YFP 383: 5 Overlooked & Undervalued Areas of the Financial Plan


Tim Ulbrich, YFP CEO explores five often-overlooked areas of financial planning from credit, tax planning, emergency funds, insurance, and estate planning.

Episode Summary

Tim Ulbrich, YFP CEO, dives into five critical—but often overlooked—areas of financial planning that deserve more attention. While these topics might not be as thrilling as investing, making big purchases, or debt reduction, they’re essential for a strong financial foundation. Tim covers the importance of: building and maintaining credit; proactive tax planning; establishing an emergency fund; reviewing health, life and disability insurance policies; and estate planning. 

Learn how to give these areas the attention they deserve, helping you create a more resilient and well-rounded financial plan.

About Today’s Guest

Tim Ulbrich is the Co-Founder and CEO of Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 15,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. To date, YFP has partnered with 75+ organizations to provide personal finance education.

Tim received his Doctor of Pharmacy degree from Ohio Northern University and completed postgraduate residency training at The Ohio State University. He spent 9 years on faculty at Northeast Ohio Medical University prior to joining Ohio State University College of Pharmacy in 2019 as Clinical Professor and Director of the Master’s in Health-System Pharmacy Administration Program.

Tim is the host of the Your Financial Pharmacist Podcast which has more than 1 million downloads. Tim is also the co-author of Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt and Create Wealth. Tim has presented to over 200 pharmacy associations, colleges, and groups on various personal finance topics including debt management, investing, retirement planning, and financial well-being.

Key Points from the Episode

  • Importance of credit in the financial plan [0:00]
  • Shifting mindset from tax preparation to tax planning [3:30]
  • Setting up an emergency fund [9:51]
  • Reviewing insurance coverage [13:31]
  • Estate planning [19:51]
  • Invitation to consider YFP’s financial planning services [24:57]

Episode Highlights

“[Life insurance] is especially important for those that have a spouse, a partner, a significant other, or dependents that are reliant upon your income or partially reliant upon your income.When we think about the purpose of a life insurance policy, one of the main purposes is income protection.” – Tim Ulbrich [13:31]

“I really want you to shift your mindset to think proactively and strategically about your tax situation. And I recognize that sounds obvious, but I used to view, as perhaps some of you may, tax very much to be as something in the rear view mirror.” – Tim Ulbrich [6:30]

“According to a 2023 caring.com survey, two out of three Americans do not have any type of estate planning documents in place, and that makes sense, right? It’s not super fun to be thinking about, but the whole purpose of the estate plan is that we want to have a process to arrange the management of our assets.” – Tim Ulbrich [22:57]

“What we should also be doing practically here is making sure that we check our beneficiaries on our various accounts, and as we have talked about before on the show, updating or implementing a legacy folder, which is an important one stop shop where you have all of our financial documents and information.” – Tim Ulbrich [24:00]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody. Tim Ulbrich here and thank you for listening to the YFP podcast, where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom. This week, on flying solo, to talk about five areas of the financial plan that are often overlooked and undervalued. Now, to be fair, none of these areas are very exciting to think about, especially if you’re focused on more inspiring goals, like investing, making a large purchase, giving or paying down debt, where you can feel the progress, or in the case of something like giving, you can see the impact that that may be having in the area that you’re giving or in your community. But with these five areas, what I’m referring to here are estate planning, the emergency fund, insurance coverage, tax planning and credit that isn’t necessarily the case. And there are instances where, when we are doing well in these individual areas, we might be able to see or reap the benefits of that. But for the most part, this is some of the boring work of the financial plan that we’re really playing defense in several of these cases and making sure that we’ve got that strong base and foundation in place. 

Tim Ulbrich  01:04

So let’s take a closer look at each one of these areas, starting off with number one, which is credit. Now we just talked about credit on the Yfp podcast not too long ago, episode 380 we’ll link to that episode in the show notes, understanding and improving your credit score. And as we said on that show at the time, credit is one of those threads that touches many parts of the financial plan, and having good credit puts you in a position to take calculated risks in the form of leverage that could be buying a home, that could be buying a second property, that could be starting a business and doing so at the lowest cost possible. And fair or not, our financial system rewards those who can take on and pay off credit. And I know many of us were told at one time or another, probably by a parent or a family member, to build your credit. Right? Build your credit. But how much does building your credit and improving your credit actually matter? Well, let’s take it look at one example, if we assume that we have two home buyers, let’s assume one has a credit score that is considered excellent at a 10, and another home buyer has a credit score that’s considered fair score of 640 well that might end up being the difference of a 6% interest rate on a 30 year mortgage, thinking of the excellent credit versus a 7% interest rate on a 30 year mortgage, that would be for the person with the Fair Credit Score. Now, what does that actually mean per month and over the life of the loan? Well, the individual who got the lower interest rate because the better credit would have a monthly payment of about $2,400 per month, principal and interest only, and the individual had fair credit would have a higher monthly payment of a little over 2660 per month, again, principal and interest only. Now, over the course of the life of the loan, over 30 years, that ends up being a total cost of loan of 958,000 approximately principal and interest for the individual with fair credit, versus 863,000 for the individual that had excellent credit, same house, same situation, but two people with different credit scores, which shows a difference of about $260 a month, or $94,000 over the life of the loan.

Now if you start to apply this concept is securing other debt, right? Credit card, car purchase, investment property, starting a business, taking on a loan, et cetera. That cost of credit adds up in the form of less favorable lending terms. And since your credit score is a key metric that will be used by lenders to determine how favorable or not the lending terms are, it’s really important that we understand what goes in to the credit score, because the more we understand about those factors, the more levers we can pull to improve our score. And as we talked about on Episode 380, the top factors that impact your credit include payment history, so making sure we’re making on time payments and credit utilization, so the amount of credit that we’re using each month alongside the maximum amount that we’re given. Those two alone make up about two thirds of their credit score other factors, and would be age of credit history, total number of accounts and the number of hard inquiries on your credit. So again, check out Episode 380 and this is something we encourage you to be looking at your credit score on a regular basis as well as polling your credit report, not the same thing as your credit score, to make sure that there’s no negative marks, derogatory marks on your credit report that you’re not aware of, and so that you can clean those up and evaluate those further if need be. So that’s number one on our list of five overlooked and undervalued areas of the financial plan, all right. 

Number two on our list is tax planning, with the October 15 extension, filing extension deadline officially behind us. The 2023 tax season is over. I know our tax team is excited about that. There’s a couple outliers because of. Some taxpayers in disaster areas are impacted by the hurricanes that are getting additional time for good reason. Now on that note, did you know that with an extension you have until October 15, right? We typically think mid April, but with an extension you have until October 15 to file your individual taxes, and for those that do that, October 15 extension, which is actually very common for many of our clients at wifey tax, we believe in right over rushed. Extending the deadline does not mean that you are not responsible for payments on any tax due. Incredibly important, right? The IRS expects you will make payments on time, and if not, penalties and interest will be assessed. So the October 15 extension is a beautiful thing. If you’re doing good tax planning throughout the year and don’t have a big balance due, as that would occur, incur a penalty and interest if we don’t pay it on time, or the other side of the equation, if you have a big refund coming, while many of us think big refund equals good, in that case, we just delayed now the time of getting that refund and putting those dollars to work. All right, enough about that. But when we think about tax as one of the overlooked and undervalued areas of the financial plan, similar to credit, right? This is a thread that runs throughout many areas of our financial plan, and I really want you to be shifting your mindset to be thinking proactively and strategically about your tax situation. And I recognize that sounds obvious, but I used to view as perhaps some of you may as well tax very much to be as something in the rear view mirror. Right? We file each year by the mid April, or as you learn here, the mid October deadline to meet the IRS requirements and to account for what happened the previous year. And I remember early on, you know, whether you’re using TurboTax or some software to do yourself, you’re working with an accountant, you kind of hold your breath and wait for the news, right? Am I going to get a refund? Am I going to have a certain amount of due? But we probably didn’t pay too much attention throughout the year, and ultimately, what that led to was either several refunds. That was the case for us early on, that we could have been putting those dollars to use elsewhere throughout the year. So when you go to File each year and we’re finally what happened in the previous year, that’s retroactive, right? And want us to shift our thinking, to be more proactive, and so to move our mindset from tax preparation, that’s important. It’s necessary. The IRS says we have to do it. We have to file our taxes, but to think more in the mindset of tax planning, right? A very important distinction of mindset shift so that we can think proactively and how we can optimize our tax strategy. Now I want to challenge you that if you don’t already know your key numbers, things like your effective tax rate, your adjusted gross income, it’s time to get out the IRS Form 1040 we’ll link to a copy in the show notes, and take 10 or 15 minutes to make sure that you understand the terminology and the flow of dollars. Because when we start to understand how the 1040 flows, we understand these terms, we can really begin to have this concept of tax planning come to life adjusted gross income, just as one example, has very important implications on things like student loan payments for those that are doing an income driven repayment plan, as well as certain phase outs on things like child and child care credits, Ira contribution, student loan interest deduction and so much more. Now on Episode 309 of the podcast, our CPA and director of tax, Sean Richards, cover the top 10 tax blunders that pharmacists have made, as we’ve seen through the filing process. So whether someone has a negative net worth or a net worth of several million dollars, I think you’re gonna find some value in that episode if you didn’t already listen to that. These are mistakes like having a surprise bill or refund at filing. And what are the common causes pharmacists that potentially could be employing something like a bunching strategy for their giving and just not aware of that strategy, those that should be thinking about estimated taxes throughout the year and are caught by a surprise after that, not not optimizing things like the HSA or traditional retirement contributions to reduce our taxable income, and an oldie but a goodie, not factoring in public service loan forgiveness when choosing married filing separately or married filing jointly. So again, make sure to check out that episode. Episode 309. Great time of year to be thinking about that as we’re heading into the 2024, tax season. That’s number two on our list of five overlooked and undervalues areas of the financial plan, tax planning. 

