Podcast

YFP 325: Retirement Roadblocks: Identifying and Managing 10 Common Risks (Part 2)

Posted on September 14, 2023September 14, 2023 by Tim U

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

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)

Posted on September 7, 2023September 6, 2023 by Caitlin Boyle

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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YFP 323: 5 Tips for Selling Your Home

Posted on August 31, 2023 by Tim U

Nate Hedrick, aka The Real Estate RPh, joins the show to talk about 5 tips for selling your home – valuable information for buyers and sellers alike!

Episode Summary

Most of our real-estate episodes to date have covered the topic of buying a home, but today we’re putting ourselves in the shoes of the seller. If you think this episode isn’t for you because you’re only interested in buying a home, think again! Being able to see things from a seller’s perspective will add huge value to your home-buying journey. Today’s guest is Nate Hedrick, a pharmacist, and the founder of Real Estate RPH. It’s a seller’s market at the moment and he is here to share five top tips for selling your home for its maximum value. From the benefits of enlisting the help of an agent to getting to grips with price-setting strategies and understanding buyer versus seller costs, this conversation will equip you with the tools you need to navigate current chaotic housing market with confidence!

Key Points From the Episode

Introducing today’s guest, Nate Hedrick
An overview of Nate’s recent interview with first-time home buyers, Neal and Katie Fox.
Why this episode will benefit you if you are a home-buyer or a home-seller.
An overview of the current market from Nate’s local perspective.
Two of the main pain points for newly practicing pharmacists.
Costs you can expect to incur when selling a home with the help of an estate agent.
The benefits of enlisting an agent to help you sell your home.
How most people choose an agent.
The difference between an excellent and a mediocre agent.
Examples of how good agents can maximize value for their clients.
Benefits of depersonalizing the home.
Different types of pricing strategies that can be used when selling a home.
How the appraisal process should work.
An overview of buyer costs versus seller costs.
Understanding the concept of seller’s credit and the problems that can arise when this strategy is used.

Episode Highlights

“If you’re a first-time home buyer, you have no idea what it’s like to sell a home, right? You don’t have an idea what it’s like to buy a home. Being able to put yourself in somebody else’s shoes as you’re going through that journey, it can give you some perspective and it can be really helpful.” — Nate Hedrick [0:03:23]

“It’s still a seller’s market. We have a lot of people who are sitting on three and a half percent or lower interest rate loans that they refinanced over the last three or four years, and they don’t want to move if they don’t have to.” — Nate Hedrick [0:04:19]

“The list price of a home is completely made up. The market value of the home is the number you want to determine.” — Nate Hedrick [0:25:15]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00] TU: Hey, everybody, Tim Ulbrich here. Thank you for listening to the YFP Podcast for each weekly strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I welcome back onto the show a familiar voice Nate Hedrick at the Real Estate RPH and co-host of the YFP Real Estate Investing Podcast. We discuss five tips for selling your home, helpful information whether you’re looking to sell now or in the future, and even for those looking to buy a home to gain some insights and understandings to what the seller is going through.

All right, let’s hear from today’s sponsor, Real Estate RPH, and then we’ll jump into my interview with Nate.

[MESSAGE]

[0:00:38] TU: Are you planning to buy a home in the next year or two? With the state of current home prices and mortgage rates, the home-buying process can feel overwhelming. But what if you could leverage the knowledge and ongoing support of someone who has worked with dozens of other pharmacists through their home-buying journey all at no cost to you?

I’m talking about Nate Hedrick at the Real Estate RPH. Nate is a pharmacist who has been a partner of YFP for many years now and offers a home-buying concierge service that can help you find a high-quality agent in your area and support you throughout the entire process. Head on over to realestaterph.com or click on the link in the show notes to schedule your free 30-minute jumpstart planning session with Nate.

[INTERVIEW]

[0:01:24] TU: Nate, welcome back to the show.

[0:01:25] NH: Hey, Tim, always great to be here.

[0:01:27] TU: Well, I’m excited to be back in the host seat. Not too long ago on the podcast episode 316, you interview Neal and Katie Fox about their journey and lessons learned as first-time home buyers. What a neat episode that was. Just to recap for our listeners that maybe haven’t heard that episode already, tell us about that interview and the story with Neal and Katie.

[0:01:47] NH: Yeah. Neal and Katie were just an awesome couple that I got a chance to work with as home buying concierge clients. We got them hooked up with an agent, helped them buy their first home together. It was just really cool to be able to sit down and talk to them about what it’s really like to buy a home in this market. We went through everything from A to B or A to Z and just got their perspective on it, right? Somebody that doesn’t have experience, right?

I sometimes forget how long I’ve been doing this. There’s things that I don’t even think about anymore, as a first-time home buyer. So, to actually talk to first-time home buyers and see where their pitfalls and strategies came from, that was just, it was fun. It was really cool to talk to them.

[0:02:24] TU: Yeah. Great interview. They had some really interesting tidbits, lessons learned, things on financing, importance of working with an agent, who you’re working with and the value of that relationship. We’ll link to that episode in the show notes if folks haven’t already heard it. Today, Nate, we’re going to be talking about a topic we haven’t really covered in depth before. I’ve lost track. You’ve been on the show at least 10 times now, maybe more, obviously co-host of the Real Estate Investing Podcast. We talk so often about buying a home, but we haven’t really talked about selling a home.

Now, for those that are in the home buying journey and are listening to this and saying, “All right, I’m turning this off, they’re talking about selling a home, that’s not applicable,” hold on, right? Because I think as you and I talked about before the show, as a buyer, if you can really understand some of these tips and components as it relates to the seller, that is going to be helpful to you and the buying journey as well.

[0:03:17] NH: Yeah, 100%. Understanding that other side where the other person’s coming from, it’s really difficult, especially if you’re a first-time home buyer, you have no idea what it’s like to sell a home, right? You don’t have an idea what it’s like to buy a home. So, being able to put yourself in somebody else’s shoes as you’re going through that journey, it can give you some perspective and it can be really helpful.

[0:03:35] TU: Now, before we jump into five tips for those that are selling a home, and again, the relevance of that to buyers as well, important to talk about context, right? We’re recording this episode in summer, 2023, wild times just in terms of where the market’s at, what’s happening with interest rates, where the economy is at. I do think that context is really important to understand things like leverage, right? As a seller or as a buyer. Nate, just give us a quick update knowing that every market is, of course, different, but you have a unique perspective working with pharmacists and agents all across the country. What are you seeing right now?

[0:04:07] NH: Yeah. Obviously, real estate is local, right? What I tell you that we’re seeing may not be exactly applicable in your area, but broadly what we’re seeing is low inventory, right? It’s still a seller’s market. We have a lot of people who are sitting on three and a half percent or lower interest rate loans that they refinanced over the last three or four years, and they don’t want to move if they don’t have to, right?

You’ve got people that want to buy, as there always are, but people that aren’t really ready to sell their home yet. So, that’s causing a lot of low inventory. We’re seeing high prices still and just things are moving quickly. It’s not as crazy as it was in 2021 and early 22, but it’s still an interesting and difficult time if you’re a buyer and a pretty good time if you’re a seller in most parts, because you can typically move your houses pretty quickly.

[0:04:54] TU: Yeah. It’s really interesting. Jess and I often talk about this. We love our home, right? But it’s just a natural point of conversation where it’s like, “Well, what about moving here? What about doing this?” When you look at what interest rates are doing right now, not only what our interest rate is, refinance close to three, but seeing what you’re going to be buying at, but then also just the elevated prices, because of the supply and demand, it’s a double whammy effect, right?

[0:05:17] NH: Yeah.

[0:05:18] TU: For existing home buyers to give up that loan, to take on a new higher interest rate loan, as well as a higher mortgage on price of the home. So, that makes sense, what’s happening there on the supply side. Then to be frank, Nate, I’m feeling for the first-time home buyers right now, right? Many of them we know in our community are also facing significant student loan debt. Here we are now ready to have those payments turned back on.

I think that’s a topic we just aren’t talking enough about. We know from our community, student loans and home buying are for many people, two of the top pain points, right, especially for that new practitioner group. I think when we look at the rising home prices, rising interest rates, student loan, payments turning back on. We’re looking at more challenges that I think are being added to this. Doesn’t mean it’s impossible, right? Doesn’t mean it’s a goal that can’t be attained, but it means we’ve got to be a little bit more diligent in the planning process to make sure we’re looking at the broader financial plan.

[0:06:13] NH: Yeah. I appreciate you keeping it at the forefront, because I know if it were me 10 years ago, just starting out, dealing with loans, if they were on pause, I don’t know, it’d be in that bucket of, “Well, I’ll figure that out when it becomes a problem,” right? I 100% know that would have been me 10 years ago. Talking about it is super important, because don’t wait to figure it out, start figuring it out now, before it really becomes a problem.

[0:06:36] TU: Yeah. This is where the strategy, we’re not going to dig into student loan strategy right now, we’ve done that many times on the show before, but this is where that strategy part becomes really important, because not all student loan repayment plans are created equal in terms of the impact they have on monthly cash flow. For example, someone who’s pursuing loan forgiveness versus someone who’s doing an aggressive debt repayment. Those are going to have very different impacts on the budget, which obviously is going to change also how much money is available, discretionary income available, potentially for a home purchase.

Another example yet of where these puzzle pieces need to come together. Let’s talk Nate, five tips for those that are selling a home. Number one, not all agents are created equal. I’ve experienced this on my own home-buying journey. Not only that, but also there’s the using an agent versus not using an agent for those that are thinking about potentially a for sale by owner. Talk to us about tips as it relates to the agent and why that piece is so important.

[0:07:31] NH: Yeah. I think something you mentioned there about the first, the for sale by owner versus an agent. I think a lot of people are, they look at the market, they look at how, “easy” it is to sell a home. The first thought becomes, “Well, can I just do this myself? Couldn’t I just kick the agent out of the whole process, save a ton of money on commission?” Truthfully, it can be quite a lot, right? Typical way the commission structure works to peek behind the curtain, right, is that it’s going to be about five to 6%, depending on the agent that you work with, is what the seller is going to pay toward the commission. That, that seller paid commission is what goes to both the buyers and the seller’s agent.

It’s usually split 50-50. So, if we say 6%, you’re talking about 3% for the buyer’s agent, 3% for the seller’s agent. That can be $18,000 if you’re talking about a $300,000 home, which is a huge chunk of change. I think it’s natural for people to think, “Man, I can just do this myself. Why bother? I don’t want to pay that $18,000.” But there’s a couple of pieces I think that I think what people should realize before just jumping to that route. Only about 10% of homes in America are sold for sale by owner.

Again, there’s a reason for that. One of the stats that I like to throw out there, and it’s biased, so I’ll lead with that, but that is that according to the National Association of Realtors, and this is looking at 2021, for sale by owner homes sold for about, on average, $225,000 in that year. The typical agent-assisted home sale was about $330,000. About $100,000 difference. Now again, I think that’s biased. I think a lot of four sell by owners tend to being like friends and family. They bring the prices down intentionally in some of those cases right or wrong. I think that there’s some bias to that number.

Let’s say that $100,000 number, let’s just cut it in a fourth, right? Let’s quarter it to $25,000. If you have a $300,000 home, that $25,000 difference is more than the 18 grand we talked about in terms of commission sales. I still think there’s a lot of value there. The typical agent is going to bring a lot more value to the actual home and getting it for the right price, just on a dollar-for-dollar basis, even if again, we take that number and cut it in the fourth. I think that’s an important number to look at and to think about is that the agent is going to be able to bring more value or get more value out of the home on average than you might as a for sale by owner.

Then the natural next question to that becomes, “Well, why? What are they doing that’s different?” I think a lot of it comes down to just their experience and their ability to price the home appropriately and get the maximum value there. One of the things that an agent’s going to do if you are ready to sell a home, and we can dive into more of these details in a moment, but they’re going to come in and they’re going to help figure out, “Here’s where I think your house sits today. Here are some things that you could change to improve that value, whether it’s curb appeal or decluttering or whatever. Then here’s where I think the market value is on that property.”

Once you know market value, then you can start to come up with strategies for how to price that home. That’s where an agent’s really going to come in, right? Let’s say we were going to price it 10,000 under asking or under market value rather to try to generate a lot of business or let’s say we’re going to price it right at market value and try to get the most dollars we can for it right up front. There are a lot of different things that go into that strategy that I think an agent brings to the table that a typical home seller might just not have access to that information or be aware of.

Then if you go beyond the dollar amount, I think that that’s where the agent comes in with paperwork and helping with all the legal paperwork. There’s a lot of legality that goes into home sales and a lot of this a title agent or a good lawyer can help you with, but the agent takes all the guesswork out of that, right? Everything’s been predetermined, pre-established by a broker. It’s all going to be put in front of you in the way that it needs to be. There’s a lot of value that can be created from that.

[0:11:15] TU: Yeah. The other thing too here Nate, great points, that stands out to me would just be peace of mind knowing that there’s coordination, assuming, and we’ll talk here in a moment about why all agents are not created equal here. We’re talking about agent versus for sale by owner. Peace of mind assuming you’ve got the right person on your team, right? That’s coordinating all of these, but also time. I’ve gone down this pathway and I don’t think I would do it again, to be frank.

I think even though it was someone within the neighborhood and it was a pretty easy process, there were a lot of those questions about pricing it appropriately and is this fair, right? Now, you’re not dealing with, what does the market say the home’s worth. But it gets more emotional when it’s just one party with another party, right? Is this fair between two parties? But then just the time and the coordination, the title, and there’s this lingering feeling of like, is everything being done correctly and coordinated?

I remember, maybe part of that is just my type A personality a little bit, as well, but this is a podcast of busy healthcare professionals, like I think they can appreciate, especially if the ROI is there as you mentioned, how important it could be to really make sure that you’ve got someone in your corner. Now, that’s an obvious one, I think for many would be the agent versus the for sale by owner, especially considering folks are busy.

Again, not all agents are created equal. I think this is interesting, right? We talk about this a lot on the show about financial planners. I think we’ve done a really good job highlighting how the term financial planner in and of itself, doesn’t mean a whole lot and how there’s so much variance between planners in terms of credentials, and experience, and how they charge, and transparency. I don’t think we give the same diligence to real estate agents. I don’t know why, but the more I started to think about this, I’m like, “Well, this is really interesting. Experience matters a lot.”

Somebody understanding my local market matters. Connections, right? Someone who can, you shared before we hit record about an example of a deal you’re working on where some pretty simple work needed to be done and you’re able to line up a contractor and move that forward. That matters, those relationships. Talk to us about why the right agent matters and how do people vet this? How do they find that?

[0:13:28] NH: Yeah. It’s certainly tricky. I think what most people do, I’ll tell you what most people do and I’ll tell you what I’d recommend, right? What most people focus on is the commission, right? They want to find out how they can get this on for as cheap as possible as –

[0:13:39] TU: Like an interest rate on a mortgage, right?

[0:13:41] NH: Right. Exactly. Yeah. “I want the guy that’s five and a half percent.” Now they got it 6%, right? People focus heavily on that. Again, in the grand scheme of things, that 1% difference that you might find across the market, that’s not where your focus should be, but that’s what a lot of people like to focus on. The other thing to focus on is when you do a listing presentation, when I present to a seller and say, “Look, this is what I’m going to do for you.” They’re really focused on the number. “Well, what do you think you can sell my house for?”

I’ll tell you, there’s only so much an agent truly can do with the home that’s in front of them, right? The same home, the same parameters, different agents are not going to be able to sell that house for more, just being upfront. What a good agent’s going to do is come in and tell you, “Here’s how to maximize the value of your home. Here’s how I can sell it for more.” Not, “Here’s the same house as the next agent’s going to be selling, we’re not changing anything.” They’re not going to ink more value out of that house just by being a “better agent,” right?

What a great agent it’s going to do is come in and say, “Look, if you declutter this a little bit, if I let you borrow this storage unit that I have specifically for my sellers, we get a couple of these pieces of extra furniture out of here. We take down some of the pictures.” We hear the things that we’re going to do, that’s how you’re going to maximize value.

[0:14:52] TU: Yeah.

[0:14:53] NH: When I’m talking to a client and what I recommend everybody do out there, if you’re interviewing a seller’s agent, talk about, “What are the things that you’re going to do to maximize the value of my home?” Not, “How can you sell this for as much money as possible?” Those are closely related to the same question, but they’re not the same question.

[0:15:10] TU: Yeah. Future episodes, I just took a note, we should do a future episode on questions that you should ask right when hiring an agent. I think that’s a really good, really good one to consider. In your experience, working with other agents, but also in your own experiences as a realtor selling homes, what are some ways that you’ve either stood out? I mean, experience, let’s say that’s a given or that you see another agent stand out.

[0:15:32] NH: Yeah. So, I think there are a lot of big-ticket things that people stand out with that are attention grabbers. The one I mentioned was the storage unit. I’ve seen agents that will offer those pods. They’ll say, “Look, if you sell with me, I will give you a pod to put all your extra furniture in. Just put that in storage for a while, while we sell the home.” There’s definitely some value to that. I’ve seen agents offer staging, especially if the home is vacant, or if you’re in the process of moving out and things are hodgepodge, you can have the home staged and that can be really advantageous, and some agents will offer that as a big incentive.

I’ve also seen a lot of – this is pretty common on billboards with big-ticket, high-volume agents, where they’ll offer a guarantee, right? We’ll list your home and if it doesn’t sell in a month, then we guarantee, we’ll buy it from you. There are a lot of stipulations to that, but I’ve seen that as a big-ticket thing.

I’ll tell you where I try to offer value. Again, these are things that I might pepper in where it makes sense. Most sellers actually don’t need a lot of those services quite frankly. I try to just make things as easy as possible. You mentioned earlier, if you’re a busy working professional, if you want to hire an agent, you’re doing so because you want to take all the guesswork out of it and all the legwork out of it, right? It should be as painless as it possibly can be. That’s what I try to come in and show them how I’m going to be able to do that. That’s what I encourage other sellers to look for when you’re talking to a good agent.

[0:16:53] TU: Yeah. I think, Nate, the huge advantage that you have, the relationship piece, asking good questions, you’re a pharmacist that has gone down the path of a first-time home buyer, you’ve obviously worked with many individuals, you understand what it means to buy a home when you have student loans and the considerations. Certainly, it’s not financial planning, but it’s being able to ask good questions that really help people self-reflect and understand and not just like, “Yup, I’m ready to sell your home,” right? Whether or not that’s maybe in their best interest.

[0:17:25] NH: Even if it’s something as simple as, “Hey, you want to sell your home. What’s more important? Getting every single dollar we can out of it, or closing in the next 30 or 40 days so that we can move into the next place?” Or whatever.

[0:17:37] TU: It’s a goal.

[0:17:38] NH: Just a simple question about, what’s the goal of getting this home sold, right? Is it just to move it as quickly as possible, or is it to maximize value and starting from there?

[0:17:47] TU: Great stuff. That’s number one on our five tips for selling a home. Not all agents are created equal. Number two, you alluded to this a little bit already, but I want to dig deeper. That’s really, in terms of determining what is or not worth it, right? Upgrades, repairs, boosting curb appeal, staging the home, right? Maximizing the value of what someone may be able to get out of the home is what you mentioned just a few moments ago. What tips do you have here for sellers?

[0:18:11] NH: Yeah. This is something where a good agent can really make themselves worth it, right? Because there is a ton of stuff. I look around my house today and think like, “Man, if I was going to sell it, I have to fix that and I gotta paint that.” There quickly becomes this list of stuff that you could do before selling a house. What’s the ROI on that? A great agent is going to know the local market, is going to know the comparable properties that have sold recently and is going to be able to see what those high-value items are that you should focus on and what those low-value negative ROI things are that you could just ignore, right?

There’s always going to be stuff to fix on a house. The trick is finding the things that you can do now that are going to be not very labor intensive and we’re going to maximize the overall value and the speed with which we can sell that property. It’s a myriad of items. It varies based on the home itself. Generally speaking, you’re looking for things where, “If I don’t fix this, is it going to prevent somebody from making an offer?” That’s a really common one. Let’s say, the roof is actively leaking. A lot of people are not going to be interested in jumping into a $10,000 or $20,000 fix right off the bat. Those are things that are obvious that, “Hey, if I fix this, yeah, my ROI might not be huge, but it’s going to make people want to offer whereas, they may have not previously.” Thinking about things like that.

Then also, thinking about things like, hey, if other homes in the area that have a deck, for example, a back patio, or a deck, all of the deck houses are selling twice as fast as all the houses that don’t have a deck, right? You’re in a very similar community. That might be something that’s worthwhile putting in, right? Especially if you’ve got a sliding door already out there and it’s ready to go, it’s just begging for a deck. That might be an easy ROI item that you could tack on. It’s going to be high cost, but it might make that home sell for that much more. It’s those things that a really good agent’s going to be able to jump in and give you advice on to make sure that you can maximize that value.

[0:20:05] TU: Yeah, and that’s a great example with the deck, right? Because I think about, again, if we put ourselves in the buyer’s shoes, all of a sudden, I see the home as having a new outdoor living space. Maybe it’s not all the way there, but you’re providing vision, right? For somebody to come in and say, “Whoa. Wow. I’ve got maybe a smaller square footage home, or maybe it doesn’t have all the bells and whistles that I wanted, but I can really see how I could use this space differently.” Great insights there. I think that’s just so important.

Again, putting yourself in the buyer’s shoes, the roof example, the deck example, especially first-time home buyers are not coming with a bunch of cash sitting in the bank to do some of these things, right? Minor upgrades, minor improvements. But things that you can do. Obviously, the question, “Is there an ROI there or not?” is really going to be helpful to those buyers. I also think, Nate, be curious to hear your perspective here. Where you’re at in terms of price point of the neighborhood, I think could be really important here on potential ROI, right?

If I am the biggest house, the most expensive house in the neighborhood already, and I add a $10,000 deck, hoping I can raise the price $20,000, maybe not as much if on the low end. Is that fair?

[0:21:16] NH: Yeah. It’s spot on, right? Again, that’s where a good agent is going to be able to come in and say, “Look, here are the comparable properties that have sold. This is what people are going to be looking at.” Or better yet, one of my favorite things to do is to look at is what else is on the market today. If I’ve got a $300,000 home and there are three other $300,000 homes for sale in the same community, how am I differentiating? I don’t need to undercut them by $5,000 and just be the cheapest game in town, but I also can’t be $30,000 more and expect to be the first one that everybody buys, right? Unless, there’s some real big value item that I’m bringing and it’s different than those other homes. That’s where an agent can come in and really try to help that out.

[0:21:52] TU: Great stuff. Number three on our list, why it matters to depersonalize, or neutralize the home. This gets a little bit to what we’re talking about, wanting the buyer to really have a vision of their own. I know this is something that you hear all the time, you read about, but as a buyer, myself going through the process twice, I was amazed at how often this wasn’t done. Tell us about why this is important and what this may look like.

[0:22:16] NH: Yeah. I think everybody gets – you get really comfortable in your own home, right? You know what you like. You’re used to it. You think it’s perfect, because you live there. Why wouldn’t you, right? It’s a natural thing to do. I think it’s easy to miss some of the stuff that might come across to a buyer as making it feel not welcoming. That might be something that to you, again, is very welcoming. Families, family photos, all the furniture that you love, the beat-up chair that you love to sit in every night before going to bed, right? That’s your spot. I get it.

But somebody else walking in might look at that and go, “Oh, my God. That’s been scratched by the cat for 20 years. This looks horrible.” You have to be able to put perspective on that, as if you were a total neutral party walking into that home and trying to envision it as the place they want to live. You have to be able to reset that. One of the ways that I encourage sellers to do that is to really try to neutralize things. Like you mentioned, neutralize the home to where they can see that it’s someone living there, it’s comfortable, it’s a place they want to be, but it doesn’t feel like it’s not their space yet. They can start to envision themselves in that space because it’s not so personalized, or so specific to one individual.

[0:23:27] TU: Yeah. I think of things like paint and photos and odors in the home, right? Good, bad, indifferent. You gave some great examples, like the chair that we like to sit on at night. Some of these, what’s great about this is it’s not wildly expensive, typically, right? Neutralizing paint colors. I have vivid memories of going into houses where it was red carpet, lime green walls, and it’s like, man, that is such an easy – or dark paint that made the room look smaller. Miniscule changes in light fixtures and other things that can really open up a room and make it look bigger.

[0:24:02] NH: You mentioned smells too, like you hit the nail on the head with things that are unique can be the problem, right? Maybe it’s an air freshener you have that you love, and it’s like tropical oasis or whatever.

[0:24:11] TU: In your face.

[0:24:12] NH: It’s like pineapple when you walk in or whatever, right? That stuff can be just as bad, even though it smells good, it can be just as off-putting to somebody. I’ll give you a great example. I had a client that was real sensitive to the candles. We’d go into any house, even if it smelled phenomenal to me, she would immediately say like, “Oh, I feel like I’m getting a migraine, like is driving me crazy.” Yes, it’s a good smell, but it’s not helping your case. It’s all about neutral. That’s the way you’re going to maximize that potential value and the people walking in and out of your home are going to have a good experience.

[0:24:41] TU: I like that. That was number three. Why it matters to depersonalize. Why it matters to neutralize the home. Number four is setting the price. I’m really curious, Nate, I have not yet gone through the buying or selling process in this chaotic market that we live in. Just curious about what you’re seeing in terms of pricing lower to try to generate more interest. Maybe you have somewhat of a bidding war, pricing it a little bit higher because of the market and where things are at. Again, all markets being local. What are your thoughts here?

[0:25:10] NH: Yeah. I think the biggest thing here, and I tell this to every single client I work with. The list price of a home is completely made up. The market value of the home is the number you want to determine, right? All pharmacists here, we’re all interested in facts and numbers, right? I don’t want to just make things up. That’s why you want to determine market value first and adjust from there, right? A good agent’s going to come in and tell you, “Look, this is the market value of the home. It’s between 340 and $350,000.” They should be able to give you a pretty tight range.

“And here are the factors that I’m basing that on. If I were to list your home today, here’s the pricing strategy I would use.” Like you said, it can be anything from listing it at that 340 or 335 mark to try to generate a lot of activity. Typically, we’re going to do that if there are many other homes on the market, right? That’s more typical in a neutral market or a buyer’s market, where I want to be the first one of the five that are available that people go see. The reason they’re doing that is because it’s priced lower than everything else, right? I’m still going to get close to market value for it, but I’m going to be the first one that everybody looks at, especially –

[0:26:10] TU: Yeah. I think of the filters, right, on realtor, right?

[0:26:13] NH: Exactly.

[0:26:13] TU: Or filtering by price. Yeah.

[0:26:14] NH: Exactly. The other strategy is, hey, if there’s nothing available, if you’re in a market like the community that I live in, where a home goes on the market and it sells in two days, because everybody wants to buy and there’s not enough inventory, you can push that market value quite a bit, right? If we determined that it’s 340 to 350, I might list it 375 and see what happens, right? You might get a bite at that price and as long as it appraises, awesome. You’ve gotten more than market value out of your home, but you have to start with what is the market value before you can determine a strategy.

So many agents, I hear this all the time from prospective sellers, they will just throw these giant numbers at people. They won’t tell them market value, they’ll say, “Well, if I were to list your home today, I’d list for $400,000.” Why? Just because it’s the biggest number and you want me to work with you, or do you have a real reason behind that, right? That’s the kind of questions you want to be asking.

[0:27:03] TU: Since you brought up appraisals, I want to talk about that for a moment, because in my experience, it feels like appraisals are a little bit like the Wild Wild West, and just a ton of subjectivity. I know that’s supposed to have been tightening up. I don’t know, it just feels like it hasn’t when you think about the process and how it’s completed. What are you seeing, again, small sample size in your area, but what are you seeing in terms of, for people that are pushing price point, that maybe is x% above market value? Like how tight is the appraisal of the market value right now?

[0:27:34] NH: Yeah. Appraisals, unfortunately, are just still so subjective. Typically, what I’m seeing is that if you get a home that is over market value, but there are multiple offers on that home, the appraiser is at the point where, and again, this is not actually how they work, but what it feels like is that they’re looking at it and saying, “Look, this is an arm’s length transaction.” That’s a real estate word for basically, it’s on the market and anybody can buy it. This is an arm’s length transaction. There are multiple people interested at 380, and it’s probably worth 380, right? If lots of people want it, I don’t have –

[0:28:05] TU: Yeah. That becomes the market value.

[0:28:06] NH: Yeah. I don’t have the empiric evidence to say it’s worth more than 350, but I do have six people who all threw an offer at this house at 380 and near it. Maybe that is the value, right? I don’t think that’s actually how appraisers are doing it, but that’s how it feels. They’re supposed to base it on comps. They’re supposed to base it on recent home sales. Ideally, it’s based on homes within a mile or less radius, really even less than a half a mile within the last six months. There are certainly times where it doesn’t feel like that’s being followed, good or bad, right? Negative or positive, they’re picking other homes or whatever, but that’s the ideal state.

[0:28:39] TU: Yeah.

[0:28:40] NH: It’s also a tough job. Not every home is built the exact same way, right? You don’t have just the same cookie cutter house across every block. It’s not an easy way to determine. That can make it difficult.

[0:28:51] TU: Yeah. That’s a good point, right? We all know that a four bedroom, two to four bedroom, two thousand square foot homes can be very different.

[0:28:57] NH: Absolutely.

[0:28:57] TU: So, if you’re just looking at those bones for comps, that may not be a fair comparison. I’ve been in those situations where you’re in areas that aren’t as populated, and they’re trying to draw in comps within a reasonable geographic range. You just know like, “Ah, that’s so different.” Right? Now, if you’re in an area where you’ve got multiple subdivisions and the same type of home and thousands of them, maybe that’s not as significant of a difference. All right. Number five on our list of tips for sellers is understanding buyer versus seller costs. Who is typically paying for what? Tell us more, Nate.

[0:29:35] NH: Yeah. This is a big point of when you get a house when someone’s actually buying your home and get it under contract, there’s going to be a lot of negotiations about who’s paying for what. This can be state-specific. Some states lay out exactly how it’s supposed to be. Then you can deviate from that. Others are just up in the air, right? You determine what’s normal for your market.

It can be everything from the taxes, right? How are you splitting the taxes? It can be the title fees. The actual process of transferring that title, who’s paying for that. Typically, it would be split 50-50, but maybe in this market, you want the buyer to cover everything or whatever, right? That’s all part of the negotiation. There are some things that I think typically fall on one side of the other, so things like inspections typically fall on the buyer. I can’t think of a single transaction I’ve ever done with the seller, helped to cover inspection fees, but I suppose it’s out there.

