist.com, [00:03:00] you’ll see a section that we have a bunch of different calculators that you can use in your own financial plan. And one of those is an early payoff calculator.

Tim Ulbrich: You can use that to run some numbers on your own, and whether it’s a mortgage like we’re talking about today, whether it’s student loans, whether it’s a car loan, any debt that you have, you can run some simulations to say, Hey, if I make an extra lump sum payment, or I add to my monthly payment, or whatever is the frequency of your payment, you can see what that will change in terms of the, the loan term, when you’ll have that paid off, as well as how much interest you’ll say save by making extra payments.

Tim Ulbrich: So let’s, let’s look at an example. If, let’s say that you bought a $350,000 house. Now I know for those of you that heard that, and you’re on the west coast, you’re in the northeast, you’re in the dc, Virginia area, you’re like, Tim, you’re out of touch. You live in Ohio, right? I get it. Walk, walk with me through this example.

Tim Ulbrich: So let’s say you bought a 350,000 house back in 2018, and between the down payment and about [00:04:00] seven years worth of payments that you’ve been making. You now have a balance due of $230,000. Okay? So you bought a $350,000 house. That was the original, uh, mortgage that you have. We had a little bit of a down payment.

Tim Ulbrich: You’ve been making payments over seven years, and now we’ve got a balance due of 233, 200 $30,000. Now, if we assume a 3% 30 year fixed interest rate, now some of you’re like, Tim, what in what world does a 3% interest rate? Where does that come from? Well before the pandemic, that was a pretty common interest rate and a lot of you listening probably locked in your mortgage at that rate.

Tim Ulbrich: And that’s why we have in part, uh, a challenge for many first time home buyers being able to get into homes because existing home buyers with low interest rates don’t wanna move out of their house and give up that interest rate. Now stay with me because if you’re in today’s market of buying a home or you’ve recently bought a home, you know that those days of 3% are long gone.

Tim Ulbrich: And now we’re looking at six to 7%. But stay with me just for this example in [00:05:00] math. So again, $350,000 house 2018. Between the down payment and some payments that we make, we now owe $230,000 and we have a 3% 30 year fixed interest rate. Now, if you were to make an extra $100 per month. Payment on top of the minimum payment that’s due at the end of the loan.

Tim Ulbrich: If we fast forward to when it’s all said and done, you would save about $11,000 of interest and pay off that house about 2.6 years early. Okay, so we turn a 30 year fixed. Loan into just over 27 years. Okay? That’s an extra a hundred dollars a month. If you were to put an extra $200 per month on top of the minimum payment, you would save about $19,000 of interest.

Tim Ulbrich: And now we’re gonna cut off about 4.6 years. Pretty significant, right? 30 years. Now we’re looking at about 25 to 26 years. If you put an extra $300 a month. Or $3,600 a year on top of [00:06:00] the minimum payment, that would now save $26,000 of interest, and we’d pay it off about 6.3 years early. And finally, an extra $400 per month, $4,800 per year.

Tim Ulbrich: We’d save about $31,000 of interest, and that would pay off about 7.6 years early again. 3% interest rate, right? So you get the point extra payments, and you can run these O your own numbers. Again, using the YFP early payoff calculator, we’ll link to that in the show notes, but extra payments, even small, relatively small, a hundred dollars a month.

Tim Ulbrich: Obviously. As that goes up, we see greater savings can lead to significant savings, both in the interest. That we’re gonna save as well as the shaving of some years off of the mortgage. Now if we just stop there, right, and we zoom in onto this one area of the financial plan, and we look at the math. If we make a decision only on that information, I think we’re making a mistake.

Tim Ulbrich: I. Because even if you get to the same decision, we have to zoom out and always ask ourselves, [00:07:00] what is the opportunity cost of making that financial decision of extra payments? Because anytime you make a financial decision, there’s always an opportunity cost that we have to weigh that against, and we have to consider the math of that opportunity cost as well as the emotions.

Tim Ulbrich: That are involved in both the debt repayment here, we’re talking about extra debt on the mortgage and what else you could do with those funds, right? Because you could always do something else with the funds. And that’s true on the other side of the coin as well, if you were to, instead of paying extra on your mortgage, you were to spend that money, let’s say on life experiences, travel, vacation, whatever, there’s an opportunity cost that we have to consider there, uh, as well.

Tim Ulbrich: So the math is intriguing, right? But is it the right move? Again, it, it depends. It depends on a lot of variables. You know, what’s the balance of, of the mortgage, you know, was it a $350,000 house with two 30 left like you saw in this example? Or was it a million dollar home that has $950,000 left on the [00:08:00] loan?

Tim Ulbrich: What’s the interest rate? 3% versus today’s interest rate? Very different outcomes that we might get in terms of the opportunity cost question that I just posed. I’ll share here in, in, in a little bit that for us, in our own situation, when I look at 3% debt, and this is not advice of what you should or shouldn’t do, I look at that and say, Hey, I’m not ready to make extra payments on that because I.

Tim Ulbrich: We could have those dollars working elsewhere for us in the financial plan. Other variables. What are your feelings towards the debt? No right or wrong answer. There are some folks that regardless of the interest rate, there’s an aversion to the debt. And I’m not here to tell you that you’re right or wrong with that.

Tim Ulbrich: We have to acknowledge and understand what is the emotion that we feel towards the debt. What is the monthly cash flow look like? How much margin do we have in the budget? And if we were to put extra towards a mortgage payment. Is there still extra or is there not still extra to do? Other goals and other things that we’re trying to work on?

Tim Ulbrich: And of course, what else is going on in the [00:09:00] financial plan? We know that we’re not only focused on paying off a mortgage. What else is going on? Is there, is there student loan debt? Is there other debt such as credit card debt? Where are we at with the emergency fund? How are we doing with the retirement savings?

Tim Ulbrich: How are we doing with kids’ college savings? What about our experience? Types of things that are important in our financial plan, vacation, travel, et cetera. All of these things we have to look at together. As we try to evaluate how we’re gonna make a decision in one part of the financial plan now personally.

Tim Ulbrich: I’ve decided, we’ve decided, Jess and I, that we’re not going to be paying off the mortgage early. At least not yet. Now why? You, you, you probably can figure out why I just shared, you know, an example that is also true for us. We happen to buy our home in 2018, and I think at the time we bought it at 4.625, I think was the interest rate.

Tim Ulbrich: And we refinanced that in 2019 or 2020 down to 3%. So when I look at a 30 year fixed rate loan at 3%. To me the the math supports making other [00:10:00] financial moves in lieu of making extra mortgage payment. Now my interest rate, our interest rate and how we feel about that, it may be different than your situation and that’s okay.

Tim Ulbrich: Right? That’s okay. So I wanna walk through with that background of mine in mind. I wanna walk through five reasons. When it may make sense to pay extra on your debt, and of course with each one of these, you could apply the opposite to where it may not make sense to pay extra on your debt. So we’ll walk through five different reasons that I want you to be thinking through.

Tim Ulbrich: So number one is aversion to debt or the emotions surrounding the debt, right? All debt is not equal, and everyone’s debt tolerance is different. And as I’ve highlighted a couple times now, and I’m gonna continue to reiterate, the financial plan is not just about the math. Of course, we have to consider the math, we have to weigh the opportunity costs.

Tim Ulbrich: But if we make a decision. It flies in the face of considering the emotions, I think we’re missing, at [00:11:00] least in terms of looking at that decision holistically. And for some, the aversion to debt is strong enough that despite all the numbers screaming, don’t do it. It still might be the right move. In addition to peace of mind, there’s a tangible benefit that can come from a feeling of momentum and progress, and the calculator doesn’t yet have a function.

Tim Ulbrich: To factor in peace of mind and momentum, right? To factor in more the emotional side of this equation. And so I, I joke about that, but in all reality, that’s how we have to think about it. What, what is the mathematical opportunity cost, right? If we use my example of a 3% 30 or fixed rate loan, if I put an extra $200 per month onto that mortgage payment.

Tim Ulbrich: The opportunity cost, just as one example is that I could put $200 a month, let’s say in a Roth IRA or in a 401k or in another type of investment, and we can model that out and mathematically using historical rate of returns, it’s gonna [00:12:00] show that that money invested will be any savings I’m gonna have on the debt repayment.

Tim Ulbrich: However, if I were to have a strong aversion to debt, how do you factor that in, right? We have to be able to weigh that end. I think it would be cool if we had a calculator that could make some assumptions and adjustments accordingly. The number two reason when it may not make sense to pay on your mortgage, of course, would relate to the interest rate, right?

Tim Ulbrich: Having low interest rates. I mentioned that in our example the 3%, whether fixed or variable higher interest rates on homes have been around long enough that those that are holding onto a 3% mortgage are starting to sound a little bit old and and out of touch with reality. And again, mathematically speaking, the decision and opportunity cost of paying off 3% debt versus 7% debt, as we look at today’s interest rate environment is very, very different.

Tim Ulbrich: That said, one should also consider whether or not they’ll be able to refinance in the future [00:13:00] before you pay down that debt, right? We don’t know where interest rates are gonna go, but if you were to buy a home today, in today’s 7% environment. We may not stay at a 7%, we will probably not stay at a 7% environment forever.

Tim Ulbrich: May go up more. It could may go down more. I think probably it will, probably not to 3%, but I think we’ll probably see those come down. So there is an opportunity to refinance, meaning that the way you look at it today at that rate and how you pay down that debt, that might look different if you’re able to refi, say from a 7% down to a 5% or four point a half percent in the future.

Tim Ulbrich: So the higher the interest rate, the more the math favors extra payments. The less convincing the argument becomes that these dollars could be used elsewhere in the financial plan. I say this all the time with student loans, right? Not all student loans are created equal. If you have a private student loan that’s at 8, 9, 10, 11, 12%, we might look at that very differently than you would have say, a federal loan at four or 5% is one example.

Tim Ulbrich: [00:14:00] So not all loans are created equal and the interest rate, and therefore the opportunity cost decision changes. As the interest rate, uh, changes for that loan. Number three relates to building up equity to have options. Because mortgages are front loaded with interest. For those of you that have a have a home, you know this all too well.

Tim Ulbrich: Hopefully you’ve looked at the amateurization table before. If not, you should pull a statement and check it out. But essentially, these loans are front loaded, meaning that the majority of your payment upfront is going toward interest and every payment that you make a little bit more might just be a few dollars, but a little bit more per month is going towards principal or the original cost of borrowing and a little bit less is going towards interest.

Tim Ulbrich: Eventually you start to flip that payment where a majority goes toward principal and a minority goes toward interest right as you pay off the debt. So because the mortgages are front loaded with interest, if you had a very small down payment. There is a potential that you could find [00:15:00] yourself in an equity buying.

Tim Ulbrich: Well, what do I mean by that? When you have a very small down payment, right? There are loans out there, we talk about them on the show here, they certainly can be a good fit, such as the pharmacist home loan, where you may have 3% down. Some doctor loans out there might even be a little bit less. With a small down payment, there’s always the potential risk of the market.

Tim Ulbrich: Downturn, meaning that house values go the opposite direction of what they have been doing, and that could leave someone what’s known as being underwater on a loan, right? Owing more than the home is worth. Now I think in today’s market that’s probably not likely. Every micro market is very different, but it’s always a possibility.

Tim Ulbrich: And as long as you stay in the market long enough for home values to do what they’ve done historically, that risk is, is fairly small, and that’s why we can often feel comfortable using some of those products out there that have a lower down payment. The other risk to consider is if you find yourself unexpectedly moving, so you buy, you think you’re gonna be there for a long [00:16:00] time.

Tim Ulbrich: Job, family, something comes up, you move one or two years later, and you don’t have enough equity in the home to cover the transaction costs and the down payment on the new home. Now we have ourselves in a potential cash bind, right? And we have to kind of figure that out and work through it. One argument to pay off your home early would be is that as you’re making extra payments, you’re building up the amount of equity that you have in the home, so that if you were to have to move or sell the home, you can be able to use that equity to help you, whether it be with a transaction cost, or putting a new down payment on the home that you move into.

Tim Ulbrich: Now that said, there’s another side of this coin, right? You could also argue that any extra payments that you make. To build up more equity, you could simply just set aside in an investment account or even more conservative, something like a high yield savings account for that purpose if it were to arise, if you were to move.

Tim Ulbrich: And that certainly does make sense and can afford you more [00:17:00] flexibility. But behaviorally, we all know that it’s hard to hold muddy aside for a maybe situation. When you have other expenses that are in front of you right now, of today, right? So equity and paying down your mortgage early to build up equity, it’s kind of that forced position that unless you have a debt vehicle where you’re drawing off of that equity, something like a HELOC for example, it’s kind of there and you’re not thinking about it, versus money that would be sitting in a high-yield savings account, so that that’s the third potential option where it might make sense to make extra payments, maybe at a low down payment.

Tim Ulbrich: You’re trying to build up your equity position in the home. Number four is working towards a milestone, working towards a milestone. So similar to number one, right? Which was that aversion I talked to, to that more, that emotional component. This one working towards a milestone is more about peace of mind than it is the numbers.

Tim Ulbrich: So the most common example I I hear as it relates to this one, working towards a milestone would be entering [00:18:00] retirement without a mortgage payment. This concept of, Hey, I wanna get to retirement and I don’t wanna have to think about this mortgage payment, even if there’s. Funds that are available throughout the retirement plan when you build your retirement paycheck, even if that were to be the case, there’s this mental clarity that many people describe of, Hey, I don’t wanna have a mortgage when I enter retirement.

Tim Ulbrich: So even when the math might say, Hey, you could invest that extra cash, you could do other things, you might be able to get better returns. The emotional relief here is what we’re talking about where some people say, Hey, that that’s important to me. I wanna head into retirement with no mortgage, and that might be a trade off that’s worth considering.

Tim Ulbrich: I. It’s a personal decision, obviously, as, as all of this is for many, but it aligns with the larger goal of financial freedom and security in retirement. And again, back to the, the joke I made about, hey, where do we hit the function on the calculator to add the emotional piece? This would be another example of that.

Tim Ulbrich: Number five, on this list, as we look at some reasons, it [00:19:00] may make sense, and again, the opposite could be true or it may not make sense. Number five is, are your other goals on track? And I mentioned this earlier, but often when we talk about any part of the financial plan here, we’re talking about paying off your house early.

Tim Ulbrich: It could be should I pay extra on my student loan debt? It could be, should I put more towards my investment and retirement? Should I put more in my kids’ 5 29 account? Any one of these we, we can get into the trap and tendency of thinking in a silo. We have to zoom out to look at all of the other pieces of the financial puzzle.

Tim Ulbrich: What else is going on with the financial plan? And again, as we think about opportunity costs, how might those dollars be used elsewhere? Even if we still get to the same decision, yes, I want to, or I don’t want to pay extra on my mortgage. We wanna know that we’ve considered it in the context of other things that are happening in the financial plan.

Tim Ulbrich: So again. It could be emergency fund, it could be student loans, could be kids’ college, could be retirement. All these other things that we’re trying to prioritize and balance. [00:20:00] And if you’re listening and you’re thinking about this decision, should I pay extra on my mortgage or not? If you’re someone who is checking all the boxes, right?

Tim Ulbrich: You’ve built a strong foundation, you’re saving for retirement, you’re on track, kids’ college funding, all the goals are moving where you want them to move and you have extra cash available to pay off extra or put extra towards the mortgage. That’s a very different conversation. Someone who’s asking themselves, Hey, should I pay extra on the mortgage?

Tim Ulbrich: And those other boxes are not checked. So the fifth item we’re looking at here today is what else is going on in the financial plan? Are we on track? Essentially, are we not? And then how we make this decision, whether we’re on track or whether or not might sway us as to whether or not those dollars could be used elsewhere.

Tim Ulbrich: So there you have it, five different factors to think about, or five reasons where it may make sense to pay extra on your mortgage. And I’m really curious to hear your thoughts. So for those that are currently making extra payments, I know several people that might. [00:21:00] Start with a 30 year term and go down to a 15 year term or leave it at a 30, but pay extra on the payments.

Tim Ulbrich: Why have you made that decision? What was it about your personal situation that led you down the path to making extra mortgage payments? Was it the math? Was it feelings? Was it something else? A milestone like I talked about on today’s show, for those that are not paying extra on your mortgage, why have you made that decision?

Tim Ulbrich: Why have you made the decision to let your debt and the term of the loan go out to the life of the loan and focus on other financial goals? Love to hear from you. Send us an email [email protected]. You can also record a voice [email protected] slash ask yfp. Well, thanks so much for joining me today and listening to this week’s episode of the YP Podcast.

Tim Ulbrich: If you like what you heard, do us a favor and leave us a rating and review on Apple Podcasts or Google reviews, which will help other pharmacists find the show. And finally, an important reminder that the content in this podcast is [00:22:00] provided for informational purposes only and should not be relied on.

Tim Ulbrich: 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 product. For more information on this, you can visit your financial pharmacist.com/disclaimer. Thanks so much for listening.

Tim Ulbrich: Have a great rest of your week.

 [END]

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YFP 403: Lessons from the Red: Navigating Big Market Dips


Tim Ulbrich, PharmD, reflects on losing over $100,000 during recent market volatility and shares eight powerful, experience-driven lessons from two decades of investing to help listeners navigate the emotional and practical realities of building wealth.

This episode is brought to you by APhA.

Episode Summary

In this episode, Tim Ulbrich, PharmD gets personal and shares how he lost over $110,000 in just five days. 

Despite his professional background in personal finance, Tim candidly shares how challenging it was to write those numbers down—highlighting just how emotional and disorienting the recent market volatility can feel, even for seasoned investors.

Drawing on two decades of investing experience, Tim unpacks eight key lessons that go beyond theory. These aren’t just ideas from a textbook or strategies he’s shared with clients—they’re principles shaped and reinforced by real-life experience. From understanding loss aversion and the importance of diversification to recognizing one’s own risk tolerance, this episode offers practical insights for navigating the highs and lows of investing with confidence and resilience.

Key Points from the Episode

  • [00:00] Introduction and Personal Story
  • [01:35] Sponsor Message: American Pharmacist Association
  • [02:30] The $110,000 Loss: A Detailed Breakdown
  • [04:12] Lesson 1: The Reality of Loss Aversion
  • [06:10] Lesson 2: Humility in Uncertain Markets
  • [07:15] Lesson 3: Importance of a Strong Financial Foundation
  • [08:55] Lesson 4: Risk Tolerance vs. Risk Capacity
  • [10:45] Lesson 5: Diversification Strategies
  • [13:05] Lesson 6: Market Fear and Volatility
  • [15:19] Lesson 7: Long-Term Horizons vs. Short-Term Volatility
  • [18:33] Lesson 8: The Importance of Time Horizon
  • [20:36] Developing a Resilient Financial Plan
  • [21:41] YFP Financial Planning Services
  • [24:47] Conclusion and Final Thoughts

Episode Highlights

“The challenge for today’s investor, for you, for I, is that we live in a time period where we have a 24/7 news cycle, social media algorithms, information is always in front of us, and that speed of information travels such that loss aversion, that feeling, can be amplified.”- Tim Ulbrich [5:28]

 ”A strong financial foundation is key, especially when we’re in periods of a volatile market.” – Tim Ulbrich [8:48]

“But to truly design an investing and retirement strategy that’s both effective and sustainable, it’s important that we consider and understand the difference between risk tolerance and risk capacity, because if we don’t account for both, our plan may unravel quickly the moment the market gets choppy.” – Tim Ulbrich [9:10]

Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Hey everybody. Tim Ulbrich here and welcome to this week’s episode of the YFP podcast where we strive to inspire and encourage you on your path towards achieving financial freedom. I’ve got a question for you as we get started this week. Have you ever logged in your investment account and felt your stomach drop?

Tim Ulbrich: Because in this episode I’m sharing something personal, how I lost over $110,000 in just five days. And if I zoom out to the peak of the portfolio back in December, 2024, the total losses across various accounts are well over $200,000. Now, even as someone who does this work for a living, I’ll be honest, saying that out loud makes me nauseous, but the recent [00:01:00] market volatility has also served as a powerful reminder of the emotional and behavioral side of investing because let’s face it, this stuff feels very different.

Tim Ulbrich: When you’re in the middle of it. So today I’m unpacking eight key lessons that I’ve learned over the last 20 years of investing. These aren’t just things I’ve read in a textbook or taught to various pharmacists and educational sessions. These are principles that I’ve lived and been reminded of through recent experience, from the realities of loss aversion to the importance of diversification and understanding your own risk tolerance.

Tim Ulbrich: We’re covering a lot of ground on today’s episode. Whether you’re feeling uneasy about the markets right now or just looking to build a more resilient financial plan. I hope this episode gives you perspective, encouragement, and some practical takeaways to study the ship. Before we dive in, let’s hear from today’s sponsor, the American Pharmacist Association.

Tim Ulbrich: A PHA is a paying sponsor of this episode of the or [00:02:00] Financial Pharmacist Podcast. A PHA has partnered with YFP to deliver personalized financial education benefits for A PHA members throughout the year, a PH a’s hosting a number of webinars, covering topics like student loan, debt payoff strategies, home buying, investing, insurance needs, and much more.

Tim Ulbrich: Join A PHA now to accelerate your professional journey and access these educational resources. A PHA has been my professional organization home for 20 years, and I hope you’ll consider joining as well. If you’re not already a member, you can join a PHA at a 25% discount by visiting pharmacist.com/join and using the coupon code yfp.

Tim Ulbrich: Again, that’s pharmacist.com/join using the coupon code yfp. All right, so here’s what’s happened. Over the last week. I lost $110,000 in a five day span, and as I mentioned at the top of the show, if you look back to the peak of December of [00:03:00] 2024, my IRA is down $170,000 alone. And when I add in other investment accounts such as a 401k, Roth IRAs, brokerage accounts, and even some of the 5 29 accounts, these losses total well over a couple hundred thousand dollars.

Tim Ulbrich: This can make anyone feel nauseous. Right? Especially when I think about the grind that it was in the first five to 10 years of investing to build up the beginning of the nest egg. And just like that in five days, more than 10% gone, or at least gone for now. And we’ve seen some of the markets continue to be volatile, but rebound on some level after even starting to prepare these notes.

Tim Ulbrich: By the time I publish this episode, who knows what The rest of the week, the rest of the month, the rest of the year is going to bring in the current volatile market that we’re in. Now, for some of you, I suspect your losses are much greater than mine, and for others, maybe much less. Regardless, it’s these moments of uncertainty and [00:04:00] volatility that present a real opportunity to remind ourselves of important points when it comes to long term investing.

Tim Ulbrich: If we allow this space as painful as it can be, if we allow this space, these moments can be a great teacher. So here are eight lessons that I’ve learned throughout my investing career that I’ve been reminded of over the last couple of weeks with the volatility that we’ve been experiencing. Number one is that loss aversion is real.

Tim Ulbrich: If you’re unfamiliar with that term, loss aversion tells us that we feel the pain of a loss more strongly than the pleasure of an equivalent gain. And this is true in many areas of our lives, and investments are no exception. And as I think about my own portfolio, the significant gains that were had throughout the fall and the early winter, they feel like a distant memory.

Tim Ulbrich: While the losses, I feel those at a much [00:05:00] deeper level. That’s what we’re talking about with loss aversion and sure there’s a recency bias, but when I think of other market dips that I’ve, I’ve experienced and lived through the 2008, 2009 recession, the COVID-19 pandemic, although that was short-lived, it was a significant dip.

Tim Ulbrich: I remember and feel those losses. More than I feel the wins, and as we’ll talk about here in just a moment, this does is despite the wins, outperforming the losses and lasting over a longer period of time. So the more we can acknowledge the reality of loss aversion, then the more systems we can put in place to mitigate decisions being made based out of our feelings, because that’s the risk with laws aversion.