Number three on our list is the emergency fund. Now, if you’ve been listening to the podcast for a while, you hear me harping on the emergency fund every once in a while, and because it’s that important, right? Saving for a rainy day, saving for an emergency it’s not easy. It’s not fun. It takes discipline, it takes patience, it takes trust to save for something you can’t yet, see, feel or experience. In the moment, but we all know that it’s not a matter of if, but it’s a matter of when. And so as we’re putting in other key parts of the financial plan, we don’t want something that is likely to happen, although we don’t know exactly what it will be, right, whether it’s a cut in Job hours, whether it’s a health emergency, whatever it might be, we don’t want that to derail our progress in other parts of the financial plan, as I’ve shared before in the show in the not too distant past, Jess and I have had to dip into the emergency fund for an unexpected knee surgery that we had to pay 100% out of pocket because of our health insurance. We had a dislocated elbow for our youngest, a trip to the ER for our oldest, for the busted lip, right? The list can go on. And so life happens. That’s the point, and we want to be ready to be able to incur those expenses. And when it comes to things like health care expenses and unexpected health care expenses, everyone’s insurance is different, right? So we got to look at what is a deductible, what’s the out of pocket Max, and know that we have to have a backstop of our emergency fund at a minimum to cover those things, as well as other emergencies that will come along the way. So this area of the plan is all about peace of mind, as I mentioned, it’s about making sure we’re not derailing other parts of the financial plan. And my experience tells me that when you have an emergency come up, and you have an unexpected expense come up, and we’ve got the funds that are there to handle it, a really important mindset shift happens. It’s not fun to write those checks, but when we’re able to do that, because we plan for it, we go from playing defense to playing offense. We’ve got breathing room, we’ve got margin, and perhaps we can even take some calculated risk in other areas of our financial plan that might have been unthinkable just knowing that we’ve got this backstop, we’ve got this foundation in place. So we’ve talked about the emergency fund at length on the show before. I’m not going to bore you further on this, but we want to be making sure that we’re answering important questions like, Is it adequately funded? Generally speaking, that’s three to six months worth of essential expenses. Everyone’s situation, of course, is different. We need to be answering questions like, do we have too much saved in an emergency fund? Right? There’s value in having a cushion, but having too much of a cushion comes with an opportunity cost, and so have we grown that to a point that we might be able to use some of that for other parts of the financial plan? We need to answer questions like, Are we optimizing our emergency fund? This is not the place that we’re going to take risk necessarily. We want this money to be liquid and accessible and available when we need it, but we also don’t want this sitting in our checking account earning next to nothing, right? So this, this could be in a high yield savings account, money market account, US Treasuries, something that the money is working for us, or at least coming as close as possible to keeping up with inflation. And as I mentioned, you know, with other parts of the financial plan, we want to make sure this isn’t a set it and forget it. So life changes as we progress. Our expenses change over time. And so each year, I would challenge you to look at this once a year to see what is that amount, what’s that target goal when it comes to the emergency fund, and is there a potential boost that is needed to the emergency fund?

Number four on our list is insurance coverage. And there is lots to think about when it comes to insurance, but I want to narrow in on two policies in particular, which would be life insurance and Long Term Disability Insurance. Now life insurance, for obvious reasons, is not fun to think about. Right? Nobody wants to consider what a premature death may look like and how the impact of that would be on their family and on the financial plan.

This is especially important for those that have a spouse, a partner, a significant other, or dependents that are reliant upon your income or partially reliant upon your income. Right? When we think about the purpose of a life insurance policy, one of the main purposes is income protection. So in order to determine how much of a policy we may need, we need to ultimately determine what would be the need if you were to prematurely pass away, and what part of your income that is no longer coming in from work do we need to replace in the form of an insurance policy to be able to achieve various goals that could be paying down a mortgage, that could be investing for the future, that could be saving for kids college, right? What are the things that we would need for this policy to fund lots of work to be done there, and why generic calculations shouldn’t be applied when it comes to things like life insurance. Now there are two main buckets of life insurance. There’s a category of life insurance called permanent insurance. These would be things like whole life insurance policies, universal life insurance policies, variable life insurance policies, variable, universal life insurance policies, right? The alphabet soup of whole whole life and permanent insurance, and then the second bucket is term life insurance. And for the sake of this episode and our time together, I’m going to spend our time there, because I believe that for a majority of folks listening, a term life insurance policy is going to be the way to go. That’s not an absolute. That’s not a. Ice that’s not for everyone, but for many folks, that’s going to be the area of focus. And we’ve got a great resource on this, if you want to nerd out. It’s called the life insurance for pharmacists, our ultimate guide to free resource. We’ll link to that in the show notes. But essentially, with a term life insurance policy, what differs it from a permanent insurance policy it is, is that it is insurance alone. It is not paired with an investment product. 

Another important difference is that with a term life insurance policy, as the name suggests, it lasts for a term or a period that could be 15 years, 2025, or 30 years, and you’re going to pay a monthly premium. And for that monthly premium you’re gonna have a set amount that that policy would pay out could be a half million dollars, $1,000,000.02 million dollars, whatever you decide is the need in the event of your death, and once that policy is period is complete, once that term is over, if you’re no longer needing that policy, meaning that you’ve survived or outlived that policy, which is good news, right? There’s no dollars that are coming back to you. So the premiums you’ve been paying each and every month, let’s say you pay 40 bucks a month for a million dollar term life policy over a 20 year period. At the end of 20 years, if we don’t have to enact or use the policy, that’s it. The policy is over. None of those premium dollars are coming back to you, which is the point that is typically used when folks are selling permanent insurance policies that are like, why would you want that money just to go down the drain again? Check out our article life insurance pharmacist, The Ultimate Guide for a more in depth discussion of the different aspects of these policies. This, in my opinion, for most folks listening, why term life insurance coverage is the focus is because this is really meant to be catastrophic coverage, keeping our costs low, so we can use those dollars elsewhere in the financial plan, typically permanent and child policies are much more expensive, typically carry some fees on the investments may not necessarily perform as well as we could invest the dollars on our own, or we’re in working with a professional so with term life insurance, assuming someone is healthy, very much dependent on medical conditions and age of that individual in terms of how much that policy will be, as well as the term or length, but relatively inexpensive for most folks, and is going to allow us to put our cash and dollars to use elsewhere in the financial plan. That’s just a couple key nuggets when it comes to something like life insurance. Now, with long term Disability insurance, one of the greatest assets that you have as a pharmacist is your ability to generate an income. Right?

Think about how long it took you to be able to get that point of becoming licensed, to be able to earn that six figure plus income. And so the focus of long term disability is what would happen in the event that you were unable to earn that income. Now we address the death scenario in something like a term life policy. Here we’re talking about could be a disability, like a chronic medical condition, rheumatoid arthritis, some other condition that would prevent someone from working or working in their position, or it could be something like a car accident, right? Not likely, but these are things that we need to protect if that were to happen, what is the plan to be able to replace your income that you’re earning while you’re able to work as a pharmacist? That’s the purpose of disability insurance. Again, we’ve got a great resource here, disability insurance for pharmacists, The Ultimate Guide. We’ll link to that in the show notes. Lots to think about in terms of how much coverage you might need, the different terms like elimination periods of time, what’s the length of the policy, the potential costs, these are typically more expensive than term life insurance policy.

So make sure to check out that resource from Yfp that we published disability insurance for pharmacists, The Ultimate Guide. We’ll link to both of those in the short show notes. Now, when it comes to purchasing term life insurance and disability insurance, there are a lot of factors to consider. This is one of the reasons why our planning team spends time with our clients individually, going through these policies to make sure they’re customized to the individual. Things like, what’s the goal or the purpose? What are we trying to accomplish with these policies? What employer coverage Do you already have in place, and do we need additional coverage? What are the tax differences between an employer policy that pays out versus a policy on your own? And then, of course, everyone’s situation is different, right? What’s your household income? Is there one income two incomes in the household? What are their goals? What reserves do you have? What expenses are we trying to replace? All these things are going to help us determine what policy is needed, and then from there, we can look to make a purchasing decision that aligns. So that’s number four on our list when it comes to insurance. 

Number five, our final of our five overlooked and undervalued areas of the financial plan is the estate plan. Now if you’re listening and you realize that you’ve got some work to do in getting your estate planning documents in place. Know that you aren’t alone. According to a 2023 caring.com survey, we’ll link to that in the show notes, two out of three Americans do not have any type of estate planning documents in place, and that makes sense, right? Just like we’ve been talking about some of these other areas. Nine. Not super fun to be thinking about, but the whole purpose of the estate plan is that we want to have a process to arrange the management of our assets. The management of our property decisions around dependents could be decisions around child care or assets that are going to dependents or others, and in the case of our health, if we were to become, let’s say, incapacitated. Who’s making healthcare decisions? What are those decisions that we want to have made, and making those from a viewpoint in which we’re able to think about those with a clear mind? So that’s the estate planning process in a nutshell, and especially for those that have dependents and have beneficiaries, these are documents that we want to have in place, and just like we talked about with the emergency fund, this is not a set it and forget it. So yes, there’s some upfront work to be done here, from some upfront costs, typically, as well, to do these documents and do them well with a consultation from an estate planning attorney as well as hopefully working with a financial planner. But things change right? Things evolve over time, and we want to make sure that we have a process to update these documents along the way. So the objective with estate planning, yes, it’s peace of mind, right, knowing that we’ve got plans in place for our family, for our assets, for the stuff, for our health care and the decisions that are being made, but as folks accrue assets over time, there are also some tax planning considerations when we think about the transfer of assets that are really important to be considering along the way as well. So practically speaking, what do we need to do here? Well, check out Episode 310, of the podcast, if you didn’t already catch it, where Tim and I talked about dusting off your estate plan. We’ll link to that in the show notes. These are important documents, like wills and living trusts, advanced medical directives, durable powers of attorney.

And at YFP, our financial planning team is are working with clients, one on one to put a framework in place for what are the estate planning needs, and then working with a solution that relies on estate planning attorneys and legal advice to make sure that those are being executed appropriately for the state in which that individual lives. What we should also be doing practically here is making sure that we check our beneficiaries on our various accounts, and as we have talked about before on the show, updating or implementing if you don’t already have one, a legacy folder, right, which is an important one stop shop where we have all of our financial documents and information in place at our house. We call this the blue folder. Much of it is electronic now, but the original version was a hard copy blue folder. Some of it resides electronically. Some of it resides in our safe but it’s the one stop shop that we know that if Jess and I were in a situation where we weren’t able to access that information or communicate that that our family knows where that information is, like our state planning documents, important insurance policies, tax returns, our various investment accounts, all the information that would be needed to make some decisions along the way. We’ve got a checklist resource here if you want to develop your own legacy folder, you can go to your financial pharmacist.com, forward slash legacy and begin to implement that in your own financial plan. Well, there you have it. Those are five overlooked and undervalued areas of the financial plan. A lot of information and things to be thinking about. These are all areas of the financial plan that our team of certified financial planners are working one on one with our financial planning clients as well as our tax planning clients at Yfp tax and so if you’re interested in learning more about what those comprehensive financial planning and tax planning services look like, we’d love to have an opportunity to talk with you further to learn more about your situation. You can learn more about our services and determine, ultimately, whether or not there’s a good fit there, you can book a free discovery call by going to your financial pharmacist.com, you’ll see at the top of the home page an option to book that call. Thanks so much for listening. Hope you enjoyed this week’s episode. Have a great rest of your week. 