Then closing costs. Closing costs are usually split, except for the buyer-specific stuff, like down payment and rate lock fees, and all that other stuff. There are a lot of different ways you can slice that up, but typically things are cut 50-50 and then anything that’s very buyer-centric is going to be covered by the buyer and vice versa. That’s what I typically see, but you can certainly build it any way you like.

[0:30:48] TU: We were talking before the show, that’s all when things go as planned, right? But there’s situations where once someone’s under contract and then a problem’s identified, right? Typically, under inspection or something else comes up, major, right? Septic tank, roof types of things. Tell us about your experiences here and how that may impact this item.

[0:31:09] NH: Yeah. So, one of the items that typically comes up is a seller’s credit, is what it’s called. Typically, if you are selling a home, you might be providing some credit back to the buyer. The most common version of that is what’s called a closing cost credit, where you’re basically saying “Here, I’m going to give you $3,000 toward your closing costs to help you with some of the cash that you’re going to need to buy the house.” What I often will see is somebody that says, “Hey, look, if the house is listed at 340 and we’re close and we’re negotiating down to 335, maybe we can agree on 340, but you give me 5,000 back in the form of closing cost credit that will reduce the cash that I need as a buyer.”

The seller still makes the same amount, right? The net value is still 335, but it’s helping the buyer out quite a bit. That’s very common, but what you mentioned where we’ve got a problem that might come up down the road or someone’s trying to push that seller’s credit beyond the typical amount, that’s where you can start to get into some issues. I had a deal a couple of years ago. I was actually representing the buyer. During inspection, we determined that the house needed a new septic tank and it was way out in the woods. It was a five-bedroom home. It was pretty large. It needed a huge new, I mean old type of tank dugout, new one put in $10,000 fixed. Easy. Yeah.

It became a question of like, “Well, how do we do that? When do we do that? Right? Is it before closing? Is it during after? Like what does that look like?” There are a lot of different ways that you can build that in. For this particular deal, what we ultimately determined was, we had two companies come out, give quotes. We basically all agreed that this was the company we were going to go with. Buyer and seller agreed to that. The seller provided a $10,000 credit toward that septic system to be installed after closing.

There are certainly risks to the buyer to doing that. There are risks to the seller to doing that, but it was what we landed on. It’s something where if and when those problems come up, you want to talk to your agent about, “Hey, what does this look like if I do X, what are the ramifications? If we do Y, what are the outcomes?” Then you can make the best possible determination. There are lots of different ways that you can build that.

[0:33:14] TU: Great stuff. Another example, right? We’re a good agent with experience. Where it really comes in, right? I have been through this scenario. I’ve seen how this is done, multiple ways this has been done. Seeing how all of this ties together. Well, there you have it. Five tips for those that are selling a home and also for things to be aware of that those that are buying a home and to have the helpful insights. Nate, as always, really appreciate your time, your insights, your expertise, and for coming on the show.

[0:33:39] NH: Yeah. Thanks for having me, Tim.

[0:33:41] TU: Nate and I have covered a ton of information in this podcast. Imagine working with Nate one-on-one through your home-buying journey and having his support to give you much-needed peace of mind. We know many pharmacists want to feel confident about big financial decisions, including a home purchase.

If you have fears of being house poor, concerns about the impact a home purchase might have on your other financial goals, Nate and his home-buying concierge service can help all at no cost to you. You can visit realestaterph.com or click on the link in the show notes to schedule your free 30-minute jumpstart planning session with Nate.

[DISCLAIMER]

[0:34:20] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

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

[END]

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YFP 322: Checklist for First-Time Homebuyers

Posted on August 24, 2023May 24, 2024 by Tim U

Mortgage loan officer Tony Umholtz joins the show to discuss available loan options (including the pharmacist home loan), why a preapproval matters, and things to consider when choosing a lender. This episode is sponsored by First Horizon.

About Today’s Guest

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

Episode Summary

If you’re a first-time home buyer, this episode is for you! This week’s episode, sponsored by FirstHorizon, features Tony Umholtz, a mortgage loan officer at First Horizon Bank with over 20 years of experience in the industry, and he is here to share important factors that you should be taking into consideration before purchasing your first property. By the end of the episode, you will understand how banks decide whether or not to approve a mortgage application, the pros and cons of the various loan options that exist, the difference between preapproval and prequalification, things to look out for when choosing a lender, and more! Buying your first home isn’t something to be taken lightly, and Tony’s insights will leave you feeling well-equipped to make decisions that are going to serve you well, now and in the future.

Key Points From the Episode

Tony shares a number of current market trends that are important to be aware of.
Factors that are putting huge pressure on housing affordability (particularly for first-time homeowners)
What a debt-to-income ratio is and how banks use it to determine which mortgage applications to approve.
Why Tony recommends an income-based repayment plan for student loan debt.
A question you should ask yourself before applying for a mortgage.
An overview of the traditional lending options that are available to first-time home buyers.
Advantages and disadvantages of taking out an FHA loan.
Benefits of the Fannie Mae and Freddie Mac conventional loan programs.
Examples of additional loan programs.
Details about First Horizon’s pharmacist home loan.
Factors to take into consideration when choosing a lender.
The difference between preapproval and prequalification.
Advice for choosing a real estate agent to work with.
Implications of a ruling that is likely going to be passed by the Supreme Court.

Episode Highlights

“We’re in an environment of higher interest rates than we’ve seen in a long time. We haven’t seen rates like this since the early 2000s.” — Tony Umholtz [0:02:13]

“Just because the lender says, ‘We can give you this loan,’ it doesn’t mean it’s what is best for you.” — Tony Umholtz [0:15:43]

“There’s a tremendous amount of liquidity for first-time home buyers. So I would ignore a lot of what you hear in the media.” — Tony Umholtz [0:16:59]

“It’s a good time to buy because the inventory levels are low, prices are stable, you can get a better deal than you could a few years ago when the market was so hot you couldn’t even order an appraisal sometimes.” — Tony Umholtz [0:24:05]

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, I welcome back on to the show, Tony Umholtz, a mortgage loan officer with First Horizon Bank. During the show, I tap into Tony’s 20-plus years of experience in the industry to form a checklist for first-time home buyers. We discuss how to determine how much home you can afford, the different types of loan options to consider, what to look for in choosing a lender, and much more.

Okay, let’s hear it from today’s sponsor, First Horizon, and then we’ll jump into my interview with Tony.

[SPONSOR MESSAGE]

[0:00:36.6] TU: Does saving 20% for a downpayment on a home feel like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities, including high student loan debt, meeting that saving 20% for a downpayment on a home may take years.

We’ve been on a hunt for a solution for pharmacists that are ready to purchase a home loan with a lower 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 PMI, and offers a 30-year fixed rate mortgage on home loans up to USD 726,200.

The pharmacist home loan is available in all states except Alaska and Hawaii and can be used to purchase condos as well. However, rates may be higher and a condo review has to be completed. To check out the requirements for First Horizon’s Pharmacist Home Loan, and to start the preapproval process, visit yourfinancialpharmacist.com/home-loan. Again, that’s yourfinancialpharmacist.com/home-loan.

[INTERVIEW]

[0:01:48.5] TU1: Tony, welcome back to the show.

[0:01:50.5] TU2: Tim, thanks for having me, great to be here.

[0:01:52.1] TU1: Excited to have you back and I’m going to start with my standard question to you, given the ongoing volatility that we’re seeing in the mortgage landscape. What are the market trends and realities that you’re seeing right now that our listeners should be aware of?

[0:02:06.9] TU2: Well, there’s a lot to digest right now with what the federal reserve has done this past year and you know, we’re in an environment of higher interest rates than we’ve seen in a long time. We haven’t seen rates like this since the early 2000s and, you know, a couple of things to watch right now, the big news last week was that our US treasury needed to borrow an additional 275 billion that they didn’t have in the budget. So that kind of pushed rates a little higher across the board. It does help fixed-income investors because rates are higher for investments but for mortgage, mortgages, and borrowers, especially if you have variable rate like credit card loans and things like that and home equity lines, those rates are really taking a hit here recently.

[0:02:51.9] TU1: Yeah, 275 billion, small details, right? That we need to be planning for, you know, we talk about a balanced budget on the personal side. We don’t have that luxury, right?

[0:03:00.5] TU2: That’s right, that’s right. You know, I was teasing my wife about it too. I said, “You know, look, it’s important that we keep a good budget because we can see what’s happening in our national debt,” but I think, you know, it’s funny. Back to that point you know overall, I’ve seen – this is – I’m going into my 21st year of this industry, and people on average I feel are better stewards with their money than they used to be.

Like I look back in the mid-200s, it was a lot different. People were always coming to me very indebted, not that everyone’s perfect now but it just seems like people are better educated and better stewards overall from what I’ve seen. It’s been a choppy market and I think we could be in for higher rates for some time unless we see some big global macro event.

You know, a bank failure or unemployment spike or, you know, GDP really collapse, those sort of catalysts would cause rates to get worse. On the bright side, most markets around the country, inventory levels are low and there’s just not enough homes. So home prices have continued to go up in most areas and that’s been a challenge too because you have higher interest rates and higher home prices.

I don’t think home prices are going to fall, given the inventory levels, because that’s how you measure price stabilities, inventory. I mean, there’s always areas that are going to be suffering more than others. So we can’t generalize that every city is the same but the majority of the cities in the US right now have a lack of inventory and that’s causing prices to be stable and even going up despite the headwinds.

[0:04:40.0] TU1: Yeah, and it feels like there’s several factors, you know, we’ve talked about this before on the show about inventory being an issue. Obviously, rates where they are, which I think is putting a lot of pressure on first-time homebuyers.

We’re going to talk in a little bit about student loans here coming back online and the impact of that for first-time home buyers and then I think there’s the reality of, you know, Jess and I talk about this often, so many of us that locked in homes at the high twos and low threes pre-pandemic and the beginning of the pandemic, unless there’s a significant reason to move, a lot of people are saying, “I don’t want to give up that rate,” right? “Why would I give up you know, 2.8, 2.8, 3% to take on a 7% plus rate?” So I suspect that probably is worsening, you know, some of the supply and demand as well, is that fair?

[0:05:26.1] TU2: Absolutely, I think that’s a big, very fair, big driver of why inventory’s tight, right? Because people, even though they may need a bigger home, their family’s grown, they don’t want to give up that interest rate. But it’s interesting, we’re starting to see, and it’s just a few cases, but I’m starting to see people that have so much equity. They have that 30-year at 3% but they have so much equity and they built up other debts. So you know, credit card debt mainly. Other liabilities, auto loans that are higher interest rates than that, where even if you took a rate in the sixes to cash out, refinance it, and pay off your debt, you’re saving a thousand dollars a month in cash flow.

So I think, at some point, you know, being married to that super low rate on a small loan balance, even a higher mortgage rate could pay off for some people to consolidate because cash flow is the key, right? Payments, what you’re paying. And it’s not all about rate one mortgage, you gotta look at your whole debt profile but there are a lot of people with those low rates and it’s just one of those things, right? You know, you don’t want to move when you’ve got a payment like that and even though you have but you are sitting on a lot of equity.

[0:06:36.3] TU1: Yeah, it’s interesting. I appreciate the comment about looking at the whole portfolio. You know, something like debt consolidation may be a factor or you know, to your point, where at one point in time, especially as you’re getting started and you don’t have a lot of equity, that low rate can be a huge advantage but at some point, you’ve got a lot of equity that’s sitting in your home, right? And depending on what else is going on in the financial plan, there may be other options to consider.

So today, Tony, we’re going to cover a checklist for first-time home buyers that includes determining how much one can purchase. We’ll talk about affordability, evaluating the loan options that are out there, factors in choosing a lender, and also in selecting a real estate agent. So let’s go through this one by one. First on our checklist is the determination of affordability, right?

Relevant topic just given what we talked about here over the last few minutes. I think as we’ve seen, as you mentioned, escalation or at least stability of home prices, rising interest rates, we talked about that and for many of our first-time home buyers, federal student loan payments are going to be coming back online for the first time in over three and a half years.

All of this is putting pressure on affordability, especially again for those first-time home buyers that may not have equity built up in a previous home. So let’s start with how the bank determines affordability, AKA, how much mortgage they will approve, and then we can talk about how the individual may also determine affordability. So give us the rundown. I know this is fluid in some cases but how does the bank look at the affordability of how much home one can ultimately afford?

[0:08:08.9] TU2: Sure. Well, you know, for the majority of the products, Tim, the debt-to-income ratio that we look for is 43%. So what that means, debt-to-income ratio, is your total income, total debt, your debts cannot be higher than 43% of your income. Now, that’s gross monthly income, okay?

So if you’re W2 wage earner, then it’s going to be before tax, right? So that’s going to be – a quick example, if you make USD 10,000 in household income per month, your total liabilities including that new mortgage payment cannot exceed 4,300. So that would be the basic calculation of a debt-to-income ratio. That’s what the majority of lenders look at. Now, there’s ways to get like, we do have the ability, especially for those who are putting more money down like more than putting 20% down for example, we do have the ability a lot of times to go up as high as 50% debt-to-income ratio.

But you typically have to have compensating factors like, you know, 20% down or more, higher credit scores, you know, liquidity, things like that. So that’s normally when you see some of the higher debt-to-income ratios but I would say 43 is where you want to be at for a safe number. That’s what the majority of the lenders in our country are going to look at.

[0:09:33.4] TU1: And just to reinforce what you said, that’s not just mortgage payment, that’s total debt loads, right? So if there’s debt commitments, that could be credit card, debt commitments to car payments.

[0:09:43.7] TU2: Right.

[0:09:44.1] TU1: Debt commitments to student loans. Let’s talk about that for a moment. So we, again, we’re coming back online here in the fall. Many of our listeners, especially first-time homebuyers, may have upwards of USD 200,000 or more of student loan debt.

Now, depending on how they pay that off, they could very aggressively pay it off if they want to. The standard repayment is a 10-year default option, in that case, they would be looking at monthly payments, 1,800 to USD 2,000 a month, or they could take that out over a longer period of time, which is probably most common, on something like an income-driven repayment plan, which will lower their monthly payment.

So lots of nuances in student loans and I’m curious to hear from your perspective as a lender, someone who has had a lot of experience in this industry, working with pharmacists as well, how do they look at the student loans?

[0:10:31.5] TU2: Well, it is, it’s a great question. I mean, the first thing is normally, I find that the income-based repayment plan is going to give you, especially now, it’s going to probably give you the best ratios for most of our listeners, for most of our potential clients here. There is a factor we use.

For example, if there was no payment, right? Or if you’re in sort of deferment, we’re going to use a factor of the student loans, which is better than like Fannie Mae, Freddie Mac, and FHA would use but that factor can still be higher than what most have as an income-based repayment, I find.

But there is the factor that we use for the student loan payments that we’ll use to kind of generate a payment that will service that liabilities monthly obligation, and that factor again is less than like, for example, Fannie, Freddie are 1% of the balance per month. So if it’s a USD 200,000 balance, you’re at USD 2,000 per month.

[0:11:30.4] TU1: Yeah.

[0:11:30.8] TU2: Which is pretty unaffordable. This product is 0.5%, which is still high. I mean, at 200,000, it will be a thousand a month. So it’s a more generous way but it’s not, I find that the income-based repayment is typically better. So that’s normally what we recommend.

[0:11:50.9] TU1: I’m glad you brought that up because we do have people that may be deferring for whatever reason. Obviously, we’re in the pause period right now. So understanding again, we talk about all the time that we can’t be thinking about one part of the financial plan in a silo. This is a great example where how you approach your student loan may certainly have an impact on affordability and determination on the mortgage side.

Tony, you mentioned just a few moments ago that something like a higher credit score or greater down payment may be able to push that percentage upwards from 43%. Can the opposite be true? So, you know, a low down payment, and we’ll talk about different financing options here in a little bit, or a lower credit score, could that ultimately work in the opposite direction where maybe it’s not 43% but it’s a lower percentage?

[0:12:38.9] TU2: Sometimes yes. Yeah, there is such scenarios where it might need to be – if the credit score is rocky, although I mean, when we have a little bit of a credit challenge with low down payment, I always look for FHA loans because conventional the answer would be yes, there would be some challenges with Fannie Mae, Freddie Mac, conventional loans.

But with FHA, that serves as a good niche there and FHA serves that market really well. A lot of times, the interest rates are much better too for that borrower that has a little bit of a credit ding for conventional style, will pivot to that product but yeah, that is exactly right. If you have a higher debt-to-income ratio, low down payment, it’s going to be a more challenging situation for sure.

[0:13:26.5] TU1: So we’re talking here about you know, affordability. What the bank is going to determine that they are comfortable lending you with, and it’s important to call out and remember that the bank’s calculation ultimately is a CYA for the bank, right? It’s to minimize their risk on you as the “lendee” for closing on that loan.

So they’re trying to determine the likelihood of being able to repay that loan but it’s certainly not a calculation to determine what is or is not ultimately in your best interest with looking at the whole of the financial plan, right? It’s really on the individual borrower to determine what the monthly budget can afford with other goals and priorities in mind and that is a huge piece to consider.

We often say, Tony, that someone really should start with their own budget, and then obviously, there’s going to be most often, maybe a bigger number in terms of what the bank will determine as affordable and to be able to reconcile that as they go out and search homes. What we’re trying to really do is prevent a situation where someone gets into a home and then pay cut, temporary job loss, something happens and they feel like they’re really strapped month to month. So I would really encourage people, when they look at personal affordability, to answer the question, how much of your monthly take-home pay do you want to be taken up from a home purchase? And being able to feel comfortable with that.

And this is really a place to mention, you know, principle interest, taxes, and insurance is certainly a portion of that but there’s a lot of other things that we need to be thinking about, right? It could be association fees, it could be maintenance, it could be upgrades. We all know getting into home, things break, we want to upgrade things and so making sure we’ve got margin in the budget to be able to do that as well is really, really important.

[0:15:09.1] TU2: HOA fees are going to be included so if homeowner’s association fees, something else called CDD fees, which are community which developers pass along to the new homeowner in a lot of parts of the country for new construction communities and those can be, they’re like a non-Ad Valorem tax that gets added on to your property taxes.

Those are another cost that’s factored into the debt ratios and so that’s something to consider but again, yes, home repairs, furnishing, all that has to be considered. Just because the lender says, “We can give you this loan,” it doesn’t mean it’s what is best for you.

[0:15:51.6] TU1: So that’s number one on our checklist. Number two for our checklist for first-time home buyers is evaluating the different loan options. Tony, something we’ve talked about before in the show and we’ll link in the show notes to some of those previous episodes where folks can dig in in more detail but it’s worth revisiting as it’s an important part, a really important part for a prospective homebuyer to understand the various options and products that are out there.

You’ve already mentioned a couple of these, FHA, you mentioned the conventional loans offered through Fannie Mae and Freddie Mac. Give us a brief overview of the traditional lending options that are available for our first-time home buyer, and then we’ll also talk in more detail about the pharmacist home loan option available through First Horizon.

[0:16:33.0] TU2: Sure. So there are a lot of programs available for first-time home buyers and for residential financing in particular. I mean, you’ll hear some things in the media about financing tightening up, lending tightening up. It’s primarily on the commercial side and some of the high-end bank portfolio side, whether they’re, you know, you have two million dollar loans, stuff is tightening. But there’s a tremendous amount of liquidity for first-time home buyers. So I would ignore a lot of what you hear, you know, in the media regarding that.

The first product I’ll mention, which I mentioned earlier, FHA is a very common program for first-time home buyers, especially if your credit is a little lower, if it’s under 680. A lot of times, that’s the best product option from a rate perspective. The benefits of it is you can put as little as three and a half percent down and the loan limits are going to differ by county. So it’s going to depend on what county you’re buying in and that will determine the loan limit, the max loan limit available.

The downside of FHA is it’s got permanent lifetime mortgage insurance. You cannot get rid of the mortgage insurance for the life of the loan. It’s always going to be on the loan and it’s something that gets added on to that monthly payment every month. So that’s the downside of FHA but one of the positives of FHA, and I write a few of these a year, is that it’s the best primary multi-family loan program out there.

I have some really good success stories over the years of young professionals buying triplexes and fourplexes and duplexes, living in one unit, renting the rest of them and it becomes this great lifetime asset. So there are some benefits to FHA financing. There are some good things, some flexibility on down payments and you can get gift funds and so forth, so there are some good things there.

The other is Fannie Mae and Freddie Mac, which are conventional loan programs. They have, again, some really good programs here as far as you know, 3% down, 5% down options. The PMI on those loans is not lifetime, it can be removed, typically after two years of paying it and even sooner if you come up with the down payment.

Like for example, I’ve had clients that put 10% down, and then literally, six months later they say, “Hey, you know, we ended up coming up with another 10% and we want to put it down and get rid of that MI,” and you can do that, you can do it within that two years. It’s based on the original purchase price but you can get rid of the MI that way too.

And then the other side of that is, we’re starting to see and this is, again, I gotta be careful how I say this but I’m based in Florida so I’m really familiar with these programs in Florida but there’s some state-based programs for first-time home buyers.

Like, we have one in Florida right now where you can essentially get 100% financing. We’ll do a Fannie Mae first mortgage or Freddie Mac first mortgage, and then the state will give you a second at 0% and there’s income caps on that one and the majority of your listeners, Tim, are probably not going to qualify for these interstates because there’s income caps. Like, you can’t earn over a certain limit. The Florida one is very generous, it’s 130,000. So that’s one of the highest I’ve ever heard of but that we’ve got some loans we’re working on here for that down here in Florida but there’s some nichey programs that can fall on our conventional with certain states.

Then the other – I say, the last one is going to be sparingly used, but VA loans. If you have someone that’s a first-time homebuyer or even if their spouse served in the military, VA is a great program for buyers. I mean, it’s just tremendous. No PMI, 100% financing, and some of the best interest rates on the market. We have no lender fees for them. It’s a very, very good program for that audience.

And then lastly, you know, the nichey programs like the one we offer for pharmacists and professionals with no PMI and again, you have to be a pharmacist or be in a certain field to qualify. But that can be as little as 3% down with no PMI if you’re a first-time home buyer and 5% down if you’ve owned before and that loan amount will go all the way up to USD 727,000. So it really covers the majority of first-time home buyers, maybe except those in California, you know, it is still pretty expensive there but for the majority of our audience, that will satisfy that need.

[0:21:17.9] TU1: Great overview Tony, I think that highlights well, you know, we’ll talk in a moment here about choosing a lender but when working with a lender, especially one that’s well-versed in all the options and nuances especially, you know, you’ve referenced several times here different cases where, you know, in working with many pharmacists, people have maybe done a house hack. That might be really attractive for an FHA. Or got a low credit score, maybe an FHA or availability of down payment or access to a VA loan and I’m not from there, it’s the first time I’m hearing about some of the state-based programs. So you know certainly, your expertise in Florida, although you work with pharmacists and others across the country as well.

So I think that’s an interesting one for our community to look into further and I know we do have folks that are listening in Florida that may be just hovering around that one, you know, 30 mark. So depending on applicability, I think that would be worth reaching out to inquire more about as well. I want to make sure our folks are well aware of the pharmacist home loan option via First Horizon.

You just covered some of the basics in terms of down payment, maximum loan amount. One of the reasons that we’ve been excited about this collaboration over the years is the national availability and the lower 48 of this product, knowing that our community is based all across the country. Tell us just a little bit more about that eligibility. You know, I’m thinking about things like credit scores.

So you mentioned no PMI, you mentioned the down payment, you mentioned the loan limits but are there folks where credit score may become an issue here that would point them to an FHA loan? Any other details that individuals need to be aware with this product?

[0:22:49.3] TU2: Sure, sure, good question. The minimum credit score, there’s no maximum but the minimum credit score is 700. So 700 is going to be the minimum credit score for the product and then if you’re under that, we do have ways to help boost credit scores. We have a technology where we can evaluate credit and we can actually see what your score can get to by certain activities, paying certain debts down, maybe a percentage of your credit card, and we’ve helped numerous clients with that. You know, it is almost on a monthly basis. That’s a good tool to get the credit scores higher but 700 is kind of that line in the sand. We can’t go below that for the no MI product, so it’s going to be your minimum score.

You know, as far as the overview of the product, what I love about it is there’s no reserve requirements. A lot of these products have hefty reserve requirements and we don’t have that for it because that really helps first-time home buyers that may not have a lot of savings built up yet or investments built up yet. There’s also no prepayment penalty, which I think is very important because I really believe in the next two years that we’re going to see some really good opportunities to refinance.

That’s why I still think it’s a good time to buy because the inventory levels are low, prices are stable, you can get a better deal than you could a few years ago when the market was so hot you couldn’t even order an appraisal sometimes. It’s still one of those times where I think you’re going to have a chance to get the home you need, build that, and actually have a chance to lower your payments in the future.

I do think we’re going to see that happen. The other variable would just be, we only offer a fixed rate on the product, so it is only a 30-year fixed on this particular option, there’s no 15-year. The last thing I will mention too is it does a lot of duplexes, the three and the fourplexes are allowed but it requires a pretty hefty down payment, it’s usually 20%, where the duplex is only 15% with no MI.

So we’ve used that a few times for pharmacists that want to get into their first property and utilize this program. Quick high level of it. To me, the biggest factors are the no MI, no prepayment penalty, and the flexibility on reserve.

[0:25:10.2] TU1: I’m glad you mentioned the reserve requirement because I think that’s something we’re going to be seeing as more of an issue. You mentioned first-time home buyers naturally that is but especially with student loan payments coming back online that are going to eat into the ability to be able to save up those reserves. Over time, I think that is going to be an important factor that individuals are looking for.

We’ve got some great information on the website, we’ll link to in the show notes as well. You can to yourfinancialpharmacist.com/home-loan, click on “get started,” we’ve got a brief form that you can fill out, and then we’ll get you connected with Tony so you can learn more about that product.

Tony, third on our checklist for first-time home buyers is choosing a lender and getting pre-approval. Obviously, you’re biased in terms of the work that you do for good reasons and the value that you provided to many pharmacists out there that are listening, but from your perspective, what are some of the top factors that one should be looking for when choosing with a lender that they want to move forward with?

[0:26:06.9] TU2: Sure. You know, I would say communication is one of the biggest pieces. Being able to communicate is critical in this process because there’s a lot of questions, there’s a lot of things that come up in the home-buying process, so I say communication is number one. The other piece would be service.

You know, I think a mistake a lot of people make is they kind of chase interest rates on the Internet and it can backfire because a lot of times, that’s how they get you in the door to call them and things change once you get in the door and get the application in and the, you know, I think that the service side, being able to close on time, meet the milestones of your contract is really important.

So finding a lender that communicates well but also can meet all those timelines, can close quickly if you need to because if someone – you can close in three weeks or under 30 days. Sometimes, you can go back to the seller and save five, USD 10,000 on the purchase price of the home. It’s a big deal, so I think having bid.

I think in service of meeting the commitment letter date, making sure you use local appraisers. Because some of the bigger lenders will actually use an appraisal management service, where you can have more challenges with the appraisal process than some of the smaller local lenders. So I think that again, it’s a comfort feeling, it’s communication, it’s service, and then having a competitive product I think is important too. You know, having a product that’s a good fit for your needs is important as well. I think those three.

There are a lot of good lenders out there. There really are. It’s getting hard. It’s tough on the lending industry, the volumes have dropped 40% from last year. A lot of lenders are leaving the business, so it is a much tougher environment for the mortgage market right now but there are still good lenders out there for sure.

[0:28:00.3] TU1: Once somebody choose a lender, quickly after that is going to become a preapproval so they can go out there seriously look at homes, be ready to make offers and I think this is an area we see a lot of confusion on partly because of the online shopping of rates and quick access and easy solutions and that being the preapproval versus the prequalification. So tell us briefly about the difference and why the preapproval process is so important.

[0:28:24.3] TU2: So when you go looking for homes, a lot of the real estate agents will ask you, and now we’re going to talk about real estate agents shortly, but they’re going to say, “Do you have a preapproval letter?” You know, that’s going to be the first thing before they even want to engage with you, they’re going to want to make sure you have that and the difference between the preapproval and prequalification are that the lender has checked your income, and checked your credit report.

Those are the two major factors, right? We verified the income, we verified your credit. The prequalification, which a lot of us can get online, is pretty simple. It’s more verbal than anything, right? So verbal verification, where a preapproval, you are actually providing the information to the lender and they’re reviewing it and making sure that from a high level, your income is accurate and your debt-to-income ratio works.

A lot of listing agents won’t even allow you into the property unless you first get that preapproval. It’s either, “Can you pay cash or do you have a preapproval?” Because they call us. We get calls from the listing agents all the time, “Is this client qualified?” And that’s a big factor when you make an offer, is what does that preapproval letter say? And because there’s still multiple offers and sometimes, you know, multiple buyers looking at a home, we still get those phone calls and that I think is very important to have a strong preapproval. That’s going to be the factor in a lot of times, moving forward and it gives you peace of mind.

I understand, you know, “Hey, I don’t want my credit run,” things like that and you know an inquiry on a credit report, having one or two lenders look at it is going to have no impact on your report. It’s when you have multiple types of creditors looking at one time. So if you come to our team and get your credit run and then you go to Bank of America and have them run your credit for a mortgage but then you have Dillard’s run your credit for a credit card, you have Macy’s run your credit for a credit card, and you have a car loan, well, those are different types of creditors all at one time that will impact for sure, but it still won’t be much, it will be a few points.

Where I find people get confused on this and start to go off on a credit tangent is, you know, you can go to a Best Buy, right? And buy a TV and they’ll say, “Okay, here’s that USD 2,000 TV with no interest for a year if you take this credit” and so many people will do that. That will whack your score 40 to 50 points immediately because it shows up as a maxed-out credit card.

[0:30:51.3] TU1: Yep, high utilization.

[0:30:52.7] TU2: Those are misconceptions, I see a lot of borrowers, especially first-time home buyers, will come to me so concerned about an inquiry and they have things like that or their credit card been up to – much more impactful and on [inaudible 0:31:09.0] but yeah, it is a critical thing to have a preapproval in my opinion especially your first time out.

[0:31:17.6] TU1: So glad you mentioned about credit. I remember you saying that on a previous episode and I think that’s just a lot of ways in there, right? Because we often think about it, you know, if you’ve got a personal credit card with a max of 20, USD 25,000 and you’re charging on average three or USD 4,000 a month, you’re at a reasonable percentage of utilization that’s not going to have a negative impact on your score.

In fact, you know, utilization and timely path of credit can have a positive impact on your score but if you go out and buy a piece of furniture, a TV, or whatever, that essentially looks like a maxed-out credit card so that can have a negative impact, great point there. So we’ve talked about affordability, we’ve talked about evaluating loan options, we’ve talked about choosing a lender and getting approval.