Tim Ulbrich: So the challenge for today’s investor, for you, for I is that we live in a time period where the speed of information, right? We have a 24 hour seven news cycle, social media algorithms, information is always in front of us, and that speed of information travels such [00:06:00] that loss aversion, that feeling can be amplified.

Tim Ulbrich: So it’s hard to sift out what is noise and what is valuable information. If you’re looking for more information, not only on loss aversion, but on behavioral biases and how they impact how we approach our money, I highly recommend checking out the book, the Behavioral Investor, by Dr. Daniel Crosby. I.

Tim Ulbrich: That’s number one. Loss aversion is very real. Number two is we don’t know as much as we would like to think that we do, suddenly everyone and their brother is an expert on global trade and tariffs. And with all due respect, even if you have a PhD in economics, you can’t predict the future. Just look at all the varying opinions that are out there by economists right now, especially when the driving force of the volatility that we’re experiencing is inconsistent.

Tim Ulbrich: Tariffs have been on, tariffs have been off, tariffs have been on, tariffs have been off. And what we know, we’ll talk about this in a little bit, is that markets don’t like uncertainty. [00:07:00] So there’s humility and knowing what we don’t know, as Sam Rowe has a great newsletter, if you wanna check it out, Sam Rowe said in a recent, uh, version of his newsletter, given all the unknowns surrounding the tariffs causing the market volatility quote, if you know where things are heading, then you probably don’t know what you’re talking about.

Tim Ulbrich: So humility, not overconfidence is essential when we are navigating uncertain and volatile markets. That’s number two. We don’t know as much as we think we might know. Number three is that a strong foundation is key. Now, if you’ve been listening to the podcast for any amount of time, you’ve heard me talk extensively on repeat about the importance of a strong.

Tim Ulbrich: Financial foundation to our mindset and how we approach our financial plan and down markets and periods of recession. I know we’re not there in the moment, but down markets and periods of recession are yet another reminder of how important it is to have a [00:08:00] solid financial foundation. Because if you’re handcuffed with credit card debt, or if you find yourself without a fully funded emergency fund, two things that are critical to a strong financial foundation, a down market.

Tim Ulbrich: Puts a magnifying glass on any fears or anxieties or stress that we have related to our financial plan. Right? It heightens the emotional sense that we have, and this can certainly lead to or has the potential to lead to prematurely selling off investments, changing your asset allocations to be more conservative or even pulling back the amount that you’re saving, right?

Tim Ulbrich: The amount that you’re contributing to various investment accounts. And what we know, we just talked about this with loss aversion, is that we typically don’t wanna make those emotional decisions in the moment. So the stronger the financial foundation that we have, the stronger our mindset is to weather the storm.

Tim Ulbrich: And for some, to potentially use the down market as an opportunity to take calculated risk. As Warren Buffet once famously said, quote, be fearful when others are [00:09:00] greedy and be greedy when others are fearful. So that’s number three. A strong financial foundation is key, especially when we’re in periods of a volatile market.

Tim Ulbrich: Number four is that we wanna understand the difference between risk tolerance and risk capacity. Now if you’ve ever filled out an investment questionnaire. You’ve already scratched the surface on this topic, and maybe you didn’t even realize that you were. But to truly design an investing and retirement strategy that’s both effective and sustainable, it’s important that we consider and understand the difference between risk tolerance and risk capacity, because if we don’t account for both.

Tim Ulbrich: Our plan may unravel quickly the moment the market gets choppy. So what is risk tolerance? What is risk capacity and what’s the difference between the two? Risk tolerance? Think of this as the emotional side of investing. It’s about how you feel. I. It’s the gut check. [00:10:00] When the market drops 10, 15, 20%. It reflects your comfort or discomfort with uncertainty, with loss, with volatility.

Tim Ulbrich: So in short, it’s how much risk you can stomach. I. Right. It’s the emotional component here. We’re talking about risk capacity. On the other hand, measures how much risk that you should perhaps take based on your goals, based on your timeline, based on your savings rate, your income, and your overall financial picture.

Tim Ulbrich: One is emotional, that’s risk tolerance. One is more mathematical. That’s risk capacity. And if we don’t consider both of these. We’re gonna be in trouble, right? If we’re taking on more risks than we’re comfortable with, we’re in a down market. We’re in a period of volatility that might really challenge us and lead to decisions that we don’t want to make.

Tim Ulbrich: So we wanna consider both, and we wanna stress test both so that when the volatility occurs, not if, but when the volatility occurs, we’ve already thought through how we’re gonna handle those situations. So that’s number four, [00:11:00] understanding the difference between risk tolerance and risk capacity. Number five is diversification.

Tim Ulbrich: Now we all know we’ve, we’ve heard the importance of diversification and we often though, talk about this within an asset class, right? For example, the mixture between stocks and bonds within a 401k or within an IRA, or if we get maybe a little bit more granular, it could be the different types of stock, domestic stock, international stock, small companies, midsize company, big size companies, or even we might think about diversification as different sectors of investments, tech.

Tim Ulbrich: Energy, healthcare, utilities and so forth, and diversification in this manner, right? We’re talking about within an asset class, within stocks or within bonds. That’s important. It’s important that we do that, and we do that according to what we just talked about, our risk tolerance and risk capacity. But so is it also important to think about diversification across various asset classes?

Tim Ulbrich: So when I think about my [00:12:00] long-term investing plan. At a high level, it includes three main buckets. The first bucket is what I consider traditional investments. This would be things in the form of traditional and Roth IRAs, 4 0 1 Ks, brokerage accounts, and so forth, right? Probably where a, a majority of people have their investments stored.

Tim Ulbrich: The second bucket I think about is real estate. Our primary home as well as some commercial real estate investing. And the third one I think about is the equity, the value of business. So there’s traditional investments, there’s real estate, there’s business equity. I’ve talked about this before on the show as a three legged stool.

Tim Ulbrich: And that stool may or may not be appropriate for others, right? And it’s not that those legs of the stool are always equal, but they’re diversified. And while various sectors of the economy are certainly interconnected. The volatility that we’re seeing right now in April of 2025 is disproportionately impacting my traditional investment bucket, that bucket number [00:13:00] one.

Tim Ulbrich: But it’s not so much impacting, at least not yet the other two legs of the stool. Right. And that’s in part the value of considering diversification not only within an asset class, but between different asset classes. So that’s number five, diversification. As we think about eight lessons learned through the recent market volatility.

Tim Ulbrich: Number six is that fear in the market is real. It’s very real. One thing is certain, and that is that markets do not like uncertainty, right? That’s exactly what’s happening right now, and we have a lot of uncertainty. If we look at a week or so ago, within a single day, we had market swings as just one example.

Tim Ulbrich: Of how you might look at that and say, you just can’t predict this stuff. Right. This was a Sunday night going into a Monday. On Sunday night, Dow futures were down over a thousand points. Then the day began and we started to see the, the, the, the Dow actually rise because there was an unfounded [00:14:00] claim on a small X account that President Trump was considering a three month delay on tariffs.

Tim Ulbrich: That was determined that it wasn’t. A substantiated, uh, fact that was coming from the administration markets then reacted. This is all within the same day, markets declined, and then there was news that the treasury secretary was having ongoing negotiations with Japan and some other countries, and the markets started to react to that.

Tim Ulbrich: All within a day. And so the markets do not like uncertainty, and that’s just an example of one day in the back and forth and uncertainty that we’ve been having. So one gauge of fear or one gauge of volatility in the markets is measured by the VIX, which is the Chicago Board Options Exchange Volatility Index.

Tim Ulbrich: You can look up the VIX symbol. And just to give you a point of reference, the VIX was hovering in the mid-teens. Since the fall and jumped to over 50, uh, earlier this month. Now, the last comparable spike like this, or the last 10 [00:15:00] years was in March of 2020, which of course was the beginning of the pandemic where it briefly jumped above 80 and then it came back down.

Tim Ulbrich: So again, markets don’t like uncertainty, and this measure, this one gauge of uncertainty in markets. The VIX is certainly telling us that we’re in a period of uncertainty. So. Hold on tight, right? That’s the reality of where we’re at. And you can expect volatility as long as there’s this level of uncertainty, both when within a day, within a week, within a month, for as long as this may go on.

Tim Ulbrich: So that’s number six. Fear in the market is very real. Number seven is that long term horizons for investing can really give us a good amount of clarity, but short term, not so much. Not so much. So if you’re investing for the long term history tells us that the market will take care of us. Yes, past performance is not an indicator of what’s to come, but it is helpful [00:16:00] information.

Tim Ulbrich: And if we think about this in the context of what we already talked about, which is we don’t know as much as we think we might know. The past can be an anchor to steady our ship as we enter unchartered waters. So if we look at the s and p 500 index from the early 1940s to the early 2020s, we are reminded of two very important points.

Tim Ulbrich: Number one is that bull markets, these are up markets where we have market growth. Bull markets on average, lasts much longer than bear markets, which are the down markets. Lemme say that again. Bull markets or up markets last on average much longer than bear markets or down markets, but because of loss aversion, it does not feel like that, right?

Tim Ulbrich: So even though the, the historical data tells us that the, the markets doing well, those runs are longer. But in those down markets, in those bear markets, we [00:17:00] feel that more, right? So we kinda lose that perspective. The second important point we need to look at and consider is we look at the historical data of the s and p 500.

Tim Ulbrich: Just as one data point is that any one year span of the stock market can be quite volatile, right? And historically we see an annualized rate of return range, meaning if we look at the last 90 or so years, we see a range as low as 37 points down to a loss of 37% in the market to as high as a 50% gain within the market.

Tim Ulbrich: So in any one year, we could expect that there’s going to be some volatility, right? That’s why we, we think about this in terms of long-term horizons. If I, if I have funds that I need in the next year, I’m not thinking about investing those in the stock market because of the volatility might go up, might go down, might be somewhere in between.

Tim Ulbrich: But if we zoom out and look at any 20 year span, we see that it’s less volatile and usually is up into the right. With actually having a historical [00:18:00] annualized rate of return range from positive 0.5% to positive point 13.2%, right? So it starts to flatten out a little bit. So sure, those upsides may not be as high.

Tim Ulbrich: I, I gave you the range of negative 37 to 50% plus, but pretty much up into the right, when we look at historical 20 year rate of returns, and in fact we have yet to see. Over the last 90 years, we have yet to see a period of the market where there’s a 20 year span that had a negative rate of return. So if we’re in it for the long term, we can have some level of confidence.

Tim Ulbrich: Again, past performance may not be predictive of the future, but it certainly is helpful information. So that’s number seven. As we look at long-term horizons can give us some clarity and maybe a little bit of peace of mind. Short term, not so much. Number eight, as we continue to talk about time, is that time horizon, your time horizon of meeting these funds matters a lot, right?

Tim Ulbrich: I’m [00:19:00] 41 years old and assuming that I’m able to stay healthy, I plan on working for a long period of time. I love the work that I do because of that, my time horizon to needing the funds. That I have invested when I started at the top of the show, that couple hundred thousand loss, right? My timeline to needing the funds allows for room to take on risk knowing that there may be some big dips, such as the one that we’re experiencing now and, and in fact, historically.

Tim Ulbrich: The data tells us that we should expect these dips. This, the, the world markets and the events that are leading to these certainly are different or perhaps somewhat unique, but the fact that there’s a negative return and the markets are quite, quite volatile in the moment that that’s not unique, right to, to our generation in this time period.

Tim Ulbrich: Now that said, if you are listening and you’re much closer to retirement age, or you’re recently retired, the sequence of returns risk tells us that your portfolio. [00:20:00] And what my partner Tim Baker, calls the eye of the storm, right? Approximately five years before and five years after retirement. Your portfolio in the eye of the storm needs to be carefully constructed to minimize the impact of negative investment returns that can have long-term detrimental effect, right?

Tim Ulbrich: Because if we’re in that time period, we’re having to make our investments more conservative, or we’re actually pulling those funds out if we experience negative returns and we’re hit. In a significant way by them, then we’re gonna solidify those negative returns. We’re not gonna have the time span for the market to correct and to bring those back up.

Tim Ulbrich: So that’s our last point as we think about what is your time horizon to, in, to, to needing these funds to retirement? And is your risk tolerance, right? Is your risk capacity constructed in a way that aligns with that? So what do we do with all this information? Right? I believe that if we develop a plan, [00:21:00] if we develop a plan that accounts for our goals, our risk tolerance, our risk capacity, and the vision that we have for living a rich life today and tomorrow, we need to let that plan be our guiding star.

Tim Ulbrich: Sure we’re gonna adjust from time to time. Life happens, things change. But we don’t prematurely react in moments of crisis like we’re in right now, if you want to call it a moment of crisis, because we have a plan and we’ve thought about this in advance and we’ve stressed, tested these things in advance, and we’ve considered what we would do in these difficult seasons.

Tim Ulbrich: So once we have our plan, we let our plan do the work. As Daniel Crosby said, the author of the Behavioral Investor, humans are wired to act. Markets tend to reward inaction, and that is hard, right? Because as humans we wanna take action. So we have to be aware of that bias. Now, if you’re listening to this, say, Hey Tim, I could really use [00:22:00] some guidance with the financial plan.

Tim Ulbrich: Our team at YFP, our team of fee only certified financial planners, we are here. We are ready to help. So whether you’re managing finances on your own, if you’re DIYing it or you’re already working with another advisor and you’re thinking, Hey, I could use some extra help, our team of CFPs is ready to jump in and support you.

Tim Ulbrich: Here’s what sets us apart from the crowded wor world of financial advice that is out there. Number one, as you all know, we are pharmacy focused, so for nearly a decade we’ve worked with pharmacists at all stages of their careers. Whether you’re finalizing your plans for retirement, you’re in the middle of your career trying to balance the demands of today in preparing for the future, or you’re on the front end of your career, wading through student loan debt and big life changes.

Tim Ulbrich: We have experience working with pharmacists, clients throughout all stages of their career, and we understand the unique opportunities and challenges that pharmacists face. Number two is that we’re fee only. We don’t earn commissions or sell financial products, [00:23:00] which is very common in this industry. It’s a fee only firm.

Tim Ulbrich: We’re paid for the advice that is given. There’s no hidden agendas, really focused on recommendations that are in the best interests of the client. Number three is we have a fiduciary commitment. As a registered investment advisor, we’re legally and ethically required to act in the best interest of our clients all the time.

Tim Ulbrich: Now, that probably sounds like it should be a given, but not all financial professionals are held to the standard. The next thing that really sets us apart is I. Our team, every member of our planning team holds, holds the certified financial planner designation, which we believe is the gold standard in financial planning.

Tim Ulbrich: Earning it requires rigorous education. Passing a challenging exam. Think of something like the NPL with a lower pass rate. This past cycle, about 62%. It requires 6,000 hours of experience and a commitment to ongoing ethics and education. What also sets us [00:24:00] apart is we do everything virtually and we’re nationwide.

Tim Ulbrich: We serve pharmacists, households all across the country. We’re currently in 41 states and counting as of March, 2025, and we do this through virtual planning meetings, which really makes it easy for our clients to connect with our planning team. Finally, I think one of the most important things that often gets overlooked in the financial plan is we focus and plan beyond the numbers.

Tim Ulbrich: Financial planning isn’t just about investments. It’s about aligning your money with your life. And through our scripture plan process, we help you build a comprehensive plan that supports your vision for living a rich life today while preparing for the future. Covering everything from debt to retirement, budgeting, to estate planning, and much more.

Tim Ulbrich: So if you’re ready to take the next step, you can schedule a 60 minute discovery call with my partner, Tim Baker. You can go to your financial pharmacist.com. Top of the homepage, you’ll see an option to book a discovery call. And on that call we’ll learn. Learn more about your goals, we’ll walk you through our [00:25:00] services and ultimately see if it’s a good fit to work together.

Tim Ulbrich: All right. Well, that’s our show for today. I hope you took something away from those eight lessons learned in the market volatility that we’re experiencing right now. Hold on tight. I think we’re gonna be in this phase for a while. And before we wrap up the show, I wanna again, thank our sponsor of the American Pharmacist Association, A PHA Is every Pharmacist Ally advocating on your behalf for better working conditions?

Tim Ulbrich: Fair PBM practices and more opportunities for pharmacists to provide care. You join A PHA at a 25% discount by visiting pharmacists.com/join and using the coupon code YFP. Thanks again so much for listening to this week’s episode. If you like what you heard, do us a favor and leave us a rating and review on Apple Podcast, which will help other pharmacists find the show.

Tim Ulbrich: Finally, an important reminder that the content in this podcast is provided for inve informational purposes only, and is not intended to provide and should not be relying on for investment or any other advice. [00:26:00] 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.

Tim Ulbrich: For more information on this, you can visit your financial pharmacist.com/disclaimer. Thanks so much for listening. Have a great rest of your week.  

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YFP 397: The Art of Rebalancing: Maintaining Your Investment Portfolio


Tim Baker, CFP®, RICP®, RLP® and Tim Ulbrich, PharmD discuss the importance of maintaining a balanced asset allocation, the nuances of risk tolerance and capacity, and the different accounts you should be rebalancing.

Brought to you by First Horizon.

Episode Summary

In this episode, Tim Baker, CFP®, RICP®, RLP®, and Tim Ulbrich, PharmD, explore the essentials of rebalancing your investment portfolio.

Tim and Tim discuss asset allocation, risk tolerance, and key accounts to rebalance. They also highlight common mistakes and effective rebalancing strategies for long-term investment success.

Key Points from the Episode

  • [00:16] Introduction to Rebalancing Your Investment Portfolio
  • [01:34] Defining Asset Allocation and Rebalancing
  • [02:43] The Importance of Rebalancing
  • [04:37] Accounts to Consider for Rebalancing
  • [09:23] Risk Tolerance vs. Risk Capacity
  • [17:44] Common Mistakes in Rebalancing
  • [22:43] Timing Your Rebalancing
  • [25:38] Conclusion and Financial Planning Services

Episode Highlights

“ What we’re really talking about here is like maintaining the amount of risk that you feel comfortable with.” –  Tim Baker [1:04]

“ Rebalancing is the process of realigning the asset allocation of your investments to maintain whatever your desired level of risk is.” – Tim Baker [2:30]

“ But the question behind that is like, Where are we going with these investment accounts? What’s the overarching goal? What’s the target amount that we’re trying to achieve?” – Tim Ulbrich [7:06]

“ The longer time horizon that you have, the more capacity that you have to take risk because the more likely that that portfolio can recover over those 30 years.” – Tim Baker [11:06]

“ Risk tolerance is what you want to take. That’s kind of your emotional response. The risk capacity is what you should or need to take.” – Tim Baker [11:54]

Links Mentioned in Today’s Episode

Episode Transcript

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

Tim Baker: Good to be back with what’s new, Tim.

Tim Ulbrich: I think this is back to back, right? It’s been a while, uh, since we’ve done a back to back. So last week we talked about couples working together with their finances, certainly a relevant and important topic. And today we’re going to go pretty narrow and pretty nerdy.

Uh, as we talk about rebalancing your investment portfolio and Tim, let me start with that. We talk a lot [00:03:00] about. our savings rate and how much we’re going to save and how much we need to save for retirement. And sometimes what we lose in that conversation, certainly not with clients when our team’s doing this one on one, but maybe in a broader education sense is how we actually allocate those assets.

Where, where do those dollars go? And then what do we do when that asset allocation perhaps get it out of whack over time, which is our topic, uh, with rebalancing. So I think, I think naturally there can be a focus on the accumulation, but we might lose some of those details along the way.

Tim Baker: Yeah. I mean, it’s an important thing to consider because what we’re really talking about here is like maintaining the amount of risk that you feel comfortable with, with, and for a lot of people are like, I don’t even know what you’re talking about. So I’m just putting in a target date fund. Um, so if you’re in a target date fund, Um, you know, primarily this episode won’t apply to you, but if you’re kind of pulling the strings and want a little bit more precision, um, want to pay a little bit less, that’s one of the, the, the, the beast that I have with target a fund, this’ll [00:04:00] be an episode to kind of tune in and, and, and listen to in terms of, you know, at least how we approach it.

Tim Ulbrich: So let’s start with just defining rebalancing and maybe at the same time, define asset allocation, because those are going to go hand in hand.

Tim Baker: Yeah, so asset allocation is really just the percentages between stocks and bonds, um, at a high level. Um, so. Um, you know, if you’re, if you’re in, say, an 80 20, um, portfolio, that means 80 percent is in stock. So you think traditionally more exponential growth, um, you know, more, more stocks and an accumulation phase.

And then bonds are, I, we typically explain as more like linear growth, which is where you’re, you know, it’s fixed income, you’re, you’re being set, you know, being paid, um, you know, interest and those types of things. So typically the higher the bonds, the more risk. Um, avoidant you are. Um, and typically this is for people that are approaching retirement or in retirement.

So the percentage of stocks and bonds is really what we’re talking about with [00:05:00] that asset allocation. Rebalancing is the process of realigning the asset allocation of your investments to maintain whatever your desired level of risk is. And, you know, return. So over time, Tim, Tim. The market fluctuates, obviously it goes up and down and certain investments may grow faster than others.

So this causes your portfolio to drift from its original target allocation. So give me an example. Let’s say your target allocation is fairly conservative. It’s 6040. So 60 percent in stocks and 40 percent in bonds, a strong stock market, which we’ve been experiencing lately, um, over the last couple of years, although volatile could shift that to a 7030.

Um, ratio. So if you’re in a buy and hold strategy, which is basically you, you buy and set it and forget it, you’re going to continue to drift 20, um, which, which ultimately increases your portfolio’s risk. So what rebalancing [00:06:00] basically involves is selling some of the stocks and buy in bonds to return it back to that original 60, 40.

So basically. You know, you sign up for a certain amount of risk, you know, whether you’re working with advisor or just in your own mind and as the market does what it does the You know the percentages shift and you just want to basically reset that so In the event, you know, I always kind of think about in the event of um, you know the market taking a significant downturn Um, you’re protected as much as you can be with the the percentages that you signed up for.

Tim Ulbrich: Yeah. And for the DIYers out there, right? This is something they have to keep on, on their radar to come back to at some frequency. You know what, whatever that might be determined, or of course, we’re big advocates of, Hey, this is one of the many things that a financial planner can help you with. Like, I, I selfishly know that, hey, I’ve got Kim, uh, on our side, you know, in our corner, one of our CFPs, that like, I’m not thinking about risk.

You know, I’m not thinking about the rebalancing, you know, of course we’re constantly re [00:07:00] evaluating what are the goals, what’s the risk tolerance, what’s the risk capacity, but that aspect’s being taken care of as naturally market fluctuations will happen. So Tim, what accounts should people be thinking about here with rebalancing?

You know, perhaps the obvious people are thinking, Oh yeah, my 401k, but it’s, it’s bigger than that. Right, 

Tim Baker: Yeah, it’s pretty much all of your investment accounts. So, um You know, IRAs, HSAs, if you’re invested in your HSA, 401ks, 403bs, TSPs, brokerage accounts, um, you know, and, and, and to kind of drill down a little bit more, Tim, it’s not just like. You know, stocks and bonds. You, if you look in the equity side of your portfolio, you know, it could be that small, small cap has performed, you know, outperformed.

So, you know, we have to sell some off the, some of the small part, a small cap to maybe redeploy that to a merging market or an international exposure. So, um, but it really is anything that you have. You know, investments, right? Which could be IRAs, HSAs, [00:08:00] 401ks, brokerage account. Um, these are the, these are the accounts that you want to pay the most attention to.

Now, I would say that 401ks, Are typically less, there’s a less of a need to rebalance a 401k. And the reason for that is typically 401ks are contributing to every pay cycle. So if you get paid 24 times a year, every time some of your paycheck goes in, it’s almost like a natural rebalance, right? There’s still some drift there.