[DISCLAIMER]

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 posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyzes 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 380: Understanding & Improving Your Credit


Tim Ulbrich and Tim Baker discuss the role of credit in financial planning: why it matters, how it works, what makes up a credit score, common credit misconceptions and more.

Episode Summary

In this episode, Tim Ulbrich and Tim Baker discuss the role of credit in financial planning. They explore why credit matters, how it works, and how it influences important areas in your financial plan.

Tim and Tim break down the factors that make up a credit score, from payment history and credit utilization to the age of credit and hard inquiries. They also dispel common credit myths, essential strategies for protecting your credit and identity, including the importance of monitoring credit reports.

About Today’s Guest

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

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

Key Points from the Episode

  • Understanding the Importance of Credit [0:00]
  • Debt Utilization and Its Impact [2:07]
  • How Credit Works and Its Impact on Financial Planning [32:14]
  • Factors Affecting Credit Scores [32:27]
  • Strategies to Improve Credit Scores [32:38]
  • Common Credit Misperceptions [32:52]
  • Credit Security and Identity Protection [33:06]
  • Conclusion and Future Topics [38:27]

Episode Highlights

“If you kind of look at some of the things that credit affects, it’s your ability to get credit and what you pay on that debt. So interest rates. Lenders use your credit score and history to determine whether to approve a loan or to give you preferable or less than preferable rates, and this affects mortgage, auto and personal loans.” Tim Baker [08:17]

“The credit report is kind of your report card with regard to your credit. It’ll show all the different adverse accounts and also accounts that are in good standing. Now, it’s hard, in a snapshot world to say, okay, like I’m looking at a bunch of pages of a credit report. How does a creditor, as someone that’s going to lend this person money, quantify the ability to pay back in a timely manner? That’s where we get the credit score. The credit score basically distills down your ability to pay back the money that you owe. – Tim Baker [11:20]

“If we talk about the factors of a credit score, probably the highest impact factor is payment history, and from what I understand, it makes about 35% of your score. This is the most predictive factor in determining whether a borrower will repay debt as a history of on time payments indicate lower risk for lenders. So if you are missing payments, then your score is gonna get hurt.” -Tim Baker [18:17] 

“It’s important to know what’s not used to calculate credit scores:  age, sex, religion, race, marital status, zip code, if you’ve ever disputed things on a credit credit report, employment history, occupation and salary. So they don’t care if you make $200,000 or $2 million a year. As we say, income is not a financial plan. Income is also not a good credit score.” – Tim Baker [28:05]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody. Tim Ulbrich here and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. This week, Tim Baker and I talk all about credit as an important thread of the financial plan. Specifically, we discuss why credit matters, how credit works, the makeup of a credit score, and how to improve that score, common credit misperceptions and strategies to protect your identity and secure your credit before we jump into the show, I recognize that many listeners may not already be aware that at YFP, we support pharmacists at every stage of their careers to take control their finances, reach their financial goals and build wealth through one on one comprehensive, fee-only financial planning and tax planning. If you’re ready to see how YFP can support you on your financial journey, you can book a free discovery call by visiting yourfinancialpharmacist.com. Whether or not our financial planning and tax services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. All right, let’s jump into today’s episode. 

Tim Ulbrich  01:08

Tim Baker, welcome back to the show.

Tim Baker  01:10

Good to be back. Tim, how’s it going?

Tim Ulbrich  01:12

It is going well, I’m excited for this discussion. I’m not sure most listeners are going to be. I think when they see something like credit, maybe, maybe like tax, they’re like, whoa, blah. You know, not, not the most exciting thing to discuss. But I think especially true for those that are focused on more inspiring goals of the financial plan, right? Those that are focused on investing or making a large purchase, maybe paying down debt or giving goals that you’re working towards achieving, those are, those are exciting, right? Credit, maybe like tax, not so much, but as we’re hopefully going to lay the case out today, such an important thread and part of the financial plan that we want to make sure we’re aware of and we’re optimizing the best that we can. So we’re going to talk today about why credit matters. Factors that impact your credit score. If we understand those, we can work to improve those. Some of the misperceptions around credit, and then how to protect your credit and how to protect your identity with credit. So Tim, before we get any further, I think it’s important that we check in with ourselves about debt and how we feel about debt, whether it be having debt, using debt, everyone can feel different if we think about the spectrum of this. So tell us more about debt utilization and why this is important before we get into the discussion of optimizing credit.

Tim Baker  02:27

Yeah. So if you look at the spectrum of debt, you know, you, most people probably heard of the term, like good debt and bad debt. And I think, like, if you put all the types of debt out there, you know, everyone’s line is a little bit different, probably not too different. So if you think if you think about like things like a mortgage debt, so you know, this is a note that you have on a home that you’re living in, it’s a use asset. Maybe you’re raising a family. Hopefully that home is appreciated over time, so you are paying interest on it. Most people would say, Hey, pretty good debt. Things like, if we go over kind of a notch, you know, something like student loan debt, which I know is near and dear to a lot of our listeners, a lot of people still say, for the most part, student loan. You take out loans to be educated and trained, for the ability, for the opportunity to essentially earn out earned peers that don’t necessarily have a college degree. You can argue there’s probably a spectrum inside of that spectrum itself, of like, what’s good student loan debt and bad student loan debt type of thing, but most people would say, hey, you know, even today, most people would agree, the studies show that if you’re if you, if you have a degree, you’re going to earn more over the course of your career. So most people say good debt. When you get beyond that, that’s where it kind of gets a little bit shady. So you know, the next one over is probably things like, like a car note, like an auto debt. The problem with a car note is that you’re you are paying interest on an asset that is depreciated the second that it pulls off the lot, and every year thereafter. So it’s still a use asset. It does the job of kind of getting you from A to B, hopefully, you know, to work or just to live your daily life. But a lot of financial experts would say, if you can go without, you know, financing a car, do that right? Because of all the things that I mentioned. What I typically see the evolution of things, Tim, is like a lot of people, if they’re a couple, a lot of them will see them early in their career. Maybe there’s two car notes, and then maybe they transition to one, and then towards the end of their career, we should be buying cars in cash. And I think it does, you know, force the issue of, like, do we really need an, you know, $80,000 car? You know, can we get by on a $30, $40,000 or whatever it is? Again, no, hate on that. If that, if that’s your your bag, it’s just, you know, is this part of your plan? But most people, that’s kind of where the line is drawn is like, okay, what kind of debt is that? Is that good, bad or indifferent? So from there, you get into things like the cost of, you know, like furniture. A lot of people, hey, I just moved, you know, I need to, you know, I, uh, basically fit out my apartment. So I’m, I’m putting furniture on, uh, on, on debt, and I’m paying that off. Again, a lot of people say, don’t necessarily do that, and you have all the way out to so, you know, the purchases of wants and not necessarily needs, that’s typically can fall on credit card debt, which can be super predatory, if that can get out of control. And you know, you have things like payday loans, which are, you know, really, really bad. So that spectrum of sorts is kind of where you, you know, kind of review. And I would have people look at their own debt that’s on the books and say, Hey, like, is this good bad debt? And if it’s, if it’s bad debt, let’s really, you know, that’s the bleeding head wound potentially, of your financial plan. So let’s really tend to that and triage that. If it’s good debt, we’re not going to, you know, ignore it. We’re going to have a plan for it. But we just know that it’s more about the plan to pay off the debt versus paying off the debt, you know, make sure that we’re doing for the bad debt. So that’s kind of the spectrum in terms of how I look at at debt, and you know, how this can fit over, you know, into the whole, you know, credit, you know, credit discussion.

Tim Ulbrich  06:05

It’s important we start there, right? Because credit, by definition, is we’re taking on debt, right? And we’ll talk about how that might be utilized. What are the risk? What are the upside, you know, potential leverage opportunities. How do you optimize credit? Where does it have an impact? But you know that is a step in the direction of taking on debt. Now, some people will talk about the different types of more detail if you’re paying off card each and every month, like you might not look at that as necessary taking on debt, but that’s essentially what the bank is evaluating. Is, what is your risk? What risk are you to the bank in terms of being able to pay off that debt? And that’s going to depend on the terms that you’re able to get. And I think, as we so often say when we think about debt for our own financial plan, or I know our team’s doing this when they’re advising people, we’ve got to look at the math, we’ve got to look at the different types of debt, and we’ve got to look at how someone feels about the debt, and we put all of that together when we’re looking at debt as a part of the financial plan. And when you have two individuals, spouses, partners, significant others, coming together on the financial plan, especially if we have different feelings around debt, you know, there has to be some discussion to be to be had there as well.

Tim Baker  07:06

Yeah, for sure. I mean, there, there are, there are some people we take the student loans, for example. There’s some people that are like, this needs to go yesterday, like, I have anxiety. It’s a weight, blah, blah, blah. And there’s some people that are like, meh, yeah, it is what it is, right? Yeah. And that emotion plays right? So I think now, again, I think the way you can like, if you’re like meh for credit card debt, like, I think there’s a like we there’s a realignment that we need to do like, because, again, mathematically, if you’re a meh, you’re gonna, you’re gonna see that, you know, talk to a prospective client that had $25,000 in credit card debt, you’re gonna see that, if you have a meh attitude, that 25,000 is gonna grow, you know, balloon to $50k. Very, very quickly. So I think it’s important to understand that too. 

Tim Ulbrich  07:50

So let’s jump into our first part of the episode, why credit matters. And as we start this discussion, I think it’s important we understand how credit works. And so Tim, you know, as a consumer, you know, whether it be, you know, credit card purchase you’re using, you know, you swipe your card at the store, and then somehow, some way, that ends up impacting our credit report, our credit score, as well as other types of debt. So take us through the credit cycle so we can understand how credit works. 