And fourth on our checklist is choosing a real estate agent and I would certainly want to give a shoutout here to Nate Hedrick, who is a frequent guest on the YFP Podcast, cohost of The Real Estate Investing Podcast, who has a home buying concierge service intended to connect folks with an agent local in their area. We’ve got more information on the website that we’ll link to in the show notes.

I’m certainly interested, Tony, in your experiences over two decades now, where you regularly work with agents. What are the characteristics that make up a good agent that someone can be looking for when choosing who they want to ultimately go forward with?

[0:32:33.1] TU2: Yeah, a great question and I’m going to bring up something else about agents here in a minute that could change the framework of the industry here very soon but a couple high-level points. I think, you know, the first thing would be, obviously, back to the same thing as the lenders is communication, right? Communication and that rapport is very important and the other piece is just doing their homework, right? What you’re looking for.

I mean, some agents will come to us, and I’ll just give an example real quick when we do conventional loans for 20% down through Fannie Mae and Freddie Mac, oftentimes we’ll get an appraisal waiver. So that means there’s no appraisal needed. Now, you could still do an appraisal as a buyer but oftentimes, when they get that, they want to waive it because they save the appraisal fee.

A lot of the good agents will do so much work on comping the home out and the offer price and knowing what the comps are, those borrowers will feel comfortable moving forward without the appraisal, right? Because of the work that agent has done. So I think just knowledge of the area, knowledge of the process, communication, do they have a good reputation with other listing agents?

That is huge, I mean, I find that some of the – I work with a lot of realtors just around here in Tampa especially but I have some in other states. It’s amazing, even not where I can see them face to face all the time. In fact, I had a Zoom call with a great friend of mine in Miami that has a big team and we would talk this morning to his team at nine just about the market and what we’re seeing.

But I think just seeing these agents that I have worked with around rather for a long time, ten-plus years, is the ones that play well with everyone else and have a good reputation, when they bring a buyer to that other list, that other realtor’s listing, guess who gets, “Hey, this guy, he knows he’s bringing a qualified buyer. He’s not playing games, he negotiates the right way.”

So I think having a good reputation is really important and that brings me to something else which I’m kind of following from a distance but it is going to be huge for the real estate industry, and I think for the entire residential industry is right now, the Supreme Court is reviewing a case with the National Association of Realtors and basically to summarize this case is it’s going to eliminate most parts of the country.

When you as a buyer go buy a home, the commissions are paid from the seller’s proceeds, right? So the [inaudible 0:35:03.5] who represents the seller will get 3% or 2%, whatever it might be for that area and then the buyer’s agent will get the same, right? Two and a half, 3%, whatever it might be. Well, under this new rule, it would be more like the commercial market, where a buyer of a commercial piece of property in a lot of cases pays their broker out of their own pocket, right? So they pay the 3% out of their own pocket.

Well, this is really significant for the entire industry, because however you’re going to source business as a real estate agent, your buyers are going to have to be educated now because they’re going to be responsible before your pay because of this new Supreme Court ruling not allowing the listing agent. So there is a lot of moving parts here, I don’t want to speculate.

[0:35:50.0] TU1: Wow.

[0:35:50.2] TU2: But it is a huge thing that I think not a lot of people know about. Some of the big real estate companies are talking about it but it’s a huge deal because in my mind, I’m looking at it I’m like, “Well, what do we do?” So you know, we do allow 3% seller concessions, can we increase the loan amount to cover part of it? I mean, is that going to still be allowed? Because a lot of first-time home buyers are going to be impacted [inaudible 0:36:14.4] either agent two and a half, 3% of the sales price, right?

So I think in the end, it’s going to be net-net the same day everyone because it’s going to mean, “All right, so the price is a little lower because you are paying that extra 3% directly,” but it could end up being, “Hey, you have to come up with more money at closing.” So this is a moving conversation.

I haven’t followed it close enough to know exactly when it’s going to come out. I don’t think the industry knows when the ruling is actually going to come out and which way it’s going to go but it’s like a lot of really smart people in the real estate business I’ve spoken to have told me that they think it’s going to pass or it’s going to change the dynamics of the industry.

So it’s just something to watch and if you’re kind of on the fence now buy, I would say, you’re going to buy and you’re going to be – you know, kind of my thoughts on buying is if you’re going to be in a city for five years or more, it’s almost a no brainer to buy. I mean, even if property values fail by 5% or 10% or whatever, between amortization, tax deductions, escalations annually, it’s hard to lose.

I mean, home ownership in the long run is just one of the best wealth-building tools, probably a good idea to do it before that ruling, right? If it does end up going the other way and you gotta come up with that additional 3% for your agent because it’s really going to change a lot of dynamics.

[0:37:39.3] TU1: Certainly a lot to follow there and a couple of thoughts are coming to mind, Tony, was one, you know the implications of a buyer now having to come forward with those dollars, right? Already – especially first-time home buyers, you know bringing cash to the table can be a challenge, and then I thought about the characteristics you listed off of a good agent.

You know, excellent communication, experience I think is one that is really significant. You see a huge range of experience and expertise and agents in terms of how many homes are they selling or working with the buyer-seller throughout the year, and for how many years? And then reputation in terms of reputation with other agents, are they kind, do they do business in a good way? But those characteristics I think, especially with that responsibility, potentially falling on the buyer. You know, anytime somebody has skin in the game now, they’re going to be looking for more of that, right? Whereas, I think right now, the bar of entry and to somebody choosing an agent is probably pretty low because they’re not necessarily feeling the financial transaction of that.

So great insights, that’s something we’ll be following as well and really appreciate your perspective as we went through this checklist as well. For folks that want to get connected with Tony and learn more, make sure to check out, yourfinancialpharmacist.com/home-loan. You can click on “get started” and we’ll make sure to get you over to Tony. As always, Tony, I really appreciate your perspective and having you on the show.

[0:39:00.5] TU2: Thanks for having me, always great to be here. Thank you.

[END OF INTERVIEW]

[0:39:04.2] TU1: Before we wrap up today’s show, I want to again, thank this week’s sponsor of the Your Financial Pharmacist Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home.

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

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

[DISCLAIMER]

[0:39:48.9] TU1: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only, and it is not intended to provide and should not be relied on for investment or any other advice. Information on the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

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

[END]

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YFP 321: Navigating Financial Conversations with Aging Parents

Posted on August 17, 2023August 15, 2023 by Tim U

Award-winning journalist and author Cameron Huddleston joins the YFP Podcast to talk about navigating financial conversations with aging parents.

About Today’s Guest

Cameron Huddleston is an author, speaker and award-winning journalist with 20 years of experience writing about personal finance. Her work has appeared in Forbes, Kiplinger’s Personal Finance, Chicago Tribune, MSN, Yahoo and many more print and online publications. She is a mom of three awesome kids and was a caregiver for her own mom, who had Alzheimer’s disease. SHe is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.

Episode Summary

Money talk isn’t always easy to initiate, but in some cases it’s essential. Today, we are joined by award-winning journalist and author of Mom and Dad, We Need to Talk, Cameron Huddleston, to discuss the often-overlooked topic of navigating financial conversations and decisions with aging parents. Cameron shares key insights into why these discussions are crucial, how to approach them with love and respect, and practical strategies to initiate meaningful dialogues. We discover the importance of estate planning documents, ways to involve siblings harmoniously, and the significance of long-term care planning to ensure a secure future for both parents and their adult children. Tune in to gain valuable advice and actionable steps to foster open, productive conversations that empower families to address financial matters and caregiving needs with confidence and compassion.

Key Points From the Episode

Introducing award-winning journalist and author, Cameron Huddleston.
Insight into her book Mom and Dad, We Need to Talk.
The importance of talking to aging parents about their finances and long-term care planning.
Key fears preventing people from having these conversations.
Strategies to initiate conversations with parents about their finances.
Why it’s important to involve siblings in these discussions.
The basics you need to cover in these conversations.
Cameron offers listeners a free In Case of Emergency (ICE) Organizer.
What to discuss with regard to long-term care planning.
The emotional toll of being an unpaid family caregiver.

Episode Highlights

“The benefit of having these conversations sooner rather than later is that you can avoid some of the emotional reactions that can crop up.” — @CHLebedinsky [0:08:34]

“If you wait until [your aging parents] are no longer mentally able to make decisions on their own, then they’re not going to be able to sign the document and you have to go through the court process of becoming their conservator.” — @CHLebedinsky [0:15:18]

“It’s a good idea, when talking to your siblings, to talk a little bit about what roles each of you is willing to play in your parents’ financial lives as they age.” — @CHLebedinsky [0:21:00]

“More than half of adults 65 and older will need long-term care at some point.” — @CHLebedinsky [0:25:46]

“If you make a plan, you have more options available to you. If you wait until that emergency — you can’t get long-term care insurance once you already need it.” — @CHLebedinsky [0:28:37]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

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

This week, I welcome back onto the show, Cameron Huddleston. Cameron is an experienced award-winning journalist and author of Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents about Their Finances. We talk through why it is important to have these conversations with your parents, how to start the conversations, and what to do if your parents are reluctant to talk.

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

[YFP MESSAGE]

[0:00:37.5] JW: Hey, Your Financial Pharmacist community, it’s Justin Woods, director of business development at YFP. I’m curious, have you taken a pulse on your financial health lately? It’s so easy to get swept away by the day-to-day of careers, family, and life in general but now is a great time to hit the brakes and check in to see how financially fit you are. Are you heading in the right direction to meet your financial goals?

Is your retirement planning on track? Do you have adequate insurance in place? We created a five-minute financial fitness test so that you can learn about the areas of your financial plan that you may need to work on, maybe where you’re crushing it, and resources that could help you along the way. So head on over to yourfinancialpharmacist.com/fitness, to see how your financial health is tracking.

Again, that’s yourfinancialpharmacist.com/fitness or click the link in the show notes below.

[INTERVIEW]

[0:01:31.3] TU: Cameron, welcome back to the show.

[0:01:33.0] CH: Thanks so much for having me.

[0:01:35.1] TU: I’m so glad to have you back and today, we’re going to be doing a deep dive into a difficult, yet very important topic and that is navigating financial conversations and decisions with aging parents, and Cameron, for our listeners that didn’t previously catch you on the YFP Podcast several years back, tell us why this topic is so important to you, such as it has led to you to speak and write extensively on this topic, including the work that you did in your book, Mom and Dad, We Need to Talk.

[0:02:05.5] CH: You know, it’s funny, I never set out to be an expert on having family money conversations, yet, I have found myself in this position largely because of personal experience. I have been a personal finance journalist for more than 20 years and when I was 35 and my mom was 65, she was diagnosed with Alzheimer’s disease and I found myself having to get involved with her care and get involved with her finances.

But we had never had any detailed conversations about her finances and you know, looking back, I think, “Oh gosh, I should have known better, I was a financial journalist, I should have had these conversations with my mom” but it never crossed my mind that I needed to talk to my mom about her finances and so then, I found myself having to play detective to get the details I needed about her finances as she was forgetting those details herself.

So that experience prompted me to write a book, to help people realize the importance of having these conversations before there’s an emergency. You know also, my dad’s story played a role on this too. He died at 61 without a will and he was in a second marriage and he was an attorney. He should have known better. He should have had estate planning documents and it came as a huge shock to me that he didn’t.

You know a lot of times, we think our parents are on top of things or they might tell us that they are but are they really? And then you start to ask questions and you find out that they’re not as prepared as you think they are and so I just really want people to realize that these conversations are so important because there will come a point when you have to get involved with your parent’s finances, either if they need care or help as they get older or when they pass away and you have to manage what is left behind.

[0:04:04.1] TU: Yeah, Cameron, your story really resonates with me and I suspect that our audience as well. One of the things I shared with you before we hit record is that we’re seeing more and more folks in our community that are challenged, you know, with being stuck in terms of having, obviously, their own financial situation, perhaps young or growing family that is presenting financial needs and now there’s this component with aging and elderly parents that you know, may not only be difficult conversations but also there may be really real financial impact on their own situation as well.

And so I think you know, your story and what you mentioned about you know, your father being an attorney, somebody that knows the importance of these documents and not having them in place really speaks to just how emotional and challenging this topic can be and that’s really where I want to start, right? Because I think that for those that have aging adult parents, very common situation where the fears that surface when we consider talking about money with our parents.

I know it’s something that I have felt myself and so much so that in the book that you wrote, Mom and Dad, We Need to Talk, you referenced a study from a care.com survey, showing that more than half of parents would rather have the sex talk with their kids than talk to their parents about money and aging issues. What are some of the fears that are holding people back from having these crucial conversations, right? After all, we know that they’re essential ones to have.

[0:05:32.1] CH: One of the big ones is that we are afraid if we have these conversations, our parents might think we’re being greedy, especially if you want to ask about those estate planning documents. We’re afraid if I ask Mom and Dad if they have a will or a trust, they’re going to think that I’m just trying to find out what I’m going to get when they die and so it’s a logical fear for sure.

You know, we might be afraid that our parents are thinking we’re being nosey because most people are pretty tight-lipped about their finances. We might be afraid that our parents are going to get angry with us and it’s going to create a rift in our relationship. I think though if you approach these conversations out of love and respect.

[0:06:18.0] TU: Yes.

[0:06:19.7] CH: Then you’re not going to make your parents angry, they might be a little surprised initially that you want to address this topic but if you let them know that you are looking out for their best interest, that you want to know what their wishes are so that you can honor those wishes, they hopefully will recognize the value in having this conversation and they’re not going to think that you’re just trying to figure out how much money you’re going to get when they die, especially as long as you don’t start the conversation that way.

You know, you don’t want to say, “Hey, do you have a will? I want to know what I’m getting.” Of course, they’re going to think you’re being greedy at that point but if you let them know, “Hey, I want to know what your wishes are so I can honor them” then you’re opening the door to having a productive conversation.

[0:07:16.5] TU: Yeah. You know, what really stands out to me there, Cameron, is honor, love, and respect, three words that you use there and I think if that’s the backdrop and the intention of a conversation, it doesn’t mean it’s going to be an easy conversation, right? We still may stumble through it and it’s challenging but I think the outcome of that is likely to be much more fruitful, fit in the spirit of that.

And as I shared with you previously, that is something I have struggled with personally, is that fear and sometimes it’s a story I tell myself but that fear that out of initiating these conversations, there could be a perception of greed, and while I know my heart is not in that place, you know, that is a concern, and I think some of the strategies that you talk about in the book to initiating these conversations.

I think, really, coming at it from a perspective of honoring their wishes as you said, and to be fair, there’s also a personal responsibility that I feel to my family and our financial plan, why I think both of our parents have done a phenomenal job in planning, you know, depending on long-term care, a topic we’ll talk about here in a little bit, and the expenses that may or may not come that could be a financial burden and implication on our family, on our personal finances and so I think there is a responsibility to lean into this conversation from that end as well.

[0:08:32.0] CH: I was going to point out that the benefit of having these conversations sooner rather than later is that you can avoid some of the emotional reactions that can crop up if you wait until an emergency. If you were talking to your parents about their estate planning, their retirement planning, their long-term care planning while they’re still relatively young and healthy, you’re talking about “what if” scenarios.

“What if this were to happen, what do you want?” As supposed to waiting until there has been that diagnosis of dementia or a cancer diagnosis or whatever. At that point, you are in a crisis, and trying to sort out the financial side of things is going to be a lot more difficult because you’re not talking about a “what if” scenario. You’re talking about, “Hey, you probably need my help now we don’t have a plan, I need to get involved” and that makes it a lot more challenging to have constructive conversations at that point.

[0:09:41.1] TU: Yeah, that’s such a great point that you bring up because one of the traps, and you talk about this in the book, is assuming that a conversation can wait, right? And I think that’s another reason where, you know, having the conversation as early as possible before those situations are live and real and you’re in the moment, I think can really help with managing that conversation in a much more effective and productive way.

Cameron, one of the things I was thinking about is I find this cycle very interesting, right? When I think about the generational patterns that you often see with how we handle our money, right? So I talk with many pharmacists that grew up in a household where money is a taboo topic, right? So there is from the parent to the child relationship where maybe they’re not given the financial vocabulary or it’s a common place to have an open conversation about money and then you see this pattern repeat in reverse, child to parent, later in life or maybe they’re not comfortable initiating that conversation.

And so I think for our listeners, I share that as hopefully some encouragement to break some of these cycles, right? That might be running generationally as it relates to how we handle our money but it’s so important. One of the implications we see often when we’re working through the financial plan is, it’s not just the exes and O’s, it’s not just the objectives. So much of this topic is emotional.

So much of this topic comes back to how were we raised, what are the money scripts and stories that we grew up with and what are the implications of that on our financial plan.

[0:11:06.0] CH: I agree 100% and I think it’s a really good idea before you start having these conversations to spend a little time thinking about why your parents might be reluctant to have the conversation if you think that they will be reluctant. If money has been a topic that your family has addressed, you know since you were little, then you have a lot less story about and I don’t mean to say that you have a lot to worry about if it wasn’t a topic of conversation in your family but I do think it’s a good idea to think, “Why might my parents be reluctant?”

“Are they embarrassed about their financial situation, do they simply believe that money is a taboo topic? Do they not like the idea of talking about aging in death?” If you can pinpoint the reason they might be reluctant, then you avoid approaching the conversation from that angle. So let’s say, Mom and Dad don’t like to think about death, they never talk about it. So you don’t start by asking them about what sort of estate planning they’ve done.

You choose a different approach, you know, “How’s retirement going for you or what are your plans for retirement?” Something along those lines so that you don’t start the conversation off on the wrong foot because you don’t want them to shut down immediately.

[0:12:24.2] TU: Yeah, such a good point and that’s one of the things that I love about the book is I feel like you give very tangible, practical strategies such as conversation starters, right? Because I think that in theory, a lot of people hear this topic and they’re like, “Yes, I know I need to have these difficult financial conversations with my parents and I can understand why but how do I actually engage?” right?

“How do I begin some of these conversations?” and you give very tangible examples all throughout the book. So I highly encourage our listeners to check out that resource, if they haven’t already done so. One of the things Cameron, you mentioned in the book, is when talking with reluctant parents, how important it is to start with the basics, the must-haves, and then to work from there and then to build upon that.

What do you mean by the basics? What are you referencing there?

[0:13:14.7] CH: I think it is so important to find out if your parents have estate planning documents and I know some people think, “Oh, an estate plan, that’s something only wealthy people do. My parents don’t have a lot of money, I’m sure they haven’t bothered to draft a will or a trust” but all adults, all adults need estate planning documents. Of course, a will or a trust is important to spell out who gets what when you die because, without one, state law is going to determine who gets what and I don’t think a lot of people realize this.

So many adults think, “Well, my family can just sort it out” and that is the worst, the absolute worst approach you can take because you might think everyone gets along but as soon as money comes into play, the dynamics change so quickly. I mean, I’ve heard this from estate planning attorneys, I’ve learned this from personal experience and so, you need to make sure your parents have a will or a trust that spells out who gets what when they die and you need to know where that document is.

Again, you know, say, “Look, we just need to know what your wishes are so that we can honor them and honestly, so we can avoid any fighting down the road.” I think, more important though than that will is a financial power of attorney. The best type to get is a general durable power of attorney, this lets you name someone to make financial decisions and transactions for you if you can’t. General means you’re giving someone broad powers.

Durable means that that power remains in effect once you are no longer mentally competent and so this allows you to plan for dementia and capacity. If it’s not durable, it’s really not going to do you any good and so your parents need to have named someone as their agent under power of attorney. This has to be in place while they are still mentally competent because if you wait until there is a stroke if you wait until they are no longer mentally able to make decisions on their own, then they’re not going to be able to sign the document and you have to go through the core process of becoming their conservator.

It can be very lengthy, it can be very expensive, you know, and I was lucky with my mother because she had some estate planning documents but when she was showing signs of memory loss, I was like, “Let’s go in and get them updated” and fortunately, she was still competent enough to sign those documents. So don’t assume if your parents are starting to show some signs of memory loss that it’s too late.

Meet with an attorney, don’t, please don’t use those inexpensive or no-cost forms that you can get online. If there’s any document that you meet with an attorney to draft, it is that power of attorney document because if you run into issues down the road, you can always get that attorney on the phone with the financial institution to say, “Yes, this document is legitimate, the person was competent when he or she signed it” and so meet with an attorney or make sure your parents meet with an attorney.

But they also need to have a medical power of attorney to name someone to make medical decisions for them if they can’t and they need an advanced directive. It’s also called a living will to spell out what sort of end-of-life medical care they do or do not want. These documents are so important, parents need to have them and you need to know where they are because it’s not going to do you or your parents any good if you can’t find them. Start there, then get more information.

You know, how do they pay their bills, this is part of the emergency planning. If Mom and Dad end up in the hospital and you want to make sure the bills are getting paid while they were in the hospital, you need to know how they’re paid. Are they set up to be paid automatically or are they writing checks? If they’re writing checks, someone else is going to have to be able to sign those checks for them, at least temporarily while they’re in the hospital.

You know and then keep digging, what are their sources of income? You don’t have to know exactly how much money they have but you need to know, are there retirement savings, are they relying solely on social security benefits, is there a pension, you know, is there debt? Again, you don’t need to know down to the last penny how much debt they owe but are they still paying for a mortgage?

Are they still paying for student loans that they took out for you or for themselves or for the grandkids? Whatever, just you know, a general idea is a good start. Of course, the more information you can gather the better because if you end up in a situation like I did where you have to manage your parents’ finances, then you’re going to have to know everything.

[0:17:57.2] TU: So much there to take away and as you talk about in the book, those more advanced types of things, right? You talked about how you’re paying your bills, sources of income, bank accounts, outstanding debts, you know what I think about as like the day-to-day execution, right? You put yourself in the shoes of your parents and you’re responsible for managing that as you mentioned in your own situation, what are the things that you would need to know.

But the importance of starting with the basics and when they are ready to share and when the time is right to be able to come back to those topics. So I think the progression here is a really important thing to highlight and I would just encourage our listeners, you know, Cameron, as you were talking through the estate planning documents, a reminder not only to our listeners for their aging parents but also for them.

Many in our community have a young family, they may not have taken this important step and I think because there often could be fear and emotions around this as we see with many of our financial planning clients this isn’t the most exciting part of the financial plan to be thinking about but it’s so important to consider and it’s something that we’re also not just going to set once and forget but we need to come back throughout time and make sure that those documents are updated.

We talked about the estate planning part of financial planning in great detail in episode 222, we’ll link to that episode in the show notes. I do want to ask you about the sibling component, right? One of the things you just shared is how money can become challenging when you think about the family dynamics, right? That we often hear those horror stories and so that got me thinking as you’re sharing, “Wow, how can even my brother and I prevent some of that?”

How can we get on the same page? And for us, it’s only him and I and I would expect this becomes more challenging with more siblings, more personalities, you know, more brothers and sisters-in-law and so forth, they’re involved. What advice would you have to our listeners that are trying to think about, “How can I best navigate this relationship with my siblings so we are collectively on the same page in these conversations with our parents?

[0:19:54.2] CH: I’m so glad you brought this up because sometimes the sibling dynamic can be more complicated than having the conversations with your parents and so I encourage people to actually talk to their siblings before talking to mom and dad so that they can get on the same page. If you have siblings and you decided to go to mom and dad and have these conversations and you don’t include them, then that can create resentment.

It can create suspicion, “Oh, you talked to Mom and Dad about their finances, what were you trying to do? Get and go with them so that you get all their money when they die?” You don’t want that to happen and so call a family meeting with your siblings, whether it’s in person, whether it’s on Facetime, you know, better to talk but if you have to send a series of emails back and forth that’s certainly better than nothing.

But you want to let your siblings know that you think it would be a good idea to talk to your parents. You want to figure out who is going to initiate the conversation. Is it one of you, is it all of you, when is going to be the best time to have this conversation? And I also think it’s a good idea when talking to your siblings to talk a little bit about what roles each of you is willing to play in your parents’ financial lives as they age.

Now, at the end of the day, it’s going to be up to your parents to make those decisions who is going to be the executor of their estate or their trustee, who is going to be the financial power of attorney, the medical power of attorney but if you have had these conversations beforehand with your siblings and then you sit down with your parents and they can see that you’re on the same page, it can make it easier for the parents to open up.

Because often times, parents are reluctant to have these conversations because they don’t want their kids to fight. I would caution though, if you have a sibling who is likely to sabotage the conversation for whatever reason, maybe the sibling doesn’t get along with you, doesn’t get along with your parents, there are mental health issues, you know, financial, legal problems, then you might not want to include that sibling in the conversation.

You know, if you have siblings who simply don’t want to participate, it’s okay, don’t force them but I would encourage you to just keep them in the loop because you never know down the road if you do get involved with your parent’s finances, they might want to start getting involved and if you’ve kept them onto the loop all along, then you’re going to run into some issues there and so try to keep an open dialogue as much as possible with your siblings.

[0:22:29.5] TU: Cameron, in the book one of the things you reference is the “in case of emergency” organizer and I think some of what you previously covered probably falls in here as well but tell us more about what is the purpose of this organizer, what should be in this, and how our listeners could get started with this for their own family or with their parents.

[0:22:47.2] CH: So I actually created this downloadable file, you can find it on my website at cameronhuddleston.com, it’s free. You can use that or you can create your own. It’s essentially a way to get organized, to help your parents get organized. You can print it out and give it to them because sometimes parents are more willing to write down information rather than tell you directly. This allows them to maintain control over the information.

So if they don’t want to talk, just say, “Hey look, I get it. This is a sensitive subject. Do me a favor though, here is this “in case of emergency” organizer, fill it out. Fill it out as best as you can, put it in some place safe, and tell me when and how to access it.” I mean, it asks for all sorts of information, social security number, Medicare number, health insurance number, military ID if you served in the military.

All of your financial accounts, your usernames, your passwords, locations of lockbox keys and deeds, and marriage certificates. I mean, I try to cover everything and so it is a great way to get organized. It is a great way to get your parents organized. You know, if you are in a relationship yourself, I mean, this is information that your spouse or partner is going to need if something happens to you.

So you know, like I said, if your parents don’t want to tell you information, you might have some luck getting them to write it down.

[0:24:17.1] TU: Yeah, I really like that strategy and approach and I think also you know, to having a third-party resource can be really helpful. So you know if I, for example, I’m talking to my mom and dad. If I send them a checklist of, “Hey, these are the things I’m asking for, these are the questions that I have” you know, to your point about being intentional and strategic and how we have this conversation in an honoring and loving and respectful way.

I think sometimes the third-party resource expert such as yourself, having that come from them can be certainly a powerful approach and strategy to consider as well. Cameron, I want to wrap up our time by talking about long-term care planning. In a recent version of your newsletter that you sent out, you talk about the financial and emotional toll that can come from being an unpaid family caregiver, something I’ve seen in my own family.

With my parents caring for their parents and I suspect this is a conversation that many avoid but has massive implications. So talk us through why this conversation is so important and the strategies that folks can use to open up the dialogue around long-term care planning.

[0:25:25.0] CH: It is so important to talk to your parents about what sort of long-term care planning they have done because I can tell you most likely they haven’t done any planning. Only 11% of adults have long-term care insurance, which will help pay for the cost of long-term care services but the thing is, more than half of adults, 65 and older will need long-term care at some point, you know?

This is assistance with what are called the activities of daily living, bathing, getting dressed, eating, getting in and out of bed, long-term care can be provided in your home obviously by family members or paid help you bring in. It can be provided in an assisted living facility, adult daycare centers, memory care facilities, and skilled nursing and so it doesn’t necessarily mean a nursing home, which is a lot of people assume, you know?

Their parents might say, “Don’t ever put me in a home, don’t put me in a nursing home” and I encourage people if your parents say that to you to not make that promise, to not say, “I promise.” I think the better strategy is to say, “You know, I understand that the idea of going into a nursing home seems really scary. Let’s talk about what sort of care you would want if you need care. Where do you want to receive care?”

Most likely, they’re going to say in their home because that’s where most people want to receive care and then you say, “Okay, well, if you want to stay in your home, let’s think about whether your home is set up for you to age and place. You know, Mom and Dad, you got a two-story house. Your bedroom is on the second floor. You have a bathtub that you have to step into to take a shower.”

“Maybe it would be a good idea to start thinking about downsizing to a smaller home with a bedroom on the first floor and an accessible shower with a smaller yard or no yard, a house that requires less maintenance. If we can start putting these plans in place now, then you can stay in your home” and you know, “Do you have a way to pay for someone to come in and provide care? I want to be able to help you in any way possible, however, I have a job.”

“I have kids, I might not be able to take time off my job or to quit my job to provide care for you. You know, I’m going to do whatever I can to help you but let’s make sure there’s a way to pay for professional care” and maybe Dad says, “Well, you know mom is going to take care of me.” “Dad, can Mom take care of you if you’re both in your 80s? Can she get you up and down the stairs? Can she get you in and out of bed?”

“Can mom really do this? Does she have the physical and emotional strength to do it?” People don’t think about these things because honestly, it’s depressing. It is but if you make a plan, you have more options available to you. If you wait until that emergency again, you know, you can’t get long-term care insurance once you already need it. That has to be in place, you have to buy long-term care insurance.

You can get it in your 50s, your early 60s as long as you’re still healthy. You know maybe, they don’t like the idea of paying for long-term care insurance because they might never need it. There are now these hybrid life insurance products that include a long-term care benefit, maybe they have whole life insurance that has accrued cash value and so they can tap into that cash value of their life insurance.

Maybe it’s a reverse mortgage, maybe they have enough retirement savings to cover the cost of care but you want to talk to your parents about what sort of resources they have and it is really important to discuss who is going to provide that care and to gently make them aware that they might not be able to rely solely on family to provide that care.

[0:29:44.5] TU: Yeah and as you articulate it so well, I mean, there’s all of these financial considerations but there’s the emotional consideration inside of this as well and I think that’s the piece that often gets overlooked, especially with family caregivers. You know, I’ve seen this right now of my grandmother where certainly, the family’s involved but it’s gotten to a point where she needs daily around-the-clock professional help with the home.

And while that’s been very beneficial and in fact, if it’s very, very expensive and it also provides a different dynamic, you know? In terms of obviously, you got different people coming into a home, it’s not the family that’s taking care of her at certain times, and so there’s just so much to consider here and I think more and more reason to have these open conversations as soon as possible, right?

Before the event comes to be and this becomes even more challenging and more emotional and I think as with many things in life, right? The path to peace of mind and the path to feeling good about the outcome and solution is through the difficult conversations and so I think just huge credit to you Cameron and the work that you’re doing, not only through your book but through your newsletter, your blog, and the impact that you’re having on such an important topic.