And it’s still important to look at this because oftentimes this is the biggest asset that many of us have outside of maybe a home. Um, so it’s a big asset on the, on the balance sheet that needs attention, but, but oftentimes you kind of have that natural rebalance because of how regular the contributions are made into your 401k.

Tim Ulbrich: And I would add to this, you know, you mentioned kind of the, the various accounts, right? So 401ks, IRAs, [00:09:00] TSBs, 403Bs, HSAs, 529s would fall in there, right? As well. If we’re,

Tim Baker: Yeah, 457s. Yep, exactly right.

Tim Ulbrich: I think too. It’s worth mentioning this. I’m thinking of the DIY or in particular where, where I often see this overlooked him that there’s a question behind this question that we can’t overlook.

Right? So the question we’re addressing is what is rebalancing? And we’ll talk some about the strategies, what accounts need rebalancing and ultimately how does that connect and relate to your risk tolerance and capacity, all important stuff. But the question behind that is like, Where are we going with these investment accounts?

What’s the overarching goal? What’s the target amount that we’re trying to achieve? And how are we balancing that with all these different goals? Once those decisions are made in those conversations happen, then within that, we can begin to think about, okay, how do we make sure we rebalance and keep on track with the plan that we set?

Tim Baker: Yeah, if you’re, [00:10:00] if you’re looking at a checklist of reviewing your financial plan. You know, this is probably item number

Tim Ulbrich: Right.

Tim Baker: and all of the other things, you know, that are going to be important of like, Hey, where are we at? Where are we going? What’s the purpose of this are the things that we talked about, you know, last year, the year before still important.

So, I, I think this is very much the technical after all of those really value based conversations and questions are answered, but it’s important all the same. Right? So I think that. You know, um, And this changes, right? So, so what, what your, there’s so many people are like, ah, like nothing’s going on. Like I got this, but I always like do the thought experiment is like, you know, even for us, Tim, if we look back at like two years ago, how much things have changed over these last two years.

And I think as humans, we, we think. We kind of, we kind of lose sight of that and we think that the next two years are not going to be, [00:11:00] you know, kind of laissez faire type of thing. So I think, I think, yeah, the, this is, this is a, an item on a long list of things that need to be answered. And I think it’s just important to ask that question, um, kind of do that mental azimuth of like, is this still kind of serving me and what I’m trying to accomplish with my financial plan?

Tim Ulbrich: Yeah. And I want to make sure to say that out loud and we don’t miss that because, you know, the thought that was coming to mind, Tim, that stimulated that, that comment was there’s a lot of work that has to be done to determine what percentage of our income are we saving and why are we saving it? And then within that conversation, what vehicles are we going to use?

And then within that conversation, there’s the risk tolerance, risk capacity rebalancing. So making sure we just don’t get lost in the weeds, right? Especially for people that are, that are DIY in this. Um, let’s talk. I keep throwing around these terms, risk tolerance, risk capacity, but so important, right?

Because that ultimately is going to inform What is your [00:12:00] asset allocation, which will then inform, what are we going to do with the rebalance? So talk to us about risk, tolerance, risk capacity, and then even a, uh, peek behind the curtain for those that are financial planning clients, how we handle this through something like an investment policy statement.

Tim Baker: Yeah. So the way that I simply put risk tolerance versus capacity, risk capacity is risk tolerance is a risk that you want to take. The risk capacity is the risk that you should or need to take. So I’ll give you an example, you know, I could be a 35 year old pharmacist and I, I could be very risk adverse, right?

So when I take a questionnaire about how I view my investments and how I view about money, I’m like, I just want to keep, you know, I don’t want to lose anything. I just want to, you know, I’m, I’m much more comfortable putting everything into a high yield savings account and, and, and doing my thing there.

The problem is, is because we know about things with inflation and. [00:13:00] Um, uh, taxes that we have to do more than the 3 percent or whatever high yield savings accounts paying these days. Like, we have to outpace inflation. We have to outpace. Um, if you’re 35 or 40 years old or younger, or even a little bit older than that, you have more capacity.

Take risk. If we’re thinking about it in terms of retirement planning, because I might have 30 years To invest. And the idea is that the longer time horizon that you have, the more capacity that you have to take risk because the more likely that that portfolio can recover over those 30 years. So as you get closer, I could be the most, you know, so I’m, I pretty much like pretty aggressive with my investments, but once I get to, if I’m going to retire at 65, once I get to 55 or 60.

I don’t have the capacity to take the [00:14:00] risk because my time is so short. So even though I’m aggressive, you know, I need to know I, in the back of my mind, I’m, I’m fighting what’s called sequence of return risk, where if my, if I’m 58 and I’m trying to retire at 60 and I’m super aggressive. And my portfolio, you know, drops by a third.

It’s hard for me to recover in a 22 year period. So risk tolerance is what you want to take. That’s kind of your emotional response. The risk capacity is what you should or need to take. And sometimes if you’re 50 years old, 60 years old, and you’re trying to retire in the next 5 or 10 years and you haven’t done much.

Your risk, you have, you know, you have to take more risk because you have no choice or you’re going to just be working forever. So there’s, there’s this Venn diagram, Tim, of what we kind of look at your risk tolerance, which is typically a result of a questionnaire that we do. And then we overlay the demographic of how much you have saved, what your age is, what’s your time horizon.

And we come to that asset allocation [00:15:00] of, you know, the magic percentage of stocks to bonds. And then to kind of answer your question, what we typically do, um, at YFP is we just have a one page document. We call this the investment policy statement. This is kind of our North Star of how we’re going to manage your investments, both the ones that we are managing at our custodian directly, but also held away investments, which are typically 401ks or 403bs that you’re contributing directly, you know, cause you’re still employed.

Um, so that investment policy statement is kind of like our instruction manual of how we’re going to, you know, what the asset allocation is, how we’re going to rebalance. You know, the, how you, how you have visibility yet that you’ll receive statements and all that kind of stuff. So it’s really kind of a, a, um, North star of how we’re going to handle the investments that gives us kind of a, a scalable way to manage millions of dollars for our clients, but also for the client to understand, okay, this is what the [00:16:00] team at YFP, this is how they’re, they’re handling, you know, my long term investments, et cetera.

Tim Ulbrich: Yeah, and I think that helps people, especially if they’re new to that relationship, feel comfortable, like, hey, we’ve been through the evaluation of risk process. We’ve agreed upon these set of terms, but I’m also, in part, delegating. This work to the team I hired, but I’m delegating this work to the team that I hired within the sandbox we’ve agreed upon.

Um, which I think is, is really important. And I love your visual, the Venn diagram, right? Because I think it encompasses when we talk about risk capacity, risk tolerance. Yes. We’re thinking about the emotional part, how much risk can I stomach, but we’re also considering how much risk do I need to take Based on all these goals.

And that’s where a third party can really have a valuable role of like, let’s talk about both of those things and where there may be differences. Let’s have a conversation and kind of figure out what gives, right? Are we willing to push ourselves maybe a little bit in a direction that we weren’t thinking, or are we willing to adjust the goals?

Oh, [00:17:00] 2 people doing this partner spouses, thinking of others, you might have 2 different. Risk tolerances and risk capacities that you’re dealing with and to have those conversations can be really valuable.

Tim Baker: Yeah. And I think one of the things that I, you know, ultimately say, you know, when I was working with clients back in the day is at the end of the day, it’s your financial plan. So even though I might reckon, you know, you might come in at a seven 30, a 70 30, and I think that you can be more aggressive, you know, 90, 10, or even a hundred zero, you know, all equity portfolio.

I’ve had some clients will say, like, let’s start at 80 20. And then I just say, like, I’m just forewarning you every time we meet because you’re 28 or whatever it is, like, I’m just going to bring this up that. You know, we need to be more aggressive and, you know, ultimately clients might step into that over a couple of years because I think they realize it’s, it’s working smarter, not harder because again, typically the more conservative you are, the harder you have to work, i.

  1. save. Or work longer to kind of reach that [00:18:00] portfolio amount that we can have a sustainable paycheck. So, and that goes back to, you know, in the past, I’ve talked about aggressive Jane and conservative Jane and everything being equal and the delta between their portfolio after a 30 year career is significant.

Um, and the only thing that really changes is, is the asset allocation. So it’s 1 of the most powerful things. And I think, tending to that. IE through a rebalancing strategy over time is going to be really important as well. So, um, yeah, at the end of the day, you know, you have to feel comfortable, but I think what most people realize is.

Hey, even the portfolio goes down in 2025 and I’m retiring in 2055, who cares, right? It doesn’t matter. We’re not even going to remember that. And in fact, we’re going to probably have, you know, six, seven more of those. It’s just, is this, when we get to that eye of the storm close to retirement, um, that’s when we really need to be hyper focused and conservative on the, on the asset allocation.

So we don’t, you know, again, fall to sequence of return risk.

Tim Ulbrich: Yeah. And it’s worth noting, Tim, especially for [00:19:00] newer investors, how you think you’re going to feel and how you actually feel might not always line up. Right. Until you go through a dip where you have a sizable amount of assets and kind of experience that. I do think some people go into that thinking. Hey, I’m in this for the longterm.

I can stomach it. And it market drops 30 percent and they still feel the same way. Like that’s fine. You know, I’m in it for the long run. I think other people might go into that with that mind, same mindset, see that number go down on their accounts. And all of a sudden there’s this gut feeling of, of like, whoa, I didn’t think this would impact me in the way it did.

Tim Baker: yeah. And, and sometimes that gut feeling leads to that whole idea that I talk about is like, I want to take my investment ball and go home. And then that could lead to really. Um, the word is not inappropriate, but really, um, unproductive decisions and actions with your portfolio when you’re selling into cash, then you start feeling a little bit better because the markets recover and then you buy back into the portfolio higher.

And it’s [00:20:00] probably 1 of the biggest mistakes that novice investors make. And it’s basically playing on our loss aversion that affects all of us. So.

Tim Ulbrich: Let’s go there to common mistakes investors make when rebalancing, you’re, you’re talking about one really important one right there. And specifically, I’m thinking about the DIY investor where, Hey, when the hands in the cookie jar, you know, we might, might make some mistakes or be more prone to making mistakes than we would be otherwise.

If, if we had, um, a financial planner advisor, someone in our corner kind of talking through some of these things. So what, what are some of those mistakes that folks should be. Aware of that. Hey, we can avoid these if, if at all possible related to rebalancing.

Tim Baker: Yeah, so I think it’s, it’s kind of what I just said is like that emotional reaction, um, to, to this, uh, or taking a short term view of a, of a portfolio that has a long term outlook. Um, you know, I think sometimes like, and rebalance in itself seems [00:21:00] unnatural because you’re taking your highest performing asset class, some of it selling some of it and putting it potentially in your lowest performing asset class.

So it feels weird. Um, Uh, you know, again, if you’re overwatching your portfolio, it could lead to you making irrational decisions to time the market, which we know over the course of a long investing career, you just can’t do. Um, You know, I think the other thing is not considering the shifts in risk tolerance over time.

Right? So if, if you set this and forget it early in your career, and then your mid career and late career, and you’re still in that same asset allocation, there’s a problem there. Um, and I think, I think the other thing too, that is kind of related to this, but tangentially so is. Like if you’re in, if you’re thinking like, oh, I’m going to target date fund.

I don’t have to worry about that. Like in my 401k, that is true to an degree. But the, the other thing is like, we’ve talked about like, not all HSAs or 401ks are create equal, not all target date funds are created equal. [00:22:00] So you could be in a 2060 target date fund. That’s actually too conservative to what you actually need to be in.

And even, you know, all of those as they lead up and they had to have this glide path of, you know, taking out equities and re you know, re um, reinvested in the, in the, Stocks and bond or, uh, bonds. It’s, it’s not necessarily lines up with what you’re thing, it’s all those, it’s the easy button. I would think.

I would say look at the fees and look at the, the actual asset allocation within that fund to make a good decision. Um, I also think not considering tax cons, consequences in certain accounts or chasing something because of a tax benefit. So the big, the big thing that we haven’t talked here, um, is like rebalance is, is different in a brokerage account versus a.

401k or an IRA. Um, and what I mean by that is we’ve always talked about like the, the tax benefits of a 401k or, or an IRA or a Roth IRA, the, in those accounts, [00:23:00] the money that is in those accounts is either tax going in, so that’s in the case of a Roth or tax going out, which is the case of the, the traditional, the, the added tax.

Um in a brokerage account is that when you buy and sell a Stock bond mutual fund inside of a 401k you pay no capital gains. So the growth is tax free, which is which is another benefit Um of those accounts inside of a brokerage account you’re paying capital gains on any gain or or loss Um in the side of those accounts.

So sometimes we do weird things because of tax Ramifications and I think it’s losing, not losing sight of that, you know, as well. And then, um, I think also kind of related to this, Tim is, is account location. So this is kind of related to rebalancing, but having a good amount of, you know, I just, we just signed on a client, um, recently that they’re in [00:24:00] their early forties, forties, they want to retire in their early fifties.

So they have about a decade left, but they have nothing in a brokerage account. Um, which is typically what we’re going to use for an early retirement paycheck. So this is kind of the do we have a Do we have enough in? Uh, a taxable pre tax than an after tax to basically build a sustainable paycheck. So not necessarily related directly to rebalancing, but important to know again, as you’re asking yourself those questions and we’re getting to that 80 second step of rebalancing that we, we could look at the situation and be like, our account location is off.

So we need to, we need to reallocate assets that way. And then obviously rebalance the portfolio in general. 

Tim Ulbrich: That’s a great example, right? Because that’s one of those in the weeds types of things where we can be, you know, neat, neat, deep, and trying to rebalance within an account, thinking about the asset allocation, maybe even trying to think about some of the tax benefits, especially if it’s not in a retirement account all the while, you know, bigger question of, Hey, might I.

Need these funds [00:25:00] prior to traditional retirement age. And do we have the right account locations? A really good example of, of the bigger, the bigger puzzle that we need to be thinking about.

Tim Baker: Yeah,

Tim Ulbrich: Last question I have for you here is on timing, Tim. So we’ve established that, Hey, once we set an Alice asset allocation based on risk tolerance, based on risk capacity, based on goals, that risks, that asset allocation will inevitably shift as the market does its thing over time, which then.

Puts in the, the need for what we’re talking about here, which is rebalancing. Um, so then the next natural question is, well, how often should I do that? Is this a once a year? Is this a twice a year? Is this a, it depends based on market volatility and you know, some seasons of the market may be more volatile than others.

What are your thoughts here on timing?

Tim Baker: yeah. So typically, the three common approaches to rebalancing is time based rebalancing, which is kind of what you’re talking about. So rebalance at regular interviews, you know, I quarterly, annually, maybe in semi annually, it could be [00:26:00] threshold based rebalancing, which is rebalancing when an asset class deviates from the target by a certain percentage.

So if it drifts 5 percent or 10 percent Transcribed by https: otter. ai Then we rebalance and then there’s a hybrid approach. So combining time and threshold methods for more flexibility back in the day, Tim, this was a concern because, um, and even, I think even today it’s a concern depending on how you’re invested is, um, you know, we, we would rebalance in, in my previous firm, we would rebalance like mutual funds.

We didn’t use ETFs, which is what we use now. And those would generate like. Ticket charge and commissions. Um, and some of the listeners might have heard of things called like churning where an advisor is kind of selling, not unnecessarily, but in a rebalancing to kind of earn a commission. Um, and even like even ETFs or stocks, anytime that you, you buy and sell, sometimes there’s a ticket charge.

Now, a lot of those have kind of gone to zero. So you’re able to, to do this kind of at will. [00:27:00] Um, Um, but that was a, that was a, that was a, something that you had to be aware of back in the day of either, you know, what’s the ticket charge related to the trade or like, what’s the commission that you’re going to pay an advisor?

Um, so obviously being fee only, we don’t earn commission since that’s not part of what we do. Um, today, a lot of these, a lot of these methods are going to be. Threshold based. Um, so if you’re working with a robo advisor, it’s going to, it’s going to look at a drift at a certain percentage and then basically realign you.

Obviously, you’re paying a fee for that, which you need to know what that is. Um, but we kind of do a hybrid approach of, of both. Um, you know, some people, Okay. Want to overdo this and rebalance this, you know, if you’re a tinkerer and that’s typically not the best approach. So I would say at a minimum, at a minimum, you know, at least once a year you should be looking at this and rebalancing back to a target percentage.

And again, having those conversations with yourself about, is this what I still want and need? And how is this best supported my financial plan?

Tim Ulbrich: [00:28:00] Awesome, Tim. Great, great stuff. Uh, appreciate your perspective as always. And for those that are listening and saying, Hey, I could use help with rebalancing asset allocation, making sure I’m thinking about my risk tolerance, risk capacity, and other investing goals, as well as other parts of the financial plan.

That’s what our team of fee only certified financial planners do at YFP. Again, we’re talking about a very narrow aspect of the financial plan and there’s so much more opportunity Beyond just this topic. As we look at all of the different parts of the financial plan, whether that’s investing in retirement planning, whether that be debt management, credit, estate planning, insurance, and so on.

So to learn more about what it means and what it would look like to work one on one with a YFP fee only certified financial planner, head on over to our website, yourfinancialpharmacist. com. You’ll see an option there to book a discovery call. We’d love to have an opportunity to talk with you, learn more about your financial situation.

You can learn more about our services and ultimately we can determine together. Whether or not there’s a good fit there again, your financial pharmacist. com and click on the link to book a [00:29:00] discovery call. Thanks so much for listening. Have a great rest of your week.[00:30:00] 

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YFP 387: Cryptocurrency & Digital Assets: Investment Considerations and Tax Implications


In part two of their cryptocurrency series, YFP Co-Founders Tim Baker and Tim Ulbrich discuss spot Bitcoin ETFs, the IRS’s stance on cryptocurrency, and strategies for incorporating digital assets into long-term portfolios.

This episode is brought to you by First Horizon.

Episode Summary

This week in part two of  the series on cryptocurrency and digital assets, YFP Co-Founders Tim Baker, CFP and Tim Ulbrich, PharmD explore the recent introduction of spot Bitcoin ETFs and how they differ from investing directly in Bitcoin. Tim and Tim also discuss the IRS’s perspective on cryptocurrency and key considerations for including digital assets in your portfolio as part of a long-term investment strategy.

Key Points from the Episode

  • Introduction to Cryptocurrency and Digital Assets Series [0:00]
  • Role of Digital Assets in Portfolio Diversification [3:12]
  • Investing in Bitcoin vs. Bitcoin Spot ETFs [8:52]
  • Tax Considerations for Digital Assets [13:43]
  • Use Cases and Future of Digital Assets [23:13]
  • Fee Considerations for Digital Assets [24:50]
  • Conclusion and Next Steps [30:41]

Episode Highlights

“There’s a lot of things that digital assets can solve. If you’re in countries where you have hyperinflation, where the price of bread is double or triple in the morning than what it is in the afternoon, something like a stable currency is really attractive to you.” – Tim Baker [12:18]

“Digital assets are taxed as property, so the IRS looks at it as property. So, and that’s kind of one of the rubs here when Bitcoin was kind of introduced. It was supposed to replace the dollar, or that was the idea. And again, I do think that a digital asset will replace the dollar. It’s just not going to – it won’t be Bitcoin.” – Tim Baker [13:45]

Links Mentioned in Today’s Episode

Episode Transcript

The transcript will be included following the release the episode.

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YFP 386: Cryptocurrency & Digital Assets: Definitions, Origins, and Risks


Tim Ulbrich and Tim Baker discuss cryptocurrency, examining its advantages like decentralization and transparency and risks such as volatility and regulatory uncertainty.

Episode Summary

In this first episode of a two-part series on cryptocurrency and digital assets, YFP Co-Founders Tim Ulbrich and Tim Baker explore the world of digital finance and its relevance in today’s financial landscape. Tim and Tim unpack essential terms and explore how the 2008 financial crisis served as a catalyst for the rise of cryptocurrency, with Bitcoin leading the charge.

The discussion highlights the unique advantages of digital assets, such as decentralization, transparency, and their fixed supply, contrasting these features with traditional currencies. Tim and Tim also address critical risks, including market volatility, security concerns, and regulatory uncertainties.

Key Points from the Episode

  • Overview of Digital Assets and Cryptocurrency [2:26]
  • Defining Digital Assets and Their Characteristics [4:25]
  • The Financial Crisis of 2008 and Its Impact on Digital Assets [8:29]
  • Bitcoin and Blockchain Technology [14:13]
  • Advantages and Risks of Digital Assets [18:43]
  • Regulatory Concerns and Security Risks [18:55]
  • Volatility and Comparison to Traditional Investments [19:12]
  • Conclusion and Preview of Future Episodes [34:33]

Episode Highlights

“There’s a lot of people that invest in more mutual funds in their 401k that don’t fully understand how mutual funds work. So I think that’s where an advisor or somebody that you trust can be a guide in this. But I do think that something like this, with it being new, doing some research and understanding what that looks like is important.” -Tim Baker [7:59]

“If you look at the US dollar, it used to be backed by the gold standard, but once it moved to a fiat currency, it derives value from the trust and the issue in government. Whereas Bitcoin derives value from the trust in the decentralized system.” – Tim Baker [24:05]

“The US dollar gets value from the widespread acceptance as legal tender in the United States, but even across the world, like dollars are valuable anywhere or in most places. Whereas, you know, Bitcoin, its acceptance is by its users and people that believe that this is the future.” -Tim Baker [24:46]

“I think the biggest risk is the volatility. So, you know, digital assets are highly volatile and can experience dramatic price swings in short periods.” – Tim Baker [30:18]

Links Mentioned in Today’s Episode

Episode Transcript

The transcript will be included following the release the episode.

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YFP 358: Top 6 Financial Moves to Make as a Mid-Career Pharmacist


YFP Co-Founder and Director of Financial Planning Tim Baker discusses six financial moves for mid-career pharmacists, including re-evaluating the vision for the financial plan.

Episode Summary

Tim Ulbrich is joined by YFP Co-Founder and Director of Financial Planning at YFP, Tim Baker to discuss various financial planning strategies for mid-career pharmacists, including resetting the vision for the financial plan, prioritizing retirement planning and emergency funds, and reevaluating, reviewing and updating insurance policies.

Regularly reviewing and adjusting these funds to account for the various life changes ensures that policies align with current financial goals and circumstances. Tim and Tim also address the importance of having those uncomfortable conversations, such as end-of-life care and inheritance to avoid potential legal and financial issues in the future.

About Today’s Guest

Tim Baker is the Co-Founder and Director of Financial Planning at Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 12,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. 

Tim attended the United States Military Academy majoring in International Relations and branching Armor. After his military career, he worked as a logistician with a major retailer and a construction company. After much deliberation, Tim decided to make a pivot in his career and joined a small independent financial planning firm in 2012. In 2016, he launched his own financial planning firm Script Financial and in 2019 merged with Your Financial Pharmacist. Tim now lives in Columbus, Ohio with his wife (Shay), three kids (Olivia, Liam and Zoe), and dog (Benji).