Tim Baker  08:17

Yeah, before I get into this, let me, let me just talk about, like, kind of the legislation that kind of set us on this path of like our credit system so, or at least revised. So back in 2003 the Fair and Accurate Credit Transaction Act, or FACT Act was passed that essentially allows free access to credit reports, and kind of what I’m describing here shortly, to every US resident, at least one free credit report every 12 months from each of the three major credit reporting agencies, which is Equifax, Experian and Transgenium. It also set up provisions to reduce identity theft, which we know continuously are becoming more and more of a thing as we as we kind of transition to more, even more and more of a digital world. It requires, you know, companies to securely dispose of your consumer information. That’s a big thing for us as an RIA oversight by the SEC, and on the tax side, a tax firm oversight by the SEC like or the IRS, I should say there, it’s a big deal, right? And the last thing it does is it doesn’t necessarily require a lot of these companies to give you free credit credit scores, and we’ll talk about the, you know, the report versus the score, but they become more ubiquitous through like, Hey, you can get it through an app or your bank oftentimes. So a lot of that has been, you know, less a B to C of like, Hey, Tim Baker’s gonna go buy my you know, see my credit score, where the places that I bank or do business with kind of do that B to B, and then they and then they do that as a benefit if I’m banking or doing whatever with them. So the fact that kind of, like lays the groundwork, essentially how this works, Tim, is you have, you the consumer, you the the the borrower, and your behaviors kind of, kind of start this cycle. So you essentially, you know, you’ll go and you’ll buy a car, or you’ll swipe your credit card for groceries. Essentially what, what’s happening here is, when I do that, I’m asking MasterCard or Toyota, a creditor for credit to basically make these purchases because I don’t have or I don’t want to spend the cash in that moment. The creditor, especially for something major, like a car, a car note or a mortgage, will say, okay, this person do I want to grant them credit? So the way they typically do is they look at those three reporting agencies that are there that are basically the gatekeepers of the information of the behavior related to your ability to pay back your debts in full and on time. So those reporting agencies for all the different transactions, whether it’s credit cards, whether it’s another type of revolving debt, student loan, a mortgage, whatever it is, collate all this information from these creditors and at the reporting agencies, and then they basically build out credit reports. So the credit report is kind of your report card with regard to your credit, credit, so it’ll show all the different, you know, adverse accounts. So hopefully you don’t have any of those. And then also accounts that are in good standing, that are basically like, Hey, we’re doing what we’re supposed to be doing. Now, it’s hard, in a snapshot world to say, okay, like I’m looking at a bunch of pages of a credit report. How do I actually as a creditor, as someone that’s going to lend this person money? How do I quantify their ability to pay me back in a timely manner, and that’s where we get the credit score. So the credit score basically distills down your ability to pay back the money that you owe, and then that credit score then feeds back to you where you say, okay, hey, I have a 750 or an 800 credit score. So then I then take that back to the credit card and say, like, see, this is like, I’m good, or like, maybe I’m not so good, and that affects, again, that whole cycle. So that’s essentially how it works, in terms of, like, how credit is tracked and reported and then quantified for you, the consumer. 

Tim Ulbrich  12:18

That’s a great summary, Tim, because I think is we’ll talk about improving your credit score here in a little bit. If you understand your credit report and you’re checking your credit report, I know this is something you said on the show before, like, hey, mark your calendar once a year. Maybe it’s when the clocks change, whatever, where you’re pulling your report, right? You mentioned the three agencies, Equifax, Experian, TransUnion, and when you start to dig into those reports, you’ll understand the different variables of which are being aggregated up and reported on to the credit score, which will then help you understand, oh, well, maybe I can increase this or improve this, or do this differently to grab up my credit score, which then has an impact on the different parts of the financial plan. So all connected. Great description. And why does credit matter, right? I want to make sure we don’t, we don’t brush by that obvious but important question we’ve all probably been told at some point in our lives by a parent or, you know, an advisor, or someone like, you got to build credit. You got to have credit. You got to have a good credit history. What’s the so what? Why is this so important?

Tim Baker  13:17

Yeah, so I think, like, if you, if you kind of look at some of the things that credit effects, it’s, it’s it’s kind of your ability to get credit and like what you pay on that debt. So interest rates. So lenders use your credit score and history to determine whether approve a loan or to give you preferable or less than preferable rates, and this affects mortgage or auto personal loans. So good credit usually, you know, good credit score usually gets the best the lower interest rates. You know that which saves you money over time, which could be huge. When you talk about, you know, a 2, 3, 4, $500, $600,000 purchase, when we talk about a home. You know, renting a home, you know, a lot of landlords check credit reports to assess whether potential, tenants are financially responsible. We do this with our tenants. You know, it’s one of the things we that a lot of landlords will do to make sure that, hey, is this person going to actually, like, they’re going to assign the dot line say they’re going to, you know, pay this rent? Like, are they actually going to do it? Insurance premiums, in some cases, insurance companies use credit information to set premiums, particularly on auto insurance. Again, it’s kind of a measure of of reliability, even employment. Some employers check reports as a part of their hiring process. For you know, especially if it’s related, you know, to finances or sensitive information. So poor credit can negatively affect your job prospects. I think it’s tied, it’s also tied to utility services. So utility companies think electric, water, internet, may check your credit when you sign up for a service. So they could actually require a deposit or deposit or even deny services. You know, if you’re obviously, if you’re, if you’re applying for credit cards, you know you’re going to get the best rates and the higher, higher limits if you if you have better credit, maybe even better rewards. And then, you know, just good, like financial flexibility, right? A good credit history gives you more options for borrowing and managing your finances during emergencies or making major purchases. Now, some of those are going to be systemic, and we talk about this with business owners like right now is the time to get a line of credit right? Because once the market changes, or the economy, you know, we go through a recession, you know, that’s when, you know, a lot of credit freezes. So you want to establish good behavior and be able to access credit when things are good, not when things are bad, right? Goes back to planning. So that’s really the so what, Tim, of like, why it’s important, and is, I think it is becoming more of a measure of overall reliability. That is, again, it’s very much for your finances, but I think that’s a good indicator of your overall reliability in general. So that’s the so what.

Tim Ulbrich  15:59

That’s why I used the word thread earlier, right? Look at the list of examples you just gave of where this can impact the plan. I think the one that people are often thinking about is like, Oh, if I go to buy a home, you know, very practical. If my credit score is x versus y, and x is better than y, then I’m probably going to get a more favorable, you know, rate on my loan or, you know, buying a car purchase. But I think there’s some other ones that you’re alluding to when you talk about, like, line of credit out in the business on the business side, you know, having good credit puts you in a position to take calculated risks in the form of leverage, and to do so at the lowest cost possible. Now, calculated risk, right? There’s always going to be risk involved, and there can be a downside to that as well. But fair or not, I mean, that’s really the system that we live in, and and our financial systems are rewarding those who can take on and pay off their credit. And so, you know, starting a business, investing in a business, buying real estate, you know, beyond your primary all these things are going to require, unless you’re bringing cash, they’re going to require you to have your credit evaluated.

Tim Baker  16:54

That’s right, that’s right.

Tim Ulbrich  16:56

All right. Second part is understanding and improving your credit score. And there are several factors, Tim, that go into the credit score, and I think as we understand each one of these, we can begin to then think about the strategies to improve our score over time. Maybe some of our listeners have great credit, and it’s keep doing what you’re doing. Others, maybe, you know, because of a final year of pharmacy school residency, other things you know, they had missed payments and other types of debt that accrued. Maybe there’s some repair a credit that needs to go on. So take us through the the main factors as it relates to the makeup of a credit score, and especially those that have some of those higher impact factors. Yeah.

Tim Baker  17:37

So and when I, when I first started learning about credit back in the day. Tim, like, a lot of the information that I researched, and like, Credit Karma was a great resource for me. And if you actually, again, not a commercial for them. But I personally use Credit Karma, a lot of their things checked out. That’s where I can get, like, a free it’s not free -they’re selling my information. And every time I go on their app, you’re like, hey, this is a great credit card. So like, there is a there’s a price for it. But like, I was, you know, I was skeptical at first, I’m like, Hey, is this really legit? And then I, you know, actually purchased the TransUnion credit score and everything was kind of like, matched out, right? But they, I think they do a good job. It’s a great resource to kind of understand at a very high level, like, how this works. So if we talk about the factors of a credit score, where the rubber meets the road, probably the highest impact factor is payment history, and from what I understand, it makes about 35% of of your score. This is the most predictive factor and determine whether a borrower will repay debt as a history of on time payments indicate lower risk for lenders. So if you are missing payments, then you’re gonna, you know, your your score is gonna get hurt, which is gonna, you know, affect all those other things that we talked about. So can you pay your bills on time? And on time is actually flexible, so, like, once you go 30, days beyond like, a due date, that’s when you typically get hit. So like, if my credit card bill is due on October 15, and I miss that payment and I don’t pay it by November, if I pay it by November 1, I’m still good. It’s still on time for the credit reporting agencies. Once I get to that November 15 date, then that’s where I get I get dinged. So that is the that’s kind of where the rubber meets the road and everything else around this is important, but it’s not as important as, Are you paying your you know, what’s the history? Are you paying it back on time? The other high impact factor, which makes up about 30% it’s called, Credit Card Utilization. I’ve also seen it called like, what’s the amount that you owe, amounts owed? So this is the amount of debt you carry, especially as a percentage of your total credit line, your limit. So this is credit utilization, and it’s it’s highly correlated with risk. So in this case, what lenders like to see is it’s the lower your utilization, the better. So they like to say, hey, you have available credit to you, you’re just not using it. So anything that is basically 10% or below you, it’s typically excellent, right? So if I have a $10,000 limit on my credit card. Let’s say I have a five and a five. I have two cards. If I’m carrying anything more, carrying meaning like I don’t I don’t pay it off at the statement balance. If I’m carrying $2,000 then my credit utilization is 20% and that’s it’s still good, but it’s not excellent. So lenders like to see you have the ability to use it, but then they want you to pay it back in a timely way. So the big thing here is to keep the balances low. The next one, Tim and these, these last, really three or so, are more medium and low impact. So the next one is age of credit or, like, the length of credit history. So make sense, right? The longer you know, if this is not your first rodeo, the longer that you’ve been using credit successfully, it’s a little bit of like, like, again, your parents have been doing this for a while. If you’re just out of college, or you’re just in college, you don’t necessarily have the wherewithal to, like, understand how it works. So typically, the higher is better. So they want excellent means you’ve had, you know, accounts open for nine plus years, and this is on average. So lenders like to see that you have experience using using credit. The next one is the total accounts, which makes up about 10% that you can also think of this as, like credit mix mix, so managing a variety of credit types, whether it’s credit cards, auto loans, student loans, mortgages, suggest a responsible borrower that can handle different forms of credit. So the idea here is, they want you to be able to do a little bit of a lot of different types of credit, right? So, you know they want, they want you to say, Okay, we have fixed, we have revolve, and that type of thing. The big thing here that I thought that was kind of counterintuitive, is that the higher the number of counts, the better I would think, like, man, if you know, if I only had one or two, that would be a lot better from a from an agency perspective, or for a lender perspective, than if I had like 20. But what they what we have to remember is that your your your accounts, they own your report for 10 years. If they’re good, if you have if it’s negative, it stays on for seven years. So think about the last 10 years of all the different things that you’ve done, Credit Wise, that’s what they’re counting. For a lot of pharmacists, they get a number. They get in another account with every student loan. For a lot of us, like when we’re looking at a client’s credit report, particularly when we’re looking at student loans, it’s several pages longer than most people just because of the student loan burden. And the last thing that’s there is the hard inquiries, or, like, the new credits part of the score, and that’s also 10% so that’s where, you know what lenders don’t like to see is they want, the lower the amount, the better. So what they want to see, they don’t want you basically going around town, proverbially, going around town, like inquiring on additional lines of credit. So this results when you apply for credit. So if I go to buy a car and I’m buying it through Ford, they’re going to run my credit. That’s a hard inquiry. Or if I’m, if I’m getting a mortgage, or if I’m, you know, moving and I’m renting a place, they might run it a credit on there, and then, and then the utility. So they really like hard inquiries to be excellent is zero to one, good is one to two, and anything above that is fair. I could tell you, Tim, I have a crap ton of hard inquiry just because of the things that we’ve done over the years, that those typically fall off after two years, but that, and I think what they’re trying to do again is they’re trying to look at, okay, how much is this person actively accessing new credit now, I think, I believe that, I don’t know if it’s a week or two week, but say, like, I go and I apply for credit at Ford, Toyota, Tesla, they’ll group that, those hard inquiries into one, if it’s within like, a two, a one or two, yeah, so they don’t ding you on multiple I would, I would say, though, like you probably shouldn’t apply for credit for all of those, but that that’s what happens with those. So those are the kind of the big, the big factors that kind of play a part into your credit score. 