I’m so grateful for your time and the contributions that you have made to our community, which I know is going to be inspiring in their own journeys to make sure that they’re taking action on this topic. As we wrap up, Cameron, what is the best place in addition to folks getting a copy of the book, Mom and Dad, We Need to Talk, what’s the best place for our listeners to go to connect with you and to follow your work?

[0:31:13.1] CH: My website is cameronhuddleston.com and so as I mentioned, I’ve got that free downloadable “in case of emergency” organizer. I’ve got a couple of other resources there. Another good place is to follow me on Instagram. If you’re on Instagram, it’s Cameron K. Huddleston. I share a lot of tips on financial caregiving, having these family money conversations.

[0:31:38.5] TU: Great, we will link to both of those in the show notes and thank you again so much for taking time to come on the show.

[0:31:44.9] CH: Of course, thanks for having me.

[DISCLAIMER]

[0:31:46.7] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information on the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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 320: How One Pharmacist Paid Off $345,000 in 5 Years

Posted on August 10, 2023August 9, 2023 by Tim U

Stacie Moltzan Loescher, PharmD paid off $345 000 of student loan debt in just five years and she joins us today to share her incredible journey to becoming debt free!

About Today’s Guest

Dr. Stacie Moltzan Loescher is a Pharmacist currently working in central processing for Albertsons Companies and is currently appointed as the Assistant Grand Vice President for Collegiate Affairs of the Phi Delta Chi Professional Pharmacy Fraternity. She attended Rosalind Franklin University of Medicine and Science where she received her Doctor of Pharmacy degree in 2017. During her career as a pharmacist, she has worked as Staff Pharmacist and Pharmacy Manager at multiple retailers throughout Wisconsin, Indiana, and Illinois. She has also served in multiple regional and national positions at Phi Delta Chi. She enjoys traveling, fishing, and fitness.

Episode Summary

Stacie Moltzan Loescher, PharmD paid off $345 000 of student loan debt in just five years and she joins us today to share her incredible journey to becoming debt-free! Tuning in, you’ll hear about the hard work and clear vision that led Stacie to the financial freedom she enjoys today. We unpack her process to aggressively repaying her loans, from working throughout pharmacy school and undergrad to paying off a car alongside her student debt. Stacie touches on how her childhood experiences impacted her approach to financial management as an adult, and reveals how she could sustain the momentum necessary to pay off the debt, before sharing powerful advice for graduates as they choose how to approach their own student debt. In closing, Stacie offers a glimpse into her future plans which are focused on building a net worth through side hustles and real estate investment.

Key Points From the Episode

An introduction to Stacie Moltzan Loescher and her story of becoming debt-free.
Her introduction to pharmacy growing up with two sisters with intensive medical needs.
Stacie’s career in pharmacy starting at CVS in Wisconsin.
A summary of her process to becoming 100% debt-free.
How Stacie celebrated her achievement by traveling!
Working throughout pharmacy school and undergrad.
What motivated her to choose an aggressive repayment strategy.
The desire for financial freedom behind her efforts to clear all debt.
How Stacie’s childhood experiences impacted her approach to paying off debt as an adult.
The car note she paid off in two years while erasing her student debt.
Sustaining the momentum in the midst of an aggressive payment plan.
Advice for graduates as they choose how to approach their student debt: start planning now!
What’s next for Stacie: building a net worth, considering real estate, investing, and picking up a PRN position to earn extra income.

Episode Highlights

“I’m just not a fan of paying interest. I’d rather be earning interest.” — Stacie Moltzan Loescher [0:11:48]

“I wanted to be able to have financial freedom sooner in my life. I feel like if I was paying off for ten years, I would have been strapped down to those loans for ten years, living paycheck to paycheck to try to pay them off.” — Stacie Moltzan Loescher [0:13:14]

“I didn’t like seeing debt behind my name because it’s not something that I heard growing up or in my family. My parents didn’t have debt.” — Stacie Moltzan Loescher [0:15:49]

“Don’t wait to approach your student debt. Start planning now, if you haven’t already.” — Stacie Moltzan Loescher [0:23:06]

“Start looking at what’s going to be the best loan repayment strategy for you, because there are different options that are better for different people.” — Stacie Moltzan Loescher [0:23:12]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00] TU: Hey everybody, Tim Ulbrich here. Thank you for listening to the YFP Podcast where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. This week I welcome Stacie Moltzan Loescher onto the show to talk about her debt-free journey, both how and why she paid off $345,000 of student loans in just five years. We discussed her motivations behind aggressively paying off the student loans, how she was able to do it, strategies she employed to keep her momentum and motivation and lessons that she learned along the way. Before we jump into this inspiring interview, let’s hear a brief message from YFP team member Justin Woods.

[MESSAGE]

[0:00:38] JW: Hey, Your Financial Pharmacist community. This is Justin Woods here, Director of Business Development at YFP. You may be one of the 13,000 pharmacists that have already signed up for YFP Money Matters, which is our weekly newsletter. But if you’re not, what are you waiting for? I want to invite you to subscribe. We send financial tips, recommendations, the latest podcast episode, and money resources, all specifically for pharmacists. It all comes straight to your inbox every Friday morning, so visit yourfinancialpharmacist.com/newsletter or click the link in the show notes to subscribe today. Again, that’s yourfinancialpharmacist.com/newsletter. See you there.

[EPISODE]

[0:01:23] TU: Stacie, welcome to the show.

[0:01:26] SML: Thanks for having me.

[0:01:28] TU: Before we jump into your incredible debt-free story and your journey, let’s start with your career journey into the professional pharmacy. Where did you go to school? What led you into the profession, and tell us about the work that you’re doing right now?

[0:01:41] SML: Sure, so I’ll start with what led me into the profession. I grew up with two disabled sisters, one older, one younger. They were both born with cleft palates. My older sister growing up, she couldn’t swallow pills. She still can’t swallow them to this day. That meant that we would often find ourselves at the pharmacy. They would have capsules ready and she couldn’t take them. We had to work with the pharmacist to get it changed to like a liquid form or sometimes the pharmacist might say like, “Oh, it can be open, and put into apple sauce.” Or what have you. But we often found ourselves working closely with the pharmacist to get it resolved.

Sometimes there would be insurance issues with that, because they don’t like to cover suspensions for 14-year-olds. We’ve had to work together with the pharmacist to get that resolved, whether it was a PA changing it, or taking it and crushing it up. Then putting it in liquid or apple sauce. Then my little sister, she was born when I was eight years old and she was born with what you call an esophageal atresia, which for those that don’t know what that is, that is where your stomach and esophagus isn’t fully connected.

After she was born, she was life-lighted to children’s hospitals. We had to undergo a surgery and that meant that she would be fed through a G-tube for the next 10 to 12 years of her life. She had to have everything liquid form and a lot of times with like amoxicillin, that’s like a different viscosity than a PediaSure is. We would have to dilute that before we could give it to her through the tube or else it would, the amoxicillin would like get stuck and clogged in the tubing.

If we gave her too much volume, she would like get sick, have side effects. We often found ourselves crushing medicine, too. Then suspending it in water to give it through the tube. Then she also had asthma. We were doing nebulizer treatments several times a day. Those experiences growing up really sparked my interest in pharmacy. Then I went to North Dakota State to study pre-pharmacy after I graduated high school. Then from there, I found myself in North Chicago, Illinois, at Rosalind Franklin University and after I graduated pharmacy school, I took a job at CVS as a pharmacist in Wisconsin.

[0:04:32] TU: Okay.

[0:04:33] SML: From there, I worked at different retailers, grocery chain retailers, big box retailers throughout Illinois, Indiana, Wisconsin. Up until recently, I took a job with a grocery chain pharmacy as a central processing pharmacist. I’ve been there about four months now. In that role, we check prescriptions for their grocery stores in about 30 different states.

[0:05:02] TU: Oh, wow.

[0:05:03] SML: That’s where I’m at today.

[0:05:04] TU: Awesome. Well, thank you for sharing your career journey and the motivation behind getting into the profession. I’m going to read to kick off you sharing your debt-free story and for us to dive into this a layer deeper. I’m going to read a post that you shared on LinkedIn that really caught my attention and let me to reach out to you where you said.

“Last month, I made my last student loan payment, and my loan balance hit zero. After five years of working as many hours as my body would allow and living like a resident, I paid off $345,000, $235,000 of that was principal. My goal was aggressive as a first-generation and a single-income household to have it paid off in five years. I paid it off in five years, three months. I could have paid it off by the end of 2022 to meet my goal, but it actually made more sense to just pay the minimum payment over the past year since high yield savings account was currently earning more interest than I was paying an interest on my student loans. Cheers to being 100% debt-free now.”

Wow, just incredible Stacie. When I think about that dollar amount, we’ll talk here in a moment about some of the motivation and the why behind this journey. My first question for you is, what have you done to celebrate this accomplishment? Have you done anything yet to celebrate this accomplishment?

[0:06:20] SML: Not really. I believe I was like went out with like friends, Friday night. They were just like, “Congrats.” But I did a lot of travel over the last year since I wasn’t as aggressive as paying off in my last year. I did a lot of travel that last year, so I was celebrating that the end was near.

[0:06:43] TU: Yeah. Yeah. I asked that Stacie, because I think for myself included many pharmacists, we can be so focused on getting to the goal that really taking the time to celebrate. I’m glad to hear you did that with friends and also through some travel. It’s such an important part of the financial journey, right? This is a huge accomplishment, but you are just getting warmed up, right, with achieving many financial goals throughout your career. I think especially if you’re a goal-oriented, achievement-focused person, really taking time to slow down and treasure these moments along the way is really, really important.

My first question for you, Stacie. If we look at the median debt load today of pharmacy graduates, it’s hovering around 160 to $170,000. 345 is a big number, right? 235 in principle, so we can see the balance there that’s an interest, but even that 235 is substantially above the median debt load of a graduate. Why the higher balance? What do you attribute to that?

[0:07:40] SML: Yeah. Before I went to school, I was always looking into going to schools with lower tuition, and almost all that is from grad school. I only took out 5,500 in undergrad. I didn’t even need that, that was just because it was subsidized.

[0:07:58] TU: Yeah.

[0:07:58] SML: So, I wasn’t going to get any interest while I was in school. It’s a very low interest rate, so I took that undergrad loan, just off the advice that my aunt had given me that, “You need to take that, because it’s going to be the lowest interest rate you will ever get in your life.” She’s like, “Just put it in a savings account.” That’s what I did. That’s part of my emergency fund today, actually.

Then, so I didn’t get into those – my like preferred school with the lower tuition rates. What I ended up getting into was a school that I was very interested in, and that’s why I had applied, but it was a private school, Rosalind Franklin University. They do have a little bit higher tuition expense since they’re private, but pharmacy was my dream. I always knew that’s what I wanted to do. I went with it. I figured that I will figure out the student loans and pay them off as quickly as I can when I’m done.

[0:08:59] TU: Was the 235 all federal or was some of that private?

[0:09:03] SML: Everything was federal. I took out like the max amount that they would let you do, which was like $35,000 for tuition and then plus like another $20,000 on top of that for living expense, which really isn’t a whole lot to live off of. I did work like throughout all of pharmacy school and undergrad. Then, so that was all federal that was like just about the maximum amount they would let you take out. I did return some while I was in school, because they would let you borrow and then if I didn’t use it, if I worked and I made the money, I would actually return it. I could have borrowed. I think about 20,000 more would have been the max. Then that all capitalized, of course, after I graduated. I believe that capitalized to be $267,000.

[0:09:53] TU: Here. Here. New grads. Yes. Yes, super important to understand that. Yeah. When I look at that number, Stacie, 345, rough math. You paid off 345 over five years. It’s just shy of $70,000 a year. I think of a typical pharmacist income after taxes, maybe taking home 7-ish thousand dollars per month. Obviously, depends on tax situation. A whole host of other factors in terms of where their paycheck may be going.

Nonetheless, that is a massive percentage of ones take on pay, right? $70,000 a year on average. So, my question is I certainly have talked with a handful of pharmacists that have gone through an aggressive repayment period. Many others may look at this and say, “Hey, I want to take this over a longer time period, less restrictive on the monthly budget.” Allowing additional funds to achieve other goals, other financial goals or other life goals, right, that people have. You mentioned travel as one example. Why did you decide on an aggressive repayment strategy versus a longer, slower payoff that perhaps would have been less restrictive? What was the motivation for you?

[0:11:04] SML: I did not want to have those loans sit there for that long. If the longer you have them, the more you’re paying an interest, which I saw that like right away with my first student loan payment. My first student loan payment was almost entirely interest with no principal amount taken off, except for maybe $70 a principal. When I saw that, I was like, “This is going to take me forever. I need to put money towards the principal.” Any extra money I can to bring that principal balance down. I’m paying less interest, because the longer it takes to pay it off, the more interest you’re going to pay. I’m just not a fan of paying interest. I’d rather be earning interest.

[0:11:54] TU: Let me dig a layer deeper there. That’s what I’m getting to. Right? No right or wrong answer here. I always, I talk to pharmacist about student loans. One of the questions I like to ask them is, “Hey, where are you at on the student loan debt pain scale?” Right? Ten is the house is on fire. I want these gone yesterday. I would say you’re probably closer to that end of the spectrum, based on what I know thus far. Zero is like, ah, they are what they are. They’ll, they’ll take care of themselves eventually. That’s what I’m really trying to understand. No right or wrong answer, but when you say I hate interest, I want what money working for me. Take us a layer deeper, like what is behind that? Is it simply the stress and the weight of that over your shoulders and having the mental clarity to see forward without it? Tell us more.

[0:12:38] SML: I just, I like for my money to do stuff in the most, like the way where I save the most money, like I don’t want to spend an extra $20,000 towards interest, because I have to do an extra five years of payoff. I’d rather be done early, have that $20,000 and then be able to invest that or travel with that or do what I want with that. I wanted to be able to have financial freedom sooner in my life. I feel like if I was paying off for 10 years, I would have been strapped down to those loans for 10 years, living paycheck to paycheck to try to pay them off. Whereas if I figured if I worked really hard and I paid this off soon, then that 3000 plus a month that I’m putting towards student loans that I can then use that money how I want. If I want to invest it, if I want to travel.

[0:13:41] TU: Yeah.

[0:13:41] SML: I don’t have – I don’t need to be paying student loans. I can just use it how I want.

[0:13:47] TU: Yeah. That makes sense. I see the passion coming out there for you as you share that as well. One of the things I’m curious about Stacie, so often when we look at the financial decisions we make as adults, we can see trends that tie back to childhood experiences. It may not be that we are raised in the same way that motivates a decision to make today. It could in fact be the opposite or we’re trying to move in a different direction. Sometimes it’s affirming the decisions that were made for us or the household that we grew up in around money.

As you think about this strategy of, hey, I want to get to financial freedom. I want to pay down this debt aggressively. I want this money working for me, right? I don’t want to have to worry about interests, and so in the future. I can enjoy that on other things. Is there anything you attribute looking back from how you were raised, money approach in the household that impacts here, the approach that you took with your student loans?

[0:14:41] SML: Yeah, definitely. I grew up, my parents divorced at a young age, but my mom very low income, and that’s what I lived with. I lived with my mom. She was really, really good at like budgeting. I saw that like growing up, because she had a small income to live off of and raised three kids off of, so she budgeted very well with buying groceries to making sure she was getting the right coupons, so we could have food on the table and still live and have money for everything that we needed.

My dad was very frugal with his money. He bought a house when he was like 30 years old for $16,000 cash. Never had a mortgage, bought a fixer-upper. Still lives in that house to this day. It’s like a 125-year-old home, I think now. I think him never having any debt. He never had a credit card. He never had debt. He always paid everything cash. Bought his car’s cash. Bought his home cash. I think that’s why I didn’t like seeing debt behind my name, because it’s not something that I heard growing up or in my family. My parents didn’t have debt. It was like a newer thing for me to hear that and have so much. I just wanted to get rid of it. Throughout this process, I did pay off a car note to a $20,000 car note in two years, because I just didn’t want it gone.

[0:16:13] TU: Yeah. I can certainly see the threads, as you described to those experiences back to childhood. I think that’s something I’m always encouraging my own financial plan. I encourage others to look back as well, so much. Again, as I mentioned of how we approach our financial decisions. Good, bad or indifferent, right? Often ties back to some of the childhood experiences that we had.

Stacie, I’m curious. One of the challenges with an aggressive debt repayment plan, right? Five years, averaging about $70,000 a year, is being able to sustain the momentum and the motivation, right? We can start with good intents. Hey, I want to go aggressive repayment. That’s something I hear from many pharmacy graduates, but actually being able to sustain that momentum can be very challenging. What kept you motivated? What kept you going throughout that five-year period?

[0:17:01] SML: Yeah. I guess like my career itself kept me going. With that, it helped me earn more income. I spent three years, the last three years, like as a manager. I was picking up extra shifts, working extra hours and anything that I earned over my base salary, this over the course of my repayment, I always put the extra money towards my loans. When I floated, I was actually when I like started with my last company. I was brought on as a 48-hour pharmacist. That was like a lower salary, like 72,000 a year.

Anything, and I made my budget based off of that $72,000 which included a, I put 3,000 of that toward my student loan itself, which I was required to pay 2,300. I always did put 3000 towards it. That’s what my budget was based off of. Then anything I worked over that, 48 hours in a two-week pay period, I put towards a student loan. A lot of times I was working a hundred or 120 hours a pay period. All of that, I put to the student loan.

One of the jobs I had, I was getting reimbursed for gas and for tolls. All that gas reimbursement, toll reimbursement. I put all that to student loans. As I was just picking up extra hours and helping people, which is my passion. It’s just the money was coming in where I was able to just keep putting that towards my loans. Then as a manager, I was really, really driven to meet our store goals and such. I was at a store that was challenging, that needed a lot of work. I was able to just use that as my driving force to bring my store, to help my store achieve. Then with that, I was just working extra hours and that would help with my financial.

[0:19:11] TU: Yeah. What I hear there, Stacie, is you had a very clear goal and vision for your financial plan that really fueled the hard work. The hard work, which produced the payments and the additional income was directly going towards your loans, which that momentum would then build upon itself. You said something really important there that I want to make sure we don’t overlook, which was, that’s what my budget could afford, right?

You made extra payments, but you mentioned with the $3,000, that’s a really key, important piece for those that are getting started with their student loan repayment journey, when you have so many different options to consider, especially for those that might work in a nonprofit sector, or have a loan forgiveness option, or choose an aggressive repayment and are looking at these two ends of the spectrum. How much your budget can afford is a critical number to understand to determine which loan repayment option may be best for your situation. Great wisdom there, Stacie, that you shared. I want to make sure we didn’t overlook that.

One of the most common questions I get when I present to new graduates or I talk about student loans is, should I pay down my debt or should I in invest? How do I balance these two? My stock answer is, it depends, right? It depends on a lot of factors. How do you feel about the debt? What’s your repayment plan? What is your budget afford? What’s your timeline towards retirement? How conservative or aggressive are you? There’s just so many components. I’m curious to hear from you, no right or wrong answer again. How did you reconcile this decision towards more debt payment and perhaps delaying that investing for a period of time?

[0:20:45] SML: Yeah. I was fortunate that when I did start my debt repayment, I already had an emergency fund built up when I started working when I was 14. When I was 14, I was putting half of every paycheck away into a savings account to save for college. I never, actually, used that money for any expense. It is my emergency fund today. I already had that set-in stone. Then I did actually work on the other goals while paying this off. I was always taking the employer match from my 401k.

I was always like I always have done a high deductible health insurance plan. I always put the 3,500 is like what it is today, towards my HAS. Then investing within that after I had a thousand dollars in there. I’ve also done just my own investments, just a smaller amount each month. I’ve done Acorns, like Robinhood, but I don’t do as much, because there’s more risk. At one of the jobs that I had actually, I was not eligible for an employer match until one year in. I only worked there for five months, but –

[0:22:03] TU: Okay.

[0:22:04] SML: That job, I actually did not contribute to a 401k, because I was not going to get a match. I decided to put that money towards the student loans at that time, which my plan was to do that until I hit one year with the company and then I was going to start taking the match. So that job, I didn’t contribute to a 401k, anything that would have went to a 401k went to student loans instead.

[0:22:28] TU: It makes sense, especially without having the match component there. Stacie, I’m curious to hear your advice for new grads, right? We have now three graduating classes that have yet to pay on or required to pay on their federal student loans, because of the pause dating back to the beginning of the pandemic. I’m sensing as those repayments are going to start back up, many graduates from last few years are feeling overwhelmed, they’re stressed or discouraged. There’s a lot of uncertainty. What advice would you have for graduates coming out as they look to approach their student loan debt?

[0:23:04] SML: My advice would be, don’t wait. Start planning now. If you haven’t already.

[0:23:09] TU: Amen.

[0:23:12] SML: Start looking at what’s going to be the best loan repayment strategy for you, because there is different options that are better for different people. For some people, it’s going to be doing the public service loan forgiveness. Some people that might have a house and kids and have like those extra payments that they need to make, they might have to do more of an income based, but start having that strategy and that plan now and make a budget if you don’t have one already. Have a budget, so that way you can and start like using that budget now. So that way when those student loans, you have to start repaying them, it’s not a shock and you’re like, “What am I going to do?” So, start planning now.

[0:23:55] TU: That’s great. Great advice. I think that that’s a message I’ve been trying to get out, but because we’ve had several extensions of the pause. I think there’s been – some of this feeling of, hey, when exactly are these going to come back online or will they, might there be another extension. Now that we have some clarity of when these will start back up, to your point, this is the time period, right? This is the time period to make sure that we’re understanding our options.

We’ve got clarity on the best repayment plan for one situation. To your point we begin to weave that and work that into the budget, right? Even if we’re just putting that in a savings account for now, we’re building those reps and those behaviors, so when that turns back on, we’ve accounted for it and we can move forward with the confidence knowing that we’ve already planned for that. Whether we like it or not. There’s a lot of repayment options, and strategies, and nuances.

Fortunately, the system is maybe more complicated than it needs to be, but that’s the hand that we’ve been dealt in. Really, it’s upon the shoulders of the borrower to make sure that they’re understanding those options. We’ve got lots of resources on the YFP website. If you need some help navigating that forward. Stacie, what’s next for you? Right? This is an important milestone, but you’re just at the beginning of your journey. What does success look like for you going forward?

[0:25:12] SML: At this point, I’m looking at like building a net worth, how that looks. I have like several different things in mind. I am interested in real estate. I thought about maybe like a duplex or something, living in one half, like renting out the other, investing, just different things I’ve thought about. I also am potentially looking at picking up a PRN position to earn some extra income, because the central processing job did come with a little bit of a pay cut. I’m looking to see if there’s a way, I can bring more income in different side hustles.

I definitely, want to do a side hustle, because I have a better work-life balance now, where I have the time to do more, because I can’t pick up extra shifts like I was able to do before. This is just a straight 40-hours a week. I really want to use my time to see how I can earn more income. Then decide how we’re going to use it.

[0:26:22] TU: Yeah. This is I often give the analogy of a marathon when my wife and I went through the journey of paying off our student loan debt, which wasn’t quite as large, but it was a big amount. I often had in my mind this visual where, “Hey, once we get to the end of the student loans.” Like, we’ve arrived, right? We’re at the finish line. I often say, it’s like running a marathon where when you get to the point of in this situation, an important milestone of student loan debt paid off or running a marathon. We might be at mile marker three, right? We’ve started the race. We’ve got a long way to go.

I love the vision you’re articulating, whether it’s around real estate, whether it’s around other side hustles. I can sense an intentionality that as you start to evolve other parts of your financial plan, you’ve got clarity on why you’re going to be doing that and where those funds are going to be going towards. Stacie, I greatly appreciate you taking the time to come onto the show to welcome our community into your story and your willingness to share it. I’m really looking forward to following your journey ahead.

[0:27:20] SML: My pleasure. Thanks for having me.

[OUTRO]

[0:27:23] TU: As we conclude this week’s podcast, an important reminder that the content on this show has provided you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archive, newsletters, blog 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 and less 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 319: Pharmacy Innovators with Dr. Jena Quinn (Perfecting Peds)

Posted on August 3, 2023August 2, 2023 by Tim U

Founder & CEO of Perfecting Peds, Dr. Jena Quinn, joins host Dr. Corrie Sanders on this segment of The Pharmacy Innovators.

About Today’s Guest

Jena Quinn, PharmD, BCPPS, is an expert pediatric pharmacist. She developed the vision for Perfecting Peds based on her extensive background in medication management of pediatric population, personal love for children and her desire to optimize more children’s medical profiles. She has 10 years of safe medication management and direct patient care experience in the pharmacy field with a wide-ranging background in developing, enhancing and managing clinical consulting programs. Dr. Quinn earned both her Doctoral degrees with high honors from the Ernest Mario school of Pharmacy. She is a nationally Board-Certified Pediatric Pharmacist. She is also a mom to three adorable little girls, Hadley, Peyton and Avery.

Episode Summary

Today’s edition of our Pharmacy Innovators series is filled with vital information for pharmacy entrepreneurs on how to expertly navigate the risks involved with leaving the W2 world behind. In today’s episode, host Dr. Corrie Sanders sits down with the Founder of Perfecting Peds, Dr. Jena Quinn, PharmD, BCPPS, to discuss Jena’s transition from working 9-5 to running her own consulting business that is focused on medication management in complex pediatric patients. Our guest explains the role that her family played in her decision to take up pharmacy, how and why she made the pivot to pediatrics, what inspired her to break free from her W2 job, and how she benefited from being willing to branch into a new industry (cosmetics sales). Dr. Jena then shares why she is not too concerned about AI in pharmacy before diving into how she built her company’s team, how she uses the various social media platforms, why she chooses to always lead with authenticity, and what it was like for her to take on a new business challenge as a pregnant mother of two. This powerful conversation is filled with advice and strategies for those who are contemplating a non-traditional career path, and Dr. Jena explains everything she loves about being a business owner and pharmacy entrepreneur!

Key Points From the Episode

Introducing Dr. Jena Quinn as she explains her family’s role in how she got into pharmacy.
How she made the pivot to pediatrics.
What inspired her to leave her W2 job and what she was expecting from becoming a founder.
How she benefitted from being brave and willing to take on a non-pharmacy-related job.
Why AI could be both damaging and useful for pharmaceutical dispensary roles.
How long Dr. Jena worked solo, and what it looked like when she started building her team.
What her first business contracts looked like compared to how they look today.
Assessing her social media profiles and why she chooses to be authentic across all platforms.
Exploring her mindset when she started a new business venture as a mother of (almost) three.
Dr. Jena’s favorite characteristics of being a business owner.
Her advice for anyone who is contemplating a non-traditional career path.
What she loves most about being a pharmacy entrepreneur.

Episode Highlights

“I just knew at that moment [of helping my epileptic sister] that whatever I did in life, it would be taking care of these children in some capacity, whether it was [as] a physician, a nurse, [or] a pharmacist.” — Dr. Jena Quinn [03:33]

“I started in a multi-level marketing company selling skincare, and it was probably the best thing I’ve ever done, as silly as it sounds.” — Dr. Jena Quinn [07:45]

“Pharmacists are the crappiest salesmen. Because of that, our profession has taken a hit. We have to be a good salesman to show our worth, and push and advocate for our profession to go into a more innovative direction.” — Dr. Jena Quinn [14:48]

“My husband is in IT, in cybersecurity. He’s always in my head, he’s like, ‘Whatever you’re doing, you better not be able to be replaced by AI.’ It’s so true that it is going to drastically affect our profession, but that’s okay.” — Dr. Jena Quinn [15:52]

“Sometimes I don’t even understand what I’m doing until I do it.” — Dr. Jena Quinn [23:05]

“We [pharmacists] have this unique knowledge. I mean, daily, we make these life-changing interventions, and we don’t get any compensation for it. How is that okay? Long story short, it’s just not.” — Dr. Jena Quinn [28:34]

“I just try to keep it real. I have three kids; I understand that everything gets messy.” — Dr. Jena Quinn [31:28]

“Being a business owner, I wake up every day with a fire in my belly; I have control to change patients’ lives.” — Dr. Jena Quinn [38:32]

Links Mentioned in Today’s Episode

[INTRODUCTION]

[0:00:00] CS: Hi, YFP community. Corrie Sanders here hosts the Pharmacy Innovator segment of the YFP Podcast. Pharmacy Innovators is designed for pharmacists navigating the entrepreneurial journey. In this series, we feature founder stories and strategies that help guide current-inspiring pharmacy entrepreneurs. Today we feature Dr. Jena Quinn, a board-certified Pediatric Pharmacist that established Perfecting Peds, a consulting business focused on medication management in complex pediatric patients.

In just 18 short months, Jena has expanded her business across multiple healthcare systems and hired support staff that is pioneering pharmacy consulting in the state of New Jersey. We discuss how she financially navigated her transition, the unique timing of establishing her business, and plans for the future of Perfecting Peds. I cannot wait for you all to learn from Dr. Jena Quinn.

[EPISODE]

[0:00:52] CS: All right. Jena, we will start things off with a really easy question. For those that don’t know you, tell us a little bit about where you went to pharmacy school and how you got into the profession.

[0:01:03] JQ: Yeah. I went to pharmacy school at Rutgers University, New Jersey. Even at 34, I’m like the biggest baby and I won’t go more than an hour from my parents, so that’s why I landed there. It’s between that and the University of the Sciences in Philly. My parents said, “You’re going with a cheaper school.” So, that was pretty much how I made that decision. But as far as the profession, my grandfather, who has been my lifelong mentor, he was a pharmacist for 60 some years and the later parts of the last 30, he was the director at GlaxoSmithKline, where he patented over 150 drugs.

I always tease that he makes me look really stupid, because he’s just such a wealth of knowledge. He wrote many organic chemistry books, which was my least favorite subject, but really, he is my inspiration. My mom, to be very honest, is a nurse. She was like, “Nurses work too hard and don’t get paid enough, so you’re going to be a pharmacist and that’s what’s going to happen.” So, once I applied to pharmacy school and got in, and my dad called Rutgers to make sure that I really got in, that’s where I went.

[0:02:22] CS: I just had to make sure.

[0:02:24] JQ: Yeah. It’s always something. You can always use it later.

[0:02:27] CS: That’s amazing. A little bit of family inspiration. Then just tying it all together with some of your interests, it sounds like.

[0:02:34] JQ: Yes. Yes.

[0:02:35] CS: How did you pivot specifically into pediatrics? Was that some postgraduate training? Did you get gauge interest with that on rotations? Where does that stand from?

[0:02:44] JQ: Yeah. Historically my little sister, she’s nine years younger than me, had epilepsy knock on one. It’s been like nine years, but growing up, I was always the one who took care of her. I’m sure nowadays it’d be like a DCPP call, but some sort of DIFAS call, but my parents, starting at the age of 12, would just leave me with her and she had epilepsy. So, I got really familiar with how to administer Diazepam, what to do during a seizure and all the seizure precautions.