Key Points from the Episode

  • Financial moves for mid-career pharmacists, including resetting financial goals. [0:00]
  • Financial planning, goal setting, and prioritizing life ambitions. [3:54]
  • Emergency funds and savings goals, including rechecking amounts and locations. [9:17]
  • Emergency funds and retirement planning for mid-career pharmacists. [14:34]
  • Retirement planning and nest egg calculation. [16:46]
  • Social Security benefits and retirement planning for pharmacists. [22:43]
  • Updating estate plans for mid-career individuals. [29:13]
  • Financial planning for aging parents. [33:39]
  • Financial planning for mid-career pharmacists, including insurance checkups and estate planning. [37:48]
  • Insurance planning for pharmacists, including long-term care and property casualty assessments. [41:17]

Episode Highlights

“And I think the other thing is that things change. I think checking up on your financial plan is really, really important.” -Tim Baker [5:08]

“I think it’s really important to kind of recast the vision, recast the organization of your financial plan and go from there.” – Tim Baker [5:52]

“I think one of the things that I would challenge people who are mid-career, from a goal setting perspective is, are you doing the things that make you whole or that you’re passionate about?” – Tim Baker [6:28]

“So, you know, I think being critical and actually like slowing down and saying, is this what I want to do. And then using the resources, the time that you have, the dollars that you have, to kind of right that ship, and because again, we’re here for a very finite amount of time. And it goes by quickly, and it sounds very cliche, but it’s true.” – Tim Baker [8:08]

“I typically say that the estate plan is really important, really, for anybody, But particularly for people that have a spouse, a house, or mouths to feed. So if you have those things, and you don’t have documents in place, I think that that’s probably the biggest thing that we need to look at.” – Tim Baker [32:58]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

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, Tim Baker joins us back on the mic to talk through six financial moves to make as a mid career pharmacist, we discussed the importance of resetting the vision for the financial plan, how to determine whether or not you’re on track for retirement, gaps to look for in your estate planning and insurance coverage, and much more. For more information and details on each one of these areas, go to yourfinancialpharmacist.com/midcareer. That’s one word again yourfinancialpharmacist.com/midcareer. 

Tim Ulbrich  00:37

Before we jump into this week’s episode, I have a hard truth for you to hear. Making a six figure income is not a financial plan. Yes, you’ve worked hard to get where you are today. Yes, you’re earning a good income. But have you ever wondered, am I on track to retire? How do I prioritize and fund all of these competing financial goals that I have? How do I plan financially for big upcoming life events and changes such as moving, having a child, changing jobs, getting married or retiring? Or perhaps why am I not as far along financially at this point in my career as I thought I would be? The answer may be that your six figure income is not a financial plan. As a pharmacist, you have an incredible tool in your toolbox: your salary. But without a vision and a plan that good income will only go so far. That’s in part why we started Your Financial Pharmacist. At YFP, we support pharmacists at every stage of their careers to take control of their finances, reach their financial goals, and build wealth through comprehensive fee-only financial planning and tax planning. Our team of certified financial planners and our CPA works with pharmacists all across the country to help our clients set their future selves up for success while living their rich lives today. If you’re ready to learn more about how Your Financial Pharmacist can support you on your financial journey, visit your financialpharmacist.com/learn. Again, that’s your financial pharmacists.com/learn. Alright, let’s jump into today’s show. 

Tim Ulbrich  02:05

Tim Baker, good to have you back on the show.

Tim Baker  02:07

Good to be back. Tim. How’s it going? 

Tim Ulbrich  02:09

Good. It’s been a while official congrats on the baby. I know you’re off for a little while. But we’re glad to have you back on the mic. 

Tim Baker  02:17

Yeah, thanks for thanks for hosting, it’s trying to get back in the swing of things with baby here. Sleep’s at a premium. So, it’s all good.

Tim Ulbrich  02:28

Well, this week, we’re talking about moves that mid-career pharmacists should be making things that they should be thinking about. And really whether someone is early in their journey, you know, these are things to be thinking ahead of or those that are actually in this season. Hopefully, this is more of a checklist type of episode where you can go through different parts of the financial plan, or perhaps tune up or look back at some of these items. Tim, it dawned on me though, as we’re preparing for this episode of like, that’s us mid-career, you know, it’s really that that phase where you start to feel like, Hey, we’ve kind of checked off some of those basic foundational items. But there’s this whole other set of issues and things that we need to be thinking about going into the future. So for better or for worse, here we are in the middle of our career, as well. And we’re excited to talk through these six moves that mid-career pharmacists should be making in each one of these we have covered at length, if not once, maybe twice, or three times on the episode before. So we’ll make sure to mention that when we get to these individual items and link to those things in the show notes as well. Tim, I think it makes sense that we start number one, really with the goals. You know, this is an opportunity, I think to reset the vision for the financial plan, there often is a lot of transition that can be happening at this phase, you know, this might be the time where people have kids are getting a little bit older, maybe beginning to think about them moving out of the house, we obviously have to be thinking about taking care of ourselves. Maybe we have elderly parents that we’re trying to prioritize as well. So just a lot of transition, I think an opportunity to take a step back and really look at the vision and the goals for the financial plan and how those have changed over time.

Tim Baker  04:05

Yeah, I would package these, I would actually package this together with like, what is the balance sheet look like? And then what is the vision going forward? So you know, we kind of look at this, you know, when we work with clients as a get organized and kind of a goal setting, you know, as a one two punch, and this is typically where, Tim, when a pharmacist asked me a question of Hey, should I do X or Y? I say it depends.  A lot of it depends on what is what is the financial picture look like for you? And then what does a wealthy life look like for you both today and in the future. And for everyone that’s going to be different. So, that to me is where that answer comes from. So yeah, like I think in prepping for this episode, Tim, I kind of learned you know, two things or realized two things that I think is really important to say out loud. One is just like a lot of stuff when I was looking at my you know, I was looking at my insurance stuff in my in my nest egg calculation, some of the things that we’ll talk about in this episode. It’s just a lot of moving pieces. And it’s a, and it’s changed a lot over the years. So that’s, that’s the first thing. And I think the other thing is, like, you know, this thing, things change, I think having, you know, checking up on this is really, really important. So, when we look at, like, the, when we look at the balance sheet, again, if you haven’t looked at your balance sheet in a long time, I think it’s really important, it’s not necessarily necessarily something that we feel in our day to day, yeah. But if you, you know, if you if you put your head down, and you’re working, and you’re raising a family or doing whatever you’re doing, and, you know, two or three years later go by, you can actually see the progress that, you know, has been made, right, so you can see, you know, how your assets, you know, been built up, how have you How have your liabilities been paid down? Or not, you know, do you have a different set of, you know, versus if it’s was it student loans in the past the past and now its a HELOC, or something like that. So I think it’s really important to kind of recast the vision recast the, you know, the organization of your financial plan and go from going from there. From the vision perspective, it’s, it’s laughable when you think about, you know, like, when I, you know, had these conversations with myself and my wife, you know, even three or four years ago, and then what that looks like today, like, like, and you don’t sense that, but like, when you when you actually look back, and you kind of memorialize, hey, in 2019 pre-pandemic, this is kind of our viewpoint, this is what we wanted to do. And then we look at that today, it’s vastly different. So I think, like, you know, one of the things that, that I would, you know, challenge people that are mid career, you know, from a goal setting perspective is, are you doing the things that, like, make you whole, or that you’re passionate about? You know, like, I was joking around with my team over the weekend that I kind of felt like an Uber driver, because I was driving to soccer practice and swim practice, soccer practice again, and swim practice again. Which is great, like, I love that I love you know, you know, you know, seeing my kids, you know, do well on their sports and their activities. But, you know, though conversation that I had with my wife over the weekend was like, are like, Are we are we good? Are we on like the track that we want to be on and kind of checking in with and sometimes that’s a check in with yourself, some that’s a check in with a spouse, sometimes it’s a check in with like, a close advisor, like a financial planner. And I think it’s really important to do that, because again, you can put your head down, and you know, live, you know, be living your life, but then, you know, you’re doing that vicariously through your kids or, or whatever, and not actually take the time to do the things that you’re passionate about. And sometimes, you know, again, your own goals. And ambitions are kind of taking a backseat to your kids, which is a it’s a natural thing. But at the end of the day, like there typically is enough to go around, like we can carve out time, we can carve out resources to do the things that you want to do whatever that is. So I think it’s really important, you know, as you are mid-career, and I think this is where, you know, people like to talk about, like a midlife crisis, because they kind of get caught in the rat race, and they’re like, this is not really the life that I want to live. So, you know, I think it’s that, you know, that self, you know, being being critical and actually like slowing down and saying, is this what I want to do. And then using the resources, you know, the time that you have, the dollars that you have, to kind of right that ship, and because, again, we’re here for a very finite amount of time. And it goes by quick, and it sounds very cliche, but it’s, it’s true. And I think you can I always talk about this, like, you know, that whole that sense of being on autopilot. I’ve worked at jobs where, you know, like, my commute to the office in the morning was in darkness, I would you know, I would drive there 30 minutes, I wouldn’t remember that drive, and then you back was in darkness, I would get in my car, and 30 minutes would go by and I’m home. And I don’t remember any of that. And that’s, that’s like an analogy for life is that if you’re not actually slowing down and think about is this what I want to do that’s important. So that’s just my life planning hat. You know, are we are we putting the first things first are we doing, you know, the things that we want to do and making sure that we’re, we have a plan and we’re being intentional for that. 

Tim Ulbrich  09:16

I love the example you gave of you know how for you and Shay, your family, right short period of time, the goals can look very different, and why it’s so important to be looking at these regularly and talking about them together to have a third party, you know, kind of help, whether that’d be a plan or someone else. I was even thinking as you shared that, you know, for Jess and I, when you did the planning with the two of us how helpful it was when we would get together to flash up the goals to say, hey, yeah, a year, a year ago, you guys said this is important. Like, is it still important? If so, like, what what are we doing? What are we doing to kind of move this forward? And ultimately, like, where are the funds, right? If it requires funds to do that, and that’s so important. You know, you and I had a very similar season of life where, you know, to the point you gave of the weekend and being the Uber driver We’re like, the days and the months are flying by to really have that mechanism to stop, pause, slow down and remind ourselves of like, are we running the path? Are we running the race that we want to be running? And we’re not gonna get it right all the time, right balance in every season of life, but to have some built in mechanism to not just set those goals, but also to refresh and to look at those periodically. 

Tim Baker  10:23

Yeah, absolutely. 

Tim Ulbrich  10:24

All right, number two on our list is savings. And we’re gonna talk about a few different areas. Here. We’ll talk briefly about the emergency fund, and an opportunity to recheck where we’re at with that, we’ll briefly talk about retirement. Again, we’ve talked about all these at length, we’ll reference other episodes, and then we’ll touch on some kids college stuff as well. Tim, let’s start with the emergency fund and a recheck. I just talked on Episode 357, last week about five questions that we need to be asking ourselves related to the emergency fund. So make sure you go back and check out that episode. But I think this is one of those areas that where we set the emergency fund maybe early on in our career, and then we don’t think about, wow, a lot has changed, we really got to relook at is the amount that we have there sufficient? And how does this fit in with the rest of the plan? 

Tim Baker  11:09

It’s one of those things where yeah, it’s kind of a forgotten, forgotten thing. And, you know, you know, what we really want to do is check in and make sure that you know, what’s in there is appropriate, and, you know, are there things that we can do to, you know, to, to improve it. So, you know, for for a emergency fund, what we’re looking for is three to six months of non discretionary monthly expenses. So these are expenses that are gonna go out the door, regardless of if we work or not. So things like, you know, a mortgage and insurance premiums and utilities and a food bill. So, unfortunately, we tend to get to that number, we have to actually look at spending data and understand like, what that looks like, and then, you know, we kind of look at, you know, what is what is discretionary? What are things that are non discretionary, and we add up all the non discretionary if we have, you know, two incomes, we multiply that by three, if we have one income, we multiply that by six for six months, and then and then that’s our number. For a lot of our clients. You know, it typically can be I think, in a, I would say, anywhere between 15 and $50,000 is what is what the number is, um, so I think like, you know, and this is something that that Shay, I looked at recently, and I think, for us, because of three kids and you know, daycare and all that kind of stuff, it’s, it’s crept up, and I’ve kind of tried to, you know, the interest that I that I accumulate in my high yield, or  I do, I do a combination of a high yield savings account. And then like, a laddered CD that I do every quarter, like a year CD for every quarter. So I have a q1, q2, q3, q4 that I just renew, and I kind of let those ride and I’m actually adding more money, both to the high yield, and the, and the CDs as we go here. But I, the only reason I knew to do that was to actually look at the spending, and it’s kind of crept up, you know, just because of family of, you know, probably the last time I did it, we were a family of three, now we’re a family of five. So I think that’s important to do. And again, like, there are so many people that I talked to that they’re like, Okay, this brokerage account, this, this taxable investment account, that is my emergency fund, that is not an emergency fund, it’s, it’s, you know, if you’re investing in it, and you can see volatility, that’s not what we’re trying to do. So I think having you know, the right amount, and then the location is going to be really important. And to get the right amounts, typically, looking at the budget where you’re at today, and again, like I don’t look at the kids swim or, or soccer or other activities as a discretionary as a, that’s, that’s a discretionary thing. So if times get tough, we, you know, try to try to cut that. So I think even, you know, examining what is, you know, what should be in there and what shouldn’t, is important, but, you know, to me, it’s, it’s a little bit of nails on chalkboard, right Tim, because I don’t want to keep cash, I want to get that into the market and get work. And so I need enough to get us through a tough spot. But then also know that, you know, for me, I want to get money into mortgage and a lot of people typically, you know, later in mid career and beyond, they’ll they’ll start because they have an asset like the house, they’ll even use something like a HELOC as like an even deeper reserve. Yeah. So to have access to a HELOC, or something like that is going to be important that I’ve seen people use as a mechanism to, you know, to safely and I wouldn’t say cheaply because of where rates are, but somewhat cheaply access cash if needed, and not necessarily tie up a ton of money in a checking error, high yield savings account, I should say. 

Tim Ulbrich  14:33

I like the hack that you mentioned. And yes, I do the same thing where you know, any any earnings on a high yield savings, we just kind of dumped back in the emergency letter, I let it ride right. And the idea being that’s going to help kind of keep pace at some level with inflation, maybe not fully, but to your point, it doesn’t cover those big jumps, right. So like now we’re a family of five instead of a family of three or, you know, we bought an investment property and we’ve got to be thinking about that or we moved homes and you know, mortgage payments went up and so those kind of big moves, where all of a sudden, you know, that emergency fund might go from that 15 to that 30, 35. Are we looking at that periodically.

Tim Baker  15:09

And for you, Tim is probably like your food bill, right? Oh, pre preteens? Like, like, that’s gonna that’s that’s like No, that’s no joke, you know like when you, even Olivia. Olivia is going to be 10 this year and she’s a swimmer. I mean, she eats I feel like as much as I do. And you know, when you when you think about that, that’s, that’s gonna move down quite a bit. So you know, it’s it definitely adds up. And at the end of the day, the emergency fund is there for that rainy day when, when when you need it and just making sure that’s properly funded is going to be important to kind of give you that peace of mind.

Tim Ulbrich  15:42

The second part of savings Tim, I want to touch on as we work through these six different moves for mid-career pharmacists is, you know, I think this is a natural time where we ask ourselves, Am I on track with retirement? Right? And, and this is a season where when we talk with pharmacists mid-career, you know, the visual I have is you’re getting hit in every direction, right? You maybe kids expenses, kids college has grown, we’ll talk about that a little bit. You’ve got this pressure facing you on retirement, you might be caring for elderly parents, you know, perhaps there’s debt still hanging around, we’re working through student loans or other things. There’s, there’s all these different pressures and headwinds, and naturally, that retirement piece made maybe wasn’t a top priority for a while. And all of a sudden, we get to this point where previously we couldn’t visualize retirement now we can start to and it’s like, Am I on track? And I know, we covered this in Episode 272. How much is enough? We’ll link to that in the show notes. So people can dig deeper, but just at a high level, you know, some some tips or some thoughts for folks that are asking this question of, Hey, am I on track? How much is enough? When it comes to retirement? 

Tim Baker  16:45

This is such a, this is such a hard one. Because like, I’ll ask like prospective clients, like, Hey, do you feel like you’re on track to meet like your goal for retirement? And if you’re talking to someone in their 30s 40s 50s? I would say even in your 50s, it can be somewhat nebulous anytime it’s like a decade or more out. And typically, that the answer I get is like, you know, Tim, I really have no idea. Which is, I think, problematic, especially if we’re trying to, like, you know, build out a plan. So that’s obviously something that we can fix. But also, it’s kind of that default of like, well, like the 401k, you know, company or the 401k that I have, they have a calculator that says I’m on track. And I’m like, I just don’t know how they calculate that. And I almost feel like, all the compliance things that, Tim, that we have. So it’s almost like irresponsible, yeah, to, again, they’re looking at it very much from it, but people don’t necessarily know that, you know, it’s very much a vacuum. I think that like, the problem with like, Am I on track for retirement is that there’s so many variables that go into it, there’s so much time that goes into it, you know, and I always talked about this, like, when we, when I first started working as a financial planner, I remember working with my previous firm, and it’s like, you know, we would do financial planning by hand, and we would do a time value money calculation. And we would say, Hey, Tim, hey client, you know, your, your, your, what you need for retirement is $3.1 million. And we’d be like this exact number. And then we’ll kind of go on to like, the next thing, I’ll make sure you’re doing this. And it’s like, it just never connected. It was almost like this disassociated moving, because you’d like to look at like what the client had, which might be three or $400,000. And you’re like, I need to, like 10x this in 20 years, or 15 years. And there’s so many people that come back to me that when they start and then they’re like four or five years, they’re like, like, damn, Tim, like, actually, my assets I’ve actually grown like, I almost didn’t believe you. And it’s still hard to even to see that, you know, the progress to get to that, that millionaire level. But I think it’s really important. And so like, I took that, as a financial planner, I would look at the clients, like their eyes would kind of like gloss over because they’re like, that doesn’t mean anything to me. And I can’t we build up this nest egg calculator that basically goes through. And I did it recently for Shay and I, you know, what’s your current age? What’s your target? You know, so how many more years do you have left in the workforce? How long do you expect to live? Which is again, that’s one of the hardest, you know, that’s one of the risks in retirement is like longevity risk, like, are you gonna live really long or not? So again, that’s a little bit of a crapshoot. So we kind of make make some assumptions there. Social Security kind of has an idea of when they think that you’re gonna pass away, what your current retirement savings is with kind of think of it as your present value and your time value money. And then what your current calculate your current income is and then what that kind of projects into what you need for retirement. So we make some assumptions on how is your current assets actually invested? So for a lot of people that I see at least it’s in my opinion, too conservative, especially mid you know, if you follow the rules of thumb of, hey, if you’re, you know, if you’re 40 years old, you take 110 minus 40, your equity, equity amount should be 70%. And then the other 30 should be in bonds, I think that is wrong. But then we do some, you know, asset assumptions when you’re actually in retirement, so might be more conservative. And that kind of gets down to the total need. And then you have to factor in things like social security. So I pulled my Social Security, I think we’ll talk about that in a second. And then like, what does that mean, in terms of what do I need to actually save today? So it’s, it’s the idea here is to take this big number, whether it’s 3.1, 3.6, 2 million, 4 million, and actually break it down to a number that I can digest. So like, if you say, if I’m, if I’m the client, and I say, hey, you know, if I’m talking to a client, I’m like, Hey, you’re putting in 10%, for you to actually get on track to retire by 65. To live to 95, whatever that is, you need to go from 10% to 15%. Like, I can track to that. And also, you know, so that actually is a tangible thing, that’s a, that’s a digestible thing that I can do versus just saying, we need $3.1 and we kind of just are like, it’s a hope and a prayer, right. So it’s not, it’s not a perfect system. Because like, when I look at my own nest egg calculation, you know, I’m maxing out my 401. K. And let’s assume that I’m going to be doing that for the next 29 years, if I retire at 70, which, that’s a, I don’t know, I don’t know if that’s going to be the case. I’m hoping that’s the case. But so there’s, there’s, there’s some assumptions that we have to make to make, to make it kind of come to life. And I think the next level of this, Tim, was kind of going through some simulations. So if I were to, you know, if I were to, you know, take part of my portfolio and purchase x, or if I were to, you know, go and go down to part time, or, you know, do something else, you could actually run scenarios, if I, if I buy my Mountain House 10 years earlier, there’s some Monte Carlo analysis that will actually affect, you know, show you how it affects your success rate with your with your retirement. And I think that’s kind of the next level stuff. But for a lot of people, it’s where am I at? What are the things that I’m that I’m doing today? How can I tweak those things to get a better outcome, and that could be contribution rate, that could be my allocation, that can be a variety of things. So I think that’s important to kind of break down and really see, you know, because the more the longer that we wait to kind of effect change here, especially if it’s negative, the steeper that gets, right. So when you’re, when you’re early in your career, you know, a tweak here there can really have monumental changes, the closer you get to that retirement, just the the steeper that climb is and the harder it is to kind of meet goals. And that’s where you have to start, then potentially taking a haircut on lifestyle and retirement, or you know, the amount of time that you have to work etc. 

Tim Ulbrich  22:43

What I love about the nest egg exercise is, you know, going through it for Jess and I, again, just a reminder, with all these things, we’re told it’s not a one and done, right. So if you do a nest egg when you’re, you know, 45, there’s assumptions, we’re building into all of these types of calculations, both in terms of the mathematical assumptions, but also what you want. And you know, you mentioned the different scenarios, and that can change and probably will change over time. So revisiting this periodically is so important, but it really moves I often hear people talking about retirement as like a hope, wish or dream, meaning like, I hope I can retire by 58, or 67, or whatever, or, you know, I would love if I could potentially work part time at some point in the future. And it’s like, hey, yes, those assumptions can change, many of them will change over time. But we can put a number to these into your point, let’s get it down to what do we need to be doing on a monthly basis, because these numbers do seem scary. And you can see, kind of the peace of mind that comes when you walk through these calculations with people when you start with those big numbers, three, four or 5 million. And then you get down to that monthly even if we don’t love the monthly number, when we factor in employer matches, other things, savings we already have. We’ll talk about social security here in a moment. It’s like, oh, okay, like, we can work with that, because we can put our arms around it and start to figure out, can we build that into the rest of the planet, a monthly basis. So, so important, especially for those who are mid-career listening. If you’ve done this before, you know, revisit this, you know, we’d love to have opportunity to work with you on the financial planning side, if you haven’t done it before need to revisit this as well. But something we definitely need to be updating. And looking at periodically. Let’s move to number three, which is really looking at our Social Security benefits and the projected benefits, which I think fits so well into the how much is enough calculation. And, you know, this is an opportunity to really look at our [email protected] to look at our statement, our projected benefits. I think a lot of people probably aren’t necessarily familiar with these tools that are out there. And to begin to figure out and build some assumptions of, hey, if I have social security benefits, what might those be? And then certainly we can project down if people are worried about the future of the benefit. I’m sure you’ll talk about that as well. But thoughts here on on kind of revisiting or looking at the social security piece? 