Tim Ulbrich  24:44

Great stuff. Quick summary, you mentioned five factors, payment history, credit utilization. Those together more than 60% so those are two big ones we want to pay attention to. The other three that are medium to low impact, age of credit history, total accounts, hard inquiries. I’m glad you mentioned the student loan piece, right? Because one of things I’ll often hear from new graduates that are learning about credit and trying to improve their credit, they’re like, oh, well, I haven’t had a credit card for that long, and they might only be thinking in that and that bucket, right? But if you have student loans, like you have multiple accounts on your credit report, and you’re going to start to establish the credit history as you pay those off, or you mentioned car notes, credit cards, obviously, there are other things there as well. Again, Tim, if we if we start to understand these, especially if I just focus on the first two for a moment, payment history, so on time payments, and then credit utilization, so the percentage of credit available that we’re actually using month to month. If we understand those and the large impact them at our credit score, we can really start to lean into strategies to address those, if they’re an issue, right? So I think about things like automatic payments, auto bill pay. Is that strategy? Yeah, with credit utilization, I know I’ve gone back about once a year, ish, maybe every 18, 24, months, to say, Hey, by the way, can we increase our credit limit? So asking for increases in credit limit now, understanding that that might have counted a hard inquiry, but asking for an increase in credit limit is then going to obviously drive down your utilization rate, unless your spending is going up, you know, at the same price. So these are some common things that we can think about, auto bill pay, asking for increases in credit limit if it makes sense that that can be favorable to our credit score. Yeah.

Tim Baker  26:20

Another, another thing you could do, like, again, if there’s parents out there of, like, kids that are starting to drive, I remember working with a pharmacist that I looked at their credit – I don’t know, they were probably born in like 1990 but their credit history stemmed back to like 1976 and I’m like, How is that possible? But their parents put them on like a Sunoco gas card. So that kind of give them an advantage, you know, early on, where, you know, typically, younger people have, you know, less than ideal credit scores. And as you get older, almost by osmosis, you know, you figure things out. And you know your accounts age, things like that, you have more of a history. But that was, you know, that’s a hack you mentioned, like, if I’m, if I’m in a good credit band, and maybe I should go through those Tim, but like a good credit band, you know, for scores, is anything excellent, is anything 750 or above. So, and I’m using FICO. FICO is, I think 90% of lenders use FICO. Vantage is another one that’s kind of come onto the scene, I think is used as well. I think they’re similar in this regard. But the score ranges anywhere from 300 to 850, anything above 750 is excellent. 700 to 749, is good. Fair Credit, 650 to 699, poor credit, 600 to 649, and anything lower than 600 is is bad. Now the average, when I look back at this in like 2018, I think the average scores was maybe like 693, in 2020 October, 2023, when I looked at this, it was like 717 which is interesting, because balances for credit, you know, for credit cards for Americans, are at all time high. Yeah, I know they’re trying to look at more like trended data. So like, if you’re if your balances are trending down versus like a snapshot. But I think it’s also important to know for people, like, what’s not used to calculate credit scores, age, sex, religion, race, marital status, zip code, if you’ve ever disputed things on a credit credit report, employment history, occupation and salary. So they don’t care if you make $200,000 or $2 million a year. It’s more about, again, your ability to be so we talk about this with the financial you know, income is not a financial plan. You know, income is not a good credit score. Sometimes people say like, oh, I make $300,000 my score should be great. They’re not. They’re not tied together. So I think it’s important to kind of understand that too, is like, what’s what’s not counted, and how  does that play a factor? 

Tim Ulbrich  28:47

And those, those may become a factor. I’m thinking about the impact the income specifically, right? If you’re, if you’re buying a home, obviously they’re looking at your credit score, but they’re looking at your debt to income ratio, in addition to the credit score as well. So alright, let’s shift gears and talk about top credit misperceptions. You gave an example of, you know, if you’re buying a car through Ford financing and you go through that application, that’s a hard inquiry, right? That might have a short term negative impact on your credit. Which leads me, I think, to one of the common misperceptions that people confuse, which is your credit score drops if you check your credit. So very different thing that we’re talking about here applying for credit versus checking your credit score. So that’s one of the most common misperceptions I hear is, hey, if I check my credit, it’s going to impact my credit score negatively. What other common misperceptions, Tim, are you typically hearing around credit?

Tim Baker  29:36

One of the big ones is like, oh, like, I’ve had this account. I’ve had this Abercrombie and Fitch credit card since, you know, I was in, you know, high school, like, should I close this account? Because this will improve my credit score? The answer is probably not, because that’ll actually ding you on your, you know, age of credit so, and I had one, I had one recently, where my my age of credit was really good, and I decided to. I had an old card. It wasn’t Abercrombie, it was something else, but I had this old car and I wasn’t using and I’m like, I’m just going to close it. I don’t have any credit decisions. And I closed it in my age of credit, took a took a hit. So, you know, that’s, that’s one of the things. You know, once you pay off an account with the derogatory markets removed from your credit report. So a lot of people like, Man, I missed the payment I got dinged and I have a 30 day lateness. Let me, let me pay it in full. And that’s going to basically go away, unfortunately, no, and I always talk about this when I talk, you know, there was a time where I did, I had this. you know, I ran my credit report, and in May of 2010, I had a 30 day pass, which I don’t know what happened there, and that stays on my credit report for seven years. So it fell off in 2017 but that was something that you know, a lender could say, you know, not so good. And I think what happens too, is, like some people, when they, you know, when they when they when maybe they’re spiraling, or they’re, they’re like, Oh, I missed it. They’re like, they kind of put their head in the sand and they like, they’re like, it is what it is. I’m not gonna be but like, those things cascade, right? So, you know, if you have a derogatory mark, like, that’s fine, but like, stem it, stem the stem the bleed in, right? You don’t want to go into a 60 day and 90 day to where you end up in collections. And I talked to pharmacists that this happens, right and that and like, to me, it’s like, all right, like, that’s in the past. Let’s like, let’s move forward. So, but that will stay on your on your record, on your credit report, for seven years. Another one I hear is like, hey, if I co sign, will that make me responsible for the account? That’s exactly what they do. So be wary when cousin Fred or brother Paul or someone else says, Hey, can you co sign this? Because you’re essentially, you know, from the from the lender perspective, they’re not putting all of their eggs in brother Paul’s or cousin Fred’s baskets. It’s now in your basket as well. So they look at this as a less risky but if your co signer acts a fool and kind of things go awry, you are on the hook for that. And you know, where we see this the most often is like parents co sign in student loans, right? So you want to make sure that you’re on your best behavior. So you don’t necessarily, you know, you know, affect your co signers credit and vice versa. You want to make sure that if you’re co signing for someone, they’re on their best behavior, so it doesn’t affect your credit. And probably the last thing up here, it’s like, oh, if I pay off this day, will I add I’m buying a house? Will I add 50 to, you know, 50 100, 150, doesn’t necessarily work like that. It’s not a it’s not a binary thing. It could help if it drops your your utilization. But it’s not necessarily like a, you know, a, you know, $1 for dollar, it’s going to, you know, increase, you know, your points, so to speak. So those are some of the misconceptions I hear, you know, the one that you brought up about like, hey, if I check myself, I don’t want to check it because I don’t want to like, affect it. If you’re applying and it’s hard, but even that, it’s 10% it’s not going to affect it that much. The big drivers are, are you paying your bills on time? And like, are you using a fraction of the credit that’s available to you? Those are going to be the big the big drivers of of this. 

Tim Baker  30:38

Tim, let’s wrap up by talking about credit security, and specifically, the difference between a credit freeze and a credit lock. I think these terms get, get thrown around a lot, perhaps interchangeably sometimes.