Then I knew – I always knew I wanted to go into the medical field. So, I dedicated – which is funny, because how life works out. A lot of my patient population is epilepsy, but I just knew at that moment that whatever I did in life, it would be taking care of these children at some capacity, whether it was a physician, a nurse, a pharmacist. She’s really what drove me into the pediatric desire. Then throughout pharmacy school, actually, I just applied to do a couple of research as a student and research opportunities. They were in Peds.

Then during my appies, again, I got partnered with majority pedes. Then I actually, I’m one of those, I would say like older. I got grandfathered in, but I only actually did one year of residency at a local hospital, Thomas Jefferson in Philadelphia, which I know traditionally a lot of pediatric pharmacists do, too. At that time, I was really done with the whole residency thing as far as it’s draining. It was draining me.

I applied and got into Children’s Hospital, Philadelphia, where I started their pediatric patient care program with a couple of other of my colleagues, like the in-between of a true clinical pharmacist and staff pharmacist, where we were on the floor rotating with the providers and then verifying orders. That I did for three years. Then went to another local hospital and started the same program for another eight.

[0:05:06] CS: Wow. Well, it sounds like you had a lifetime of experience on top of the year of residency. I’m sure that maybe the second year wasn’t necessarily needed after starting with pediatric care at age 12?

[0:05:18] JQ: Yes. Yes. That expedited it all, but it was, I was very much sure that that was trying to tell me something. Like I said, a lot of my patients in some way, shape, or form have epilepsy.

[0:05:32] CS: That’s wonderful. That all ties together, so well. It seems like that was just the path that you were meant to be on from the start. Jena, what I want to pivot to now is I think what we’ll spend a majority of our conversation today is talking about establishing your company, Perfecting Peds, and what that ultimately looks like, and some of the steps that you took when making that career transition. Why don’t we start with what were the motives to leaving a traditional W2 job? What were you striving for? What were you expecting when you started your own company?

[0:06:04] JQ: Yeah. I mean, motherhood changes everything. I have three little girls, six, three, and one. When my youngest was one years old, I realized – so I worked the first full year of her life at the hospital. I quickly realized that because I started – I shared with you, I started the program for pediatric patient care, I was the first true clinical pharmacist there, full-time at Cooper. What I quickly realized was that between 40 hours and then additional, I would have the residents unpaid, I would be called all the time for urgent situations that the medical residents needed help with and the PICU and the NICU.

I realized that my quality of life was really taking a hit, especially on my family time, and there was no separation at all. I quickly realized that I didn’t want to be in the hospital fulltime, especially having a little one. I went part time, which then inevitably allowed them to hire a bunch of new people to the hospital. But for me, I was doing a job of a few pharmacists in one. That shone actually a lot of light on that and they’ve hired a lot more people. I was really desperate to be quite honest and to match my income and stay in the luxuries of the pharmacist salary, but I did not like the lifestyle that the full-time job left.

What I did was I started in a multi-level marketing company selling skincare, and it was probably the best thing I’ve ever done, as silly as it sounds, but it actually was how all my mindset hacks, all my sales lessons that they were all encompassed in. It was called Rodan and Fields, but I learned them all from my mentors there. It was awesome. I had some great opportunities. I would travel to different countries on their dime. I got actually, the computer I’m working on. They were actually, they were very good to me.

What I realized was that I was really more obsessed with one, building something. Two, just the flexibility of the job, even though I didn’t have like, yeah, skincare is okay. I didn’t have a passion for it, but what I had a passion for was entrepreneurism, setting my own hours. Really, I like the idea of having a team. I feel like if anything, the people you surround yourself with is who you become. I was like, “You know what?” I – also at the time. I did that for the entire time till my daughter, so for three and a half years. Then I realized like, “Okay, well, what are you passionate about?” Which was pharmacy.

What I started realizing, even part time, the lifestyle wasn’t for me. I didn’t – I was missing things. For example, last week, I was able to go to two things in the middle of the day, to be at my daughter’s school for just one was a race and the other one was field day. I was able to participate and be a volunteer. I realized that I was working a majority of weekends and then a day or two during the week. With the weekends, I started missing my daughter’s soccer practices. I was like –

[0:09:34] CS: Sure.

[0:09:34] JQ: I was like, “This is not happening.” Again, I was – I started transparently, to be transparent, I started looking for other jobs. In that process, I realized that there wasn’t any jobs for pediatric pharmacists outside of the hospital. If they were, they were the really niche, like maybe a rare disease in medical science leaves them, but it wasn’t like – there wasn’t a robust amount of opportunities. I felt like the only way I was going to leave the hospital is if I went into the geriatric or adult population and that literally killed me. I love them, they’re just – my hearts are children. So, yeah. I was like, “They smell bad, I can’t do this.”

I started looking for other jobs. I actually, got offered a job for a geriatric long-term care facility position. That got my wheels spinning, because I was like, “Wait, you need to have long-term cares.” Like acute cares – all these medical days in the area. And I started looking around and asking questions to providers that work there. I’m like, “Who’s looking at these kids? These kids are the sickest kids of the sickest. They have multiple medications.” The answer was that nobody was looking at them clinically. It was the politically correct answer.

I went door-to-door, my salesman mentality, and was just like, “Hey, you’re already paying the pharmacist.” I’m sure you know this. If you’re a consultant pharmacist too, they’re paying pharmacists to do this. I don’t want to put down other pharmacists, but we have this unique training of residency. We’re all board-certified pharmacists that are uniquely trained in peace. It’s very different than adults, right? I couldn’t end geriatrics. I couldn’t turn around and take care of an adult patient. I don’t even know their disease state.

I just said, “Whatever you’re paying them, pay me and my team and we’ll take care of them and we’ll offer them a bunch of unique services on top of the compliance work that they’re already doing.” That’s honestly how it started. I did the prep work and all this sales pitch over six months, until I started getting some contracts. Because I knew I couldn’t take that much of a financial cut. Then once I started getting contracts, that’s when I jumped full-time into this.

[0:12:08] CS: Jena, so many things that you said there that I want to highlight for the listeners that I think are really important. The first one is that you weren’t afraid to take a non-pharmacy related job –

[0:12:19] JQ: No.

[0:12:19] CS: Because it wasn’t worth sacrificing your mental health in the place that you were in. I think a lot of pharmacists can relate to the quality-of-life issues that you spoke of and the work life balance, especially when you’re in management positions. You really do start doing the work of multiple pharmacists many times. I think so highly of you for taking that job and just being not afraid to say, “I’m not going to do something pharmacy related right now.” That’s how confident you felt about yourself and how much you respected yourself. Two, it is great almost that you stepped into a sales job, because many people don’t realize that sales is a lifeblood of business when you are first starting off. If you can’t sell your services, it completely hinders the product or the service that you can provide.

[0:13:03] JQ: Yeah.

[0:13:04] CS: Probably an amazing stepping stone to be where you are today and to have that mentality, like you said, to be able to sell what you want and be able to articulate that to other people.

[0:13:14] JQ: Yeah. I think, too, I’ve gotten such a habit. Social media is such a powerful way to sell. When I was in Rodan and Fields, no one’s going to buy something from you. If you’re – one, this is my opinion. If you’re not authentic and people can’t relate to you, right, or they don’t know you. If I was going to actually make a decent income, it was building authentic relationships and just being myself, so people could get to know me, so that then they’ll feel comfortable buying from me.

It taught me so many life lessons. Part of that was just getting in the habit of posting on social media every day and regardless of what it was, if it was just like whatever – I mean, I was always taught to keep it in three categories, but for me, it was always three things, family, and probably enough, one was pharmacy. I was already posting a lot of things about pharmacy organically. Then it was a more natural stepping stone to start my own business, but as part of that, I just honestly switch from, because I’m focused more on B2B.

I switch just to doing the same thing on LinkedIn to build my pharmacy presence, to build authentic connections and to network. That’s honestly how I’ve been able to meet amazing people like you. That has been the most powerful tool. That was embedded in me from sales. The other thing I do want to say is, pharmacists are the crappiest salesmen. Because of that, our profession has taken a hit. We have to be a good salesman to show our worth and push and advocate for our profession to go into a more innovative direction.

[0:15:07] CS: That’s such a beautiful statement that resonates with me a lot, because I work a lot with legislature and talking to senators and elected officials. They truly don’t realize what a pharmacist does outside of a dispensing role.

[0:15:22] JQ: No.

[0:15:23] CS: Especially, like you just said, as the profession evolves alongside technology, it’s going to drastically change in the next 10 years, we really have to learn to advocate for ourselves. You’re already just ahead of the curve by having your own business and being able to do that independently. It’s a wonderful thing.

[0:15:41] JQ: Yeah. I think AI is going to be a sole crusher for a lot of the dispensing roles. I didn’t even know that AI was on the horizon when I started this. My husband is IT in cybersecurity. He’s always in my head, but like, he’s like, “Whatever you’re doing, you better not be able to be replaced by AI.” It’s so true that it is going to drastically affect our profession, but that’s okay. I think it’s going to put us in, like I just said, before these long-term care pharmacies were doing compliance work, like checking out dates and counting narcotics, that can all be automated.

There’s no reason for a pharmacist to do that. What I quickly realized was I hired pharmacy techs, and pharmacy techs are amazing at this stuff. Why is a pharmacist with eight years of education on top of, maybe residency and all these board certs, why are we doing that? The same goes with the dispensing role. We are too smart when we went to school for too long to be doing that. It really takes away from the angle, which is patient care.

We want as much forward-facing time with the patient as possible to help the patient and advocate for them. Some of the traditional dispensing roles really take away from that. I personally think it’s an exciting time in pharmacy. I think as far as we leverage that and just use our education and sell ourselves accordingly, I think we’re going to have a lot of exciting changes on the horizon.

[0:17:14] CS: I think so, too. I think so, too. It’ll force us to really utilize our clinical skill set across the board in a way that probably hasn’t been forced before.

[0:17:22] JQ: Yeah.

[0:17:23] CS: Jena, I also want to touch on the fact that you’ve said you just hired technicians or that you’ve hired technicians. Let’s talk about the growth of your team. How long were you just a solopreneur really facing everything just by yourself? When did you start to hire? What did that look like? Who was ultimately your first hire? I would love to know that as well.

[0:17:43] JQ: Obviously, because it was such a cluster. This is true Jena fashion. I signed – I started taking private patients just as my beta patients, because I do think, like okay, I wanted to get used to the EHR. I wanted to also get PGX certified, this little like 20 CEs, but I also wanted to really take patients, because there’s not an abundance of pediatric literature in PGX. I wanted to get comfortable on that, because I do think again, that’s the way of the future. We’re going to have to utilize that to take the best care of our patients.

I started just taking like private pay patients. That’s how I got started financially, but also just getting used to everything, as far as the EHR and training. Then I got five contracts all at once. I didn’t understand how medically complex these kids were, until I opened the chart. Of 120 of the roughly growing, I don’t know, so what I’m doing is some quick math in my head, like 300 of them were had a minimum of 23 medications on their chart.

[0:19:08] CS: Wow.

[0:19:08] JQ: I got all these dropped on me at the same time. I was like, “Oh, my God. What did I sign up for?” I quickly realized that I could not do this by myself. If I did, I would be, so to give you again, I’m all about shedding light on things that should have their curtains unveiled. The prior long-term care gave these pharmacists 15 hours for 120 critically ill pediatric patients trait that due to dependent. 15 hours a month at $200. I couldn’t even open and close the chart. Plus, do the compliance work which is go through the med room and make sure, count the narcotics and all that. I quickly outsourced that.

That was, honestly my first hire, was I had a technician that I loved at the hospital that I worked with. I said, “Hey, I need help. Are you looking for like PRN contractor hours?” She jumped on board. She helped alleviate at least, like I said, the doing all the compliance work. But then I realized that proudly for the first year me and my husband were going to be paying to take care of these kids, as awful as that sounds. I think the pharmacy profession is so in need of advocacy and change. I knew that I needed my proof of concept before anybody even listened to me. It wasn’t until I got the numbers of cost savings, cost avoidance. I knew they were going to be like, “This is a really cute idea, little girl.” I’m all but not even five foot.

I know people were not going to take me seriously. My first nine months of this business, which we just got all that exciting data in last month, was just hiring pharmacists and quite frankly, breaking even. It was just breaking even. What we were providing was the comprehensive medication management for all patients who had never had it before. Providing pharmacogenomics, doing calls to parents who wanted to be a part of the care. Also, giving some compliance medication compliance software. We have an app, a med rep that really shows the parents in 50-day print languages called MedActionPlan, but where to draw up on this syringe, what exactly did you expect from an ADR standpoint, when to call us.

All these services were provided out of pocket by me and my husband. I just knew that it needed to be done, this proof of concept, because we’ve never have been outside of the hospital walls with an exception of somewhere like pediatric and care clinics where the hospital was funding it, but there’s never been a true pharmacist consultant role. I knew that in sales, you need to solidify your proof of concept. It took me nine months. Now that we have the numbers, we are in talks of some really exciting big contracts, but it took a really long time.

[0:22:18] CS: It’s beautiful that you were able to have the mindset and the wherewithal and the experience to be like, “Okay, I’m going to have to do proof of concept.” You were willing to just eat it for nine months. Then be able to put it together. Ultimately, set yourself up for something that’s probably really great long term, just knowing that you had to prove your worth, especially in this new, like you said, this is a new niche for pharmacist in New Jersey.

[0:22:42] JQ: Yeah.

[0:22:42] CS: Realizing, you’ll have to put all that together.

[0:22:44] JQ: Yeah.

[0:22:45] CS: Some of those, maybe the intricacies of the concepts or of the contracts, Jena, what did that look like? What did your first contract look like? Were you all set up to go for billing? Did you have to get collaborative practice agreements? What did that first contract look like? Then, where is it today?

[0:23:02] JQ: Yeah. Again, something, sometimes I don’t even understand what I’m doing until I do it, but I was like, I knew I was going to – whatever I was going to do, I was going to take care of these kids. When we first got the contracts, the collaborative practices weren’t in place, but what I very quickly realized was that these positions or providers, and just like anywhere, they are very, very stretched thin. We were given an average of 10 to 15 recommendations per chart. They did not have the bandwidth to go in and make those changes. That was pretty evident and very quickly.

I was like, this is not going to benefit anybody if we don’t get a collaborative practice in place. We have collaborative practices in place, which are a beautiful thing, I think should be the standard of care for any pharmacist practicing, just because it just builds our autonomy and puts us in the same pedestal, or just honestly, the same building opportunities and capabilities as PAs and MPs who have done a beautiful job in establishing their work. They’re not doing anything automated with dispensing.

I really look at them, those two professions as like, how can we be like them? How can I be like an MP today or a PA? I don’t want to diagnose, but how is there a way that I can use my medical – my medication knowledge to optimize patient care, be in front of the patient, be a part of their team? So, within two months, we got that up and rolling again. It is hard, I had to scramble to find who’s a good health care lawyer in the area, so they can help read my contracts, because you don’t want to do anything blind.

They’ve been an awesome addition to Perfecting Peds, an awesome and expensive addition, but necessary. What that looked like was, we would basically take over what they were doing, but instead, we just did a deep dive of comprehensive men management through a collaborative practice agreement in the pharmacogenomics. As far as we’re our contracts at now, I can’t disclose too much, but we are starting in talks with insurance companies, because in New Jersey, unfortunately, there is no opportunities to build, even incidents, too.

It is very disheartening. I know we were talking about you being in Hawaii and you feel like you traveled back in time. I worked at a hospital where I had so much autonomy, like too much autonomy. Then I came to outpatient lands and I couldn’t even change the concentration of the men. I was like, “What’s happening?” It was like, I just couldn’t believe, I was just so dumbfounded. We were talking about advocacy and legislative, I really admire what you’re doing for the Board of Pharmacy in Hawaii and advocacy. I think it’s just so needed, because I’m not political and so many people get me out of me when I say I’ve never even voted.

I realized real quick, I was going to get political, because this is – how we’re practicing is not okay. Again, proof of concept. I knew if I had that I could take it to insurance companies, I could take it to other facilities, I could take it to home care companies, all these different places. It didn’t have to be in New Jersey, right? Because I had that barrier of billing in New Jersey, but for example, in a couple of weeks we’re launching in Minnesota. We have some opportunities in Colorado. You know what? It’s not the best thing, but it’s like, okay, well then I’ll practice where I can practice until I give you guys enough literature, which we are publishing to understand that this should be the standard of things.

[0:27:02] CS: It’s amazing. So much of what you’re saying really resonates with me, because it’s amazing to realize that pharmacists are some of the only healthcare or the only healthcare professional that’s just taught to give away information for free. That’s not saying we shouldn’t be answering questions when patients come to the counter and they’re receiving a prescription. Ultimately, any other profession is billing for the services that we are already providing. Your proof of concept is just going to hopefully add so much knowledge and leaps and bounds of data of what can be done when we can practice at the top of our license. I think that’s going to be so meaningful.

[0:27:39] JQ: Corrie, to your point, I didn’t realize – this is not an exaggeration, weekly for the past nine – I guess people started catching when I’m a pediatric and maternal health pharmacist about – after I grew more confidence after a job. Then I was talking. I told you about posting, so then I would post tips and tricks. What I realized is that a minimum of 20 to 30 people were coming to me a week for their child or their selves.

I did it for nine years and then I was like, “Damn, I think this is a business.” I’m like, “Why is nobody else doing this?” We’re just mad at pharmacists at our profession, because I’m like, like you’re saying, every other person can build. And coming with all this, we have this unique knowledge. I mean, daily, we make these life-changing interventions and we don’t get any compensation for it. How is that okay? Long story short, it’s just not.

[0:28:49] CS: Exactly. Jena, I want to circle back on something that you just brought up that we didn’t get to touch on before is your social media strategy. Something that I do love about following you is how authentic you are, and you said that that’s always been your intention is to just be authentic across all platforms. What are you using primarily? Are you focused on LinkedIn? Do you use Twitter and Instagram? How do you delineate between the different platforms and where do you put a lot of your time?

[0:29:17] JQ: I’ve been most of my time in LinkedIn, just because like, do you think that as a profession, if we put a lot of our time there, well organically, and over time, educate the not only fellow pharmacists, but other fellow providers, too. There honestly is no strategy similar to my life, but what I do is I try to do one to two real patient cases, things that I saw this week that – or I tried to do the week prior that our team made a huge impact. Oh, and to your – you did ask, we are seven contractor pharmacists, two technicians and an assistant at this moment.

[0:30:00] CS: Wow.

[0:30:01] JQ: I want to flip – I’m starting to explore a few things, people over the full-time, which is an exciting change, but that being said, I have my team. We all – for the perfecting piece, we just revamped it, so that we can streamline how we’re visioning this as my goal. As for perfecting piece to be anything from preconception, I’m thinking about having a kid. What are the things I need to know to add lessons? We just started, because I wanted to revamp and have it organized, as far as the flow goes, but all of us on the team take task at different posts to do the Instagram Perfecting Peds, which close onto our Facebook and then the LinkedIn Perfecting Peds page.

Now we’re consistently posting there, because it was hard to do LinkedIn and all the other things. I just focused on LinkedIn for the first year, which has provided so much opportunities, network and the opportunities have given me more than I’ve given them, but I tried to do at least two real cases to showcase. Again, I’m a salesman, like, “Look, this is what pharmacist can do.” Then I try to do three hot topics or any, or it could be anything, whether it’s related to just entrepreneurs in the general, things I’ve learned, tips and tricks. Again, a lot of them are authentic, not all of them are this positive rainbow. I just try to keep it real. I have three kids, I understand that everything gets messy. That’s for sure.

[0:31:38] CS: There’s no way around that, I’m sure.

[0:31:40] JQ: Yeah.

[0:31:41] CS: Jena, I had said this to you prior to when we started recording the podcast. But something that I really admire about you is that the stage of life that you were in when you started your business. You had already had two kids, your third was on the way. Was that more of a motivator to step away from your job or did that make things scary? What was your mindset going into the transition being in that chapter of your life?

[0:32:02] JQ: Yes. My first two were clomid babies. I was pretty sure I wasn’t able to have children, naturally. Me and my husband had closed that chapter. I bought my LLC and four days later, I found out I was pregnant. I think, like a normal person would have felt like maybe this is my sign. God saying, “Don’t do this.” But then I thought, I was like, “God’s given me nine months to get this bad boy up and running.” So, I did. I used that. I also used leaned into it that the fact that I can’t do this alone.

One of my past mentors, who quite frankly scared the hell out of me, is at [inaudible 0:32:42] you reached out and said, “I’ve been thinking about doing exactly what you’re doing for 10 years of my life and you’re inspiring. Can I basically work for you?” I’m like, “Yeah.” She’s a – she’s so much harder than I ever – again. She teaches me so much. It was a humbling experience to see that, but I knew that I was going to force me not to be the bottleneck of the company in multiple things, because I knew, I needed to take whether it was six weeks or whatever maternity leave.

In order to do that, I needed to build up some systems and standard operating procedures so that I wasn’t the only one that could do it. That was something that I knew from the start of it. I had an implement and had nine months to implement. I did use it as fire, to be quite honest. My hospital gave me six weeks after the birth of my second daughter. It really pissed me off. They’re going to do the same shit again. So, I used that as, even though I loved everything about my job, the people, but it was just like HR. They were adamant that even though I’d only worked 960 hours, I needed 1000 to get an additional six weeks. They were only going to give me that six weeks and family time for me and my employees is non-negotiable. It really did not sit well with me. I knew if I could build this up enough that most likely, I’d be able to leave right around then and that’s one of us.

[0:34:21] CS: That’s amazing. I actually just had goosebumps when you were saying that one of your old mentors reached out to you saying that she’d been thinking about it for so long, because most people really will choose being in an uncomfortable place over uncertainty and taking a leap that they don’t know where they’re going to end up. I’m sure that was just an amazing sign from your end of being like, okay – I’m doing the right thing. I have people supporting me. I feel like, especially in the entrepreneur community, it’s not uncommon to have that support.

[0:34:51] JQ: Oh, yeah.

[0:34:52] CS: It’s great that you – yeah. It’s great that you were able to get that immediate gratification almost from someone that you respect. That’s an amazing way to start.

[0:35:01] JQ: Yeah. Like I tease, but she was just one of those people that her intelligence was so intimidating. Yeah, it was humbling to say the least. And then just a couple of days ago, I was on the call with another past pharmacist I worked with. Again, because I came from just one-year residency and these girls were no BS. If you’re going to touch a patient, you better know what you’re talking about. I only had one, I was one of the few, if not the only, that only had one year. They were hard on me. It was just weird talking to her the other day and she’s like, “Are you hiring?” Who would have thought that my mentors would be asking one day if I’m hiring.

It’s humbling, but just another reminder of just how life works out. Yeah, I mean, there wasn’t any certainty to be a 100% honest, my husband would kill me. I knew, I was going – I just wanted to do this full-time. I quit and then the next day I told my husband. It wasn’t like – because I knew I had to do this and he was always going to tell me, he’s so supportive, but he’s not a risk taker. I knew he was going to keep telling me, “Just keep doing the weekends. Just keep doing the weekends. It’s an extra $600.” But he wasn’t appreciating how much that was taking away from my business and my attention. Yeah, I don’t advise wives to do that. I was like – I’d would rather tell you that I cheated on you. He’s like, “Oh, God. This is not—“

[0:36:37] CS: Let me set the stage here.

[0:36:40] JQ: I did something worse, I cheated on you. I quit my job without telling you. He knows me enough that he was like, “All right, well, you’re going to figure it out. You’re going to figure it out.” Yeah, it was just like nobody – it’s just such a hard thing to actually, you’re never going to be ready to be like, all right, I’m just doing this. It’s just like, man – I was like, “I just have to do it.” I felt I was slowly dragging it out and that was actually causing me a lot of anxiety, too. I’m like, “No, no, no, you have to do. This is what your heart said on, just do that.”

[0:37:18] CS: There certainly becomes a point when you are developing your business on the side where your job becomes more of a detriment than an asset to your new business. The fact that you were able, you were feeling that and you knew this is, I need to make the job, I need to make the cut. There’s certainly an element of sink or swim to leaving your job, but there’s also a very large element of planning and making sure that you’re ready and that you have something up and running, so that when you make that transition, it’s not as scary.

[0:37:46] JQ: Yeah. I knew. I’m like, all right, at the minimum, I have these facilities at least for a year and that will give you enough time to show our work, essentially. It’s what I knew. I started the clock.

[0:37:58] CS: That’s right. All right. Jena, I’m going to wind this up with just three easy questions that I think will really resonate with the listeners and maybe give them some inspiration to starting something new or maybe pursuing a non-traditional pharmacy career path. What is the most memorable aspect of being a business owner and why?

[0:38:19] JQ: I would say, honestly, when I was in the hospital some days, it sounds so dramatic. I just didn’t look forward to going to work, right? I think being a business owner, and I wake up every day with a fire in my belly. I have control to change patients’ lives. So, that’s really where, because I’m in the driver’s seat and quite transparently as I start looking for different investors and stuff to really build this up, it’s just a non-negotiable for me that clinical comes first and then we’ll figure out a way to get reimbursed and everything, secondarily.

I think my being able to apply my own values instead of relying on my bosses, even though my own boss is not, she’s amazing, but instead of relying on somebody else, I think that was really what gets me fired up is I can create this, I can make it so that patients get the best care, and that really fires me up every day.

[0:39:25] CS: It benefits you. It benefits the patients. It keeps you going. It’s just wonderful once you’ve felt that. It’s great motivation to continue what you’re doing. What is one piece of advice for anyone that’s contemplating a non-traditional career path?

[0:39:39] JQ: I think, go for it. The worst case when you go back to your traditional job, right? That’s the question my husband – I have 12 years of pediatric experience. I can easily find another job if I need to or I ended on such great terms, like my boss said, “Come back whenever you want.” So, worst-case scenario, you go back to where you were, right? I mean, I’m going to give it a good try, I think you need to at least do it for a year to see if you’re gaining an attraction.

I do think – I’m always like the worst-case scenario, if we were drowning and I couldn’t pay my bills and give my girls what they need, I would just go back to it. I’ll go walk in the CVS and apply and get a stupid bonus. That might be miserable, but you know what I mean? But that’s the worst-case scenario is you go back to a traditional job. We’re needing it now, so leverage it.

[0:40:35] CS: That’s right. I mean, COVID has shined a light on the profession in a way that hasn’t been shown before. It’s great that pharmacists are using that to their advantage to finally advocate for the profession. It’s a beautiful time for you to be making this transition and have a company that’s so successful in such a short amount of time. It’s wonderful.

[0:40:52] JQ: Oh, thank you. Definitely –

[0:40:54] CS: Then last question for you. Your favorite part about being a pharmacy entrepreneur.

[0:40:59] JQ: Advocating on the behalf of our profession. Like I said, before we started this. I lived in this really ignorant bubble of, “Oh, my God. Pharmacists are awesome.” I worked in hospital settings. I had basically collaborative practices. It felt even more than a collaborative practice, especially with the medical residents and the attendings, because you got to know them so well and they were such a trust factor. I quickly realized when I tried to make some changes, when I first started pre-collaborative practice with a lot of my kiddos, you couldn’t even change concentrations of medications.

I’m like, if we’re not equipped to do that, who is? It’s really, again, I admire what you’re doing. Getting involved in like the legislation change. That’s my – after five years, after I build this up, that is the next step for me is getting involved, because – of course, I’m involved in associations and everything. Again, I wasn’t active in a single association before entrepreneurism.

Now, I think I’m a serial association person. I’m in 10 pharmacist associations. Then a couple other just random entrepreneur ones. It really, again, if I’m in a position where I can advocate for the profession that I didn’t know we needed this much advocacy in the outpatient world, because just like you, I’d been in hospital the whole time. I didn’t realize that it was – I didn’t realize it was an issue.

[0:42:33] CS: Well, that’s beautiful. I hope that in a couple years, you’re the state of New Jersey pharmacy practice and sitting at the Senate and pushing things forward. That would just be such a full circle moment and benefit everyone in the state. Yeah. That’s wonderful. Well, Jena, thank you for taking the time to be here today. This was such a powerful interview. I feel like you were so authentic, so many life lessons. You’re an inspiration to so many. I know just starting this business and making it so successful going across multiple states with multiple hires. I’m excited to see what Perfecting Peds does in the future. Thanks for being here.

[0:43:08] JQ: Thank you for having me.

[OUTRO]

[0:43:11] ANNOUNCER: As we conclude this week’s podcast, an important reminder that the content on this show has provided you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offered 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 Pharmacists Podcast. Have a great rest of your week.

[END]

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YFP 318: Midyear Tax Planning and Projections

Posted on July 27, 2023July 25, 2023 by Caitlin Boyle

YFP Director of Tax, Sean Richards, CPA, EA digs into what midyear tax projections are, why they matter, and specific examples where a midyear projection can help someone optimize their financial situation. We discuss the importance of adjusting withholdings, ensuring record keeping is up to date, common pitfalls business owners and side hustlers can avoid with a projection and tax considerations with student loan payments coming back online.

Episode Summary

YFP Director of Tax, Sean Richards, CPA, EA is here to explain the incredible benefits of doing a midyear tax projection. Sean defines a midyear projection, illustrates how projections can lead to peace of mind, and clarifies why everyone should be doing their own midyear projections. Our conversation explores why being proactive is always better than being reactive, why proactive planning is necessary when making big life changes like getting married or buying property, or getting a new job, and a host of real-world examples that highlight the undeniable benefits of midyear projections. Plus, Sean describes how midyear projections can help with tax optimization and strategies for student loan repayments, and the wealth of opportunities that become available to business owners who embrace proactive planning.

Key Points From the Episode

A warm welcome back to the show to YFP Director of Tax, Sean Richards.
How he’s spending his free time post-tax season as a father of two under two.
Sean explains what a midyear projection is.
How projections can lead to peace of mind.
Why everyone should be doing a midyear projection for themselves, according to Sean.
Real-world examples of the benefits of doing a mid-year projection.
How being proactive is better than being reactive.
Why proactive planning is a necessity when making big life changes like buying property.
The role of midyear projections in tax optimization.
Exploring the opportunities available for business owners who do midyear projections.
How a midyear projection can help you optimize your student loan repayment strategy.