 

Tim Baker  24:57

So if you go to ssa.gov Like if you have haven’t done this, I would encourage you, especially if you’re mid-career just to kind of see what your social security statement looks like. So to me, that’s really important to kind of get a sense of, and again, like, I think a lot of people, when they, when they think about security, it’s kind of an eyeroll of like, uh, that won’t be there, when I’m when I’m ready to retire, or it’s going to be greatly diminished. You know, I would, what I believe is that, you know, Social Security is one of those things where so many people rely on it to actually survive in, you know, it’s kind of a hand, um, you know, unfortunately, we’re kind of like a hand to mouth in terms of like, a lot of people don’t do a great job of saving themselves, especially, you know, no offense to Baby Boomers, where there was pensions and things like that pensions, and Social Security could go a long way, in terms of retirement, that day is done, you know, so when we moved away from pensions, and more to 401k, the onus has really shifted from the employer to the employee, to make sure that we’re doing what we need to do. And again, social security still there. But there’s lots of, you know, press about, you know, will be viable, and, you know, will it go bankrupt? My sense is that, you know, it will be there, Tim, when we retire it at 70. But it’s kind of one of those things where it’s, it’s unknown what that benefit would be, and again, maybe when we retire, you know, it’s not 70, it’s 75, or something like that, because of a variety of reasons. But the I think the big thing here is to pull your statement. And then when I look at mine, it actually shows me, you know, what my personalized monthly retirement benefits would be, if I started from age 62. So right now, my my benefits $2,076 or if I wait until age 70 and actually get the, you know, credits $3,777. The big thing with Social Security that doesn’t get enough play is that it’s inflation protected. So when we had that big jump into inflation the year before last, yeah, everyone’s payment went up, I think 8.9% or whatever it was your over a year, that’s huge. Because if you’re thinking about, you know, building a retirement paycheck, most of the things that you have, most of the income streams are not inflation protected. So every time, you know, we go through bouts of inflation, you’re you know, you know, the checks, the checks that you have running it coming in, are not going to account for the fact that, you know, your your grocery bill went from 100 bucks per month to $140, just because of where that’s at. So Social Security, you know, plays a part in that. So I think the big thing here is to try to check, you know, when you pull your statement, you can actually see your work year, and what your earnings tax for security were from, you know, I’m looking back from, like, 1991 to present day. So I think to make sure that that’s accurate, that’s, that’s going to be a big thing. And again, like, I think the sooner that you can kind of look at this and kind of get a sense of where you’re at. And then and then look at the you know, look at the the the retirement calculator that’s there, you know, if you if you retire early, versus if your full retirement age, you know, for us, it’s going to be 67. Or if you delay it out to age 70, which to me, I think a lot of people should really look at doing and if you have a plan, you know, before the kind of the knee jerk was like, get the money when you can get it, but that’s a that’s a mistake. And a lot of people are understanding now that it is a mistake. So doing a proper analysis. Again, it’s kind of a microcosm of your of your financial plan is, you know, inventory. So get organized in terms of what does the statement look like? What are the goals in retirement, and then how to properly deploy this, this inflation protected income stream, I think is going to be a big part. Now, for pharmacists, you know, your it might be 25%, 20% of your retirement paycheck, whereas, you know, the typical American it’s, it’s north of 50%. So but I think making sure that we’re positioning ourselves from, you know, to ensure that the income is correct. And then the basically the way that we collect the benefit is going to be in line with your overall retirement picture and financial plan.

Tim Ulbrich  29:13

And I think once we have that number, and again, we can adjust up or down, as you mentioned before as we’re running assumptions, but we can then build that into the nest egg calculation as well and see how that impacts where we’re at on a on a need for a monthly savings. Number four, Tim, on our list of six mid-career pharmacist moves to be considering would be the estate plan. We’ve talked about the estate plan in detail on the on the podcast episode 310. dusting off the estate plan. We’ll link to that in the show notes. But this time well, you and I were just talking about this last week. You know with your new baby in the house right there’s an opportunity to update documents we haven’t yet done our updates with with our youngest who soon to be five, so we’ve got to make sure his name is present, although he’s covered in language, but his actual name isn’t present in the documents. So I think again, and talk to us through why there’s an opportunity mid-career to really be updating these documents or perhaps for some even even establishing these for the first time. 

Tim Baker  30:10

It’s probably, you know, I can say this being a ginger, but it’s probably the redheaded stepchild of like the financial plan. It’s, it’s ignored. And unless you’re military, a lot of the clients that are coming through the door really don’t have an estate plan in place. And one of the things that we implemented to kind of really combat this and really supercharge our ability to support clients is we have a an estate planning solution now that we, when we work with clients, if you don’t have a will, a living will, and well trust, if that’s needed, we can actually get those documents in place for whatever state that you live in country, which I think is awesome. So you know, it’s one thing to kind of, you know, say, Hey, Tim, this is what you need something to actually like, walk side by side with you and get the documents in place to make sure you’re covered. So I look at this really from a from from to, you know, to? Well, I would say it’s one big perspective, just change, right. So like, you know, if you think about, you know, maybe when you were, you know, early career to where you’re at now, for some people like could be different relationships, like there’s horror stories about people that are leaving money to like an ex. So I think it’s really important to kind of do a beneficiary check to make sure that the money is going to the right people, you know, Shay is going to be my primary beneficiary for like, a lot of the things that I have. But then right now, it’s like, Liam, my, my, my, or Olivia, my daughter, and Liam my son who are the contingent beneficiary, so if something were to happen to both, it likely would go to the kids, so like Zoe, or our newest baby has to kind of be in on that. Or it could be to like a trust, you know, a trust that is for the benefit of the kids, which is probably the better way to go with minor children. So to me, it’s more of again, looking at the the relationships, whether they’re, you know, out with the old in with the new, or, you know, brand new in terms of kids to make sure that the documents that you had in place clearly reflect your wishes today could even be things about, you know, bequesting, or, yeah, hey, I want to leave, you know, money to my alma mater, or to my cousin Fred, or things like that, that that’s a really reflects the things that you want to do. But also, you know, to, to ensure that from a protection perspective, you know, if you have dependents, they’re there, they’re taken care of, in a sense that, you know, if you were gone, or you can speak for yourself, the documents are that are in place, do that justice. So, for a lot of people mid career, it is adjusting what they have, or it could be it says that, that thing that’s been neglected that you’re like, I’m gonna get to it, I’m gonna get to, I’m gonna get to it, and you have it. You know, what, when I’m talking when I’m talking to prospective clients, and I bring up the fact that we can do this, that like, perks them up, because I know, it’s important. They know, it’s like, uh, I gotta find an attorney, or I gotta find some sort of solution. We got that covered. And to me that alone, I think, especially if you’re, you’re, if you’re a family, or if you you know, I typically say that the estate plan is really important, really, for anybody, particularly, particularly for people that have a spouse, a house, or mouths to feed, right. So if you have those things, and you don’t have documents in place, I think that that’s probably the biggest thing that we need to look at. You know, it’s important to get, you know, a plan for debt, it’s important to get your your nest egg and a plan for your assets and retirement planning. But this is really going to be important to shore up and make sure you’re good to go in the event that something were to happen to you. And again, it’s one of those things like, oh, that won’t happen to me, it will happen to somebody else. And then eventually, you’re going to be that that’s someone else. So not to be morbid, but you know, I think it’s important to cross those t’s and dot the i’s with regard to the state plan. 

Tim Ulbrich  33:39

I mean, the reality is just like we’ll talk about in the final item number six on the insurance side, like it’s not fun to think about, right? So it’s easy, but been there myself, it’s easy to kind of drag your feet and let this be the call to action to either update, take a fresh look at those or get those documents created. Number five on our list of six mid-career pharmacists moves to make tip is probably one that a lot of people maybe aren’t thinking about, again, not necessary, the most comfortable thing to be doing would be some of the financial conversations with aging parents, you know, I think it’s common that we see mid-career pharmacists that are entering into a new stage of caring for elderly parents sometimes that, you know, could be a time investment that they need to factor in, that could be a financial investment. And for some, you know, that might be Hey, this is an expense that we need to be thinking about caring for our elderly parents or others. It might be, Hey, do they have the documents, the right documents in place that we just talked about? And do we have an awareness, understanding and transparency into that information? Which admittedly, is a very hard and awkward conversation to have no matter which way we’re looking at it. So thoughts here on some of the financial conversations with aging parents? 

Tim Baker  34:44

So I think this can be both from an estate planning perspective, but also like a retirement perspective. So it’s very common for you know, our clients, you know, maybe who are you know, first generation immigrant that you know, they basically Say, Tim I am the retirement plan for my my parents. Right. So I think like building that into their into the our clients plan is gonna be really important because that’s, that’s part of their culture. That’s part of the goal. That’s I think that’s important. I think beyond that, you know, is more of the estate planning stuff. So I look at this as we have to, we have to secure our own estate plan. So our clients estate plan, but then what are the what are some of the things that can negatively affect, you know, and I’m talking negatively in terms of like financial, and maybe some of the legal and logistics, it could be the your parent, like elderly parents that don’t necessarily have a sound estate plan. So whether that’s, you know, we’ve talked about this, what’s the book “Mom and Dad, We Need to Talk” about some of those some of those conversations or some of those instances where, because of a lack of estate planning and foresight foresight, it’s negatively affecting the child’s plan or finances or time because they’re, they’re suing for conservativeship or you know, there, there’s just things that you’re don’t expect. So this is a tricky thing, because again, like I grew up in a household where we really talk about money that much, so it’s kind of a touchy subject. So how do you how do you go about having those conversations, and have, you know, have access to the detail that you need, but not being respectful, and not necessarily prying where you know, that it were, your parents made me feel uncomfortable, but they’re adult conversations that need to be had, because if you wait too long, then again, you’re you’re putting yourself in a position where you either can’t care or provide, you know, the support that you need to a parent, and it can ultimately, you know, negatively affect your own plan in terms of your, you know, financial resources, but also time. So, I think this is one of these things where, again, whether this is a family conversation around the holidays, or it’s a, an email or a letter, or it’s, Hey, this is a shared document, even give me passwords, and you know, I’m not going to access it until the time is needed to be able to do the things. But, you know, if something were to happen to your parents today, like, Do you know how to log into their different accounts? And what is the what’s the plan, and that can be a very uncomfortable conversation for some people, and for some people it’s not, like this, what it is, so I think, just to have that conversation, and understand where to go, what are the proper documents? What are the accounts? I think if you can do that before, you know, there’s capacity issues, or whatever, I think that’s gonna be really important. So that’s, that’s the big thing here. 

Tim Ulbrich  37:47

And that’s one of things I appreciate so much, Tim, about Cameron Huddleston book, you mentioned, “Mom and Dad, We Need to Talk” is, it does provide a nice kind of third party and she’s got some great suggestions in that book of specific questions to ask, how to ask them how to ignite the conversations. And, you know, I think having that third party resource, even if you’re referencing that of, hey, I read this book, and you know, got me thinking that we should have a conversation and, you know, likely it’s not gonna be everything addressed in one conversation, but it opens up the door. Sure, it’s gonna be uncomfortable, but for, as you mentioned, for some people, maybe not depending on how they grew up around money, but so important that we understand, you know, what, what is the potential financial impact, as you mentioned earlier, for some if that means caring financially for the parents. And even if that’s not the case, there’s just a lot to consider in the estate planning process that we want to make sure that we’re honoring the wishes and aware of what’s going on as well. So number six, our final item on the six moves to consider for financial moves for mid-career pharmacists, Tim, is an insurance checkup. Again, not the most exciting part of the plan to be thinking about here, I’m talking about term life insurance, long term disability, perhaps beginning to think about long term care insurance as well. I know we’ve talked about term life, long term disability, even long term care extensively on the show before. Is this an opportunity to reevaluate those policies, you know, I’m thinking of this situation just as one, where let’s say somebody in their early 30s, bought a 20 year term. Now they’re at the end of their late 40s. And they’re looking at that saying, hey, the terms coming up here in the next, you know, five, six years. So talk to us about how we might look at the insurance part of the plan here as a mid-career pharmacist. 

Tim Baker  39:25

I think like, in the absence of like, a, like an actual insurance calculation, you know, a lot of people will use a rule of thumb for term insurance of like, 10 to 15 times income, which again, that could have changed over the years. If, you know, if you have a 20 year policy, and you bought it in early 20s or 30s and now you’re you know, 40s 50s, like, what does that look like, you know, going forward? So I think like, I think, you know, and I think the other thing, too, is are there other wrinkles in your financial plan, i.e., hey, if I were to pass away, one of the questions I would ask myself is like, do I want to be able to send like, do I want to do I want Shay to have to worry about the mortgage or paying for the kids education? Right. So maybe that’s something that, like, I built into my, my plan going forward, and I didn’t have that, you know, 10 years ago. But now I do. So like, the other thing, too, is like, you know, again, mid-career, if you’re, if you maybe bought a house and moved out of the house, and now rented it, like, what, what happens from an insurance perspective? Like, do you want that property to be paid off? So I think like, I think, yeah, there’s there’s this renewal period, potentially, like, what do you need? And again, maybe it’s not, you know, maybe maybe you buy a 10 year term policy to kind of bridge it maybe don’t need another 20? Year? Maybe you do. But I think there’s also things that you can, in a proper calculation, say, Okay, this is important to me, this is not important to me, and then reflect that in insurance. So, obviously, I think the the life insurance is going to be really important. For some people, even getting it in place, which people just like the estate plan will drag their feet on that long term disability again, that’s one of the things I’m not really worried about short term disability, I think without it, I would just plus up the emergency fund, but from a long term disability, you know, again, how is your income changed over the over the course of the years, you know, if you’re, if you get it through a group policy, that’s going to typically be a function of what you earn. But, you know, if you have your own policy, should you  supplement that policy? Because your earnings have continued to climb? You know, does that make sense long term care, we typically, you know, the our thought here is that we want to, we want to support the client as much to age in place. So so much of the science or so much of the studies show that the longer that you can be in your own surroundings and age in your own home, whatever that looks like. So that typically means bringing in some help as you age, you know, that’s going to be important. So what can we do to buy a long term care policy to meet that minimum, and then again, different parts of the country, that’s going to be a different, different amount per month. But we typically want to look at this, believe it or not, in our late 40s, early 50s, because there’s a sweet spot of, you know, if you’re too early, it doesn’t make sense. If you’re too late, it doesn’t make sense in terms of the availability of the of the policies. So what does that look like? So, typically, late 40s, early 50s, is when we want to have that conversation. And again, a lot of people, they kind of just like security, they kind of blow this off, like this is not for me, but you know, I think more and more of of, you know, the the industry is trying to support clients as best they can, to, you know, age in their home residence, and you know, and do it versus going into a facility or something like that. So long term care is going to be really important. And then the last one, I would mention, Tim is property and casualty. So doing an assessment here, holistic plan, which is our tax tool, has this deliverable that we’re testing out now that looks at homeowner’s auto and an umbrella policy. And what it does is try to find gaps in coverage. And if you think about homeowners, if you haven’t dusted that off in a while, like what your home was, you know, if you bought a home at 35, and now you’re 40, over the last five years, your home has appreciated a lot. So are you underinsured in that regard? You know, do you have enough assets? Or is there is there a risk there that you should have an overarching umbrella insurance to cover risk if something were to happen, or if you were to get sued? So these are kind of, again, next level things to kind of consider and just doing a checkup from an insurance perspective, do you have the proper life, long term disability? Is Long Term Care something on the horizon? And then from a property and casualty perspective, are there risks there that we don’t know about that we should have kind of, you know, a circling back to make sure that the coverages that we that are currently in place are, you know, suitable for what you’re currently at in terms of, of risk?

Tim Ulbrich  43:53

Yeah, that’s a good call on on the property casualty just for the appreciation you know, is a good good reminder for me as you mentioned, I was thinking about we had a fire of a house in our neighborhood it’s probably been sitting now for over a year and a half note no movement on the home and all I can think of is it’s probably some type of insurance issue going on trying to work through the process but you know that that’s exactly the question that came to mind right of hey, you know, what, what is the replacement coverage that you have? What’s the timeline of that replacement and given the appreciation and the cost to rebuild a fresh look at those policies, you know, is certainly warranted.

Tim Baker  44:27

I mean, I just I just got a picture here from Shay- fire in the next neighborhood. Fire started in the garage with a lithium battery charger catching on fire. So this is like as as we’re recording here, this is the picture from Shay so like, this stuff is important. Again, if we haven’t dusted that off in a while you’re leaving yourself open, you know, to risk that we don’t and I think it’s a somewhat of an easy fix to mitigate that.

Tim Ulbrich  44:53

Well I hope all was good there. Thanks again for great, great stuff, Tim, as we look through these six mid-career for pharmacist moves. For more information and details on each of these as a reminder, go to yourfinancialpharmacist.com/midcareer. Again, midcareer is one word. And for those that are looking to work with one of our certified financial planners at YFP on your individual financial plan, which would certainly touch these six areas as well as many more, make sure to head on over to YFPplanning.com. Again, that’s yfpplanning.com. You can book a discovery call. We’d love to have the opportunity to talk with you to see whether or not our services are the right fit. Tim, thanks so much and we’ll catch up again here in the future. 

Tim Baker  45:32

Thanks, Tim. 

Tim Ulbrich  45:34

DISCLAIMER: As we conclude this week’s podcast and important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archive newsletters, blog 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, 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 325: Retirement Roadblocks: Identifying and Managing 10 Common Risks (Part 2)


YFP Co-Founder and CEO, Tim Ulbrich, PharmD and YFP Co-Founder and Director of Planning, Tim Baker, CFP®, RLP®, RICP®, wrap up a two-part series on 10 common retirement risks you should plan for.

Episode Summary

While a lot of emphasis is placed on the accumulation phase when preparing for retirement, there is considerably less focus on simple strategies for turning assets into retirement paychecks, for example. This week, Tim Ulbrich and Tim Baker wrap up a two-part series on 10 of the most common retirement risks you should be planning for. Today, Tim and Tim cover the five remaining risks: frailty risk, financial elder abuse risk, investment risk, work risk, and family risk. 

Key Points From the Episode

  • A brief recap of part one. 
  • Frailty risk and what its major financial effects are. 
  • How a good support system and a clear living situation can be a solution to frailty risk. 
  • Financial elder abuse risk, why it often goes unnoticed, and how to mitigate it.
  • Why unity among siblings is important to avoid financial abuse of elders. 
  • Insight into investment risk and its subsections. 
  • How ensuring that your paycheck isn’t tied to the market can solve market risk. 
  • The value of flexibility and inflationary protection to protect yourself from investment risk. 
  • How liquidity risk plays a role in investment risk. 
  • Sequence of return risk and how it can damage your overall retirement sustainability. 
  • Work risk and some of the reasons that you might have to retire early. 
  • How planning for retirement readiness at different ages can assist with work risk. 
  • What re-employment means and how it affects work risk. 
  • How the loss of a spouse affects the person left behind financially and how to mitigate this. 
  • Ways that having unexpected financial responsibility can affect your retirement plan. 
  • Why having a third party you can trust to help with unexpected risks is helpful.

Episode Highlights

“Studies have shown that, the longer you retire, the more your mental health decreases over time.” — @TimBakerCFP [0:03:25]

“Involve trusted family members [to avoid elder financial abuse].” — @TimBakerCFP [0:10:16]

“You mitigate market risk when a lot of your paycheck is – not tied to the market.” — @TimBakerCFP [0:14:12]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.8] TU: Hey everybody, Tim Ulbrick here, and thank you for listening to The YFP Podcast where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, Tim Baker and I wrap up our two-part series on Ten Common Retirement Risks to Plan For. Now, in planning for retirement, so much attention is given to the accumulation phase but what doesn’t give a lot of press is how to turn those assets into a retirement paycheck for an unknown period of time. When building a plan to deploy your assets during retirement, it’s important to consider various risks to either mitigate or avoid altogether and that’s what we’re discussing during this two-part series, where today we cover the five remaining retirement risks, including frailty risk, financial elder, abuse risk, investment risk, work risk, and family risk.

Make sure to download our free guide that accompanies this two-part series, Retirement Roadblocks: Identifying and Managing 10 Common Risks. You can download that at, yourfinancialpharmacist.com/retirementrisks. Again, that’s yourfinancialpharmacist.com/retirementrisks. 

Before we jump into my conversation with Tim Baker, let’s hear a brief message from YFP team member, Justin Woods.

[YFP MESSAGE]

[0:01:11.5] JW: This is Justin Woods from the YFP Team with a quick message before the show. If you listen to the YFP Podcast, you may learn something every now and then, either from Tim Ulbrick, Tim Baker or one of our guests. A lot of people listen to this show but they may not execute or implement the things they learn. As pharmacists, we know the impact of non-adherence on patient outcomes and their overall well-being. 

As a pharmacist myself and part of the YFP Team, I talk with pharmacists every day who are confused about how to implement financial knowledge. Pharmacists share with me that they are treading water financially, maybe took a DIY approach, reached a plateau, and are confused about what to do next, or those who work for decades can see the light at the end of the tunnel and feel uncertain about how the next chapter will unfold. 

If that sounds like you, one, it is not uncommon to feel that way, and two, does it make sense for us to have a conversation to see if YFP Planning can help you? Visit yfpplanning.com or follow the link in the show notes to find a time that works for your schedule.

[INTERVIEW]

[0:02:16.9] TU: Tim Baker, welcome back.

[0:02:18.7] TB: Good to be back Tim, how’s it going?

[0:02:20.1] TU: It is going well. Last week, we started this two-part series on 10 common retirement risks to be planning for. We talked about things like longevity risk, we talked about inflation risk, we talked about excess withdrawal risk. Listeners can tune back to that episode. We’ll link to that in the show notes if they didn’t already listen, and we’re going to continue on.

So number six on our list of 10 common retirement risks to plan for, number six is frailty risk. Tell us more about this.

[0:02:49.0] TB: Yeah, so this is more related to – it’s a risk that as a result of either mental or physical deterioration of your health, mental health, physical health that you as a retiree might not be able to have sound judgment in managing your financial affairs or care for your home, those are the two big ones. 

So just like we talked about in the last episode, like, with long-term care and a long-term care risk, this is one that people are like, “Oh yeah, this is important but it’s not going to happen to me” and you know, what studies have shown is that you know, the longer that you retire, the more your mental health decreases over time. 

So this is going to be, you know, where we really want a good support system. So a solution here is if we work longer, obviously, our mental acuity, our mental sharpness kind of stays intact longer. We’re not as isolated, there’s lots of studies about depression and loneliness, Tim, you know, creep in.

A lot of things that have not really been talked about as regarding retirement in the past and I think a lot of this points back to some of the frailty risk. So having a good network involving your family to have help, whether it’s with decision-making or chores, hiring someone to manage money or a trustee is another good solution here. 

Set up a power of attorney for you know, the financial situation. It can even be you know, things like healthcare. Probably a big thing that I often hear is having a good discussion and analysis of like the living situation, right?

[0:04:40.9] TU: Yes, yes.

[0:04:41.1] TB: So a lot of people as they age, they might not necessarily want to move out of the house where they raise their family. A house that might be three, four, or five bedrooms that has a big yard, lots of yard work, lots of housework. Maybe stairs to go up and down and because of the – you know, kind of the emotional attachment to the house, it’s just hard for the retiree to move on and you know, potentially downsize or you know, move into a townhome or a condo or a community that is different. 

That’s probably has one of the biggest effects on the frailty risk. You know, if you’re less likely, I think, to kind of be exposed to this risk if you have, again, more people around you that are dealing with the same thing. We mentioned a trust, so potentially putting assets in the living trust that are basically managed by the trustee which could be used as a retiree and then you could have a successor-trustee, which can be a family member or family members.

But the whole thing I think is to kind of you know, plan for this. You know, we want to make sure that we don’t necessarily have to go through the courts that we can kind of do this preemptive, even simplifying the finances. So things like you know, direct deposit, you know, automatic withdraw for bills, you know annuities, checks coming in the door rather than you know, having to make decisions regarding, “Okay, how much should I withdraw this year?”

These are all things that I think would help, you know, simplify and make this risk, not avoidable but mitigated, Tim.

[0:06:14.2] TU: Yeah, and as we wrap up the previous episode, part one, talking about the importance of planning for this early, right? So here, we’re talking about potentially deteriorating mental or physical health. You know, obviously, if and when that happens, guess it’s just a matter of time, right? For all of us but if and when that happens, we don’t want to be making these decisions in that moment, right?

So, how can we be having these conversations in advance? You talked about an important one that often comes up around housing, what’s the desire? You know, I’m thinking about things like legacy folders and making sure you’ve got good systems and documentations in place. I think the housing one comes up so often, you know? I’m thinking about even my own family. Like, sometimes it’s just hard to cut through the noise on this because you know, you gave one example where people may want to stay in their own home, I think that’s a common one.

The other one that I see as well is where people are adamant on like, “Hey, I don’t want to be a burden on the family. So, just put me in a facility.” It’s hard sometimes to cut through the noise of like, where does the true desire and how is that being projected and you know, maybe there’s an interest and a willingness and the financial means for children, you know, to be able to care for their elderly parents and that’s a desire, you know? 

For them to do but you know, you can’t get through some of those conversations. So just again, I think in a point of advocacy for talking through as much of this as possible, as early as possible, and for those that are listening where you know, maybe they have adult children that are going to be important caregivers, you know initiating that conversation with your adult children and those that are the children that have aging parents, you know, initiating those conversations as well.