Tim Baker  33:27

So broad strokes, like, when, when you think about your credit like, before we get to the lock in the freeze, like, you want to monitor your credit, your credit report regularly, like, so, you know, typically, you know, if the clocks spring forward, they fall back. I think that’s a great time to do it. Admittedly, Tim has been a while since I checked mine. I actually looked at all three of them recently, because I just wanted to see how they’ve changed over the years. And you know, admittedly, I hadn’t run it. I probably ran it over the pandemic, because during the pandemic, they’re like, you can check it every month if you want. So I think monitoring is a good safeguard. I think that using strong passwords and enabling things like  two factor authentication will prevent, you know, some nefarious activity if people are trying to apply for credit in your name. So I think that’s a good thing. Setting fraud alerts, a lot of like, you know, banks now they’ll say, like, hey, we just saw Hey, Tim, did you buy that bottle of whiskey in Louisville because you live in Columbus? Like, yes, I did. Okay, get off my back. So. But a lot, you know, I’ll get an email from Credit Karma that says, like, hey, this, this happened is that is that, is that real or a bank? So, you know, credit cards do this too, so you want to be so if you can set fraud alerts, that’s good. Be cautious about sharing your personal information. Shred documents. So like, if you are, if you have documents that you get in the mail that have, like account numbers or social securities, don’t just put that in the trash can, like people take that and mine that data. So I think it’s important to you want to review bank statements, you know, credit card statements from time to time, just to make sure that that those are good to go. When we talk about the freeze, is probably the thing, right? I’m not a big like when I look think of a freeze and a lock the freeze is, I believe it’s legislated by Congress that you have to have the ability to freeze your credit, which means basically, no one can access your like, if you can authorize someone to pull your credit, but if you’ve already  frozen it, then, like, you actually have to unfreeze it before you do that. So I did that. I forgot about it. They’re like, Hey, we’re gonna pull your credit. I’m like, Cool. And they’re like, we can’t pull your credit. You have to unfreeze it. So I had to it, and it probably takes about 10 or 15 minutes on each end. So it’s kind of like, you know, you put in your identity, give a blood sample, no, I’m kidding, give a launch code. But it’s pretty it’s pretty onerous to kind of be able to freeze it and unfreeze it, so probably, like, 10 minutes on either side, if you are not making any type of like credit, granting decisions or applying for credit, freezing your credit as a normal part of your overall process should be you shouldn’t have frozen credit at all times. It can be a little bit of a pain. But if you’re not doing those things, freeze, it. The big difference between a freeze and a lock, as I understand it, is that locks are typically paid services by Equifax, Experian, TransUnion that are like, hey, for this extra fee per month, we can lock your credit and maybe you get a little bit more features. So I’m almost like, I’m good with the freeze, and that’s what I typically do. So I would say again, if you are not actively using credit, you want to have your credit frozen and then open it when you know when you do have that. Because Tim is really not a matter of, unfortunately, and I said this to a group of fellows the other day. They’re like, what? And I’m like, It’s true. It’s not a question of if your identity and some of your information is going to get stolen, it’s it’s when, in my opinion. Because you know, you have bad actors that can make a lot of money with your information, so the the more that you can do to proactively safeguard sensitive information and your credit is one of this the better, because I just think that it’s always this cat and mouse game of like, all right? Well, we do two factor, what’s the what’s the, how can we get around that, right? So I think the more that you do to safeguard your identity, your credit, the better. And I think a credit freeze is something that, and again, you can go on each of the reporting agencies and say, and they’ll walk you through how you can freeze and unfreeze it. And, yeah, another one I meant to mention, although I think one of them was hacked, was like, using a password, you know, like a like a Last Pass, or a OnePassword, things like that. I think LastPass was was hacked. But those are it. Those are better than if you’re the pharmacist that’s listening out there that has a note on their phone that that has their passwords, again, guilty as charged in the past, long ago, but you know, you want to have a password vault, so to speak, that you’re using that you know that is you’re using 12 plus characters and that type of thing.

Tim Ulbrich  38:21

Mike, our IT guy would be so proud, Tim, 

Tim Baker  38:25

Kudos to me. Yeah, exactly. 

Tim Ulbrich  38:27

Great stuff. We covered a lot. We talked about why credit matters as a part of the financial plan, how to understand and improve your credit score. We discussed some of the common misperceptions around credit and credit security as well. So our hope is to have this episode be one that we can link back to in the future. So as always, if you have some thoughts, ideas, topics you’d like to see, reach out to us [email protected] you can also go to yourfinancialpharmacist.com/ask, record a question. Let us know your thoughts. I will also put a plug next week. Our episode, a week from today, is going to be a special one. We’re bringing Joe Baker onto the show to talk about living and leaving a legacy. Joe Baker, many of you know that name. He’s the author of baker’s Dirty Dozen: Principles for Financial Independence, just a great individual, someone who’s a huge advocate for financial wellness, financial education, in the profession of pharmacy, and who is very philanthropic in his own right. And so we’re going to talk about why is giving an important part of his financial plan, and what are some of the areas of focus that he has had as he’s looking at making an impact today, leaving a legacy for tomorrow. So thank you so much everyone for listening. Have a great rest of your week, and we’ll catch you again next week. Take care.

Tim Ulbrich  39:34

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 posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyzes expressed herein are solely those of Your Financial Pharmacists, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week. 

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YFP 378: 10 Questions for Early Retirement


Tim Baker, CFP® tackles 10 questions for those considering early retirement from sources of income, handling market volatility, health insurance options and more.

Episode Summary

This week, Tim Baker, CFP®, RLP®, RICP® and Tim Ulbrich, PharmD tackle 10 questions for those considering early retirement. They discuss sources of income in retirement, handling market volatility when no longer working, health insurance coverage options, timing to draw on Social Security, and much more.

About Today’s Guest

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

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

Key Points from the Episode

  • Early Retirement Goals and Challenges [0:00]
  • Defining Early Retirement [6:02]
  • Questions to Consider for Early Retirement [8:42]
  • Replacing Pharmacist Paychecks [17:41]
  • Health Insurance Coverage [24:17]
  • Dependents and Social Security Timing [31:08]
  • Inflation and Tax Planning [34:57]
  • Partner and Spouse Alignment [37:20]
  • Long-Term Care Planning [39:56]
  • Conclusion and Resources [44:58]

Episode Highlights

“I think there’s this misconception, or this illusion of control that we have over our retirement age. I think around 40% of people retire earlier than expected. It’s usually due to a medical issue with themselves or a family member, or could be something like a layoff. There is this illusion of control. Now, there are things that you can do to help with that. But a lot of the time we don’t have that.” – Tim Baker [4:59]

“Define retirement. I think for a variety of reasons this question is important, because for a lot of people, we think that retirement is the destination, but it’s really just the next chapter in the journey, right?” -Tim Baker [10:32]

“I think it is really important when we talk about this question: are we accounting for inflation? I think the best way to do that in a retirement setting is, as much of your dollars can come from Social Security as possible is great. But then also taking intelligent risk in the market, where the market is kind of performing in a way that kind of keeps pace or outpaces inflation is what we want.” – Tim Baker [36:25]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody. Tim Ulbrich here and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. This week, Tim Baker and I are tackling 10 questions regarding early retirement. We discuss sources of income in retirement, handling market volatility when no longer working, health insurance coverage options, timing to draw on Social Security and much more. And to supplement this week’s episode, we have a free resource for you to download: Retirement Roadblocks: Identifying and Managing 10 Common Risks. Because here’s the reality, when planning for retirement or early retirement, as we’ll discuss on today’s show, so so much attention is given to the accumulation phase, growing your assets. But what doesn’t get a lot of press is how to turn those assets into a retirement paycheck. And 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 this free resource and guide is all about. It’s available for you to download at yourfinancialpharmacist.com/retirement risks. Again, yourfinancialpharmacist.com/retirementrisks.

Tim Ulbrich  01:11

 Now, before we get started with the show, I want to let you know about our next YFP webinar coming up on October 7, at 9pm Eastern: Aliquot Investing: Small investments in Big Real Estate Investing. This free webinar led by YFP Real Estate Investing podcast co-hosts Nate Hedrick and David Bright explores how syndications fit into a well rounded real estate investment strategy, especially for busy pharmacists who don’t have time to source, vet and manage real estate investments. In this webinar, David and Nate will be joined by Alex Cartwright, PhD, and economist who has also led syndication projects, including one in which both David and Nate have invested themselves. You learn more about this webinar and register at yourfinancialpharmacist.com/syndication. Again, yourfinancialpharmacist.com/syndication. 

Tim Ulbrich  01:59

All right, let’s get started with today’s show. Tim Baker, welcome back to the show.

Tim Baker  02:06

Yeah, good to be back. How’s it going, Tim?

Tim Ulbrich  02:07

It is going well. I’m excited. This week we’re talking about early retirement, which is something that I keep hearing more and more pharmacists expressing as a goal. And so Tim, I’m curious to hear from you before we get into the details of our discussion, is that something you’re hearing a lot of as you talk with pharmacists that are engaging with us to learn more about our services? Is early retirement coming up as a frequent goal? And what do you suppose might be driving some of that?

Tim Baker  02:37

Yeah, I think, I think for a lot of people, there’s a there’s this notion of, like, I’ll never be able to retire, you know, and a lot of it’s because of the student debt burden. I do hear on, you know, refrain of, I want to get to a point where I work because I want to, not because I need to. I only, I hear that almost verbatim a couple times a month from a prospective client. So the the notion of early retirement, I don’t, I don’t want to say it’s kind of in the forefront. Obviously, we do, you know, work with a lot of people that are interested in kind of the FIRE movement and what that looks like. But I think that there’s this shroud, maybe, of student debt, that it’s like, how do I even overcome this? And, you know, in a way that puts me in a place to retire, let alone retire early. So I think those that don’t have that, or have kind of navigated a plan for the loans. I think there’s a little bit more of like, sunny skies, but I wouldn’t say there’s a lot of people that are saying, like, I need to retire by, you know, this age. I think that that’s kind of few and far between. 

Tim Ulbrich  03:50

And for those that aren’t familiar with the FIRE term, we’ve talked about it on the show before, financial independence, retire early. Lots of resources out there that folks can learn more more about that. But I’m glad you mentioned, Tim the work because I want to not have to. That’s something I hear a lot as well. And, you know, I think for some people, they love the work that they do, and it brings them a ton of value. It brings them a sense of purpose and meaning. Perhaps others, you know, maybe early retirement is, hey, I want to get out of the stressful environment that I’m working in, and I don’t necessarily love the work that I do, but regardless of those desires, that work because I want to not have to is a thread that I think often comes out and within that I typically will hear, hey, I want to have flexibility. I want to have options. So, you know, maybe I get to a point that, hey, I’d like to work part time, or maybe something happens, you know, health wise, or with a family member, or something unexpected, or pursuing a passion project or hobby, whatever would be, the reason that their financial plan is in a position that, whether it’s something they can see or not see at this moment, that they have options if they need those options in the future.

Tim Baker  04:59

Yeah, I think there’s this, this misconception, or, like, this illusion of control that we have over our retirement age, which is, and I think it’s something like 40% I don’t have that stat in front of me, but I think it’s like 40% of people retire earlier than expected. It’s usually due to a medical issue with themselves or a family member, or could be something like a layoff, that type of thing. So there is this illusion of, like, I have control now, there are things that you can do to help with that, and to, you know, to build, you know, whether there’s something like really to consult in that you have that flexibility, or things like that that gives you a little bit more control. But a lot of the time we don’t have that. And that’s kind of an illusion that we think we have.

Tim Ulbrich  05:44

Since we’re going to use the term early retirement throughout the episode that that implies that there’s an accepted norm, maybe, of what retirement means. So when you hear early retirement, that term and throughout the discussion today, what? What are we referring to? What assumptions are we making? What defines early retirement?