Episode Highlights

“A lot of people get stressed out about taxes, and I don’t blame them — when you’re in high school, you learn that the mitochondria is the powerhouse of the cell, but they don’t teach you how to file your taxes and do basic finance things.” — Sean Richards [04:52]

“At the very minimum, anybody who’s paying taxes and has a job and has to file a tax return at the end of the year should be doing some level of projecting the end of the year, to make sure that there’s no crazy surprises.” — Sean Richards [09:27]

“To the extent [that] you can mirror your tax strategy with your financial plan; it’s always just the best way to do things.” — Sean Richards [34:25]

Links Mentioned in Today’s Episode

Episode Transcript

EPISODE 318

[INTRODUCTION]

[00:00:00] TU: 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.

This week, I welcome back to the show, YFP Director of Tax, Sean Richards. We discuss mid-year tax projections, what they are, why they matter, and specific examples for how a mid-year projection can help someone optimize their tax situation. We discuss the importance of adjusting withholdings, ensuring record keeping is up-to-date, common pitfalls that business owners and side hustlers can avoid with a projection, and tax considerations with student loan payments coming back online in a couple of months.

You can learn more about YFP tax services for both individuals and businesses, by visiting yfptax.com. Again, that’s yfptax.com.

[INTERVIEW]

[0:00:50] TU: Sean, welcome back to the show.

[0:00:52] SR: Thank you. It feels like I was just here, but it also feels like it was just tax season yesterday. So I think things are all sort of blending together at this point, which is understandable given the rush of everything, and now that we’re in summer and all these other stuff going on, but I love being here. I appreciate you having me back on.

[0:01:08] TU: So, we’re post-tax season, you’ve got a new baby in the house, we’re gearing up for mid-year projections, which we’re going to talk about in this show. You should have ton of free time right now, right?

[0:01:19] SR: Yes. I really haven’t been doing a whole lot of anything, just kicking back on the couch, and kind of watching a lot of TV and stuff. It’s baseball season, so you get these games that you can just sort of put on the background and sleep all day. That’s basically what I’ve been doing. Yes, nothing really going on at work, at home with the new baby, and the other baby who’s under two. Two under two right now, so yes, a lot of free time. So if you’ve got anything for me to work on, please send it over.

[0:01:45] TU: I’ll keep that in mind. Two under two is intense. Yes, I remember, I shared with you our oldest two are separated by 17 months, and our other two are a little bit further spaced out. Two under two is the real deal, so kudos to you and your wife for making that happen. As you were talking about yesterday, I can remember very well. All of a sudden, baby comes in and your oldest, who still is relatively young looks much older all of a sudden, right?

[0:02:11] SR: Yes, she does look much older. But she also – and I swear it’s not just a comparison of or – I shouldn’t say the comparison, but now, we have a little one at home, so she seems older. But I swear, overnight, she went from being one and a half to being two and getting those terrible twos right in there. Because, man, it’s like you said, it’s intense. But it’s really exciting, it’s awesome. I mean, I couldn’t be happier with everything. But it definitely – it’s exciting challenge what I would say for sure.

[0:02:38] TU: Well, last time we had you on was Episode 309. We talked about the top 10 tax blunders that pharmacists make. That was coming off of the tax season. Here we are, end of July, people may not be thinking about taxes in the middle and dead of the summer, but we’re going to hopefully make a case of why tax is important to consider not just in tax season, not just in December, but really year-round. That’s our philosophy, our belief at YFP Tax, that tax planning, especially for those that have more complicated situations, when done well, is exactly that. We’re doing year-round planning, we’re proactive, we’re not as reactive. We’re going to talk about an important piece of that year-round approach, which is the mid-year projection today.

Before we discuss that midyear projection and some of the details and reasons of doing that, Sean, just define at a high level by what we mean by that term, right? We throw that around internally all the time, mid-year projection. All of our listeners certainly are familiar, hopefully, with filing taxes, but maybe not as familiar have experienced with a mid-year projection, so tell us more.

[0:03:42] SR: Yes. I mean, it really is. I mean, if you look at what it says, it’s a projection, right? You’re projecting out what you expect to have at the end of the year. Really what it is, is kind of like putting together your tax return now based on what you think it’s going to be at the end of the year. Obviously, there’s some variables there and some uncertainty with everything, as it always is with forecasting, and budgeting, and that sort of thing. That being said, given that there are uncertainties, there are things that you want to keep an eye on. So, yes, it’s really just doing a projection of your finances for the year, and really coming down to what we think your tax return is going to look like. Are you going to have a bill? Are you going to have a refund or not? Then, looking at that and working backwards to say, “What can we do to tweak things?”

[0:04:29] TU: If we go a layer deeper on that, Sean, why do one? What’s the case to have one done? What’s ultimately the goal that we’re shooting for here?

[0:04:38] SR: I think the goal, and I mean, you kind of alluded to before saying, people probably aren’t thinking about taxes right now, and that’s totally fair. I don’t expect people to be thinking about taxes right now, unless you’re maybe me or somebody in similar shoes as me. But, I mean, the goal is that a lot of people get stressed out about taxes, and I don’t blame them. It’s one of those things where I joke that when you’re in high school, you learn that the mitochondria is the powerhouse of the cell, but they don’t teach you how to file your taxes, and do basic finance things, right?

What generally happens is, you’re kind of – I don’t want to say sweeping things under the rug, but you’re not thinking about taxes, or it’s not top of mind throughout the course of the year. Then you get to the end of the year, and you’re doing your return. It’s all looked back, all historical. There’s not much you can do at that point, right? So if you’re filing your return next year, for this year, and you have a big refund, it’s nice to have a refund, but you’ve got all this cash all the sudden that you could have been doing stuff with last year or vice versa. You get to the end of next year, or the end of this year, you’re filing next year, and you have a huge bill.

Whether you have the cash ready to pay it or not, it’s nothing that anybody wants to have, right? The idea of doing the projection now is that you’re not getting to a point where you’re stressed out, thinking what could have been, what should have been last year. You’re getting ahead of those things and saying, “Hey, right now, things look great. Don’t have to do anything, or things don’t look as good as they could be. Let’s tweak that.” Or maybe not even any of those. It’s just, “Hey, right now, we have status quo, but there’s some things that are changing in my life. I have a new job, or I’m thinking about opening up a rental property, or something.” And making sure you have those ideas in your head now as opposed to, again, in April and handing it to your accountant saying, “I forgot to mention, I bought that house last year. Oops.”

[0:06:30] TU: Yes. I think with most things, and we’ll talk about some specific examples here. But most things when we shift to more proactive planning versus reactive, and obviously, for those that have more complicated situations, the more the proactive planning is going to help, and we’ll talk about that in more detail as well. But anytime we make that mindset shift, there’s an opportunity for peace of mind as well, right?

I think a lot of people I talked to, Sean, when I say, “Hey, what are the opportunities? Are you thinking about opportunities to really optimize tax as a part of your financial plan?” Everyone’s like, “Yes, I want to do that. I want to make sure that I’m paying my fair share, but no more.” But then actually, executing on that. It’s like this cloud of not exactly sure what to do, how to best navigate it. I think that is the opportunity with the year-round planning. Ideally, we’ll make the case of why it’s important to have a CPA in your corner throughout the year as well. But I think that peace of mind part is just such an important piece, especially for many pharmacists, I know that have this lingering question of like, “Am I doing everything that I can?”

There’s the cleanup part where maybe we’ve made mistakes, or we don’t want to have a big bill or refund, but then there’s the second layer of that, which is that nagging feeling of like, is there something else I could be doing? I think that’s one of the values of projection.

[0:07:49] SR: Yes. I mean, the peace of mind thing, like you said, is that I feel like going back to the whole high school idea of how they don’t teach these things to a lot of folks. I remember getting my first job out of college, and I had an accounting, and finance, and even tax background from college. You start getting these things, “Hey, do you want to do an HSA? Do you want to do 401(k)?” There’s ROTH and traditional, there’s IRAs, and everything, and people are like, “I don’t know what any of this stuff is. I’m just – I’m getting a nice paycheck for the first time now. I know I want to save, but I don’t know what any of this stuff means.” It becomes overwhelming to have all these things happen.

Like you said, you don’t want to come to the end of the year and say, I wish I had done these things. Because I didn’t know that that – there were opportunities for me to save here and there. I just thought that I was doing the right thing by putting my money in this savings account or in this account. So yes, I think, again, the uncertainty, and just sort of lack of general tax knowledge in the country, and world can be stressful, and not having to worry about that is very important for peace of mind in general sanity.

[0:08:55] TU: To be fair, the process is more complicated than it probably needs to be. And because of those complications, there’s some of the ownership and work on us to be planning throughout the year. One of that part piece, of course, would be the mid-year projection. Sean, I have to admit, prior to really building our tax team over the last several years, a mid-year projection was something that was never on my radar. My question for you is, should everyone do a mid-year projection? Is this necessary for everyone?

[0:09:26] SR: I think it is. I think at the very minimum, anybody who’s paying taxes, and has a job, and has to file a tax return at the end of the year should be doing some level of projecting the end of the year to make sure that there’s no crazy surprises. You might be listening to this and saying, “Hey, my situation is really simple. I filled out my W-4 when I started my job. I don’t have any crazy stuff going on. I don’t think I really need to do this.” But again, we keep coming back to this peace of mind thing and that could be great. Maybe your return last year was fine, and there’s not a lot of stuff that’s changing, but there’s always changes to the tax law. I mean, the W-4 system changes all the time, and I know it’s not – people don’t even realize, “Hey, can I claim one or two exemptions?” That’s not how it works anymore.

There’s always changes to the law, and changes to things going on. Even if you think your situation is pretty simple, and doesn’t apply to you, just doing a quick check to make sure, “Hey, there’s not going to be any crazy surprises.” Again, with something like that, you’re not necessarily going to be saying, “Oh, am I taking advantage of all the laws that exist out there, and all the different ways to maximize my tax savings?” But you just want to make sure. “Hey, am I going to owe a ton of money to the IRS at the end of the year? Or am I going to get a ton of money back that the government was borrowing for me for free for the entire year?” What I would say is, if your situation is simple, you can even just go on the W-4 calculator that the IRS provides. It’s not perfect, please. No one from the agency come and chase me down. It’s not a perfect system, and there’s a couple of different things that can happen there.

You might go through the whole process and get a bad answer, and then say, “Well, what am I supposed to do with this? It just says that I’m going to owe a lot of money, but I don’t know how to fix that.” Or you might just use the tool, and like I was alluding to, you might just get frustrated with it and say, “Why all these questions they’re asking me? I don’t understand any of this stuff. Why is it so complicated?” It is a good starting point, I would say, especially for those with simple situations. But I would just advise to be wary when you’re doing it that. It’s not a perfect system, and it definitely can be a little confusing.

[0:11:34] TU: Yes, and I’ll be honest. Admittedly, I’m a little bit impatient, and want these tools to always be better than they are. I’ve been on the IRS W-4 calculator tools, and I’ve gotten annoyed, frustrated playing with that, and I’ve left. I think the decision tree to your point, for people that have a very simple tax situation, can they do it themselves? The technical answer is yes, there’s an IRS calculator. It’s going to give you some basic information. The follow-up question is, do you want to do it yourself? Then the follow-up question to that is, if you have a more complicated situation, and/or you’re looking for more input of advice based on the output of that number, that’s really where some of the assistance and help that can come in from working with professionals.

We’ll link to the show notes to the IRS W-4 calculator. Certainly, people can play around with that, which I’d recommend regardless of working with someone else. Just have a better understanding of the different inputs in these numbers, and hopefully to get the conversation started as well.

[0:12:33] SR: Yes, absolutely.

[0:12:34] TU: Let’s talk about some common examples where a mid-year projection can help. You’re in these conversations every week with our year-round tax planning clients. We talked about several these in Episode 309. Again, we’ll link to that in the show notes. That was a top 10 tax blunders that we see pharmacists making, which we recorded after the tax season. But I think there’s an opportunity here really to bring to life, not just the academic or theoretical side of why a video projection may be necessary, or what it is, but some actual examples where a mid-year projection can help. I’ll turn it over to you to talk through some of the most common places where you see this having value.

[0:13:11] SR: Yes, sure. I would say, the number one thing probably is just adjusting withholdings in a very – to put it in two words, it’s adjusting your withholdings, or adjusting withholdings, get rid of the “your” and “there.” But I swear I’m better at math than I lead on when I do these things. But yes, it’s adjusting withholdings. Like I said, the W-4 system changed a few years ago. Some people don’t even realize that. Some people probably set up their withholdings 20 years ago, and they started a job, and haven’t done anything since then. That might work for some folks, but the way that the W-4 holdings works now with the IRS is, if you get a new job, or your spouse gets a new job, or you have changes in salary, and everything, your withholdings might not be working the way that they did in the past.

You can also have other life events that sort of throw a wrench into that. You can get married, have kids. Even if you are married, you can kind of consider, and we’ll talk more about this when we get into some of the other blunders, but consider whether you’re going to file separately or file jointly. That changes the way you do withholdings and everything. That’s probably the number one area. Like I said, not withholding properly at the end of the year is almost certainly going to cause a problem whether it’s you’re over withholding, and you’re getting that big refund back, or you’re under withholding and you have a big bill.

The biggest and easiest way to kind of course correct. If we do a projection and we see that that’s the case, submit your W-4 to your employer, all of a sudden, you’re withholding appropriately. We can do a catch up to get you to where you need to be, or make an estimated payment or something like that. But I would say that’s the number one thing, and it sort of encapsulates everything else. Not entirely, but just because holding down a W-2 job and getting the taxes taken out of your paycheck is the way that most folks are paying the IRS. I would say, that’s probably the biggest one.

[0:15:04] TU: Let me jump in real quick, Sean, before you move on to other common examples, because that one is so common. I just want to highlight, when you think about the situations where withholding adjustments are necessary, you mentioned individuals getting married, and need dependents, I think about people that are moving different locations. They’re buying homes, new job, changes in income. These are things we see all the time. The key here is, we want to give ourselves as much time as possible to make a pivot, or a change on either side of this. We find out that, “Hey, because of X, Y and Z, we’re anticipating a big refund. All right. Let’s start making some adjustments, so we can put that money to work in other parts of the financial planning.”

We find out that we’re going to have a big liability due. Well, we just bought ourselves some more time to kind of budget, and plan before that payment is going to become due, and to make those adjustments. That’s so important, because this is the phase of life where we least want a surprise, right, especially on the O side of things, right? Getting married, moving, new job, new house, expenses that come with that. We want to avoid as much as possible, the surprises that are going to put a wrench in the other part of the financial plan.

I think withholdings, adjusting withholdings, we all are familiar with. You take a new job, you fill out the paperwork, but I think we can lose track of that throughout the year, or when those job changes aren’t happening. Just wanted to drive that home further.

[0:16:26] SR: The two things I would add to that are also – the big thing is that people are always excited about getting their refunds, right? If you get a big refund back, it’s cool. It’s almost like you found the $20 bill in your pocket, and went to the washing machine that you didn’t know about. But would you rather find out about a refund in April and get the cash back now, or find out now that you’re going to be getting that refund back, and then be able to actually put that in a savings account, or deploy it somewhere where you can get a return on it, as opposed to getting that cash back in a few months with nothing, right? It’s like a net present value sort of thing to borrow finance term. But would you rather get $10,000 in six months or $10,000 now? The answer is now, right?

[0:17:09] TU: Especially with where interest rates are on high-yield savings accounts and other things.

[0:17:12] SR: Exactly. I mean, any way that you can get a little bit of extra cash now as opposed to tomorrow, or anytime in the future, it’s better. Then the other thing that I would say, I keep going back to the whole W-4 withholding thing, is that you might be perfectly fine at your job and nothing has changed. When I say perfectly fine, status quo, right? You’re working the same job, standard raises every year, nothing crazy going on. But with the way the W-4 systems work now, if your spouse goes and gets a new job, and they update their W-4, but you don’t do anything on your end, that can mess things up. People don’t realize that. They’re thinking, “Hey. You go and claim the exemptions that you’ve always claimed in the past.” We have one kid, or two kids, or whatever it is, but that’s not the way it works anymore.

Even if it’s not you that’s had changes to your life, specifically, you have to think about your entire family and everybody who’s landing on that tax return at the end of the day. That’s one thing that definitely slipped some folks minds, I would say.

[0:18:05] TU: Great stuff. So just withholdings, I’m hearing you loud and clear, probably the most common thing that we see. It’s one of those things that big impact, but not a huge amount of work to be done to make this pivot. That’s a low hanging fruit. Talk us through other common examples where a mid-year projection can really help.

[0:18:24] SR: One good one is, this is another kind of, “Hey, this comes up every year with tax and filing is record keeping.” So we get to the end of the year, you purchased a rental property, and you’re excited about it, you’re getting some cash and everything. And now it’s time to file taxes. Instead of just your typical, “Hey, Sean, or Mr. CPA, here’s my W-2, and here’s my 10-99, and I’m good to go.” You have a rental property now. There’s a lot of things that need to go into something like that. You might not be thinking about some of the ins and outs that happen with that. I mean, if you have improvements to your property, those are treated differently than if you have electricity costs that go into your property. There’s a lot of different things that people don’t think about.

It’s not even that people don’t think about it, you don’t want to be scrambling at the end of the year to say, “Ah, I got to go get all those receipts, and get all my finances together and all that stuff, and try to get pulled all together when everybody’s trying to all do the same thing.” The extent you can get ahead of that now is great, obviously from a getting your ducks in a row and helping your CPA out at the end of the year. But also, going back to this whole idea of what am I going to owe at the end of the year? If you’re able to come to me or whoever you’re working with and say, “Hey, here’s the settlement statement for the house that I just bought. Here’s all the details. Here are all the closing costs and everything. Can you build that into my projection?”

The answer is absolutely yes. I’ll run that through and see what your rental is going to look like for the year or anything. It doesn’t have to be a rental property. You can be starting a side business, or doing anything like that. But just having this stuff together gets you ready for the end of the year, but also allows us to be able to, again, do those calculations to say, “Hey, you know, that rental that you built, or that you just bought, and you just did that big addition on? Well, that’s going to save you in depreciation this year, so you’re going to get a refund back. Let’s redeploy that cash.” Maybe you put it back into the rental property, I don’t know. But now we have the opportunity to do something with it.

[0:20:27] TU: I’m so glad you mentioned this one, because we are seeing a larger and larger part of our community that’s jumping into real estate investing. We’re seeing a larger percentage of our community that’s jumping into a side hustle or a business. Just so important, and we’ll talk about other things for business owners here in a moment to consider. But what we’re trying to avoid – not that this ever happened, Sean. But we’re trying to avoid is, hey, we get to tax filing, and you ask for the information come February and March. It’s like, “Oh, yes. By the way, I bought a rental property eight months ago. Can you figure this out right for me tomorrow?” Again, proactive planning.

[0:21:05] SR: Now, that example, “Hey, I bought a rental property last year, I forgot to mention it to you.” People might be rolling their eyes saying, “Okay. Well, if you work with an accountant, who is not going to tell their account about their rental property?” Sure, that’s totally – that might be unrealistic to some folks, I get it. But we’ve seen plenty of circumstances where folks have been, say, living in their house for 20 years. They decide, I’m going to rent out a couple rooms in the house this time for the first time. Hey, that’s awesome. Get some side income, be able to write off some of the expenses. It’s great. You’ve been living in this house for 20 years. We need to start taking depreciation on this house for rental, we need all the costs for the last 20 years that you put into that thing.

I mean, I know now some people might be sweating saying, oh, boy, that’s a lot of look back, right? But it’s something that’s going to need to get done anyway, so we rather get ahead of it now or have me looking for that in April, right?

[0:21:55] TU: Yes, good stuff.

[0:21:56] SR: A little bit of a different example there. But hopefully trying to get some people thinking about things.

[0:22:01] TU: Yes. I think, just a proactive, when people are starting, I’m thinking about a lot of individuals in our community that are new real estate investors, first property. So I’m not sure, number one thing on their mind, especially if they’re not yet working with an accountant would be thinking about a lot of the record keeping and get ahead of the proactive tax planning. Now, if they’ve worked with an accountant, or they are multiple properties in, different situation, the trigger goes off. Similar if you’ve been in business for a while, the light bulbs go off more often, like, “Oh, yes. I got to talk to the accountant about this.”

What about opportunities for tax optimization? One of the things I think about with a mid-year projection is, “Hey, we’ve got an opportunity.” Again, proactive not reactive, to really look ahead and say, “Hey, there are the things that we can be doing to pay our fair share, but no more, and optimize their overall tax situation.” Tell us more here.

[0:22:51] SR: Yes, and this one’s good, because it applies to everybody in a very broad spectrum of things, depending on what you have going on in your financial life. That could be something where it’s as simple as, “Hey, I’m working a W-2 job, my spouse is working a W-2 job, we don’t have any kids, nothing else really going on. What can we do to optimize our taxes given our situation?” That’s a perfect example of where it’s an awesome time for your accountant and your financial planner to sort of work together. Because there’s always the idea of, “Hey, we want to maximize our tax savings, but we have a life. We need to be able to have cash to pay our bills and do other things too.” It’s a very delicate balancing act of, “I want to maximize my tax savings, but at the same time, have enough cash to do all the things that I need to do.” It’s a perfect time to work with both your accountant and financial planner to say, “Hey, should I put more money into my HSA? Should I put money into a 529 plan? What kind of thing should I be doing with my extra cash? That opportunity cost of $1?”

But you can also have more, I say, more fun examples, because it’s the ones where you can really think about different opportunities that are out there, and how to take advantage of these laws. An example of that would be, say you have a side business, and you need to buy a new vehicle. There’s so many different things that you can do with that. I could spend an hour maybe. We’ll have a separate podcast on buying a vehicle in the active locations of doing so. I mean, get side business. Hey, how much are you going to be using this thing for business? Are we able to take a section 179 deduction? Is it a type of vehicle that would qualify for something like that?

We have all these new EV credits with the inflation Reduction Act. Are we going to be able to take advantage of all those? What if we use it for business? Can we still take the credits and everything? That might be a little bit of a nuanced example to some folks, but it’s a perfect example in my mind of how something that is, maybe on a day-to-day thing that happens. But something that purchase that folks are going to need to make in their life, most likely. You can really use that as an opportunity to say, “Hey, I got to do this anyway.” How can I also maximize my tax savings at the end of the day, when you’re sitting in a car dealership, and the people are trying to sell you on all these different tools, and upgrades, and everything. You’re probably not thinking, “Hmm. I wonder if I can save my taxes with this purchase?” But it’s always possible.

[0:25:15] TU: I’m going to give credit to our community. I think they are asking that question, Sean.

[0:25:18] SR: They are, for sure. I’m getting that one a lot. In fact, I would be – I challenge you to find another community that’s as interested in the EV craze right now, which is awesome, I have to say. Really, folks should be looking more and more into that, because of those credits I just mentioned. They’re just every year getting better. But yes, I love it. I mean, every year I’m seeing more folks buying EVs, or buying used EVs and getting the credit now. It’s good stuff.

[0:25:46] TU: So, as we continue talking about some of these common examples where mid-year projection can help the other one that I think about, Sean, that we’re seeing a lot more of is, business owners, especially new business owners, right? Maybe they are thinking about tax considerations, withholdings, making sure they’re making quarterly estimated payments if they have to. What’s the opportunities here with the business owners as it relates to the mid-year?

[0:26:11] SR: Well, this is where I say, take all the examples I was just giving you, and throw them out the window. Not exactly, but when I was talking about how adjusting your withholdings is such an important part of this entire thing – I shouldn’t say throw out the window, because they do definitely go hand in hand. But if you’re a business owner, you have a side gig, you’re making money doing that, you’re almost certainly not getting W-2 income from that job. Or I shouldn’t say, you’re almost certainly not, but there’s a good chance you’re getting income from that business that is not having taxes withheld on it.

That is probably the number two or number one and a half blunder that we see where folks have these businesses. They’re not setting aside cash. They get to the end of the year, and are excited to give me the P&L that shows, “Hey, look at all this money I made.” Then I say, “That’s awesome. You owe some money in taxes, do you have that ready to go?” And it’s like, “Oh, I wasn’t thinking about that.” It goes hand in hand with the withholding, but it’s really just hey, let’s look at the business right now. Where are we mid-year? What’s your P&L look like to date? What kind of expenses do we have coming up for the rest of the year?

I talked about these EVs and things. How can we think about maximizing your savings there to reduce your business income, and be able to say, “All right. Well, at the end of the year, we’re expecting that we’re going to have $10,000 in business income.” Being able to say that now, and make your estimated payments up to the IRS is not only a good thing, it’s actually what you’re required to do per the law, right? That’s where I would say that a projection isn’t a nice to have, but an absolute necessity if you’re a business owner. It’s something where you can’t really say, “Hey, I’ll think about this later, or let’s just hope the chips fall in a good spot.” You really need to be doing a projection now to say, “What am I going to owe? Do I need to pay estimated taxes now? Should I have been making estimated quarterly payments up until now? Maybe I need to do a little catch up to hopefully not have a penalty at the end of the year at this point?” But again, to any extent you’re able to get ahead of that now, when I’m looking at the calendar, it says July versus December, January, April, it’s always better.

[0:28:25] TU: Yes. Especially, Sean, think about those new business owners again. Where, often, there’s excitement around the growth, there’s a reinvesting of any of the profits that tried to continue to grow the business. If we can identify some of this mid-year, sometimes that even inform some of the business strategy of like, “Hey, are we charging appropriately? What’s the service model look like?” And making sure that accounting for taxes as I look at the bottom line, and making sure we’ve got cash on hand to do these other things, and of course, not being caught off guard as you mentioned, as well.

[0:28:59] SR: Yes. To give – I don’t want to say a very specific example, because it’s something that we see very, very often. It might seem specific to some folks, but I think a lot of people here will resonate with this. But big one is, business owners, especially first-time business owners paying themselves. A lot of folks will do that, and then they’re maintaining their records and saying, “Hey, my net income is going to be pretty low at the end of the year, so I don’t have to worry about estimated taxes or anything like that.”

Then, we get to the end of the year, you provide your P&L, and I say – actually those $10,000 that you paid yourself, it’s not really a salary expense of the business, because it’s just a sole proprietorship. It’s actually just taxable income to you whether you took the cash or not. That can be very eye opening in a bad way for a lot of folks at the end of the year. It’s not entirely intuitive to think of it that way. You might be thinking, “Well, I worked with the business, I’m paying myself. Isn’t that an expense?” In the eyes of the IRS, depending on the way you’re set your setup, it may or may not be right. Getting ahead of that now and having your accountant maybe give you that bad news of, “Hey, that money is actually something you’d have to pay taxes on the end of the year now so you can plan ahead.” — Is always better than getting that during your tax review meeting in April or May

[0:30:14] TU: Yes, and I get it. For the small business owners, we were there several years ago. For the small business owners that are just getting started, you’re looking at working with a CPA, it’s another expense in the business. I get it, right, but it’s going to pay dividends when you talk about making sure you’ve got the right entity set up classification, separate conversation for a separate day. Making sure we’re withholding correctly, getting financial statements set up correctly, making sure that we’ve got the books in good order. These are all going to be critical components to building a healthy business. You’re not going to get all of it right as you’re getting started, and that’s okay. I think some of that is natural. But making that investment, and building that in as an expense of the business from Jump Street as a part of just doing business to make sure you’ve got all of that in order is going to be really, really important.

[0:31:05] SR: Right. It’s not just a nice to have, like I said, it’s something where that should be part of your plan from the get go, and you’re building this out. People might be thinking about, well, “Hey, isn’t this podcast supposed to be about doing a mid-year projection? Why are we talking about what my business looks like? That’s kind of different than my taxes, right?” But like I said in the beginning when I was explaining what a projection is, you’re really just basically doing your tax return for the end of the year with the information that you have on hand. One of the lines right there is, “Hey, what’s your business income?” If you want to do a correct projection for your taxes, you’re going to actually have to do a projection for your business as well. Even though it might seem like it’s going a little bit too far, or you might not be able to connect those dots there, it’s something that it’s absolutely intertwined and something that you need to do for sure.

[0:31:51] TU: Last but certainly not least on our list. What would be a YFP episode if we didn’t talk about student loans? We’ve got student loans coming back online here in a couple months. A lot of questions that are coming up related to the restart of those payments. We’ve talked at length before about how tax and student loans can certainly be intertwined, depending on one’s loan repayment strategy. What is the value or potential value here, Sean, for someone that’s optimizing, or looking to optimize your student loan repayment strategy, and where the mid-year projection can play a role?

[0:32:24] SR: Yes, I can’t take any paternity leave anymore. Because when I do, it seems like they announced all these student loan changes, and everybody’s all excited and wants to talk to their CPA, and I’m sleeping on the couch with the kids and everything. So lesson learned there. But yes, absolutely. This is another example that I would say is a perfect example of where mirroring your tax strategy and working with a financial planner, or whoever manages the finances in your household and does the budgeting and everything is absolutely instrumental in making all this work together.

Yes. I mean, with student loans, there’s a lot of different things that can happen there. People have been asking me about, “Hey, so I’ve heard that you can file separately, or file jointly, or do these different things to maximize, or I should say, maximize savings, minimize my loan payments, or my spouse’s loan payments.” Yes. I mean, that is something that you can make that decision when you’re doing taxes to say, “Hey, am I going to file separately or am I going to file jointly?” But it all goes back to that idea of withholding and making sure that you were know how that works. Most of our clients who aren’t doing the student loan thing that are married, generally, are filing jointly. That’s what you’re told from the get go, right? “Hey, you get married, you file jointly, you get all the benefits of doing it, it’s the best way to do things.”

For someone to come and tell you, “Hey, actually, going forward, filing separately might be better for you.” Not only is that shocking for some folks to hear or like a complete change of what they’ve been told throughout the course of their life, but it also changes how they need to do withholdings and how they need to think about credits that they might have, whose return is that going to land on, and just one spouse withholds a little extra and recognize at the end of the year, they might get a refund that offsets their spouses tax bill or something like that.

There’s a lot of things that you want to make sure that again, even though you think that might be something you can make that call at the end of the year, just given all the different stuff going on with the loans, being on top of that now, and trying to minimize those surprises is always a better thing to do. To the extent you can mirror your tax strategy with your financial plan, it’s always just the best way to do things.

[0:34:31] TU: Great stuff. As always, Sean, as we wrap up this episode talking about the mid-year projection and the role it can play in some of the areas where it can effectively be utilized. Let me encourage folks to check out the resources and services that we have available, yfptax.com. We’ll link to that in the show notes. We have individual year-round tax planning led by Sean. As well as for those that do own a business, bookkeeping to fractional CFO, as well as some of the business tax planning that’s associated with that. Again, yfptax.com, you can learn more, you can schedule a call with Sean as a discovery call to learn more about that service, and whether or not that’s a good fit. Sean, thanks so much. Appreciate it.

[0:35:13] SR: Thanks, Tim. Talk to you soon.