[0:07:49.6] TB: Absolutely.

[0:07:50.8] TU: Tim, number seven, one that’s not fun to talk about, one that we have to just given, you know, the reality of what it may be, which is financial elder abuse risk.

[0:08:00.5] TB: Yeah, and this is the risk of being – basically being taken advantage of because of frailty. So these are kind of linked, Tim, and I saw a stat out there that this can cost anywhere from like, three to 36 billion dollars a year or something like that. It’s insane and probably the biggest culprits of this is people that the retiree knows and knows well. So that could be an advisor, financial advisor. 

It could be a family member, so adult children are probably the bigger abusers of this but 55% of these cases are family members, friends, neighbors, or caregivers, and the crime or the abuse can be anywhere from bad advice to fraud, barred against the person’s home. Theft, which could either be, you know, cash, taking money out of accounts, using credit cards, embezzlement. 

You know, misuse of power of attorneys, and unfortunately and I think it’s why it’s so hard to kind of like put a number to this, in terms of like what the losses are is that the abuse often goes unnoticed because you know that retiree can be embarrassed. They really don’t want to punish those that are close to them or they have fear of losing care that is being provided even though they’re being abused or even reprisals. 

And it’s one of the things that you know, as an advisor, even though we’re on that list of abusers, that we’re kind of trained to look for and ask questions in terms of like, “Okay, is there something going on? You know, what is the cognitive ability of this person? Are they making sound judgment? You know, who in the family is involved?” That type of thing.

And there’s been you know, I’ve heard of cases where it’s like, Mr. Jones is having USD 50,000 of work you know, done to his kitchen at 85 years old and that doesn’t necessarily make a lot of sense but it could be a contractor that’s kind of taking advantage and sometimes, Mr. Jones, it’s a little bit of – it’s being taken advantage of but it’s also could be like they like the company, you know?

So I think you know, a major solution for this, I would say is you know, involve trusted family members and I underline trusted and I underline the asset members. It’s a little bit of checks and balances. You know, if you have you know, two siblings that are kind of looking after, hopefully, they’re not both, you know, criminally minded but I think it’s good to have a few people that are you know, over-watching so to speak, the situation.

I think as much as the person, the retiree can protect themselves by staying organized, tracking possession, tracking their assets, you know, as much as they can open their own mail, sign their own checks, manage their investment, manage their statements, their investment accounts, their bank accounts, you know set up direct deposit as much as they can for social security checks or annuity payments.

That can again, help, not necessarily avoid but mitigate some of the exposure to this risk. You know, screen calls, solicitations, you know, get second opinions on, you know, we come across things even with clients where like, “Is this legit?” You know, like clients that are in their 30s, 40s, 50s and sometimes are like, “Uh, it’s not.” 

So you know, get a second opinion and make sure that we’re kind of hyper-aware because this is a big problem unfortunately and it’s tough to kind of diagnose and see and you know, at every angle, you know, because often the person that’s being abused is like for what I mention, is not necessarily willing to kind of come forward with this.

[0:11:54.5] TU: Tim, I have to bring it up since you mentioned siblings. I think this is an area where there’s so many dynamics, right? Every family’s different but you know I think that when you’re dealing with assets and estates and you know obviously, one, at the end of the day, is going to get assigned as a power of attorney and you know, people that are in are not in the will and whether those conversations are transparent or not. 

I feel like, any sibling dynamics, you know, you can just put a magnifying glass on them here. So you know, Cameron Huddleston, who we were referenced in a previous episode and we had her on a few episodes ago about initiating some of these financial conversations with your parents, talks about the importance of sibling conversations in unity, ideally, easier said than done, to then be able to obviously translate that with parents as well.

[0:12:40.4] TB: Yup, absolutely. 

[0:12:41.9] TU: Tim, number eight, investment risk, we talked about this briefly in the first part of this two-part series but I think it warrants going a little bit deeper. 

[0:12:50.8] TB: Yeah, so, investment risk, I’m kind of going to break this down into kind of sub-risk to this. So what I really want to kind of address here is market risk, interest rate risk related to the investments, liquidity risk, and then kind of come back to the sequence of return risk. So if I take these in turn, market risk is really the risk of financial loss resulting from movements in market prices. 

So, unfortunately, Tim, the market just doesn’t kind of increase steadily. As we go, we have lots of you know, ups and downs and twists and turns with regard to the market which often makes us kind of queasy as – and I would say, even more. I feel like for me when I first started to invest back in my 20s, you know, I would kind of feel those investments and I’ve kind of got to a point where I get zen and I try to like not pay attention to it because again, it’s not going to affect me until hopefully 30 years in the future when I do retire.

[0:13:46.6] TU: You should do some market meditations, right? Like – 

[0:13:48.6] TB: Yeah, exactly but for a retiree, who you know, like their paycheck and their livelihood is kind of tied to the market, I could see how that could be overwhelming and distracting. So a solution here is I think, I really strive for balance and flexibility. So, we kind of mentioned in the past, like a flooring strategy.

So you mitigate market risk when a lot of your paycheck is not coming or not tied to the market. So that’s where we you know, are essentially, we’re looking at essential expenses and we’re saying, “Hey, my essential expenses or my basic needs are covered with an annuity” or social security or very low risk, you know, government securities like treasury bonds. You know, treasury bonds, notes, that type of thing and we’re good.

The other part of that is allocation. So obviously, a lower percent of your portfolio in equity, you know, particularly leading up to retirement is going to be important to kind of mitigate market risk. So even in some of the – you know, the dot com crisis, the subprime mortgage crisis, you know, the COVID crisis, like the market is still doing this but if you have less equity exposure, it might not be Rocky Mountains ups and downs. 

It might be Appalachian Mountains ups and downs, where it’s a little bit smoother but I think, knowing what your allocation and what your glide path is, actually approach retirement is going to be important and then you know finally, I think for this particular risk is kind of going back to flexibility. 

So if you’re in a year where the market is down and maybe inflation is up, you know, inflation is up, like maybe we say, “Okay, we’re not going to take that USD 15,000 out to go travel.” you know, do this huge cruise or make this, “We’re going to forego that and see when the market kind of recovers and then we’ll kind of assess it from there.” So flexibility of like, what you’re withdrawing and when I think is going to be important with regard to market risk. 

The other ones, Tim, interest rate risk. So this is related to investment risk. So this is the risk of the change in value of an asset as a result of volatility in interest rates. So what does this mean? This essentially means that when interest rates go up as they have been over the last couple of years, the price of bonds go down. So there’s an inverse relationship. So, the price of individual bonds and bond mutual funds decreases. 

So when interest rates go down, the price of bonds go up. So this is not necessarily a concern when bonds are held to maturity or what I was mentioning in the last episode, a bond ladder. So if I buy a year, a bond, or six-month bond that basically, you know, comes up at the end of the next or at the end of this year or a year, 18 months, or whatever that looks like, if it holds maturity, the fluctuation in interest rates do not affect the bond price.

So you’re kind of inoculated from that. It’s when you kind of are coming in and out of bonds, that’s where it becomes problematic. The other risk associated with this is and I’ve seen this, so one of the things that I – because I’m a nerd, but one of the things I do with my emergency fund is I buy 12 months CDs every quarter. So I have a quarter one CD. So let’s pretend I have USD 20,000 in my emergency fund. 

10,000 might be in the high-yield savings account, 10,000 might be split up between four CDs and you can kind of think of these as like bonds. So Q1, I have 2,500, January one. Q2, April one, so on and so forth. So as prices, as interest rates have gone up, if I look back 12 months ago, man, I look at that interest rate, I’m like, “Man, that’s really low”. So when I renew, Tim, the – what I’m getting in terms of interest is a lot higher. 

The opposite came true, and this is what’s called reinvestment risk. I could have this bond that I just bought at five or you know, the CD or bond that I just bought at 5% but in a year or two years, it could be at 3% and then that’s the reinvestment risk. So that’s another risk that we have to, you know, kind of be aware of. So I think the biggest they hear is, again, things that are inflation-protected. 

So any type of income stream or investment that has inflationary protection like tips or strips, any type of COLA protection that’s going to really – what’s going to be to help reduce that risk and then finally with – or not finally, the third one is liquidity risk. So this is just basically the inability to have assets available to financially support unanticipated cashflow needs. I don’t think that this is a risk that’s really inherent just to retirement, we all have this at all times. 

It might be a little bit harder to overcome because we don’t have – we don’t necessarily have cash flow from like a set job but planning for this, you know kind of plan as best you can for what could happen. So what are the situations and then what levers can we pull? What are the assets that can be sold? You know, what are things that can’t be sold, which you know, assets that can be sold. 

It could be things like stocks and bonds and things like that. Maybe not so easily, it could be a business interest or real estate. You know, what are some other things that we can talk about to pull? Whether that’s life insurance, a HELOC, a reverse mortgage, and then one of the best reasons to employ a systemic withdrawal strategy is because of the flexibility. 

Because you have this pot of money that you can reach into and say, “Okay, I didn’t think needed USD 30,000 for X but now, because that money is there and I can put it into liquid form and pour it” then you know, that’s one of the things, versus, if you were to say, “Hey, I’m going to put all my money to an annuity” that’s not flexible and that’s not liquid.

So it allows you to change your strategy in the face of you know, new information, new situations, and finally, the last one here and again, Tim, we could probably do a whole episode on sequence of return risk is this is the risk that the timing of your withdrawals from a retirement account will damage your overall return and really like sustainability.

So when you withdraw from a bare market or when the market is down, it’s more costly than if you draw – you make that same exact withdrawal in a bull market. So this is – so what we’re saying is that a large negative return during retirement, so during that risk zone, that eye of the storm of you know, 10 years before retirement, 10 years after retirement, has a much bigger impact on wealth accumulation and success in retirement than a negative return outside of that.

You know, so that’s why I’m saying that at 40, you know, I get zen because I’m like, “It doesn’t really affect me if the market goes down 40% because I know I have 30 years for it to recover” and it’s going to go down 40% a couple of times probably over the next 30 years but if I’m retiring in five years, I’m worried, Tim. 

And again, like that’s where we have to be as safe as we can, you know, throughout our wealth accumulation journey is right in that zone, you know, five to 10 years before and five to 10 years after and this is when your retirement accounts are most vulnerable to investment returns and if you think about it, it kind of makes sense because this is typically, Tim, where you have the highest balance. 

[0:21:29.9] TU: That’s right.

[0:21:31.2] TB: So wealth rises rapidly as you approach your retirement date due to the fact that you’re putting in probably the most in contributions you ever have because you know, a lot of people are like, “Oh, I didn’t do enough of this, I need to make up, I got to catch up” because of investment returns and compounding.

So that’s when you’re – you know, and the research says that in a defined contribution plan, say, like a 401(k), this is interesting, you accumulate half the value of the account in the final 10 years of savings. So we say save early and often but what moves the needle most is in the last 10 years. In the early years of savings, additional contributions can replenish account losses but later, the contributions are a much, much smaller needle mover than it is like investment losses or gains.

[0:22:21.2] TU: Yeah, and Tim, just to put – you know, I was thinking about this because I think it’s harder, especially if folks are earlier in their career to understand kind of the numbers of this. If you’re nearing retirement, you have a three-million-dollar portfolio, as you mentioned, one part that’s going to keep driving that up is typically your, maybe you feel like you had to play catch up or you’ve got more discretionary income at that phase.

You’re hyper-saving, trying to max that account but even if we just look at that three-million-dollar portfolio and assume something like a 5% return in that year, you know, USD 150,000 of growth that’s going to happen in that portfolio in that year, right? And you know, people that are early saving, the timeline to get to 150 can feel like forever, and here, we’re talking about 150 of growth in a portfolio just in that single year. So I think that makes sense.

[0:23:05.4] TB: Yeah, and if you compare that to what you can legally contribute, that’s the big thing.

[0:23:11.8] TU: Oh my gosh.

[0:23:12.7] TB: Whereas like, you know now, you’re like, “Oh, 20,500, that’s like, that might be a third of my savings.” So it’s huge. So really, what the research shows that the magnitude of the impact of a large negative investment return or shock grew as the shock occurred closer to retirement. 

[0:23:34.8] TU: Yeah, exactly. 

[0:23:35.7] TB: So it’s like if the epicenter is – if the epicenter of that shock is close to age 65 when you retire, the consequences are greater than if it were at 58, which makes sense. So for sequence risk, the order of returns becomes a far more important concern in that span of time over the breadth of the entire portfolio, particularly in accumulation, it’s the average return that matters, right? 

So one of the things that I often say is like, “Hey, you don’t need a lot of bonds in your 20s, 30s, 40s” and I would even say even your 50s unless you’re retiring in your 50s, you don’t need a ton of bonds. So you want to almost have like a cliff, where you’re very much like pedal to the metal, you know you’re primarily in equities and then when you get to that 10-year, that’s where you start shifting, downshifting considerably. 

So like a hard break versus what a lot of people do is they kind of glide into it. So in their 40s, they put a little bit more bonds, in their 50s they put a little bit more bonds and so on and I just think that and I understand why, you know, you’re kind of easing into it but I just think you leave a lot of meat on the bone with regard to investment returns but the same is true is like you kind of have to like you know, you kind of have to get into that period of 10 to 15 or 10 years pre-imposed retirement date and then start adding equities back in, which a lot of people don’t do. 

So the solution for this is asset allocation and whether you follow on collide path or not in terms of you know, percentage of equities to bonds. Knowing what that is, we often see in the accumulation phase I think not the proper asset allocation, so too heavily in bonds and then closer to retirement, actually too heavily in equities. So if you have one of those shocks where the market is down, that’s where we have to have real conversations of like, “Hey, maybe we need to push out retirement to the market.” 

[0:25:34.3] TU: Retirement date, yeah. 

[0:25:35.6] TB: The market corrects. Again, flexibility; allow for changes and what is what’s wrong. So if it’s a down market, you know either decrease the amount that we’re withdrawing or actually that the entire – shift the entire equation where you know, we’re not retiring this year or next year, we’re retiring when the market recovers and then another solution is to kind of get out of the game or at least partially convert a portion of the portfolio to an income annuity, which essentially you know, means less overall volatility because you have that income for in place. 

[0:26:10.7] TU: Yeah, Tim, great overview. The investment risk to your point, we probably can and should cover this in more detail in future episodes and I think flexibility keeps coming back as a theme but I want to acknowledge how hard that can be, right? When you talk about something like, “Hey, maybe shifting your retirement date” makes a whole lot of sense objectively, right? 

If I had planned a retirement age, I’m listening of you know, 2026 and we see the market tank in 2025 like I’ve been mentally preparing for retirement in 2026, that’s a hard thing to consider but I think that open-mindedness and the options to be able to pursue some of those things that gives you more of that flexibility to maximize your portfolio is going to be really important. The other thing I just want to mention that we see a lot because especially folks that are maybe introductory in terms of investing or learning or aren’t working with a planner. 

I’m thinking about a lot of folks that are investing heavily in target date funds, where we maybe see some of that conservative investing happening too early, in my opinion, in the portfolio, yeah. 

[0:27:12.5] TB: Yeah and just to go back to what you’re – yeah, I completely agree it is and again, not every target date fund is created equal. We actually crack those target date funds open and you can see the allocation, you know something then might be 2035. You know, if you stack up a 2035 or 2055, you know target date fund, what is in target date fund A is going to be, you know 2035 is going to be a lot different than what’s in a target date fund B that’s in 2035. 

But to go back to your other point, you know like and we’re going to get into this in the next couple of risks here, sometimes like you’ve mentally said, “All right, I’m going to work for another two years” sometimes that decision is made for you and that could be hard. So then what do you do? 

So I think a lot of these risk is like if you can kind of maintain as much control over your destiny and I think part of this is having options, particularly with things related to work, it allows you to kind of pivot and adjust and kind of parry some of these things that are thrown at you because I keep saying, “I want to retire at age 70” you know? I mentioned earlier in the first episode of this is like that might be out of my control and you know, that’s something else we have to account for. 

[0:28:36.5] TU: Yeah, if Mike Tyson were listening, he’d say, “Everyone has a plan until they get punched in the mouth” so yeah. 

[0:28:41.0] TB: Yeah, exactly. 

[0:28:42.4] TU: So let’s talk about that, work risk is number nine on our list. What is that? 

[0:28:46.5] TB: So again, I’m going to break this down into some sub-risk. So the first one would be forced retirement risk. So this is the risk that work well and prematurely because of poor health, disability, job loss or to care for a family member because of some of these issues and this is an eye-opening stat, Tim, is 40% of retirees retire earlier than they plan and it’s really because of one of those issues, health, job loss, caring for a family member. 

This happened to my dad. My dad tells the story, you know, when we try to talk about this, you know his company was bought by another company. He was kind of duplicitous, you know, kind of at the tail end of his career and he was laid off. So it was – so if he was planning to retire by X and his portfolio and all, we had to kind of reconfigure, jostle things around, and make sure that we’re planning accordingly. 

So I think having like a pulse on kind of your retirement readiness at different ages, “So okay, what happens to my plan if I have to retire 10 years before I want to?” So for me, it will be 60, right? 65 like what happens. 

[0:29:54.8] TU: Yes, zero, one, two, three. 

[0:29:56.3] TB: Yeah and you know, what happens to my lifestyle, you know, what do I have to – like are there things that I, other levers that I can pull? So one of those I think is career. So I think staying current, you know learning new skills. You know I think, Tim, like we’re naturally like this as like lifetime learners and always trying to you know, self-improve. That’s not everyone’s cup of tea but I think maintaining your network. 

I don’t know the last time I actually put my resume together, Tim but I think that would be something that you would want to do. It is a lot easier to kind of brush that up every year or so versus kind of cracking that open every decade. Are there – is there opportunities to pivot to consulting, to kind of work on your own? I think a lot of people paying attention to severance policies and negotiating benefits related to your career is going to be important. 

Another thing to kind of you know, mitigate the health stuff is maintaining a healthy lifestyle. So you know diet, weight, sleep, exercise, and potentially reducing stress by cutting back hours. So we kind of mentioned of like a glide path of going from a one to a point eight to a point six, you know to work in a couple of hours here and there. So I think that can potentially allow you to work part-time longer into retirement by maintaining a healthy lifestyle, maybe meditation, all that kind of stuff. 

The second work risk we talk about is re-employment risk. So this is the inability to supplement retirement income with employment due to kind of down job markets, poor health, or if you’re caring for others. So I think for my dad, you know when I happened to him you know I think it was hard for him because he had worked for the same company for 40 plus years to actually go into market and interview and do something else. 

So for him, it was kind of more about like comfortability and he really didn’t have anything else outside of that where he could consult or do part-time. Like I’ve heard people like drive a bus for a school and liking that because you know, they’re connected to kids or turning hobbies into profit-making activities. I was talking with my brother and his fiancé last night because we were actually talking about, “Hey, when do you want to retire, and when is that?” 

You know, one of the things that he brought up that I thought was interesting, he’s like, “I think I’d love to do like a bed and breakfast.” That’s cool. You know, he likes to cook, he likes to host, so I think that would be something that would be good for him. 

[0:32:37.3] TU: That is cool, yeah. 

[0:32:39.4] TB: Planning on earning significant income in retirement may be unrealistic for a lot of people. There are certain industries where it’s very easily, you can very easily kind of pivot to a consultant role and make just as much money as you would working full-time but that’s not necessarily the case for a lot of people. 

So I think kind of again, planning for this, talking through this, and understanding you know, what are some things that you can potentially lean on or pivot to in the event that what you thought was a short thing, which was like your employment is not so much and again, I think this often is one of those things where it’s like, “Hey, that’s not going to happen to me.” 

[0:33:25.4] TU: Yeah. 

[0:33:25.8] TB: I think this has probably evolved over time, right Tim? Because again, it’s rare where you find someone like my dad that’s worked for the same company for 40 or 45 years. So I think our eyes are a little bit more open to this risk but I think what maybe might not be is the fact that like, “Hey, your health or someone close to you” or something like that could affect your timeline, so to speak for retirement. 

[0:33:50.1] TU: Yeah, and as you’re talking Tim, I’m thinking about many people in our community of which many of them have been on the podcast where you know I think they may intentionally or unintentionally are preparing themselves for something like this and the risk you’re talking about, right? They’ve got you know, maybe they’re investing in real estate in a variety of ways, they’re working a full-time job. 

They’re doing some consulting, they’ve got a side hustle, they maintain an active network, you know, they’re constantly developing their skills, right? Just multiple strategies of diversification that I think help mitigate against some of the risks that you’re talking and maybe they’re not even thinking about it in that way, it’s coming from an area of energy and passion but it can be really helpful as we talk about strategies to plan for this type of risk. 

[0:34:33.3] TB: Yeah, absolutely. 

[0:34:35.0] TU: All right, number 10 on our list is family risk. Take us home, Tim. 

[0:34:41.4] TB: Yeah, so the two kind of sub-risk that we would talk here is kind of the loss of spouse risk and then unexpected family financial responsibility risk. So the loss of spouse essentially is where you know, I’ll use myself, I retire at 70. I think I’m going to live at least to 87 or 95 and I pass away unexpectedly at 72, right? So the problem often with that is you know, you’re often, for many spouses, you’re kind of known two social security income streams, right? 

You know, so one of those goes away, you keep the highest one but the problem – so you still have all of the assets. The spouse will inherit all the assets that are in their name obviously but what typically doesn’t reduce is a lot of like living expenses, right? So your food might go down but you’re still going to have to pay if you have a mortgage. 

[0:35:41.9] TU: Property taxes, yeah. 

[0:35:42.8] TB: Or you know, rent or things like that, tax, all of those, your utilities are going to be very similar. So just because your income or a good chunk of your income could be cut in half or even a third, your expenses don’t and what we’ve seen at least with baby boomers is that you could be a widow or a widower for 15 or 20 years. So it’s not like you know one and this happened where one spouse dies and the one will die within a year or two. 

I mean, but that does happen but you could have long periods of time where you’re by yourself. There was a stat that I saw that was really interesting Tim, was within five years of a death of a spouse, 40% of widows become impoverished. 

[0:36:29.9] TU: Wow. 

[0:36:31.1] TB: That’s insane to me and I think if I had to guess, I don’t know this Tim, but if I had to guess, I would think that that’s probably again, people that are lower income that might like a huge chunk of their livelihood is in disability. So if a good chunk or not, disability, social security, so a good chunk of that goes away, so you have two paychecks is now one, you know that could be very problematic for kind of sustainability of overall wealth.

But that to me was eye-opening and I’ve heard that before with husbands will say like, “I just want to make sure my wife is taken care of if I’m gone” and again, I don’t want to get into much of like gender roles and things like that. 

[0:37:17.4] TU: Sure. 

[0:37:17.8] TB: But I still think that that exists in a lot of relationships, particularly older couples where you know, one partner handles the money and the other one doesn’t or has an interest in the other one doesn’t. So you know I think the solution for this is and I’ve talked to people in the past is like, “I want a relationship with like an adviser where I trust them because even when I’m gone they’re going to take care of the person, you know, my spouse.” 

So I think having a relationship with that, with like a planner I think can be important. I think involvement, you know I often say this with couples of all ages, you know the more that you are involved with your plan. 

[0:38:00.6] TU: Absolutely, yes. 

[0:38:02.0] TB: And the more you are engaged with the plan like both of you, I think the better the results will be but I also understand that there’s some like, there’s some couples that there might be engagement in the front end and then maybe one spouse kind of you know drives the train after that but then often what happens is like again, if that spouse dies like they kind of have to reengage is necessarily like the easiest thing. 