Tim Baker  06:01

Yeah, to your point, Tim, I don’t know if there is an accepted, like, when we say early retirement, this is the age that we’re talking about. Yeah, if you look at it from like, Social Security, early retirement, as defined by Social Security as 62. So there’s really, there’s really a couple ages related to Social Security. It’s your early retirements at 62, your full retirement age, which is different for a lot of people. Most people, it’s going to be 67 and then you have delayed retirement a that’s typically 70. So early retirement in the Social Security system is 62 and you can’t collect the benefit before that. The age that I think of like if you were to say, hey, I want to retire early. The age that I think of is 59 and a half years old. So why do I think of 59 and a half years old? The reason for that is all those retirement accounts, a 401K, an IRA or Roth IRA, they they’ll have basically guidelines to say if you take money out before 59 and a half years old, you’ll be, you know, penalized. Unless there’s, there’s exceptions to that, but you’ll be penalized by 10%. So that’s typically the the age that I’ll use. So like, if you were to say, Hey Tim, I want, you know, I want to retire early, and I would say, Well, what is that? If you say 55 then between 55 and 59 and a half years old, we have to figure out an income stream that’s probably not going to come out of your 401K or, you know your other retirement accounts. So that’s what I typically will use in my brain. I think you know, if you talk to people in the fire community and you say 50-59 and a half? That’s probably not early retirement for them. So those are kind of the few, the few dates, or the few ages that jump out to me when we have this discussion. But I think for all intents and purposes, it’s 59 and a half for me. 

Tim Ulbrich  07:55

I think the same thing. And I agree. I think some of the FIRE enthusiasts, although there’s many different flavors of FIRE, right? But the FIRE enthusiasts, a lot of people might think a early retirement, you know, late 30s, early 40s, right? Type of ages that you typically see. But I think 59 and a half, for the reason you mentioned is, is what often comes up. The other one 62. You mentioned social security. When could I draw Social Security? 65 Medicare, that often comes up. You know, we’ll talk about health insurance. So the point being is, as we say all the time on the show, we’ve got to have intentionality on like, what’s the goal? What’s the purpose? Why is this a goal? If it’s a goal for you, and then we can start to plan around that, like, what does that mean to you? You know, is it 59? Is it 54 and for what reason? And then what does that mean in terms of various savings accounts? So let’s jump in. We’re going to talk about 10 questions that we think are important questions to consider for folks that are thinking about early retirement. And that could be someone listening and says, Hey, I know I want to early retire and I’ve set that date. Or it could be folks that are just thinking about this as something that they’re they’re curious about and want to learn more. As we go through these 10 questions, the intent is not that we’re going to cover each one of these areas in a significant amount of depth. We’ll reference other resources that we have on each one of these topics as we go throughout but really to introduce the question and get you thinking about these different areas as it relates to early retirement. So Tim, the first question that I think is important for folks to consider is, Will I work at all during retirement? Right? And as obvious as that sounds, I think if, if people are thinking of very traditional retirement, it’s, hey, we work for 30, 40, years, and then we don’t work at all. But for others, it may be that we work part time. And pharmacists, I think, are in a unique position where they have more of the opportunity to work part time, work as a contractor, versus other professions out there. So why is this question, will I work at all during retirement so important?

Tim Baker  09:52

And I think, like, if we’re defining early retirement, I think you can even define like retirement. I think so many people, in a traditional sense, they. Think of retirement as, you know, you punch the clock the last time, and then the next day, you’re sitting on a beach or you’re up somewhere, and that’s it, right? And, you know, a lot of people, especially in the fire movement, when they talk about, you know, financially independent, retire early, I think the retire, I think that’s what rubs people the wrong way, is because they overlay that traditional picture of retirement into that paradigm. And a lot of people are saying like, Well, we are still working, we’re just working our on our own terms, right? So I think for, I think for a variety of reasons, like this question is important, because I think for a lot of people, we think that retirement is the destination, but it’s really just the next chapter in the journey, right? And so much of our, for a lot of people, so much of our identity is wrapped up into our role as a pharmacist or whatever we’re doing, and once that like is gone, that can be jarring for a lot of people. So it’s not just a monetary thing. So to me, I think this is where some life planning really gets in, gets you know, it would be really important is, you know, okay, if we don’t have to work, we truly don’t have to work. What are we doing? You know, are we volunteering? Are we taking care of grandkids? Are we getting into hobbies? Are we traveling? You know, there’s a lot of stats that say, if you work, the longer that you work, the more you know, the better your retirement will be. In terms of, like, the financial planning part of it, because you’re just delaying a lot of the things that work, you know, for you, whether that’s health insurance or whether that’s income, things like that. But it’s also like, you know, your social circles are often connected to your work in a lot of ways, like if that goes away. So to me, this is really important to kind of, I think, look at it both from a dollars and cents perspective, Tim, but also like the social aspect of who are you post, you know, full time pharmacist, you know, and looking in the mirror and doing some deep digging of, like, what does what does this actually look like? So I think it’s an important question to ask. 

Tim Ulbrich  12:14

I agree, and I’m glad you mentioned, you know, what does this look like? But how I be spending my time? It’s actually not one of the other questions we had. So we’ll kind of knock both of those out, knock both of those out together. But this is one of those things that we, myself included, we have this idea of what retirement might look like. That could be how our parents have gone through that phase, or grandparents, maybe what we see on commercials, whatever. But taking it to the next step of, what does a day look like? I’ve heard people go through this exercise. You mentioned the life plan, which I thought was great, and having some clarity there, but going through the exercise of actually, like mapping out for a month, like, what would I be doing on a Monday at 11 o’clock, right? On a Tuesday at four o’clock? And you know, not that you have to get that granular per se, but the idea is a good one, that right now you think about the percentage of your schedule that is occupied by work, and especially, I think about folks, Tim, in our phase of life where it’s work, and young kids like, that’s a big chunk of our time, right? And if you fast forward to a date and time where we’re not working, and the kids out of the house, Whoa, that is a big gap of time. So what are we doing with that time? What are the goals you mentioned? You know, is it travel? Is it volunteering? Is it spending time with with the grandkids? Like, what does that rich life look like in retirement? And the second layer I would add to that, Tim, is, if there’s a partner, spouse, significant other involved, like, what does that look like for the individual and then for the we. You know, Jess and I were joking recently that, like we love spending time together, but we also have individual things that we love to do. And I very much see in retirement that we’ll have things that we want to do together, whether that be volunteering or traveling or other things, and then we’ll have other things where it’s like, she’s doing her thing, I’m doing my thing. So, yeah, I think that discussion of, what does this look like for I and what does this look like for we as well?

Tim Baker  14:06

Well, especially in retirement, as you age, like, one of the things that you know, often doesn’t get talked about, and it’s a risk in retirement is loss of spouse, and a lot of it’s it comes from the perspective of, like, loss of a social security check and things like that. But what about like, you know, I look at my parents, love my parents, but my dad doesn’t have his own interest, like, he just kind of does what my mom wants to do. So like, if he were to lose my mom, like, like, what happens, you know? And so I think, like, that’s, that’s a big thing. And, yeah, in the, in the life planning, we go through an exercise called ideal schedule. So you go through and you say, Okay, what’s the ideal day, from the moment you wake up, from the moment that you, you know, put your head on the pillow, then what’s the ideal week? So Monday through Sunday, like, what are we doing? And then it goes out to the ideal year. Like, are you spending, you know, the summertime up North, or are you, you know, are you visiting family, those types of things? And I think that for a lot of people, you know, they realize how much of their day is tied into work, and then once, once that’s gone, like, what happens? So, yeah, those are the exercises. I mean, we’ve talked about, like, the three questions, and I think those are all, you know, important things to kind of reference back to and revisit, especially as you’re going through the next, like, phase of your life. But I think really put pen to paper and I’ve talked about this, I think with you. I don’t know if I’ve ever talked about on the podcast, but like, when I did my sabbatical, I had a month off where I did not touch work, and I kind of had a little bit of like, what am I doing? Like, like, how am I gonna, like, fill the day, which sounds crazy, but like it was a struggle for me, and like I wanted to make the best use of the time, but I also felt like I had some constraints here and there, but like that, that little window was, like, important for me to kind of put myself in someone’s shoes who’s kind of going through that transition. And it sounds silly, but it’s it’s not.

Tim Ulbrich  14:34

That’s a good point, though. I’ve actually heard people talk about, I’m thinking back to the interview that I did on episode 291 with Dave Zgarrick, who is has made that transition in retirement. And he talked about redefining retirement, really thinking about as like a half time to kind of reassess where are we going. Why are we going here? What does this look like? But I think some of those break periods, you know, you mentioned the sabbatical, other people talk about mini retirements. I think it’d be really helpful to having some of these experiences where we get a feel for what this might look like. And you know what? What are some of the ahas of how I do want to spend my time, or what the gaps are in time? I mean, joking aside, we’re just in a phase of life, both of us right now, we’re really sun up to sundown. You know, it’s work, kids, that’s the schedule. 

Tim Baker  16:08

I made the comment like, hey, we haven’t, like, Shay and our kids haven’t really hung out with you and Jess and your boys in a while. And I think I would just look at our schedule and it’s like, soccer, football, swim, soccer, football, swim. Like, it’s just, it’s just so many things that are going on, but eventually that’s going to go away, right to your point, like, that’s, that’s going to be in our rearview mirror. And that’s why, I think, like, even, even couples, sometimes, because they’re so in their, you know, in their kids, you know, activities in their lives that they almost forget about each other. You know, spouses and that can be, you know, I think there is a pretty high level of, you know, divorce and things like that as you, as you age, because you kind of lose that connection with your spouse. And I think that’s important to make sure that you’re continuing to kindle so all these things kind of play into it.

Tim Ulbrich  17:38

So that’s our first two questions, will I work at all during retirement? How I be spending my time? The third question, Tim is, how will I replace my pharmacist paycheck? Again, seems like an obvious question, but for decades, we have a an employer that’s paying us on a monthly basis. And if we were to stop work altogether, again, that may or may not happen, but if we’re to stop working, we’ve got to make our own paycheck at this point. So we’ve talked about this on the show show before. We’ll link to that in the show notes. But thoughts on this question of, how will I replace my pharmacist paycheck?

Tim Baker  18:10

Yeah, I don’t really think, I don’t really think a lot changes here. I think what, what is, what does change in terms of, like, the sources, I think what does change is kind of like, where in early retirement? Where do they come like, where does the money come from? So, you know, if we’re retiring at 55 the the sources of your income is probably going to be from part time employment. It could be from your traditional portfolio, but from, like, a brokerage account that doesn’t have the 59 and a half, you know, 10% penalty, which you have to build, right? So lot of people, they’re really set on, you know, they’re 401, K and their Roth IRA and things like that, which is really important. But the third bucket, so that we have the pre, pre tax after tax. The third bucket is the taxable, which is going to be in an early retirement bucket. So I would say probably those are the two big things for most people. Would be part time employment, and then, like a brokerage account, or like traditional savings. If you’re in the real estate, it could be rental income or liquidation of like a rental property. But then as you age, you know, the things that kind of get the green light are Social Security. You know, if you decide to collect that at 62 or you wait to 67 or even later to 70, and then getting into, once you’re past 59 and a half, you know, the traditional portfolio where you don’t get that 10% haircut, you know, you can start, you know, distributing from a 401K, IRA, etc. There are other things out there, like annuities. It could be, it could be a pension. You know, if you have a company or government pension, which we know aren’t necessarily, you know, a thing that a lot of people have, but that’s typically based on an age that you can, you know, get to that. It could be, you know, tapping into the value of your home, things like reverse mortgages, which get a nasty reputation, or selling a business, or could be cash value life insurance. But I would say the heavy hitters here, especially early on, it’s going to be part time employment. It’s going to be things like a brokerage account savings, and then, you know, potentially, you know, real estate, things like that. 