[END OF INTERVIEW]

[0:35:15] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide, and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

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

[END]

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YFP 317: YFP Planning Case Study #7: Balancing Student Loans, a Wedding, Home Buying, & Saving for Retirement

Posted on July 20, 2023July 19, 2023 by Tim U

The team at YFP Planning discusses a case study that includes balancing student loans, a wedding, home buying, and saving for retirement.

Episode Summary

Welcome to our seventh installment of the case study series with Tim Baker, CFP®, RLP®, Kelly Reddy-Heffner, CFP®, CSLP®, CDFA®, and Angel Melgoza, MS CFP®. During this episode, we are sharing a fictitious case study with you about an engaged couple in their 20s. We delve into their finances, expenses, and their goals before discussing their assets, savings, investments, liabilities, and debt. Angel and Kelly discuss why they would tackle student loans before anything else in this couple’s financial plan, how recent changes announced to student loans will impact their loan repayment strategy, how marriage, children, and other big life events affect financial planning, and the importance of emergency funds and savings. Finally, we talk about why wealth protection is so important and why we see clients struggle with that the most.

Key Points From the Episode

A warm welcome to today’s guests, Kelly Reddy-Heffner and Angel Melgoza.
Some details of the fictitious case study we will be discussing today.
The first thing they would tackle with regards to this fictitious case study.
How Biden’s bid to forgive some loans will affect the power of PSLF.
How financial planners work with clients on massive life events such as marriage and children.
The importance of having an established emergency fund and focusing on savings.
Why clients struggle most with wealth protection and why it’s imperative.

Episode Highlights

“Figuring out a strategy is key to the plan.” — Angel Melgoza [0:11:48]

“Our clients need cash flow because – the goal is to pay off – the loans – sooner rather than later.” — Angel Melgoza [0:11:58]

“Clients do need to be candid about their goals and one of our objectives is to help clients do what they want to do within those realistic [goals].” — Kelly Reddy-Heffner [0:24:09]

“Layers of life typically influence how much [wealth] protection is needed and how comfortable you feel with what you have.” — Kelly Reddy-Heffner [0:30:36]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] NH: What is up everyone? Welcome to our seventh installment of our case study series. I am joined by Angel Melgoza and Kelly Reddy-Heffner. Guys welcome back. We have a great case study to talk about today. How is everything going? Angel, Kelly, what’s going on in your worlds?

[INTERVIEW]

[0:00:18.2] AM: Trying to keep up with the heat, trying to stay cool here in Texas. We’ve hit triple digits though, making sure my AC is still working.

[0:00:25.9] NH: How about you, Kelly?

[0:00:27.5] KRH: Yes. I know, what’s up with all the weather and weird things? I am avoiding the outdoors due to smoke infestation and hoping some Canadian wildfires get put out soon.

[0:00:39.7] NH: Yeah, our very own Paul Boyle sent out some pictures of where he’s at in Ohio and some of the smoke that’s coming down from the Canadian fire. So definitely has some air quality issues here in Ohio and Angel, I am with you. I am not in Texas, our case study today is actually in Texas.

But our AC is on the fritz and right now, we are kind of battling with our home warranty people to try to figure that out. So hopefully, we get that figured out before the hot temperatures get here to Ohio but good to have you guys on, and looking forward to run in through the case study here.

So what we’re going to do is we’re going to kind of go through the case study and then obviously, if you’re listening on the podcast, we’re going to talk through this as best we can. If you’re watching this on YouTube, you’ll be able to kind of see the case study as we walk through it. So we’re really going through it.

This is a fictitious couple, they are an engaged couple living in Texas and Angel will kick us off, and then Kelly, we’ll kind of go through some of the goals. I’ll go through the balance sheet, and then we’ll just kind of look at this case study, what are some of the things that pop out to us, and how we would approach this from a planning perspective.

So, Angel, let me share my screen. So the people that are watching can see this. Let me see right here, share. So without further ado, Angel, why don’t you take us away as this pops up here?

[0:02:00.4] AM: Let me kick it up, these are my fellow Texans, right? Even though they’re a little fictitious. So we have Meghan Myers, who is aged 29, is a clinical pharmacist. Mathew Higgins, age 27, he’s an IT tech. You know, pretty typical age of current clients that we have, right?

Salaries for Megan, she’s earning USD 150,000 annually. Mathew’s earning USD 100,000 annually with supplemental income, USD 10,000. I’m guessing that may be some add-on work that they’re just taking on. Currently, of course, single. Filing single but they are engaged to be married.

See, they’re residents of Austin Texas, five hours north of me. Tell me you’re Texan by not telling me you’re Texan. You mentioned this in five hours and not by having on debate. So on a combined gross income front, they’re both earning, combined 260,000.

A little bit about their expenses, we try to divvy up fixed variable and poor savings as well. From expenses standpoint, the fixed expenses or about 32.50 monthly, USD 2,000 on variable, and about 1, 242 in just savings commitments that they have.

[0:03:11.3] NH: Awesome. Kelly, why don’t you go take us through Meghan and Mathew’s goals?

[0:03:15.6] KRH Sure, so I have reached out to do some financial planning because they’ve got a couple of things on the horizon. There are some student loans, which is not uncommon for our client base and we know there’s been a lot of chatter all summer about student loans and finally, some of the next steps are starting to unfold. So that’s often a prompt to reach out and start a conversation.

So they want to have a plan in place for Meghan, she does work for a qualifying 501(c)(3). So PSLF and a forgiveness strategy is part of the conversation. They are planning to get married so honeymoon, wedding expenses, we know one of the inflation items that’s still up is travel. So they’re planning a very fun honeymoon, it is good to plan ahead for that and as far and advance as possible.

They are looking to make sure that retirement’s on track and feel like they’re a little bit behind. Also, again, not an uncommon feeling. So that’s one thing we will want to dive into and see what that looks like, try to come up with a student loan plan that also matches a strategy for some of those other goals like wedding, marriage, and retirement and then of course, big things with life in general, often include that first home purchase.

We know that’s been an interesting environment as well, so we’ll kind of talk through what the home purchase environment looks like, what the resources are available to expand, and be knowledgeable about that big, that big purchase. Children, not too far down the road as well, and then of course, vehicles, open to the conversation about owning versus leasing but do identify having a new car need in the next couple of years as well.

[0:05:09.2] NH: Yeah, good stuff Kelly. Thanks for taking us through that. So I’m going to go through kind of the balance sheet, the net worth statement. So I’m going to start on the asset side. So they have about USD 5,000 in checking and joint checking. USD 20,000 in joint savings. When we look at their investment accounts, they both have 401(k)s. Meghan has about 10,000 in her current 401(k). Mathew about 15,000 they’re both in target date funds.

About 90% in equity, so probably goes 20, 60 target date funds that are out there. Currently, they’re both putting in 5% but Mathew actually gets a match up to 6%. Meghan’s is 5% so that’s a plan and opportunity right there. Meghan has a little bit of money in her HSA, USD 2,000. I mean, she’s contributing the max to that and Matthew does have access to an HSA because he’s got a high-deductible health plan but he’s not getting enrolled.

I believe Mathew has a Robin Hood account that has about USD 5,000 and he’s putting about USD 200 a month into that and then Meghan is not sure what to do with her old 401(k), which has about 5,000. So total assets of about 62,000. On the liability side, so these are the things that we owe, it’s a little bit of short-term debt there, about USD 5,000 on a credit card for Meghan, USD 3,000 on a credit card for Mathew.

They try to pay that off monthly, Mathew does have a car note that is USD 250,000 per month at an interest rate of 4%. So we’ve seen those obviously go up recently, so not terrible, right? In this environment and then the big, you know, monstrosity there I think are the loans. So she has about USD 425,000 in loans between her private and her federal loans. So total liabilities of 453,000.

So that puts their combined net worth at negative 391,000. So just to reiterate, they’re doing their own taxes now. So definitely, something that we would look at as we’re looking at the student loans, and then we do have a section here for like wealth protection. Meghan does have group life insurance coverage so two times her salary at USD 300,000. Mathew has one and a half times so $150,000.

They both have, you know, kind of a standard work term and long-term disability policies through their employers so own-Oc for two years and any-Oc after that and then professional liability, Meghan does have her own policy, which is good to see, and then no estate plan at this time, so definitely something to look at. So to kind of reiterate, Meghan hates the loans and wants to see them gone but is open to hear about PSLS.

So that would definitely be something that we would want to walk through and show her the math. Mathew again doesn’t have any loans, student loans. They are looking into stopping and funding the taxable account and put those dollars towards debt, and then as Angel mentioned, Mathew does have some contractor work that he makes on the side. So as we look at this, Kelly, what would you say is the first thing that you would tackle with this particular client as you review the case study here?

[0:08:08.7] KRH: Well, I’m going to assume that probably, the prompt was the student loans to get that plan in place. So there are a couple of little low-hanging fruit items but they all do work together like pieces of a puzzle to fit. So I guess that would be where I would start to just have an idea of what that monthly payment would be so that we can build the rest of the plan around that.

[0:08:35.9] NH: Yeah. I mean, I think, for a lot of our clients, you know, the tail that wags the dog for their financial planning is the student loans. So as the loans go, so does the rest of the plan. So if we’re talking about this amount of debt, I think again, it’s not necessarily a push to pay them off. But more of a push to have a plan to pay them off.

So I think you know, one of the things and I’ll skip over to this tab here and that kind of outlines the student loans, I think really with this particular client, you have lots of moving pieces here. You’re probably going to have a strategy that is related to the federal loans and then a strategy that is related to the private loans.

I think the thing that I often say is that the range of outcomes here with regard to the loans can be vast and if you’re looking at our tab here, the total amount paid, and this is kind of the rough numbers given the present student loan plans that are out there, is anywhere from 143,000 to 480,000.

So we really want to make sure that as we are approaching the loans, the idea is that we’re going through our process. So what we typically do and what we do for this client is that we’re going to inventory the loans and we typically do this through the NSLDS ugly text file that we have you retrieve.

With potentially, with private loans, look at the credit report. Sometimes, we look at promissory notes as well, and then from the inventory, now that we know where we’re at, we’re going to look at all of the different possibilities related to said loans, right? So we want to put the emotion that Meghan has with her loans with the math that supports it.

I’ve joked about this, Kelly and Angel, in the past, that I remember talking to a client that basically is working 20 hours at a for-profit job and 20 hours at a nonprofit job and didn’t qualify for PSLF because you essentially need to be 30 hours and they were like – and they had substantial debt. I don’t think it was up to this and now but they were asking like, “What was my advice for the student loans?” and I was like, “If I can push a broom in a nonprofit for 10 hours a week, I would do that” because it just unlocks a lot of the benefit that PSLF affords.

So the third part of this really is once we figure out what that strategy is, we want to optimize that, and that’s where you know, looking at the tax situation, looking at the investment strategy and the pre-tax situation, making sure you’re filing the taxes correctly, so I would obviously want them to talk to Shawn Richards, who is our director of tax and make sure that the tax situation is jiving, not just with the financial plan but specifically the student loans.

So that’s my take. Angel, would you add anything kind of in the student loan picture as you’re looking at this? Obviously, it’s a huge decision in terms of what they’re going to do and will hugely affect the balance sheet as they kind of start, you know, their careers and their lives together.

[0:11:44.9] AM: Absolutely, just like you said, just like Kelly said, that figuring out a strategy is key to the plan. What I would do also is really engage in budget. You know, we have to understand that our clients needs cash flow because if the goal is to pay off you know, the loans, more sooner rather than later but the cash flow just isn’t there, then we have to say, “Okay, what adjustments do we need to make as planners to our recommendation?” PSLFP in the strategy but the repayment plan may be a little bit different than what they may expect.

[0:12:19.5] NH: Yeah, and to that point, the B word, the budget word never goes away. I mean, even if you are looking at you know, a retirement picture, we kind of know, have to know like what we need to build out as a retirement paycheck. That all stems from the budget, right? So I think that is going to be consistent.

I think to the sheet, I don’t know if we outlined it, I think there was a budget for like two to three thousand or three to four thousand for Meghan to apply towards the loans, and the strategy might be a compromise in strategy where we are aggressive with the private loans, try to get them into an aggressive payoff strategy because obviously, we know that those loans are not going to be eligible for PSLF.

But then we are doing what we can to maximize forgiveness on the federal loans and that’s kind of where the two-prong approach to the loans really stems from. Kelly, if we stay with the student loans, obviously, we’re still waiting for and waiting and waiting and waiting for the Supreme Court to kind of rule on Biden’s effort to forgive some loans and we think that based on that decision, the president or the government will try to put a plan out there that might be more favorable to borrowers.

Can you kind of elaborate a bit on what you’ve heard or what you’ve read about that and kind of how that could potentially affect PSLF and the power of PSLF in the future as we come out of the pause here?

[0:13:43.1] KRH: Sure. So, great, Tim, you were referring to that you know, one time, 10 to USD 20,000 discharge decisions. So you know for some clients, that’s a substantial part of their loans but for many pharmacists who have accumulated student loan debt, it’s not quite as big of a percentage.

So the kind of flip side to that that you referenced is, we’re still waiting to hear about new income-based repayment plan like new repay that would have a different formula to calculate the monthly payment. The goal with the PSLF program want us to complete it and be in it for the 10 years, 120 estimated payments but also to pay the least amount over time, which is why you see that 143,000.

I can understand Meghan’s concern about a 10-year period to have the loans in existence but referencing Angel as well with the budget, you know if you have USD 3,000 and you’re putting 20 – like 1,400 to 2,300 towards the private loans. One, there’s only going to be so much left out of that budget but two, why would you pay extra if you qualify and are doing the work in the nonprofit?

But you need to get the loans in the correct position. So if that new repayment plan comes out and is very advantageous, the formula, making that payment lower, will create a lower amount total paid over time, which is a win. It does feel like we’re continuing across a couple of presidential administrations to make PSLF as easy as possible. So sometimes, clients still have concerns, “Will the program still be in place, will I qualify?”

All the answers point towards yes based on what we know, you know across a couple of different administrations, there have been you know, programs put in place to make it easier but you do have to put the loans in the right position. So we’ve seen these wavers as well and there’s still one more waver until the end of the year to pick up as many payments as possible. Pretty much the key being that you did work for the nonprofit during the timeframe.

But if you had odd forbearances, if you were in the wrong repayment plan, if you were in the wrong loan type but that’s some of the work that we do as part of the planning processes. Making sure that every loan is in the correct position to qualify and to not have that outcome when you get a surprise. There’s no surprises, you’re keeping track of your cumulative account. You know, there’s – that’s what the issue was in the past.

[0:16:44.2] NH: Yeah, and shout out to Tim Ulbrick who recently held a kind of impromptu webinar about student loans and you know, what’s beyond the pause, I think we had about 600 people register for that webinar and there were a lot of questions about PSLF and there’s still a lot of misnomers out there about the program and is it viable, is it not viable.

To your point Kelly, there has been things that in the past, would lead borrowers to question the longevity. I would say that everything that I could have read about that has always been for future borrowers. I mean, if you’re in the program, I think they would grandfather it in. This is my belief and I think if you’re reporting a strategy of forgiveness, you know there’s a good case, especially if they put out this new payment plan that your balance is going to grow.

So to kind of take that away, you know, retroactively I think would be catastrophic, and even with tax law, they typically will write things and that’s why we have so many versions and layers of tax law. I will point out as we’re showing the slide if it is a pay as you earn, the numbers that we’re showing on the screen is, “Hey, in ten years, you’re going to pay off 143,000.”

There is two assumptions here that are, I think are wrong, one is if let’s say Meghan’s been at work for the last two years or maybe it’s the last year, she’s already a year in. So we’re projecting 10 years as if this were starting right now, so she potentially already has 12 to 24 months that are counted or potentially counted if we do the right things and then I think the other thing is that we’re showing a first monthly payment of a USD 1,080, which could also be a lot less given a new repayment plan.

So this again, so many advisors out there still to this day as I talk to a lot of prospects will say, “Hey, I’m working with an adviser and they say don’t worry about the loans, it will figure themselves out” which is the worst advice that you can give to many pharmacists that are dealing with six figures worth of debt or they’ll do a, “Hey, pay the highest interest rate off or pay the lowest balance.”

That quite frankly is subpar advice, so because the spectrum of outcomes is so why with regard to what you actually are paying out of your pocket for the loans, you want to make sure that you get a professional advice on this because it’s that impactful. So guys, let’s set the loans aside for a hot second and talk about the other parts of their plan.

Angel, obviously with wedding, honeymoon, first home, kiddo in the next two years, car in the next five years, how does a planner work with a client to kind of wade through all of these things that obviously are huge life events but obviously, from a planning perspective, hugely important to kind of road map? Walk me through how you would approach Meghan and Mathew in that instance.

[0:19:40.0] AM: Sure. I mean, I think firstly as we address the student loans, the second thing looking at their budget, what’s left over after we define a good repayment plan for them, and as a planner, we want to make sure that we are being very upfront, real, and having real conversations as to expectations, right? The last thing we’d want is to take out more debt when we don’t need to.

[0:20:04.7] NH: That’s right.

[0:20:06.2] AM: Just going through what their expenditures are, what’s left over, and coming up with a comfortable budget for all these things, you really can’t plan them for an additional family member but at least, you know jeffing up what does that look like on a nationwide kind of average scale. Typically, when I am working with younger individuals I like to throw in an extra two, three grand a month for raising a child.

You know, that is very subjective but that is very much kind of my flat conservative rule of thumb.

[0:20:37.5] NH: Yeah. I mean, I am a big believer in if I’m breaking this down with a client, and Kelly I’d love to hear your thoughts on this too, I’m a big believer in saying, “Okay, you know wedding, honeymoon, how much is that? Is that paid for? What other sources of income or what is the sources of savings for that?” “First home, okay, is it within the next year, the next two years? So what are we looking at for a down payment?”

Obviously, I want to put them in front of someone like Nate Hedrick, to help with an agent and finding an agent or even Tony Umholtz to look at First Horizon and potentially a PharmD loan and make sure that that is positioned and then you know, yeah, first child in the next two years, what does that look like from a daycare expense or just hospital bills, who’s and where are we funding that and then car.

You know, if that is a five-year, so kind of backwards plan into this and you know we talk about purpose-based investing. You know, kind of by proxy, I’m a big fan of purpose-based savings, so I would love to see a bucket for a house, I would love to see a bucket for a car, I would love to see a bucket for kiddos. Like I was joking around with someone, we have an ally account that is the kid’s account and the sub-accounts are Olivia, my daughter, Liam, my son, and Benji, our dog.

So, Benji, you know for his grooming and vet bills and things like that, Olivia for swim and other things like that. So it allows Shay and I to kind of break these expenses down when we throw all of these things against the wall, Kelly, it’s overwhelming, right? It’s just a lot of things one right after the other. So walk me through kind of like how you would approach that, how you would select buckets, how you would determine like, “Okay, overlaying the student loans” and maybe that’s where the student loans were like, “Well, maybe we need a little bit of extra discretionary income and go out.”

Not five years in the private loan but maybe 10 years to free up some income for us to do some things, so walk me through that in terms of the savings perspective.

[0:22:35.0] KRH: Right, because once we have like one set of numbers with the student loan, you want to build out, as you said Tim, those buckets but you need to run some estimates. So typically, you know I probably would start with the house but clients do need to be candid about their goals and one of our objectives is to help clients do what they want to do within those realistic like giving pros and cons and, “Well, that might take a little bit longer if you want to do it at that amount.”

So certainly it would be up to them, what the priorities are in terms of wedding, house, preparing for a child, and that new car but giving some context to those decisions. So like if the new house is in a year, you’d be looking at some estimates if you bought a USD 250,000 home versus a 450,000. Right now in the current environment, it’s super fun to do the two interest rates like this crazy but you know, are people still able to buy homes?

Yes, but you need to know what that’s going to look like in terms of a mortgage payment but then, I also like to run the numbers at like a 4% so in case the environment changes in the next year, it makes a big difference in the monthly payment. Are you doing a 3% down, a PharmD loan, or are you doing 20% down, something in between? So kind of run a couple of those numbers you can see a range.

You know, if this is what you want to do on the lower end or on the upper end, this is the amount per month in a year timeframe to do it and to get to the down payment. Definitely, childcare, one of the biggest parts of a child expense. So making sure that we have a good holding place in the budget for that. Looping back to the house, you know, it seems obvious but doing that amount for a year and knowing you can do it for a mortgage amount makes a lot of sense.

Like if your rent’s a thousand, you want to buy a house and the mortgage is 2,500, typically that USD 1,500 difference, can you consistently put that away for a year, one for the down payment but two, that’s becoming your new average monthly expense. So like if you can do it for a year that feels pretty good that you’re going to be able to sustain it and continue it. So yeah, putting some context, some hard numbers knowing they’re not going to be to the penny.

But this gets you or I say, we can calculate to the penny but there is going to be lots of things that happen in between, you know, anything. A job change, a new dog, all the things you know that help influence that monthly budget, you know, we need to have a placeholder for.

[0:25:33.5] NH: That’s right and I think one of the things that we haven’t really discussed that I think is important to discuss, you know typically when we talk about a budget, we’re always looking at where can we potentially cut expenses and things like that. The thing I would really dig in with Mathew, in particular, is, “Hey, you have supplemental income of USD 10,000, is there a way for us to grow the topline income that’s coming in?”

So can we push that 10,000 to USD 25,000 next year? Meghan, you know, if we do have pretty hairy audacious goals, are there ways for you to also make additional dollars by picking up extra shifts or whatever? So I think sometimes we always look at the expense side of the ledger and I want to grow the pie and make sure that’s looking healthy and we have other levers that we can potentially pull.

Angel, let’s shift to the wealth-building stuff real quick. They’re kind of just starting out, they had this one old 401(k), they’re in some target date funds in their current 401(k), we don’t have many IRAs established, which I don’t know if I would necessarily do that now. Mathew has a taxable account of USD 5,000, which again, I would try to apply like when we’re asking questions about, “Hey, how are we going to fund the home payment, home down payment, or the car?” That’s where I want to start drawing those lines but how would you approach the wealth-building portion of their financial plan with kind of the facts that we have?

[0:26:50.5] AM: With some of the facts that we have, wealth building, and what I’d like to look at first is, “Do you have an established emergency fund?” because we all know that things do happen and stuff. I want to make sure that our clients are prepared for that. More on the, “Are you on track with savings?” things of that nature. I would definitely start off by looking at the 401(k)s, making sure that they’re at least maxing out the amount that they would receive an employer match.

From looking here, I believe that Mathew’s more deferring 5% but the match is 6%, maybe trying to get him up to that 6% is the next step for him. On the HSA fronts, it looks like they don’t put any money into an HSA. I think that is a very good tool for young healthy couples, right? That you traditionally just have your physicals, your checkups, and maybe a couple of doctor visits because of a cold or flu, what have you, and making sure that those are maxed out.

You end up saving on the payroll tax front, you end up saving on the federal income tax front, and to the point of going back to the student loans, Meghan can also reduce her adjusted gross income and that will even save her on the back end to know but yeah, to your point on the taxable account, seeing what’s that account for, right? You have a lot of goals that you want to achieve and maybe putting some purpose behind it.

We have it here listed as a play account but to me on a scale, if we have a pyramid of what’s important, play accounts would be at the tip. That’s the cherry on top for me, right? I would definitely want to address the menial things like again, your emergency fund. Are you putting into your 401(k)s and are your current savings do they have a purpose?

[0:28:33.5] NH: Yeah, that’s right and I think to circle back, I think Meghan is contributing the max HSA even though it is not showing, it is just showing in text there and she has about USD 2,000. I’m assuming it’s in cash and not invested. I think the discussion I would have about that is, “Are we planning on using this for the birth of a child or do we see this as like a long kind of that stealth IRA?” and maybe it’s, “We’re going to use it for the birth of a child then afterwards, build a backup and then it will be a self-IRA” or something to that effect.

You know sometimes, it is good to be able to cash flow health expenses when you get to that point. So for the current 401(k)s, I think you know looking to make sure that those target date funds, Kelly, look good. You know, often times we like to get out of the target date funds because they are a little bit more expense and basically pick the allocation ourselves, and then probably the last thing that we haven’t really talked to is just what do we do with the 401(k), the old 401(k)?

Do we roll that over to a rollover IRA for YFP to manage on behalf of Meghan or do we move that over to a current 401(k) to be able to assess that? Let’s chat Kelly, really quickly about the wealth protection stuff. My initial gut on this is probably, they’re probably okay at this point in time and I would want them to focus on the debt and wealth building but probably phase two, phase three might be looking more closely at the wealth protection stuff.

What’s your thought on that? Do you kind of differ in your opinion or would you say, “Hey, let’s kind of get through some of these other things that are on fire and then kind of pivot to life disability, estate plan” et cetera?

[0:30:10.0] KRH: Right. I mean, certainly the wealth protection piece, you know as much as some of the other things feel overwhelming and the volume is to tackle this actually is probably the area where our clients struggle the most just to see like how much to prioritize and what they really want to have and to figure that out. So right, I would agree, you know layers of life typically influence how much protection is needed and how comfortable you feel with what you have.

I do like that Meghan has enough coverage to cover her private student loans. That’s an area that’s a bit grey depending on the loan’s officer. So she’s got that covered, so really we try to look at liability need like if there’s something that needs paid off, that would be a big one. From there, we do, do that as part of our planning to do a very thorough assessment, see what they have, but I would agree.

You know, the estate planning we can do some conversation and work on that during the protection meeting like checking your beneficiaries, making sure the titling is correct on accounts. That’s one layer ahead of getting a will and formal documents in place. So yeah, I would say that something that we work on, you know, as we move through the financial plan, it is important but the amounts of coverage do look fairly reasonable.

I probably would address at some point the own occupation for two years on those disability policies. Our gold standard is typically to recommend own policies for clients in that area but again, they do have coverage. That would be just a note that I would just check into further.

[0:32:08.8] NH: Yeah, I think in this regard, what I’m doing as I am going through the wealth protection part of the financial planning is I’m looking at what the baseline coverage is and I’m planting seeds. I’m saying, “Hey, it probably makes sense in the future to look at your own life insurance policy. It probably makes sense in the future to look at your own disability policy. It probably makes sense in the future to have an estate plan that’s drawn up by an attorney.”

You know, I think these are typically most important and I say this a lot when you have a spouse, a house, and mouths to feed and we know that Meghan and Mathew are kind of treading in that direction. I think anybody needs an estate plan if they’re a human and they want to kind of, you know, their care and be able to pay their bills if they’re unable to but I think the ante is upped when you have other people that are kind of relying on you for their livelihood and we want to make sure that we take care of the family.

So in my mind, I’m kind of planting those seeds that say, “Hey, this is important now, it’s going to be more important in the future. So let’s take steps when we kind of get the dust cleared and settled on the student loans and the investments and things like that, a budget can make moves here in the future.” So great stuff guys, I really appreciate the conversation. I feel like we could go on and on about this particular client.

So thank you for kind of going through this with me in the seventh edition of the case study series. If you are out there listening to this and you’re thinking, “Hey, this sound vaguely familiar to my situation” don’t be shy, reach out to us, book a discovery meeting, and you know, let us know if we would potentially be a good fit to work together. So Angel and Kelly, thank you once again and looking forward to doing this next time.

[0:33:47.9] AM: Thank you for having us.

[END OF INTERVIEW]

[DISCLAIMER]

[0:33:51.8] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information on the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

[END]

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YFP 316: Real Tips From Recent First-Time Home Buyers

Posted on July 13, 2023 by Tim U

Neal and Kaitie Fox join Nate Hedrick, The Real Estate RPh, to reflect on the lessons learned as first-time homebuyers.

About Today’s Guest

Neal and Kaitie travelled from their hometown of Coshocton, OH to attend Cedarville University in 2011. A year later they married at age 19 and began their joint financial adventure. Kaitie began working at the University food service contractor and eventually became the Head Baker, supporting the family through pharmacy school and until the birth of their second son. Now, Kaitie is home raising Timothy, 5, and David, 1, while Neal works. Neal completed his PharmD at Cedarville and a PGY1 residency at Premier Health Miami Valley Hospital, a Level 1 Trauma Center with over 950 licensed beds and over 110 adult ICU beds. He currently serves as one of the Medical ICU Clinical Pharmacy Specialists and the Research Project Coordinator for the PGY1 pharmacy residency program. He occasionally gives lectures or hands-on training at Cedarville University while also taking APPE students from several pharmacy schools throughout the year.

Episode Summary

Buying a home can be a daunting, exciting, and overwhelming experience. On this weeks podcast, sponsored by Real Estate RPh, we are joined by Neal and Kaitie Fox to discuss how they went about buying their first home. Neal is a pharmacist and Kaitie is a stay-at-home mom, and in this episode, they tell us what made them decide to buy a house when they did, what they would say to someone wanting to purchase their first home, and how interest rates and other aspects played a role in their decision. They delve into how they chose a financial lender and why they decided to change who they financed their house with at the last minute before explaining how YFP assisted them in this process. When looking for a real estate agent, it is important that you find someone who takes your needs into consideration and communicates effectively, and Neal and Kaitie explain why they decided to change agents early on in their journey. Finally, our guests remind us to use our resources wisely and ask as many questions as possible when buying a home.

Key Points From the Episode

Introducing today’s guests, Kaitie and Neal Fox, and a brief overview of their careers.
What made Neal and Kaitie decide to buy a home when they did.
Their advice on a starting point for someone wanting to buy a home in the near future.
Why interest rates were a barrier for them when buying their first home.
Things to consider when choosing an area to look for a house in.
The importance of moving fast when you find a house you’re interested in.
How Kaitie and Neal navigated financing a house and what that process looked like for them.
Their home-buying team, changing agents, and why YFP was so helpful to the Fox family.
The importance of having clear and responsive communication with your real estate agent.
Why you must utilize your resources and ask questions when closing on a house.

Episode Highlights

“The biggest thing is to find that person who is your trusted expert in home buying.” — @ThePharmFox [0:05:10]

“Have at least two, maybe even three [financing] options because as long as your pre-approval is still valid, you should be able to pick the best option that fits you.” — @ThePharmFox [0:16:44]

“Utilize those resources that are right there [and] are helping you through the process anyway.” — @fox_kaitie [0:29:06]

“Expect the unexpected because it is a very long, complicated process and you will almost certainly run into something that you didn’t think about before.” — @ThePharmFox [0:33:51]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey everybody, Tim Ulbrick here, and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. Today, I pass the mic over to Nate Hedrick, founder of Real Estate RPH and cohost of the YFP Real Estate Investing Podcast, where he welcomes Kaitie and Neal Fox to talk about their journey as recent first-time home buyers. They discussed the lessons learned along the journey, including common pitfalls to avoid that will be helpful to anyone that is looking to buy a home for the first time. So let’s hear it from today’s sponsor, Real Estate RPH, and then we’ll jump into Nate’s interview with Kaitie and Neal Fox.