So you know, what are the contingency plans if this were to happen? Even sometimes like when we – so if we were to say, “Hey Tim, you know we’re going to peel off a quarter million dollars of your portfolio to provide an income for you and Jess.” What’s attractive about those payoff schedules is like the one that just pays your lifetime is the highest but we would want to say, “Okay, let’s have a joint life payout.” So it would pay you as long as one of you are alive but that benefit is going to be lower. 

[0:38:54.8] TU: Yeah. 

[0:38:55.4] TB: So decisions like that, you know if you have second-to-die policies or you know again, social security claim, and there is a lot of people that they don’t look at the layers of that decision that says, “Okay, even if Tim is in poor health than Shay, if I have a larger benefit that I want to defer that I should defer, that benefit grows and then when I pass away, Shay takes that on.” 

So some of that, some of those nuances aren’t necessarily you know, evaluated. So those would all be things that you know again, it’s not just the abrupt, “Okay, the husband is gone or the wife is gone,” these are things that we have to bake into the plan as we go because you know, things like social security or you know, payouts and things like that have to be decided. So it’s not just the abrupt, “Okay, what happens once that happens in that moment?” 

It’s the multitude of decisions that you have to make potentially leading up to that and then lastly, it’s the unexpected financial responsibility risk. So this is kind of the risk of failure to launch, Tim. Like, “Hey, I’m 40 years old. I just lost my job” or “I’m divorced. I’m moving back in with mom and dad” or you know, care of a grandchild or because parents have problems with the law or drug addiction.

These things happen you know and sometimes, we can kind of put this thing in like a liquidity risk of like unanticipated events but I would say like those would be things that I would want as a planner to know like, “Is there a possibility for this and if this were to happen, what do we do?” 

[0:40:40.8] TU: Yeah. 

[0:40:41.3] TB: So that’s another you know, risk associated with family. Families can be great obviously but sometimes, you know that’s kind of my biggest fears. You know, I want to make sure that as I’m raising my kids and I know it’s the same, it’s true with you, Tim, like they can be contributing members of society that can you know, be self-sustaining but sometimes that’s even out of their hands, right? So we want to make sure that in the event that that happens, we can plan accordingly. 

[0:41:11.4] TU: Tim, as you talk about loss of spouse, a couple of things are coming up for me. One that’s timely, you know where Jess and I are working on, just updating your legacy folder that we created several years back but in our planning with Kelly from our team. You know, it’s a part of the process that we need to go back to and update it and you know to you comment about the importance of joint planning and all parties being involved ideally. 

Even in this situation where Jess and I feel like are both very well informed, I do take a little bit more of the lead but it is very much a shared agenda and execution and both of us engage with Kelly and the planning. You know, instructions on that legacy folder, while they’re spelled out as much as possible, you know for either one of us or in the event that both of us were to pass away, for our parents or whoever it be taking care of the finances and the boys, it’s, “Go call Kelly.”

Like someone we trust that knows this plan inside out, that has these documents, that understands all of the nuances and what is going on and that is so reassuring. Again, assumption is you have someone you trust. It’s so reassuring to know you’ve got a third party that not only is there to help you develop the plan but is there in the event of some of these challenging situations that may come up to make sure that we’re executing how we wanted it to be executed. 

[0:42:29.1] TB: Yeah, and I think what’s not covered in that like I love the idea of like, “Okay, Kelly is a safe haven. She has the documents, she knows your situation” I think it’s hugely, hugely important but I think what’s also not necessarily discussed in this is kind of like the emotional or social like you know, my parents were in town this week, last week and this week. It’s been cool because my brother has been in town too. So the three of us have been spending – my dad just turned 77. 

[0:43:04.9] TU: Baker pow-wow. 

[0:43:05.7] TB: Yeah, and we’re joking with my dad that like if mom passed away like I don’t think my dad knows how to do like a load of laundry. I love you Dad but he’s very much dependent on my mom over you know, decades and decades of marriage. If something were to happen to them like I think he would have to move in with one of us to live and I’m sure a lot of people are thinking about their parents and they’re like, “That’s my dad” or “That’s my mom.” 

You know, I think even that of the loss of spouse not just from a financial standpoint or like where are the documents or things like that, it’s kind of a day-to-day living in terms of like what am I doing or what can I do or what can I not do and who am I leaning on and you know, I think that kids are probably the first people that are in that role but I think like having those conversations before that happens where maybe there’s less emotion involved is smart. 

So it’s not just the numbers, it’s what’s the quality of life? What are the things that we’re going to do to move forward? And unfortunately, it is part of life and I think the more that you can kind of get in front of things just like anything else, I think the better result you’ll have. 

[0:44:28.6] TU: Yeah, the other thing to your point about the emotional journey that’s coming up is a throwback almost four years ago now but we had on episode 127, we had on Michelle Cooper, who wrote the book, I’ve Still Got Me: A Widow’s Journey to Love, Happiness & Financial Independence, lost her husband to suicide and talks about not only the importance of joint planning and shared understanding of processes and documentation but also navigating that in the midst of that emotional loss. 

Great interview, great resource. We’ll link to that in the show notes as well. Tim, this has been fantastic as we’ve covered in two episodes now 10 of these risks we need to be planning for and mitigating the best that we can. For folks that are listening, you know you heard a theme here of early planning. Obviously, we would love to have the opportunity to talk with you if you are interested in working more with one-on-one with a financial planner that you can trust. 

We’ve got a team of fee-only certified financial planners, tax professionals that work with pharmacists households all across the country at all stages of their career. You can learn more by going to yfpplanning.com and you can book a free discovery call from that site. Again, yfpplanning.com. Tim Baker, as always, great stuff. Thanks for the contribution. 

[0:45:41.4] TB: Yeah, thanks, Tim. 

[DISCLAIMER]

[0:45:42.4] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information on the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. 

Furthermore, the information contained in our archived newsletters, blog 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, 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 324: Retirement Roadblocks: Identifying and Managing 10 Common Risks (Part 1)


On this episode, sponsored by First Horizon, YFP Co-Founder and CEO, Tim Ulbrich, PharmD and YFP Co-Founder and Director of Planning, Tim Baker, CFP®, RLP®, RICP®, kick off a two-part series on 10 common retirement risks you should plan for.

Episode Summary

While a lot of emphasis is placed on the accumulation phase when preparing for retirement, there is considerably less focus on simple strategies for turning assets into retirement paychecks, for example. This week, Tim Ulbrich and Tim Baker kick off a two-part series on 10 of the most common retirement risks you should be planning for. Today, Tim and Tim cover five of these risks, including longevity risk, inflation risk, excess withdrawal risk, unexpected health care risk, and long-term care risk. You’ll find out why thinking about retirement as “half-time” is a good idea, the different options for taking out annuity payments, and why it is important to think about your withdrawal strategy, as well as what a bond ladder is and why you should consider unexpected medical expenses. Whether you are nearing retirement or are still in the accumulation phase, this episode is full of valuable insights. 

Key Points From the Episode

  • Introducing our two-part series: 10 Common Retirement Risks to Plan For.
  • Background on why this topic is so important. 
  • A couple of important disclaimers before we dive into the first risk: longevity risk.
  • Viewing your retirement as half-time.
  • Setting realistic expectations and planning as best as you can.
  • Lifetime income: a careful analysis of Social Security claims and strategies.
  • Options for taking out annuity payments.
  • Thinking about your withdrawal strategy to mitigate longevity risk.
  • The risk associated with inflation.
  • Defining what a bond ladder is.
  • Why social security is one of the most important things to evaluate in retirement.
  • How higher rates of inflation have influenced Tim and the planning team’s models.
  • Whether or not there should be a glide path from a work perspective.
  • Excess withdrawal risk: depleting your portfolio before you die.
  • A quick recap of the bucket strategy.
  • Healthcare risk: facing an increase in unexpected medical expenses in retirement.
  • Different Medicare plans: Part A, B, C, D, and Medicare Advantage plan.
  • Long-term care risks, misconceptions, and potential solutions.
  • The tough conversations we need to have. 

Episode Highlights

“You get to the end of the rainbow and you have hundreds of thousands of dollars, millions of dollars. The question is how do you turn these buckets of assets into a sustainable paycheck for an unknown period of time?” — @TimBakerCFP  [0:04:02]

“Longevity risk is the risk that a retiree will live longer than – they expect to. What this really requires is a larger stream of lifetime income.” — @TimBakerCFP [0:06:48]

“There’s a whole other race to run after your career.” — @TimBakerCFP [0:09:44]

“The more flexible you can be with your withdrawal rate, the greater the portfolio sustainability will be.” — @TimBakerCFP [0:18:15]

“Essentially, in retirement, inflation could erode your standard of living.” — @TimBakerCFP [0:21:57]

“Abrupt retirement sounds sweet, but in reality, it’s really hard.” — @TimBakerCFP [0:29:37]

“It’s less about the actual return and more about the sequence of when that return comes that can affect the sustainability of [your] portfolio.” — @TimBakerCFP [0:35:55]

“You don’t want to get to a point where you’re having to go through the courts to get the care that your loved ones need. If you can avoid that at all costs, even if it means having an uncomfortable conversation – I think it’s needed.” — @TimBakerCFP [0:48:07]

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, where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, Tim Baker and I kick off a two-part episode on 10 Common Retirement Risks to Plan For.

When planning for retirement, so much attention is given to the accumulation phase, but what doesn’t get a lot of press is how to turn those assets into a retirement paycheck for an unknown period of time. When building a plan to deploy your assets during retirement, it’s important to consider various risks to either mitigate or avoid altogether. That’s what we’re discussing during this two-part series, where today we cover the first five common retirement risks, including longevity risk, inflation risk, excess withdrawal risk, unexpected health care risk, and long-term care risk.

Now, make sure to download our free guide that accompanies this series, that guide being the 10 common retirement risks to plan for, and you can get that at yourfinancialpharmacist.com/retirementrisks. This guide covers the 10 common retirement risks you should consider and 20-plus solutions on how to mitigate these risks. Again, you can download that guide at yourfinancialpharmacist.com/retirementrisks.

All right, let’s hear from today’s sponsor, First Horizon, and then we’ll jump into my conversation with YFP Co-founder and Director of Financial Planning, Tim Baker.

[SPONSOR MESSAGE]

[0:01:24] ANNOUNCER: Does saving 20% for a down payment on a home feel like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities, including high student loan debt, meaning that saving 20% for a down payment on a home may take years. We’ve been on a hunt for a solution for pharmacists that are ready to purchase a home loan with a lower down payment and are happy to have found that option with First Horizon.

First Horizon offers a professional home loan option, AKA doctor or pharmacist home loan that requires a 3% down payment for a single-family home, or townhome for first-time home buyers, has no BMI, 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.

[EPISODE]

[0:02:36] TU: Tim Baker, welcome back to the show.

[0:02:38] TB: Good to be back, Tim. How’s it going?

[0:02:39] TU: It is going. We have an exciting two-part series planned for our listeners on 10 common retirement risks to avoid. I think as we were planning for this session, just a lot of depth and great content, that we want to make sure we do it justice, so we’re going to take five of these common retirement risks here in this episode. We’ll take the other five next week. Tim, just for some quick background, one of the things we’ve talked about on the show before is so much attention is given when it comes to retirement, is given to the accumulation phase as we’re saving, especially for those that are maybe a little bit earlier in their career.

It’s save, save, save. But I even think for all pharmacists in general, that tends to be the focus, but we don’t often think about, what does that withdrawal look like, both in the strategy, which we talked about on the show previously, but also in what could be some of the risks that we’re trying to mitigate and avoid. Just give us some quick background on why this topic is so important as we get ready to jump into these 10 common mistakes.

[0:03:39] TB: Yeah, I think to your point, I think a lot of the, even the curriculum in the CFP board standards is very much focused on the accumulation phase of wealth building. I think there’s a lot of challenges and a lot of risks that you have to deal with during that phase of life and during that phase of wealth building. But I think what doesn’t get a lot of the press is like, okay, you get to the end of the rainbow and you have hundreds of thousands of dollars, millions of dollars. The question is, how do you return these buckets of assets into a sustainable paycheck for an unknown period of time?

While navigating a lot of these risks, I don’t know if it’s risk avoidance, Tim. I think it’s just planning for the risk. We’re talking about avoiding risk. Some of these, you can’t really avoid. You just have to plan for it. I think that what we’re finding is, I think the whole general rule of like, “Oh, I’ll get to the end and I’ll have a million dollars and I’ll put 4%, $40,000 a year for the rest of my life.” There are a lot of pitfalls to that. I think that hopefully, this discussion shines a light on some of that. I think it is just important because we think that the – the hard part is, hey, I just need to put assets aside, but I think equally as hard as, okay, how do I actually deploy these assets for a wealthy life for myself in retirement?

[0:05:04] TU:  Yeah, good clarification, right? Some of these, as we talked through the 10. Avoidance isn’t necessarily possible. It’s the planning for, it’s the mitigation, minimizing the impact, however, we want to say it. I think, what you articulated is just spot on, right? I think when it comes to retirement planning, saving for the future, we tend to view that nest egg number, whatever that number is, 3, 4, 5 million dollars, whatever is the finish line. So many other layers to consider there.

Not only getting there, which again, we’ve talked about on the show previously, and we’ll link to some of those episodes in the show notes and the strategies to do so, but how do you maintain the integrity of that portfolio? How do you optimize the withdrawal of that portfolio? If we’re doing the hard work throughout one’s career to be saving along the way, we want to do everything we can to get as much juice out of that as possible.

That’s the background as we get ready to talk through some of these 10 common retirement risks to plan for. Just a couple of important disclaimers; We’re not going to talk about every retirement risk that’s out there, of course, Tim, so there’s certainly more than 10. You’ll notice them overlap as we go through these. This is not meant to be an all-encompassing list. Of course, this is not advice, right? We obviously advocate that our listeners work with a planner, no matter what stage of your career that you’re in to be able to customize this part of the plan to your personal situation.

For folks that are interested in learning more about our one-on-one financial planning services, our team of certified financial planners and tax professionals, you can go to yfpplanning.com and book a free discovery call to learn more about that service.

All right, Tim. Let’s jump off with number one, which is longevity risk. What is that risk? Then we’ll go from there and talk about some potential solutions.

[0:06:48] TB: Longevity risk is the risk that a retiree will live longer than what they expect to. What this really requires is a larger stream of lifetime income. We’ll talk about that in a second. The hard part about this whole calculation, Tim, is that there are lots of unknown variables. Unfortunately, or fortunately, I guess the way – depends on how you look at it, I don’t know when I’m going to pass away. Social Security obviously has a good idea of what that is. When I was preparing for this episode, Tim, I looked at, I went onto socialsecurity.gov, and put in my – basically, my gender and my birthday. It comes back with a table and it doesn’t factor in things like health, lifestyle, or family history. But it essentially says that for me at 40 – oh, man, it’s tough to look at that, Tim. 40 years old in 10 months, that my estimated total years, I’m halfway there.

[0:07:47] TU: Halfway. I was going to say. Yeah.

[0:07:49] TB: I’m 81.6. Now, once you get to age 62, then it starts to go out. At age 62, it says I’m going to live to 85. If I make it age 67, then it says, hey, I’m going to live to 86 and change. Then at age 70, which is when I think I’m going to retire, Tim. That’s my plan, at age 70, 87.1 years. I think that for a lot of people, this is an unknown. I overlay like, okay, when did my grandparents pass away and things like that.

Some general stats, one in four will live past age 90 and one in 10 will live past age 95. I think these stats fly a bit in the face of Social Security, but maybe not. I think they factor some of this in. One of the big discussions that we have in our community is like, what should we plan to? What should we plan to? Should it be age 90? Should it be to age 100? We default to 95, which is right in the middle. For me, being in my 40s, it says 87.1-years-old.

I think, this unpredictable length of time really puts a huge unknown out there in terms of like, okay, because there’s a big difference between I retire at age 70 and I pass away at 87. That’s 17 years of essentially, senior unemployment retirement. Or if I live to 100, which is another 13 years. It’s huge. I saw a visual table recently, not to go on too much of a tangent, but it was like, your youth and then your college years was – If you imagine a square, was a shade on the square and then your career and then your retirement and your career and retirement in this visual were pretty close.

[0:09:33] TU: Which we don’t think about it like that, or I don’t, at least.

[0:09:36] TB: No, I don’t either. But I saw that. I’m almost eyeballing them, like, they’re pretty close. People think of like, “Oh, rat race and things like that,” but there’s a whole other race to run after your career. I think we overlooked the time on that. I do think that people will, because especially with a lot of the economic things people may be joining the workforce later, starting families later, maybe starting to save later, we’re living longer that it could push everything to the right a little bit. I think that could be one of the things that they do with Social Security is that maybe we don’t get our for retirement age of 67, then we get the for all credits at 70. Maybe they push those back a little bit. But it’s still a long time, Tim, is what I’m saying.

[0:10:23] TU: Yeah. It really is. As you’re sharing, Tim, it reminded me of a great interview I had with a retired dean and faculty member, Dave Zgarrick on episode 291. He talked about exactly what you’re saying in terms of that timeline perception. He was really encouraging our listeners to reframe your retirement date as essentially, half-time, right? We’ve got some opportunities to reset, reframe, and figure out, but it’s not the end of the game. There’s a whole other half that needs to be played. Obviously, here, we’re talking about making sure that we’re financially prepared for it, but there’s certainly much more to be considered than just the financial side of this as well.

I think the piece here that really jumps out to me, Tim, when people think about longevity risk is there’s really a lot of fear that I sense from individuals of – and the last thing I want to do is run out of money. I don’t want to be a burden to my family members. I really want to make sure I plan for this. The challenge, I think, here is there’s a balance to be had, right? We also don’t want to get to the end of our life and we’ve been sitting on this massive amount of money that maybe it’s been at the expense of living experiences along the way. I think this is just a really hard thing to plan for. To your point, I think a general number is a good place to start. So much of this literature on longevity comes down to family history, lifestyle, and other things that are going to help inform this.

[0:11:44] TB: I don’t think that you can – oftentimes, when we work with particularly younger pharmacists, we’ll get to a point and they’re like, “Hey, I got it from here. I’m good.” It’s almost like, they chunk the next five or 10 years of their life is autopilot. I always be – if I look back at the last five or 10 years of my life, it’s been anything but that. What I would say to, even in retirement, you have to take it year by year and you have to assess this year by year. I think, hitting the easy button and saying, okay, for the next five or 10 years, it’s going to be like this, is not great for your plan, right?

I think that’s probably if we talk solutions, we’re probably going to say this on repeat with a lot of these is like, you have to plan for this as best you can. Whether it’s set in a realistic expectation. For me, I think it would be irresponsible for me to say like, okay, 87 years old. I’m going to retire at 70, have set – and again, we’ll talk about this, too, is I might not retire at 70. I might have to retire a lot sooner than that. If I say, “Hey, 70.” Then I have to plan for 17 years, I think that would be really irresponsible. I think, set in realistic expectations in terms of life expectancy. Consider personal and family health history.

I think, you do pay a price, Tim, for a longer plan horizon, to your point, because you need more resources, which means that you have to save potentially more in your accumulation phase. Then when you’re in retirement, you have to be more conservative with what you’re withdrawing. That could lead to, again, you forgoing things today for a longer future, I guess, or being all sustained. That’s definitely one thing. It’s just, how do you best plan for that longevity?

[0:13:32] TU: You know, the other thing that’s coming up for me, Tim, as you’re just sharing this solution around planning for longevity is if folks end up erring on the side of your example, right? Social Security says one number. Maybe we’re planning 10 years further than that. Then there’s an interesting – certainly, you’re mitigating one risk, but you’re also presenting another risk, which is potentially having excess cash at the end of life, which obviously, there has to be planning done for that. What does that mean for the transfer of assets? Is there philanthropic giving that’s happening?

Then there’s a whole tax layer to that as well, right? In terms of, how are the taxes treated on that if we’re planning, perhaps, to not die was zero, but we may have additional funds that are there at the end of life. Just another great example, I think, of where financial planning comes together with the tax plan, and obviously, everyone’s situation is going to be different.

[0:14:21] TB: Another solution that would bring up for this risk, Tim, would be lifetime income. This is where I think, really a careful analysis of Social Security claims and strategies is needed. Because I think a lot of people, they’re like, “Okay, I’m 62. I’m eligible for my Social Security. I think, my parents died at 80. Probably going to die right there.” There’s a lot of things that I think we just blow through. One of the biggest retirement decisions is just going to be this decision on how and when you’re going to claim. Social security is a lifetime income. If you start claiming at 62, you’ll get that until you pass away. Start claiming at 70, and you’ll get a much greater benefit until you pass away.

There are not very many sources of income like that. Pensions might be another thing, but that would be one of the things that we would want to make sure that if we need X per month, or per year, a good percentage that is lifetime income, meaning not necessarily out of your portfolio, on a 401k.

Another way to do this is to transfer the risk of longevity to an insurance company by purchasing something like an annuity, so you can provide protection from the risk of dying young by purchasing a term certain. You could say, “Hey, I want this annuity to pay me for a lifetime and I’ll get a lesser amount, or for the next 10 years and I might get a higher amount.” But a lot of people are really not crazy about that, because they could give an insurance company $100,000 and then get one or two payments and die the next month or whatever. There are refund riders and things like that, so I think looking at that is something that definitely in the lifetime income.

I think, one of the things that people don’t know of, is if you have a 401k, a lot of people, they’ll take a lump sum and they might put it into an IRA. One of the things that you could do is take annuity payments for life out of that plan. What they essentially do is go out, most of the time they go out and buy an annuity for you. That’s a way to do it, instead of taking a lump sum, you can buy, basically, annuity payments from a 401k, that type of 403b. You can get lifetime income from insurance contracts, so cash value, life insurance, death benefit, there’s an annuity option.

This can even be true for a term policy. If I pass away and shay, most times will elect a lump sum, but you can say, “Hey, I want this payment for life, or for X amount of years.” Those securities are probably going to be the biggest ones, but then an annuity or something like that would probably be a close second to provide lifetime income for you to negate some of the longevity risks that’s there in retirement.

[0:17:04] TU: Yeah, a couple of resources I want to point our listeners to episodes 294, 295, you and I covered 10 common social security mistakes to avoid, along with a primer we did back on episode 242 of Social Security 101. Really reinforces what Tim’s talking about right here. Then we covered annuities on episode 305, which was our understanding of annuities, a primer for pharmacists. Certainly, go back and check out those resources in more detail. Probably lots of avenues to consider, but any other big potential solutions as people are trying to mitigate this longevity risk?

[0:17:37] TB: I think, probably the last one, and I mean, there are others, but probably the last big one I would bring up is probably, what is your withdrawal strategy? We’ve mentioned the rule of thumb of 4%, but I think that’s limited in a lot of ways. One is a lot of those studies are based on a finite number of years, i.e. 30 years from age 65 to 95, and we know that people are living beyond that 30 years that that’s been planned. That’s one thing.

For longer periods, the sustainable withdrawal rate should be reduced, but typically, only slightly. What’s left out of that, the 4% study is flexibility. The more flexible you can be with your withdrawal rate, the greater the portfolio sustainability will be. When the portfolio is down, and you can withdraw less, that allows you to sustain the portfolio a lot longer. Then, I think, the other thing that’s often overlooked with this is that typically, and we’ll talk about sequence risk, but typically, once you get through that eye of the storm retirement risk zone, you want to start putting more equities back into your portfolio.

I think, just the proper allocation strategy, which is where you’re considering portfolio returns, inflation, what your need is, what your flexibility is. Again, I think that becomes a lot easier, or palatable if you have, say, an income floor, or if you have a higher percentage of your paycheck coming from Social Security. All of these things are kind of, just like systems of the body are intertwined, but just your withdrawal strategy and allowing for that to sustain you for a lifetime is going to be very, very important along with some of the other things that we mentioned.