[SPONSOR MESSAGE]

[0:00:39.2] TU: Are you planning to buy a home in the next year or two? With the state of current home prices and mortgage rates, the home-buying process can feel overwhelming but what if you can leverage the knowledge and ongoing support of someone who has worked with dozens of other pharmacists through their home-buying journey, all at no cost to you? I’m talking about Nate Hedrick at the Real Estate RPH. Nate is a pharmacist who has been a partner of YFP for many years now and offers a home-buying concierge service that can help you find a high-quality agent in your area and support you throughout the entire process. So head on over to realestaterph.com or click on the link in the show notes to schedule your free 30-minute jumpstart planning session with Nate.

[INTERVIEW]

[0:01:26.1] NH: Hey, Neal, Kaitie, welcome to the show.

[0:01:28.1] KF: Hi, thank you.

[0:01:29.2] NF: Yeah, thanks for having us.

[0:01:30.4] NH: Yeah, absolutely. I knew when we had first talked that you guys are going to be fun to work with and I’m excited we get the opportunity to talk all about home buying today with a couple of recent home buyers, it’s going to be great. So maybe for our audience, just kind of give us a brief introduction on yourselves and a little bit about your pharmacy career and we’ll take it from there.

[0:01:49.7] NF: Yeah, sure. So I’m Neal Fox, I am a 2018 graduate of Cedarville University. I practice as a clinical pharmacy specialist in the medical ICU at a large level-one trauma center in Dayton, Ohio with just over 900 licensed beds and just over 110 adult ICU beds.

[0:02:15.5] KF: I’m Kaitie, I’m Neal’s wife, and I am currently a stay-at-home mom with our two boys and I’d previously been a baker for about eight years.

[0:02:24.7] NH: And we got connected, gosh, it was back in late 2022, talking about you guys are ready to buy your first home and we wanted to help you with that and so you know, what we thought we do today is get together with you guys, talk a little bit about first time home buying with someone who has recently gone through it and you know, talk through any pitfalls or words of advice. Things you guys learned along the way because I think a lot of our audience is sitting out there looking at current market conditions, looking at the current financial situation, and saying, “I don’t know if I can do this” or “I’ve got questions but I don’t even know where to start” or, “I don’t even know enough to ask questions” right?” I think if we talked through a couple of things, talk through the process, it might help a lot of the audience out there that might be trying this for the first time. So if you’ll indulge me, I’ll be firing off the questions and you guys just give me your hot take on what it was like and we can learn from each other. So does that sound good?

[0:03:14.1] NF: Yeah.

[0:03:14.1] KF: Right, yeah.

[0:03:15.0] NF: No problem, happy to share.

[0:03:16.5] NH: Awesome. So I think, you know, one of the things we focus here a lot at YFP is kind of the “why” behind the financial decision and it could be putting money in your 401(k) or paying off your student loan or in this case, you know, buying a home. Did you have a particular “why” behind you know, buying a home like when you felt you were – you felt like you were ready to do that?

[0:03:34.3] KF: Frankly, at this point, we have outgrown our current living space. We’re currently renting a two-bedroom apartment and we have two young children and then ourselves and it’s getting very, very cramped very quickly.

[0:03:49.6] NF: Yeah, home ownership had always been an intermediate to long-term financial goal for us. We definitely were not in a position to do that coming right out of residency but over the last few years, we’ve been able with YFPs help a lot to get into a better position and now for us, the living situation, the space, you know, we’ve been room sharing with our 14-month-old for 14 months.

[0:04:16.4] KF: 14 months.

[0:04:17.8] NF: So we don’t really have anywhere else to put him. So the “why” for this year was kind of that, like we didn’t feel like we had the option to wait much. So in some ways, that made it easier because we had the resolve to get it done, to go all the way through the process.

[0:04:33.4] NH: Yeah, I love that and I am sure there are many people resonating with that of like, “I am out of space” and sometimes it’s kids, sometimes it’s pets, sometimes you know, whatever it is, right? It’s time to make that move, so I think that totally resonates. What about you know the getting started process, right? So you have this “why” and you say, “Look, we’re out of space, we got to move, it’s time to buy” but how do you get started? Like, now that you’ve done this and kind of looking backward, you know, we talk about ways to get started all the time but for you guys, specifically, like what would you recommend as a decent starting point for somebody who is thinking about buying a home in the next, let’s say six months?

[0:05:07.7] NF:1 Yeah, for sure. So I think, the biggest thing is to find that person who is your trusted expert in home buying. So obviously, I’m not that person, that’s not what I went to school for and if you’re listening to this podcast, you’re probably not that person either, right? So you know, what I’ve always said, what we’ve always said working with YFP is they’re like our money mechanics. So in the same way, that I go to a mechanic for my car because I know nothing about my car, because again, that’s not what I went to school for, I need a trusted person, a trusted expert who can tell me what’s wrong, explain it to me in simple terms and then help me make a decision very similar to how they teach healthcare professionals that you know, we need to explain things in patient-friendly language. You know, I need that same person when it comes to money, financial decisions and that’s what YFP is for us, and then home buying is another like sub-specialty within that. So that’s why we immediately went through YFP to find a point of contact, which started with you, Nate, to guide us through the first part of that process.

[0:06:21.9] NH: Yeah, I think that makes a ton of sense and again, we’re biased here, right? At YFP because we like what we offer but I think you’re totally right, you don’t know where to start, getting a great expert on your team is a great place to start, you know? We’ll talk about this more in detail but we use the home-buying concierge services with you guys, getting you connected with a great real estate agent and then getting off and running. We even had a couple of bumps at the beginning, which I think I like to talk about here in a bit but you know, having that point of contact is how you get passed those bumps. I think that will resonate really well. So I appreciate you sharing that.

[0:06:49.9] NF: It was a really good way for us to initiate a process that we felt like we had studied and talked about but didn’t really know what to do and had never been through before.

[0:07:02.8] KF: Right.

[0:07:03.3] NH: Makes a lot of sense, I like that. One of the things that I think people are talking about right now that I think is kind of scary, especially when you’re thinking about getting started is that “current market” right? High-interest rates, lower inventory, do you feel like those were a factor, a barrier to you guys buying your first home?

[0:07:18.8] KF: To some degree, especially the higher interest rates right now because you know, we had this idea of you know, we have this wide range that we are able to buy from and so then looking at our interest rate and talking to our realtor, we were able to decide like, “Okay, we need to look at this you know, lower end spectrum” to say, “You know, we’re comfortable with this monthly payment” because of the interest rates. I feel like we didn’t really run into like low inventory in our area. I mean, hundreds of houses that were for sale but again, it was making sure that they were within our budget, that we had kind of decided on, that we were comfortable with paying like every month.

[0:08:01.4] NF: Yeah, and we’ll talk about this more in a moment but there was definitely, Kaitie was doing more of the house watching and there was a decent amount of turnover even though there were constantly houses up, they weren’t staying on the market in general for very long and what we realize, so what Kaitie was alluding to is we kind of had a number for total purchase price that we thought we would be able to get to. And then we realized that it was less about total purchase price and more about what our monthly payment would be because you know, we’ve worked with YFP for years on thinking about like a zero-based budget and you know, you can have whatever purchase price you want but if that monthly payment doesn’t fit within what you can reasonably do and right now, we’re a one-income household, you know, that was the number that we needed to focus on more.

So once we realized that, the thing about the market in our area that I came to realize was that it’s not homogenous, that different neighborhoods, even different sides of the same highway, obviously different school districts and things like that, there is a wide variety in terms of what you were going to see in price per square foot and stuff like that and thinking about us, for our family, you know we’re thinking about possibly private school for the kids. So public school district wasn’t as important in considering these things, we actually shifted our focus to a different area within our geographic region that’s really only like, five minutes away or so from – at least, in terms of distance – from my work from where we are now and where we had been looking and that made a big difference in terms of the length of time that houses were staying on the market and their cost per size.

[0:09:48.8] NH: It totally shows how local real estate is, right? It can be different 20 minutes away, 10 minutes away sometimes. Just like you said, you know if you shift that locust of search from a five-minute geographic area to a different five-minute geographic area, you’re going to get totally different results. So that’s good to hear that you know, I think you guys went into it with the right mindset but were able to shift as you started to learn more and see what made sense in terms of the areas you were looking in and the numbers and ultimately, that monthly payment is what made that determination, so that’s cool. Did you lose out on any houses? I know you said that the inventory was turning over quickly, did you lose out on any houses or anything? I mean, I know a lot of people are struggling with that right now.

[0:10:26.8] KF: The first couple of houses that we looked at were super early in our process. We kind of went into them thinking you know, we probably aren’t going to put an offer on these but we want to get the feel for actually physically going with our agent to a house and looking at it and seeing what that feels like but I think both of those houses went off the market that night. Like, the night that we looked at them, they went off the market.

[0:10:49.2] NF: And both of them, we went there and either someone was already showing when we got there or someone showed up to show before we left. So that was in the initial “hotter market” near our geographic area but even though we weren’t planning necessarily to make an offer that early in the process, it did give me some trepidation. This feeling like, “Oh man, when we find the right house, we have to move really, really fast or we’re going to lose out on it.” You know, that’s how it made me feel, that was my initial impression to the market, these houses just gone.

[0:11:29.1] NH: I think a lot of people feel that way and it can feel more overwhelming, especially if you’re like, looking at a house and someone shows up and you know, waiting for you to leave so they can go look at it. That feeling is like, I’m with you. I totally get it.

[0:11:39.2] KF: It was a little scary there first, you know, not knowing if we were going to be able to get the house that we wanted.

[0:11:44.5] NH: But I like your approach of you know, even though we’re not maybe a hundred percent ready or these aren’t houses that we’re a hundred percent certain on. It’s nice to go through the process, walk through the steps, and understand that, what that looks like so that when you were ready, when that house did pop up and come along, you can make the action point very quickly. So I think that was a smart move, that makes a lot of sense. You know, so talking about looking at houses then the big thing that I think people run into at that point too is, “Okay, well now, I’m ready to look at homes, I figured out my budget, you know, all these pieces are in place but what about financing?” I think that paying for a new house is a pretty overwhelming part of the process. How did you navigate that I guess and what did that look like for you guys?

[0:12:20.1] NH: So through our local realtor contact, we first were talking to her about – we had talked with YFP over the years about the different options available to healthcare professionals like pharmacists, you know the “physician style loans” or healthcare professional loans, whatever and particular institution chooses to call them and we’d said, “Hey, you know, this is something we’re interested in because we’re pretty sure we qualify and do you know anyone who does this?” and she got a contact that she was pretty sure did. So that was the first bank loan officer that we talked to and separately, through YFP, we had a resource that let us look by our state and my degree, which is pharmacy, PharmD, and see what banks have the pharmacist included in their physician-style loan programs. So we kind of had that list and then we had this contact and we worked through the process of pre-approval and kind of talking about some of the things and we actually found out that that bank didn’t routinely include pharmacists. The loan officer was super great, she felt like she could get us an exception and essentially get us one of those style loans, and then the week that we went to get that pre-approval all the way through, get that loan kind of nailed down was the week that there was some kind of like banking crisis, some bank in California.

[0:13:53.0] NF: Collapsed?

[0:13:53.4] NH: Collapsed. Yeah.

[0:13:54.4] NF: Something like that.

[0:13:55.6] NH: I remember.

[0:13:57.1] NF: And so that bank institutions were not doing any exceptions right now.

[0:13:59.7] KF: Yeah, they completely locked on exceptions for all of their loans.

[0:14:02.4] NF: So she put together the best custom loan that she could do for us and we went ahead and got that pre-approval but even she said like, “You should talk to another lender and see what they can offer you.” So then we went back to that list that we had through the resource from YFP and talked to one of those lenders and they, who did explicitly include pharmacists in their healthcare professional loan program and we went through the process with them as well of getting pre-approved. Now, their pre-approval was a little more vague in terms of what the interest rate would be in things. It was a lot of like, “You’re pre-approved but you won’t know any details until you give us like a purchase price and a date” kind of thing.

[0:14:49.3] KF: Yeah.

[0:14:53.1] NF: So we actually ended up going all the way through the process, getting to the point of making an offer, starting off with bank B, and then when we got the final numbers, it was not good.

[0:15:04.3] KF: They were terrible.

[0:15:05.6] NF: They were not good compared to bank A, and so we ended up switching lenders in that final week of between putting in the offer and having the offer accepted. We ended up switching lenders because everything across the board between the two offers was better for bank A, even though it didn’t end up being explicitly like a physician-style loan program. So that was surprising to me, it definitely wasn’t something I was expecting. I also didn’t fully realize before the process that pre-approvals only last for a certain period of time and because they’re a hard check on your credit, you obviously don’t want to go and get pre-approved at like 10 different places. It was definitely a process but we started with our local realtor to get someone that she was familiar with and had worked with before and that’s ultimately where we ended up back and so that ultimately was a good experience but there was definitely some angst. Once we started getting –

[0:16:06.4] KF: To put it lightly.

[0:16:08.0] NF: Once you started getting those final numbers from the second place that on paper, should have been better.

[0:16:13.4] KF: Better for us.

[0:16:14.1] NF: But again, we’re really focusing on like, “What is that monthly payment going to be?” Of course, we were talking about like PMI, we were going to like have to have PMI with the second place and I don’t really know why. One of the big distinctions with those healthcare professional loans is the amount that you need to put down in a down payment and we’re going to have to put down a lot more for Bank B. So like all of these things, again, just everything across the board ended up being better for Bank A. So I’m so glad that we talked to them first and had the option. That’s the bottom line is have at least two, maybe even three options because as long as your pre-approval is still valid, you should be able to pick the best option that fits you.

[0:16:56.0] NH: So many good nuggets in there and I want to make sure we highlight a few because I think you guys hit the nail on the head on all that stuff, right? So point one that I want to highlight is shop the lender, right? Talk to multiple lenders, don’t just buy into one person and lock into it. I am notorious for this. I will like, convince myself that once I’ve had a decision that like, I’m just going to stick with it because I’ve already made a decision, and even if it’s the bad one, I don’t care like I’m in, right? Don’t be me on that, right? Shop lenders upfront, that’s super smart.

Then, what I loved too is that you mentioned about changing the lenders along the way. So many people don’t realize you can do that, right? Even when you’ve put an offer in already, with the pre-approval letter, you can go back and get a different lender after the fact, right? You can’t be a week away from closing and change lenders but if it’s still early enough in that process even after the contract’s been accepted, you can change lenders. So definitely approach it for you guys on that and then the other thing you mentioned too was the hard credit checks. I advise my clients, any time they’re shopping around, try to do all of your pre-approval shopping within a two-week period that will ensure you only get one credit check. It will basically you know, trunk it down to one credit check across all those lenders, and then if you have to re-up your letter in three months, you know, you can do that for another poll but at least it won’t hurt your credit nearly as much.

So really, really good stuff you guys mentioned in there, I love that.

[0:18:10.4] NF: Well good, because we learned it by doing it.

[0:18:12.7] KF: As we were doing it.

[0:18:14.5] NH: It wasn’t that we knew it going in, which again is the point of this conversation.

[0:18:18.6] NF: Yeah, that’s exactly why I wanted to talk about this stuff because it’s those things that you don’t even know to ask those questions until you’re in the middle of it and then you learn it, you’re like, “Oh, wish I would have known this.” So yeah, I’m glad we’re covering this. Talking a little about the lender piece, you’ve mentioned your real estate agent a few times. We talk a lot here at YFP about using a team, right? Especially when making a financial decision, especially in the world of pharmacy, you know just about everything can benefit from that team approach. Were there other people on your team or were there key pieces of your team that you felt like were essential that maybe we haven’t mentioned or anything you want to highlight within the team that we’ve already touched on?

[0:18:51.0] NF: When you think that you know, it started with our YFP financial planners and so we’ve worked with YFP for three and a half years about. We started early 2020, actually just pre-COVID, which was a really fun time.

[0:19:04.3] KF: Yeah.

[0:19:04.9] NF: To get started, we were actually a week away from refinancing our student loans when the lockdown hit and everything. So I mean, we were on the cusp. So all that to say just to give people some context, so we’ve had three different people that we’ve worked with as our one-on-one financial planner and we actually started with Tim Baker, which is a ton of money.

[0:19:25.7] KF: Yes, it was.

[0:19:26.6] NF: And so along the way with all three of them, we’ve talked about our goals and we’ve talked about home buying, so it always started there and we definitely went there first to get in contact with you. You got us in contact with our local real estate agent. Our local real estate agent got us in contact, like I said, with our loan officer. Those were really the main people. They kind of facilitated most of the communication with all of the other, to use medical lingo, all the other consultants, if you will. We did a little bit of emailing back and forth with like a title agent and some things like that but I don’t feel like I knew those other people the way that I feel like we knew and talked a lot with our loan officer and our realtor.

[0:20:14.4] KF: Yeah.

[0:20:15.0] NH: Yeah, that makes a lot of sense and I know we touched on this a couple of times but you know, you guys used the home-buying concierge service that we offer here at YFP, and for those who haven’t heard about it maybe, basically it’s a free service that we offer, not just to planning clients but to anybody who’s interested. You can go right to our website, yourfinancialpharmacist.com, and click on “buy a home” and right there, you can sign up for a call with me. A 30-minute phone call or less, we can talk about your goals, we can talk about what you want to achieve, kind of home you want to buy, and then we’ll get you connected with a great real estate agent and something we really like to be upfront on here, right? Is like it’s not always perfect, right? So we’re pretty good at what we do, matching people up with great agents but sometimes the communication isn’t there upfront. So when we connected with you guys with the first agent, somebody that we’ve actually used in the past for other clients and has been fantastic the communication just wasn’t there, right?

[0:21:05.2] KF: At very first, things were fine. You know, we email back and forth, we were trying to set up a date to have a not really face-to-face but –

[0:21:12.9] NF: A more in-depth.

[0:21:14.1] KF: Like a more in-depth –

[0:21:14.8] NF: First conversation.

[0:21:15.6] KF: Conversation to get to know each other a little bit and what we’re kind of looking for and I had told her, “You know, we’re free at these three or four days the following week” and I never heard back from her and two weeks go by and I still haven’t heard back from her. I’ve reached out a couple of other times and so then we reach back out to you, Nate, and we’re like, “We don’t know what’s going on. We hope she’s okay but she’s not responding to anything. So what do we do?” and you were like, “You know, I’ll reach out to her, see if we can get you guys back in contact. If not, let me know and we’ll move on from here.” I was like, “Okay, great” and then we still didn’t hear from her.

So then you got us in contact like the very next week with our current real estate agent and she has been absolutely amazing. You know, she’s been very responsive, she’s been easy to communicate with, almost overly so. You know, there have been a couple of times that she’ll email us back and you know, “As soon as I get back from the gym, I’ll call you and do this, this, and this” and like, “Wow, you do not have to email me while you were working out but okay, thank you.”

[0:22:26.2] NH: Yeah, that’s good and it just shows that like you know, real estate is like any other business, right? There are good people and bad people within every business and there are good times and bad times for those same people, right? These are agents that we’ve worked with in the past and it just maybe there is something going on with their life that doesn’t work and this isn’t the right time for that connection to take place. So one of the things we really try to focus on with the concierge service is not just giving you an agent and walking away but being part of that team, right? YFP stays a part of your team the whole way so that if you do have that, we can come back, get you reconnected, and get you on the right path.

So again, I like to be really transparent with these conversations and tell people exactly what it’s like because it’s not as easy as picking up the phone, calling the first agent with the most highest reviews and then you get off and run, right? It doesn’t always work out that way, so I’m glad we get to share that story a little bit and it sounds like once you guys got off and actually looking at houses, it was the right fit and you guys were able to close, right?

[0:23:20.5] KF: Yeah.

[0:23:20.8] NF: Yeah, absolutely. Everything went well from there and honestly, like probably would have been fine because we were starting very early in the process but just again, with so much uncertainty and ignorance, for lack of a better term, on our part we wanted to start really early because we didn’t actually even know if that was early. We thought maybe six, seven months from our target buy date might have been late. We didn’t know and so that’s why we were really keen to start having conversations with someone and so that’s why we’re willing to go ahead and make a connection with someone who’s going to be able to interact and respond to us right then. So it was really nice, like you said, to have that lifeline of being able to come back to you, Nate, and say, “Hey, is there another direction we can go?”

[0:24:09.3] KF: Yeah.

[0:24:09.7] NH: Happy to do it. I mean, now that you’ve worked with an agent and again, gotten to the closing process. Are there tips you have for people out there that might be vetting their own agents or maybe not using our concierge service, like things that you think are super important to have as part of – as a good real estate agent?

[0:24:24.0] KF: I mean, I think we already said it a couple of times but I mean, being able to have clear and responsive communication.

[0:24:31.3] NF: Yeah, reasonably responsive, you know? I don’t need my realtor text if I send an email at midnight because I’m up just worried and thinking about something, I don’t need you to respond at 1:00 in the morning that kind of thing but you know accessible was certainly a thing, especially because there were times, there were parts of the process that we were working through on weekends, in the evenings. That week of like putting in the offer and getting the offer accepted was a very hectic four to six days and it felt like we were emailing and communicating and doing stuff –

[0:25:08.6] KF: Phone calls, texting.

[0:25:09.5] NF: Finding any paperwork, getting the paperwork signed.

[0:25:11.8] KF: Scanning stuff.

[0:25:12.7] NF: Doing all of this stuff nonstop for that whole week.

[0:25:16.4] KF: For that six days, yeah.

[0:25:18.0] NF: So you know, that’s important but I’d say the other piece and you can speak to part of this honey, is like having an agent who’s really listening to what it is that you’re looking for in a home not just in terms of price and that’s the piece you can speak to but also you know, if you’re saying or you’re finding, that was something we found things that were important to us that we didn’t realize were important to us once we started looking at homes and actually picturing our self living there with our family. You know, so the simple example for us is like we really wanted a fenced-in backyard, you know, just the idea of like being able to tell the boys, “Okay, go outside and play” and not have to worry about wildlife or somebody’s dog or whatever, you know?

As I started looking at different houses, some that had it and some that didn’t, I found that that was important to me and we were able to communicate to our realtor that. And then when you see that they’re responsive and they start then bringing you homes that match what it is that you’re saying that you want and what you’re finding that you want, I think that is really key. You know, if you are working with someone and they’re continually bringing things to you that are outside of your price range or not matching what you say you’re looking for, then that person for whatever reason may not be the right agent for you to find your home because it’s about you finding your home.

[0:26:48.7] KF: Right. Our agent said that to us a couple of times. She goes, “Well, this is not my home. So you know, if you like this that’s great.” That was really fun to hear her say that. What Neal was eluding to earlier was when we had initially talked to her, we had this really broad price range that we were looking at and you know she’s like, “All right” so she put it into her system and was able to email me houses to look at. Once we got closer and we were seeing, “Okay, these houses are probably way out of our comfortable price range” I emailed her and I said, “Hey, let’s change that filter to this price range” and she did it that day and I never received a house after that that was over that price range. So that was really, really nice to see her be responsive in that way, especially that quickly.

[0:27:39.3] NH: That’s great, I love it. I appreciate you guys giving that synopsis because I think those are all super important pieces and things that, like you said really well, it’s the things you don’t realize until after you’ve gone halfway down the process, you’re like, “Oh man, this is important and I didn’t know it’s important.” So that’s really key. So I want to go back really quickly to one other thing you mentioned about that crazy six days that you mentioned, right? So after the sort of like place is under contract, now what? Anything really stick out in there, things like tips you would give to people? I know it’s a ton of hurry up and wait and 30 people are emailing you that you don’t know any of them and they all need documents from you, right? I always know that process is hectic. Any tips or words of advice you can give to our audience that like, “Hey, do this upfront so that the six days aren’t as crazy.”

[0:28:23.8] KF: Well, it’s something that we did really early on in the process with our agent before we had even looked at a house at all was ask her for all the papers that we’d be seeing at closing. So she emailed us all the blank documents, we were able to read through those. We were kind of half-familiar with them by the time we were actually signing them so that we weren’t totally drowning in all that information all at once. So that was something really good that we were able to do but then I feel like something else that we were able to do was utilize our real estate agent and say, “Okay, what does this mean? Why are we doing this? You know, is this reasonable to ask the buyers for this or the sellers for this?” or whatever. Just utilize those resources that are right there that are helping you through the process anyway.

[0:29:11.2] NF: Yeah, I’d say, you know, it’s really easy to get overwhelmed and one thing that you definitely should do is actually sit down ideally together if you’re a couple and read the documents that you’re about to sign because sometimes, there might be things in there that you don’t either understand or didn’t expect. You know, if they say that they’re taking all the appliances out of the house and you didn’t know that –

[0:29:36.3] KF: That’s a big deal.

[0:29:37.6] NF: You need to know that. So that’s like a really simple thing, it’s very easy to skip over that and there were a couple of times where we were like, “Wait a minute, why is this number this? Shouldn’t it be different?” you know, we add a lot of communication about that. I didn’t realize our final closing cost changed multiple times because it’s like a projection and it had things in the projection and then they took them out and then they put them back in.

[0:30:03.7] KF: We thought they were a different price when they put them back in.

[0:30:05.6] NF: And we actually ended up scheduling our wire transfer for amount X and then it changed like 48 hours later and we had to call the bank and change the wire amount again, change it, and that was a little stressful, you know? Because we’re talking about a lot of money so you really don’t want to mess it up.

[0:30:22.5] KF: Right, that is where our loan officer came in. You know, I talked to her three or four times on the phone a week of closing and she was very, very good about walking me through like, “Okay, this is what’s happening right now, this is why the amount says this. This is what it should be closer to actual closing” and again, communicating with her and having her be accessible as well was really good for us not to get lost in the process.

[0:30:50.5] NF: Yeah, if you see something weird or you have a question, you should ask. If you don’t feel comfortable asking, you should take a big step back if that’s a big red flag. It is too big of a decision to go into it not knowing and understanding a lot of it. Now, that being said, I felt like when we actually finally signed our documents electronically, there was like a whole set. I mean, we did a physical signing part too, that was fine.

[0:31:16.4] KF: That was it.

[0:31:16.8] NF: There was like this whole section that was basically like, what is a home loan for dummies, and all this terminology. I was like, “Why isn’t this the first thing they send you?”

[0:31:26.7] KF: Yeah, why isn’t this the first thing that you read?

[0:31:28.6] NF: Somebody take these last 20 pages and just send it to me at the beginning and that would have made things a lot easier but overall, you know because we felt very comfortable asking questions and we just did, we just asked questions all the time.

[0:31:42.0] KF: I sent so many emails and so many text messages.

[0:31:45.2] NF: That helped. I mean, being organized, you know we had a lot of our documents saved like in a folder on the computer for like home purchase documents. That made it really because you’re going to have to upload a million things. Even something as simple as if you have the ability to scan documents, if you are printing them manually, signing them, or you have the ability to sign things electronically, you will make that process go a lot faster. If you have you know, a touch screen device and a PDF editor that you can sign right there, you know, like that is so much faster than printing and signing and going to the library and faxing it to yourself, so whatever.

[0:32:23.2] KF: Yeah, you know whatever you have to do.

[0:32:25.1] NF: You know, whatever you have to do to get all that paperwork done, it’s quite a process. Yeah, so it was fun for lack of a better word and we got all the way to the physical signing and it really was what everybody tells you like you’re going to sit there for an hour and a half and sign documents and get a cramp in your hand. Something that was interesting like we never ever saw our sellers. Like they had done everything ahead of time and just have like their representatives there.

[0:32:49.8] KF: Yeah, they’d pre-signed.

[0:32:51.4] NF: Kind of wasn’t expecting that but it did made a difference. There was even like a little hiccup at our closing, where the title company wasn’t sure that we had actually given them earnest money and we had and so then there’s –

[0:33:04.9] KF: Well and our loan officer was at our closing and she was like, “We definitely have this on file, we sent this to you.”

[0:33:10.7] NF: You know, so and if the title company, you know they have just like someone that they’ve hired, a third party like be there to do all that process so –

[0:33:18.8] KF: She has no idea, she doesn’t know us at all. She doesn’t know anything.

[0:33:21.9] NF: Yeah, she just has a file that’s like four inches thick with all of their documents and these notes in it, so then she’s talking to the title company people and they’re talking to the realtor and you know –

[0:33:34.5] KF: And they’re talking to the bank and we’re just sitting there like, “Okay, better run snacks to the boys.”

[0:33:40.4] NF: It all worked out but all that to say, I think that’s to say you know, do as many preparations as you can but don’t be surprised when –

[0:33:48.5] KF: Surprises come up.

[0:33:50.2] NF: Unexpected that you know, expect the unexpected because it is a very long complicated process and you will almost certainly run into something that you didn’t think about before or you haven’t heard that term or whatever.

[0:34:04.5] KF: Yeah.

[0:34:04.9] NH: Well, I really like the expectation setting, right? Like this is going to be a little crazy, be prepared for that and all the other prep work, the tips that you guys gave and I think creating a file in your computer that’s a great one. Being able to save documents because you might have to send them multiple times, referencing them, right? In case you did send the earnest money, you’ve got a document that says, “Hey, look, this is here” just in case someone else didn’t have access to that. So again, really great tips and it’s very clear that you guys have been through the process because I’m thinking about all these pieces like, “Oh yeah, I remember that. Oh yeah, that’s a problem. Oh yeah, I see my clients running into that.” So you guys are not alone and again, it’s nice to hear hopefully for some of our audience just how overwhelming it can seem but how you can make it through with a little bit of prep work and access to good resources.

So I really appreciate you guys hearing your story today, giving some first-time homebuyers out there some confidence that they can make it through and get to where you guys are now and again, just congrats on the new home, and seriously, thank you for sharing your story. It’s been awesome.

[0:35:01.6] KF: Yeah, thank you for having us.

[0:35:02.2] NF: Hey, thanks for having us.

[0:35:03.2] NH: Yeah, take care guys.

[END OF INTERVIEW]

[0:35:04.3] TU: Nate and I have covered a ton of information in this podcast. So imagine working with Nate one-on-one through your home-buying journey and having his support to give you much-needed peace of mind. We know many pharmacists want to feel confident about big financial decisions including a home purchase. So if you have fears of being house forked, concerns about the impact a home purchase might have on your other financial goals, Nate and his home-buying concierge service can help all at no cost to you. You can visit realestaterph.com or click on the link in the show notes to schedule your free 30-minute jumpstart planning session with Nate.

[DISCLAIMER]

[0:35:43.6] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information on the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archived newsletters, blog post, and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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