[0:19:19] TU: Yeah. Tim, I think there are a couple of things there that are really important to emphasize, that I think we tend to overlook when it comes to the withdrawal strategy. One of which you mentioned was that flexibility, or the option to be flexible on what you need. When we show some of these examples, we just assume, hey, somebody’s going to take a 3%, or 4% withdrawal every year, but depending on other sources of income, you’ve mentioned several opportunities here, depending on other buckets that they have saved, right? That flexibility may, or may not be there, which ultimately, is going to allow for us to be able to maximize and optimize that even further. All right, so that’s number one, longevity risk.

Number two is inflation risk. Tim, I think this is probably something that maybe three, four, five years ago, people were asking, hey, what inflation? Obviously, we’re living this every day right now. We’ve seen some extremes, although our parents would say, we ain’t seen nothing yet from what they saw growing up. What is the risk here as it relates to inflation?

[0:20:16] TB: We’re going to talk about inflation a few times in this series. What we’re talking about with regard to this risk is this is really the risk that prices of goods and services increase over time, right? The analogy or the story I always give when I talk about investments is that the $4 latte that you might get from Starbucks in 2020, 30 years might be $10, $11, or $12. If you look back at, I would encourage a lot of people that, hey, I had a conversation like this with my parents like, “What did you buy our house back in New Jersey?” I think they said, it was $41,000.

Now, when they – because they were – we were talking about what we bought our house at and the interest rates are like, it’s unbelievable. They don’t understand. I think this is a huge thing, especially with retirees, you’re thinking, or you’re dealing with a fixed income, more or less. The larger percentage of your income that’s protected against inflation, which social security is, which is another reason that it’s also very valuable is because it’s lifetime, but then basically, it gets adjusted by the CPI.

When you work, Tim, inflation is often offset by increases in salary, right? The employer has to keep pace as best they can –

[0:21:42] TU: Hopefully. Yeah.

[0:21:43] TB: Yeah. Or they’ll lose talent. In retirement, inflation reduces your purchasing power, so you don’t have an employer to raise. Now, like I said, you can think of social security like that, because they’re going to do that adjustment every year. But essentially, in retirement, inflation could essentially erode your standard of living.

Again, the first solution here is to plan for this. I would throw taxes in here, but even inflation is often overlooked in terms of like, how do we project these numbers out? What is a realistic estimate of inflation over the long term? I would encourage you, again, I’m a financial planner, so I’m biased, but I think using software and accounting for inflation almost by category of expense. We know that things like medical expenses, and the inflation for medical expenses is going to outpace a lot of other things, whether it’s fuel, utilities, or food, that type of thing.

That would be the big thing. I think overlaying some type of inflation assumption into your projections and seeing how that affects your portfolio, your paycheck is going to be super important. Another solution to this, Tim, would be going back to longevity. We talked about lifetime income. I’m going to say, not necessarily lifetime income, but inflation and adjust in income. Social Security, again, is the best of this. That we saw last year, I think it was – someone might have to correct me. It was like, 9% year over year. That’s pretty good.

If you were to buy an annuity, a lot of insurance companies won’t offer a CPI rider. They might say, “Hey, your payment in your annuity, you can buy a rider, which is going to cost a lot of money,” that it says, it’ll go a flat 2% or 3%. The insurance companies are not going to risk saying, “Okay, it’s with whatever the CPI is, because they’re not going to be able to price that accordingly.” Inflation-adjusted income.

Some employer-sponsored plans, like a pension, could offer some type of COLA increase. This is more typical in government pensions, government plans than it is with private plans. Like I said, you can purchase a life annuity with a cost-of-living rider, but it’s typically very limited and very, very expensive. You might get, for kicks, Tim, these are just round numbers. You might say, “Hey, give me straight up $1,000 as my benefit.” But if I add a, COLA rider, or something like that, it could cut it down to $800. Again, that’s not real numbers. That could be the cost there.

Then the last thing for this is to build a bond ladder using tips. A bond ladder is essentially, and we could probably do a whole episode on this, Tim, but a bond ladder would be, hey, basically, I want to build 10 years of income, say. Let’s say, I’m retiring in 2024, or let’s say, 2025. My first bond ladder might come due at the end of 2024. Then that’s going to give me $30,000 or $40,000. At the end of 2025, going in 2026, the second run of my bond ladder is going to pay me and basically, do that for the next 10 years.

Then essentially, what you do is you try to extend that ladder out. You might go to year 11, might go to year 12 as you’re spending that down. A good way to do that is with tips, which is an inflation security, an inflation-protected security. That’s one way to inoculate yourself from the inflation risk.

[0:25:14] TU: I looked up Social Security while you were talking there, you’re spot on. 8.7% in 2023. Yeah, that’s significant, right? I think especially for many folks and hopefully, as our listeners are planning, that won’t be as big of a percentage of the bucket for retirement. The data shows that across the country, it really is.

[0:25:33] TB: Yeah. I think, again, I think, when we’ve gone back to my own, it was something like, if I claimed at 62, I have to remember the numbers. If I claimed that 62, my benefit would be $2,500. If I claim at 70, I think it’s over $4,000.

[0:25:49] TU: Something like that. Yeah.

[0:25:50] TB: But then, if you then tack on the inflation on that, it’s just huge. Again, I think, that is going to be one of the most important things that you evaluate in retirement is the social security stuff.

[0:26:01] TU: One of the other thoughts that have gone to mind, Tim, as you were talking with inflation is just rates of return. We tend to, at least on a simple high level, right? We think of rates of return and a very consistent 7% per year. We know the markets don’t obviously act like that. We have huge ups, huge downs. We’re seeing that with inflation as well, right? We tend to project 2%, 2.50%, and 3%. But we lived in a period where inflation was really low. Obviously, we’re now seeing that bump up. My question for you is, as you beat this up with the planning team like, has this period of high inflation, at least higher than what we’ve seen in our lifetime, has that changed at all? Some of the modeling, or scenarios that you guys are doing long term?

[0:26:42] TB: I think, we’ve ticked it up a bit. I definitely think it’s probably too soon to say like, hey, for the next 30 years, we got to go from 3%, which has typically been the rule of thumb, to 5%. I think as we get a little bit further from quantitative ease in and putting a lot more money in circulation and we’re seeing the result of that, that I do see some modification of models and that’s going to be needed.

One of the things that the government and the Fed try to do is keep inflation at that 3%. I just don’t know if they’re going to be able to – the new norm might be keeping it as close to 4%, or 5%, right? I would say for me, and again, I try to keep on this as best I can, but I think for me, I think it’s a little too soon to tell. To your point, the reality is that I would say, less so for inflation, because I think there is a little bit of the thumbs on the scale with the government and the Fed, but we do see fluctuations in market returns. We’re seeing now more fluctuation in inflation.

I think, a lot of what I’m reading is that we’re probably at pretty much the end of rates going up. But I’m interested to see is like, okay, when they start to potentially reverse, or normalize, what is the new normal? I think if you put as much money in circulation as we have, I think this is one of the side effects, and we’re paying for that now.

[0:28:15] TU: The thing that’s coming to mind here as you’re talking about inflation risk and even tied to longevity risk is we often assume retirement is a clean break, right? You were working full-time, you’re no longer working full-time. For many folks, either based on interest, passion, or financial reasons, there could very well be some type of part-time work, right? Whether that’s consulting, whether that’s part-time PRN work, or whatever. To me, that’s another tool you have in your tool belt, when you talk about inflationary periods, or what’s happening in the market and whether or not we need to draw from those funds. Having some additional income, if you’re able and interested, could be an important piece of this puzzle.

[0:28:57] TB: We often think of a glide path in retirement. Meaning that, the closer we get to retirement, the less stocks we have, the more bonds we have, safety, that type of thing. I think, we have to start talking more about a glide path, like a work perspective, where you go from 1 to 0.8 to 0.6 to 0.2, or whatever. Then maybe, it’s just 10.99 PRN, or something like that. This is for a variety of reasons. It’s for the reasons that you mentioned market forces, and inflationary forces, I think even more so for mental health.

[0:29:29] TU: Mental health. Yeah, absolutely.

[0:29:31] TB: IR, like we talk about our identity and role and things like that and a soft landing. I think, abrupt retirement sounds sweet, but I think in reality, I think it’s really hard for, if you’ve been in the workforce for 30 years and there might be people that are like, “Nope. You’re crazy, Tim.” I talked about this and some retirees will probably roll their eyes. When I took my sabbatical, it was just a month, right? It wasn’t a ton of time. I literally was like “All right, I’m not going to touch work.” I’m like, “What am I doing?”

I guess, my thought process was I could see how it could be where you’re directionless, right? I spent a lot of time planning for just that month and I’m like, it was an interesting test case for me to be like, all right, I just need to make sure that when I’m positioning myself, I still have availability for meaningful work and other interests and things like that. Yeah. I mean, everything that you read is that the best thing to combat a lot of these risks is actually not to retire. It’s to work or work at a reduced – If you’re working and you’re not drawing on your portfolio, then problem solved. Obviously, we know that’s not necessarily the best solution.

I think, having the ability to do that, there’s from a mental health perspective and a lot of these other reasons. I think pharmacists in particular are positioned with their clinical knowledge and things to do things with their PharmD that provide value in retirement and that are not necessarily stressful, or strenuous. So — 

[0:31:04] TU: Yeah, I think that feeling of contribution is so important. I just listened to a podcast this week with Dr. Peter T on one of my favorite podcasts, The Huberman Lab Podcast, and he was talking exactly about longevity and some of the risks to longevity in that context of mental health. He was talking about the value of contribution, the value of work. I think for all of us, it’s natural in those moments and seasons of stress. That feeling of contribution can get overlooked, right? I mean, I think it’s a natural thing to feel. Really, really good discussion. I think, it highlights well. We’re obviously talking about X’s and O’s in terms of dollars. But when it comes to retirement planning, so much more than that.

Number three, Tim, we talked briefly about, but we can put a bow on this one, would be excess withdrawal risk. Tell us more here.

[0:31:52] TB: Yeah. This is really just that you’re withdrawing at a rate from the portfolio that will deplete the portfolio before you die. Which is one of the biggest fears and one of the biggest risks is like, “Hey, I just want to make sure that I have enough money to last me throughout retirement.” I think, the biggest thing again for this is to have a plan, have a strategy and be flexible with that plan.

There are ways that you can build your retirement paycheck, and we’ve talked about this before, where it’s coming from a variety of sources. At the end of the day, there is still going to be a portion of your paycheck, the retiree, you are pulling the string. You’re saying, “Okay, I’m going to get X amount from Social Security, potentially X amount from maybe a floor, an annuity, but then the 60%, or whatever it is has to come from these buckets that I’ve filled in the accumulation phase.” Like I said, the default that a lot of people use is, hey, it’s the 4% rule. There are other strategies, like [inaudible 0:32:54], guardrails that are more, look at market forces, look at inflation, and then basically, adjust your portion of your paycheck accordingly.

If you do that consistently and you stick to that plan, you’ll basically see the portfolio sustained for 30-plus years. I think that’s probably the big thing that in all the research says is that if you can adapt your spending, which is hard, right? It’s hard for us to do that in the accumulation. It’s often hard for us to do that in retirement, but if you can adapt your spending with the ride the roller coaster of market volatility inflation, it lands in sustainability. We’ve also talked in the past about the bucketing strategy. You make sure that you have the next five years, basically, in very CDs, money markets, very safe investments. Then that allows you to inoculate, at least for the next five years to do more mid-risk type of investments. Then for those 15-plus years, more risky investments with regard to the portfolio.

The bucketing strategy is just a take on the systemic withdrawal strategy but allows the retiree to understand more and compartmentalize and say, “Okay, if I have the next five years planned out, if I need 40,000 times five years, I had that in that bucket. I don’t really care what the market does. If the market goes down today, I know that in most cases, it’s going to recover in the next three and a half, four years and we’re good to go.”

Again, a lot of people, I think will say, “All right, well, this year, regardless of what’s going on in the world, I need this. Then the next year –” Then they wake up and they’re like, “Man, I had a million dollars, seven years in retirement, I have 200,000 left. This is no bueno.”

[0:34:51] TU: Yeah. Another important point you’re bringing up here and you mentioned earlier in the show, I think we tend to oversimplify, especially when we’re thinking accumulation of, “Hey, I’m going to save two, three, four million dollars. Maybe I’m going to be moderately aggressive, or aggressive. Then I retire.” We don’t think about what is the aggressive to moderate to non-aggressive strategies of investing in retirement, right? We’re not taking a portfolio of two, three, four million dollars, and also just moving it into something that’s liquid. We still have to take some calculated risks, to your point earlier, that we’ve got potentially a long horizon in front of us.

Tim, what I think about is the double whammy of potentially, when you retire, which depending on where the markets are, you may or may not have control of that. I think about people that may have retired pre-pandemic, not knowing what was coming and then the markets did their thing. The double whammy I’m referring to is if you retire and start withdrawing at a period where the market’s down significantly and you’re dependent on that draw, we’ve got a double effect of what we’re getting hit there.

[0:35:52] TB: Yeah. We’ll get into more of that in the sequence risk, in terms of, it’s less about the actual return and more about the sequence of when that return comes. That can affect, basically, the sustainability of that portfolio.

[0:36:06] TU: Since you mentioned the buckets and building retirement paycheck, as you call that, we did cover that previously, episode 275. We’ll link to that in the show notes. That was one of four episodes that we did, 272 through 275 on retirement planning. All right, so that is number three, excess withdrawal risk. Tim, number four on our list is unexpected healthcare risk. Tell us more here.

[0:36:29] TB: Yeah. This is the one we haven’t really covered much. We probably should give it a little TLC, maybe in future episodes. I think that Medicare and the decisions around Medicare is also another huge decision to make in retirement. This is the risk of facing an increase in unexpected medical expenses in retirement. One of the things that people often get wrong is that it’s like, okay, I qualified for Medicare at 65, I’m good. All my medical costs will be taken care of. That’s not true.

The decision of when to enroll and whether to choose the original Medicare or Medicare Advantage plan, choosing the right Part D plan for drug prescription is really going to be important. The figures, they’re not overly impressive, Tim. In 2019, they said, the average male at age 65 is going to spend about $79,000 to cover medical, or healthcare costs in retirement.

[0:37:25] TU: That’s lower than I would have thought, to be honest.

[0:37:26] TB: Yeah. Now, I think it goes out – I mean, again, you can see for if you look at the tables, what did it say for me at 65? I was going to live to – does it have at 62 to 67. Let’s say, it’s another 20 years. Yeah, it seems low to me. I mean, females, age 65 is a lot more, a $114,000 to cover healthcare expenses in retirement. It doesn’t seem a lot in terms of your – it is outside of housing. It’s going to be one of the bigger things, especially when you’re in the phase of older retirement.

I think, probably the default here is how – it goes back to planning and understanding what’s available to you. I think, choosing the appropriate insurance is going to be important. One of the things, and we’ll talk about this in the next for us, but a lot of people think that long-term care is covered by Medicare. It’s not. Another thing that a lot of people don’t know is that Medicare doesn’t have a cap on out-of-pocket expenses. If you have large amounts of medical expenses, you could be paying in perpetuity, that’s where a supplemental plan, or a Medigap plan will be important.

Part A, to break these down, covers a lot of hospital visits and inpatient stuff. Part B is more, I think, outpatient, like covers medical necessary services, like doctors, service and tests, outpatient care, home health services, durable medical equipment, and that type of thing. Then part C is going to be the drug. Then there’s going to be lots of variations of part D. Then what people then assess, Tim, is, should I get a supplemental plan, or a Medicare advantage, which is not to say under traditional Medicare, but it’s more of a reimbursement through a private medical, or private insurance company.

This is one that I think that is often overlooked. It’s hard because every state and area of the country is going to be different. What you can get if you’re a resident of Florida is going to be different if you’re a resident of New Jersey or Ohio. I think, going through this and probably on an annual to reassess is going to be an important part of making sure that you’re mitigating, as much as you can, the risks of those increased, or unexpected medical expenses while retired.

[0:39:44] TU: A couple of things are coming up for me, Tim, here. Obviously, one would be, if we’re factoring this into the overall portfolio nest egg. Certainly, that’s one strategy. The other thing I’m thinking about, if folks have access to an HSA and are able to save in that long term, without needing those for expenses today. Obviously, if you need them, you use them. That’s what it’s there for. If not, the opportunity is for these to grow and to invest and invest in a tax-free manner, such that it could be used for six-figure expenses right in retirement.

We’ve got an exciting – October is all going to be about healthcare insurance costs. We’re going to have several episodes all throughout the month. One of which is going to be focused on Medicare. We’re also going to be talking about healthcare insurance for those that are self-employed. Then we’ll be talking about open enrollment, other topics as well. Looking forward to that, that series that we’re going to do in October.

Tim, number five on our list, which will wrap up our part one of this two-part series is long-term care risk. Now, we did talk about long-term care insurance previously on the show. That was episode 296, five key decisions for long-term care insurance. You just mentioned not something that Medicare is going to cover. Tell us about this risk and potential solutions.

[0:40:56] TB: Yeah. This is the risk of essentially, not being able to care for oneself. It basically leaves you dependent on others to perform, or help you perform the activities of daily living. These ADLs are called activities of daily living, are bathing, showering, getting dressed, being able to get in and out of bed, or in and out of a chair, walking, using the bathroom, and eating.

Typically, if you need help with two or more of these things, this is typically where a long-term care insurance policy will actually trigger. These could be cause for a variety. It could be chronic diseases, orthopedic problems. Alzheimer’s is probably the biggest one that is the biggest threat for this particular risk. Planning for this is huge. It’s funny, Tim, because – not funny, but it’s interesting is that this is one of the risks where it’s like, it’s not me, right? It’s someone else. Most people see this as an important thing to plan for, but not necessarily for themselves.

The reality of the situation is that in most cases, family members will provide the care, which is about 80% of the time in the home, which is unpaid care, averaging about 20 hours per week. If you imagine that, Tim, if that were laid at your feet, how that could affect your health, your finances, just your career. That’s the effect that it has on the family. Like I said, most people think that Medicare covers long-term care costs. It doesn’t. Many people think that this is a risk, or a concern in retirement, but not necessarily for them, it’s for somebody else.

I think, one of the misconception is like, if you look at things like insurance, a lot of people think, “Hey, it’s too expensive.” In that, I think, that reputation is probably earned, because I think when they first priced these policies, when they first came out, there were a lot of policies that were not priced expensive, or the right way, so they got more expensive year over year. There was a study that said that less than 10% of people that were age 65 and older had long-term care.

Really, the need is not as long as you think. The average time that a male needs long-term care is about a little bit more than two years. For females, a little bit less than four years. Solutions for this is plan for this. Understand what are the risks and costs associated with it. Again, every state is going to be different in terms of what these costs and what is the cost for something like, anything from being able to age in place and have care given in your home, to a nursing home. Understand, what is that in your area? How do you want to pay for long-term care? I mean, how do you want that care delivered?

A big part of this is just getting organized with, okay, if this were to happen, where can we get this money from? Is it insurance policy that we purchased? Is it family members? Is it something like a reverse mortgage? Are there government programs, like if you’re a veteran, there’s some programs for that. Could be Medicaid. That is a program that’s probably the largest funding source of long-term care, but you have to be impoverished to do so. A lot of people will purposely spend down their estate to become impoverished, to get care, which there’s a lot of hoops and things that you have to be careful of.

But insurance is probably, and I know we did an episode on this is like, that’s another one to really look at is when to purchase a lot of people, we should really start talking about this in late 40s and purchase in your 50s. I think 55 is the average, if I’m not mistaken. If you wait longer than that, Tim, that’s when you have increased instances of the coverage being denied and it gets really expensive. You have to thread that needle a bit. What is the amount needed? 

I think at a minimum, we should be pricing and we say, okay, for us to be able to age in place, so have someone come in 20 hours a week, five days a week, or whatever that looks like, is that $3,000? Is at $6,000? Find that number and be able – A lot of the study says, the longer that you can stay in your home and not in a facility, the better. What’s the amount? Is that inflation-protected? What’s the elimination period? Is it a straight-up long-term care insurance plan? Or is it linked to an annuity purchase or a life insurance purchase?

Or if you go through all that, you’re like, “You know what? I got this and we sell fund, which is probably the most popular sell fund with the family as ad hoc caregivers.” Unfortunately, I think that’s really more of a lack of planning than anything. But that is a solution as well to say, okay, if that’s the case, again, looking at funding sources and things like that. This is another thing that I think is often overlooked, because, I think, some of the misconceptions about long-term care. But if you can get a policy that pays you $3,000, $4,000, $5,000 a month for care, to be able to stay in the home, I think for a variety of reasons, that’s worth looking into.

[0:45:57] TU: Yeah, Tim. I agree. I think that this is often overlooked, perhaps from a misunderstanding, or evaluating the risk. The other thing that comes up for me often here is just the difficult conversations that need to be had to really navigate this. We just, a few episodes had back on the show, Cameron Huddleston, who is just fantastic. She wrote, Mom and Dad, We Need to Talk, how do you navigate difficult financial conversations with parents? Some listening to this are thinking about it for themselves, certainly. Others may be working with aging parents and trying to navigate these conversations.

Who wants to initiate a conversation of, “Hey, Mom and Dad, what are you doing for long-term care insurance?” Or, maybe that age window has passed, where a policy makes sense. Now, we’re back to, okay, what’s the game plan? What does this look like financially? What does this look like in terms of the ability of our time to be able to care and care well? I think, there’s just a lot to navigate here that is not just financial, but that is emotional as well. She does a great job in that book, in the episode, we just recorded as well, of how do you initiate these conversations in a loving and respectful way? But more than anything, to get out in front of the planning. Again, whether you’re planning for yourself, whether you’re planning for aging parents, so important to be thinking about this.

[0:47:14] TB: This is a little teaser into our next few risks that we’ll cover in the next episode, in terms of just tough conversations that need to be had, so we can prevent things happening in the future. It’s just a byproduct of old age and being able to care for oneself. That can be hard to broach those subjects with your children, even adult children. There’s some vulnerability. I think, just the way you approach that, and obviously, people have different relationships with parents, and some people are really close. Some people brought up in a house where you don’t talk about money, you don’t talk about some of these things. It can be really hard.

I think, one of the things that really stuck with me with Cameron’s work and her writings is like, you don’t want to get to a point where you’re having to go through the courts to get the care that your loved ones need. If you can avoid that at all costs, even it means having an uncomfortable conversation, or maybe it’s not a conversation, maybe it’s a letter to break the ice and you go from there, I think it’s needed.

[0:48:25] TU: Yeah. Whether it’s the courts, or in her instance, and we’re going through this right now with my grandmother as well. But in Cameron’s instance, she had a mom who is struggling with memory loss and Alzheimer’s that her message, and one of her main messages, hey, you want these conversations and planning that be happening before those instances are in question, where you’re now dealing with more challenges of, is someone in the right state of mind to be able to make those decisions, and what are the legal implications of that?

Great stuff, Tim. That is five of the 10 common retirement risks to plan for. We’re going to be bringing the rest of this list back on the next episode, so make sure to join us here next week. Of course, for folks that are listening to this and thinking, “Hey, it’d be really helpful to have someone in my corner that really can help me plan for retirement, as well as other parts of the financial plan,” we’d love to have a conversation with you to have you learn more about our one-on-one fee-only financial planning services, as well as to learn more about your individual plan and the goals that you have. You can book a free discovery call by going to yfpplanning.com. Again, that’s yfpplanning.com. All right, we’ll see you next week.

[END OF EPISODE]

[0:49:33] TU: Before we wrap up today’s show, I want to again thank this week’s sponsor of the Your Financial Pharmacists Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% down payment for a single-family home, or townhome for first-time home buyers and has no BMI 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.

[DISCLAIMER]

[0:50:18] 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 on the podcast and corresponding materials should not be construed as a solicitation, or offer to buy, or sell any investment, or related financial products.

We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archive, 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.

[END]

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