Tim Ulbrich  20:08

And as you mentioned, especially with the brokerage account, especially with real estate, there’s planning that has to be done there, right, for us to be able to accrue those savings, to tap into those in early retirement. So, you know, early planning, of course, really important here, and when we talk about priority of investing, this is always the one asterisk, right? Hey, if you’re if you’re thinking about early retirement, you know this sequence changes when we think about more the traditional buckets, like the 401K, 403B’s, IRAs, etc, because of that 59 and a half restraint that you mentioned earlier. Tim, number four on our list is, hey, what if there’s a market downturn early on in my early retirement? So I’ve decided to retire early. You know, let’s say there’s a market downturn and we experience some of that volatility, that that can be disruptive to the nest egg. Always a problem, but maybe more of a problem here if we’ve got a longer runway of years that we need those funds in retirement.

Tim Baker  21:06

Yeah. So what we’re talking about here is sequence risk, or sequence of returns risk, which, which is the potential negative impact that the order of your returns, your investment returns, on your portfolio due to the market, is heightened, especially in the withdrawal phase. So if you take and I’ll run through this, I know we don’t have a ton of time, but I wanted to kind of, I feel like we’ve talked about sequence risk, but I haven’t really talked through, like a scenario. So I actually did a scenario where we have one where it’s favorable returns, so like double digit returns, like the second that you retire. And then one that is like negative returns. So, and then what does the, what does the outcome look like at the end of I did it for like a 10 year period. So if you look at, if we start with a million dollars, and you have an annual withdrawal of 50,000, which is 5% and we have a, you know, we’re doing this over 10 years. If we go into the first year of favorable the favorable scenario, the first year, we get a 15% return, 12% return, 8% return, even taking out 50, you know, and over the 10 years, it’s like 4.7% in aggregate, a return. At the end of the 10 years, you’re gonna have $1.2 million. So early on we’ve got, you know, the first, you know, three years, you know, 30 some odd percent. If we look at the same thing, instead of getting positive 15, we get negative, you know, negative 15, negative 12. That same portfolio, even over the 10 years, which is going to get a 4.7% return, is going to end with 361,000. So it’s almost a million dollar swing. So it’s the same aggregate, you know, 10 year, you know, return. But after the first year, for the favorable, you end with 1.085 million. After the first year, you end with $800,000. So you’ve taken off 15% because that’s your that’s basically the market downturn, but you’ve also withdrawn $50,000. So that’s what we’re talking about here with sequence of return risk is that the timing of when you retire is probably one of the most important things related to the market. So what we’ve always said is like flexibility here. So if the market is tanking, it might be worth to, like, work another year, and most of the time, like, you know, in this scenario, we have, you know, four years minus 15, minus 12, minus eight, minus five. Typically, the market doesn’t do that. You know, we don’t have, you know, consecutive years, maybe two, maybe three of year. But like, this is where, you know, pushing that out and having flexibility of like, okay, maybe I’m not going to retire at, you know, 53 I’m going to retire at 56. I’m going to retire at 57. That type of thing. So that, to me, is really important, and that, and that speaks to the the timing of the investment returns that you’re getting. Now, the ways to combat this is, which is really hard, is, is really to kind of be more conservative, take your money from, you know, equities to bonds or even cash. But the problem with that is, you know, nobody has, like, a, you know, a crystal ball to say, like, when’s the best time to do that? So that’s, that’s kind of sequence, risk at play.

Tim Ulbrich  24:20

Number five on our list, Tim, I alluded to this a little bit earlier, is what will I do for health insurance coverage? We’re not yet at the age of 65 we can’t necessarily put Medicare into play. We no longer have employer coverage if, if we’re working part time or not working at all. You know what options are we thinking about here and and obviously we’ve got to factor this in as a cost as well.

Tim Baker  24:42

Yeah. So I mean, unfortunately, and we’ve kind of bemoaned this fact being business owners, there’s not a great option here. You know, I think you know, looking at employer sponsored COBRA coverage, but that only typically lasts 18 months, and that’s really expensive because you’re paying the full premium. If you have a spouse that you can ride his or her coattails, that’s one way to do it. It could be private health insurance. So looking, you know, at the exchanges, things like healthcare sharing ministries like that, that might be something. I know you looked at those in the past. It could be, you know, there are some, and I don’t know if Starbucks still does this, but I remember a lot of people. I think my sister worked for Starbucks, you know, when she was in college, just to get in, you know, insurance through them, she was working part time. It could be Medicaid if you don’t have assets, like, if, you know, I would say that you probably shouldn’t be retiring if that’s the case. Or just, like, short term plans that provide, like, temporary coverage. So probably, for most people, it’s going to be looking at the exchanges and trying to trying to find the best, you know, probably catastrophic plan that they can. But unfortunately, there isn’t really a great, you know, a great solution here to kind of bridge you before you get to 65 to get to Medicare, you know, yeah, it’s, it’s kind of, you know, pick your poison, so to speak.

Tim Ulbrich  26:00

You know that you mentioned the Starbucks, there’s actually a FIRE pathway, barista fire that’s named after that, that play, right? Which is, you know, working part time at a place like Starbucks or a place that has those benefits to be able to get access to those. You know, the other other comment I’d make here, Tim is, I think while these costs are very real, like, we have to put them as objectively in play as possible. What I mean by that is, like, if you’ve done a good job and the dollars are there, like, even if this feels scary or you don’t want to spend money on it, like, if the math supports it, like you just factored into the plan, right? I’ve seen some people, I think, talk about this as like, Oh, I’ve had employer coverage my whole life. I’m three years away from Medicare. I’m done working. I’m over it. Don’t need it, you know. Don’t want to be working anymore, but I’m gonna wait till I get to 65. And maybe that’s the play. But if the nest egg is there, like, we just need to factor this in as an expense and consider it. I mean, the other note and comment I’d make here, back to our discussion of early planning with something like a brokerage account. This would be another play of early planning with something like HSA contributions, where, you know, can we be accruing and saving money in HSA throughout our career, such that one of these instances here, we’re talking about early retirement. We’ve got some dollars that are earmarked specifically for that, that we don’t have to have to necessarily draw separately from our portfolio.

Tim Baker  27:21

That’s right, yeah. HSA would be a great bucket for this, because it has the triple tax benefit, but the flexibility to be able to use for you know, now and later. So yeah, that’s a great bucket for that.

Tim Ulbrich  27:34

Number six is, are my dependents independent? And if not, have I factored that into my planning and assumptions? Tim lots to think about here, kids and elderly parents, but looking at dependence and cost of dependence.

Tim Baker  27:48

Yeah, this is, um, this is, this is kind of hard too, because, you know, I always joke with my with my kids, that, you know, they they need to move out so I can, you know, turn their room into a a whiskey room. And, you know, my kids are 10 and five or whatever. Obviously, Zoe’s always younger, but I think this is hard, because I think we are all trying to prepare our kids to kind of launch, right? But, you know, oftentimes they come back. And you know, we have to kind of figure out what that looks like. So that could be, you know, it could be for kids managing, like, their college and expenses related to that. But then after, like, if they don’t get a job, or if they’re not, you know, able to support themselves. Like, what are the, what are the rules around rent and things like that, and just, how does that affect your overall financial plan? And then elderly parents, there’s a lot of, you know, pharmacists that we work with that they say, I am my parent’s retirement plan. Like, that’s the thing, right? And, and I respect that, you know, a lot of it’s like, Hey, I’m a first generation immigrant. You know, they’re you know, they’re sacrificed to get over here. And my sacrifice is kind of making sure that they’re okay, you know, in retirement. So, you know, we have this term called the sandwich generation. It typically is, you know, people in their 40s and 50s that are taking care of, like adult children, but they’re also taking care of, like elderly parents. That’s a big thing. And again, like, I would say, it kind of goes back to when we talk about, like, education planning, like you have to put your mask on first and then put on the mask of your child. I don’t think that ever goes away. So I think that, you know, this can be an unexpected thing for a lot of parents, but you know it can, really, especially like elderly plant parents, if you’re the one that’s kind of, you know, caring for them, and these are often the things that kind of force can force a retirement early for you is that you’re taking care of other people, right? So I think having these conversations with, you know, your kids, with your elderly parents and and come up with a plan and kind of ground rules. I think is really important. So we can kind of include this in the plan and know, you know, when does zig and zag?

Tim Ulbrich  30:06

Yeah, Tim, anytime we talk about this topic, always comes to mind conversation we had with Cameron Huddleston on the show a couple times, who wrote the book, Mom and Dad, We Need to Talk. And, you know, in the context of elderly parents, this is where those conversations are so important, as uncomfortable as they may be, right? Because, you know, I’m thinking about even discussions I’ve had with my parents about, you know, what does their financial position look like? What are their retirement goals? What are their desires for, you know, staying in the home versus other living arrangements. What is their long term care insurance policy look like? And, you know, part of those conversations, obviously, is focused in a genuine care and desire of what, what do my parents want? But there’s also a reality of like that may impact our financial plan, and that’s not being selfish, like we’re just trying to be responsible. And I think you know, if we can get into those open conversations, we can start to plan around that a little bit, to understand what the impact may or may not be of that situation with parents on our financial plan. 

Tim Baker  31:05

That’s right.

Tim Ulbrich  31:06

Number seven, we touch on this a little bit. Tim, but when will I draw on Social Security? We talked before in episode 294 about common Social Security mistakes to avoid, and a big part of that discussion was around when we opt into starting Social Security benefits. For someone who’s saying about early retirement, you know, and building that retirement paycheck, a Social Security benefit might, might be an important part of that, and the temptation, perhaps could be there to start those benefits early and just understanding what the impact of that could be versus a delayed benefit selection. So thoughts here on this question of, when will I draw? 

Tim Baker  31:41

I think a lot of financial planners are, you know, coming around to the fact that, like, if you can delay your Social Security benefit as long as possible, the better knows for the the overall plan. And I know this, to your point, it can be if you’re, if you’re working for or if you’re, if you’re retired for, you know, 10 years or whatever it is, and your funds are dwindling in some of those, you know, brokerage accounts or savings. I think it can be tempting to to draw earlier, right? But I think if you look at the math, and I have, you know, I think I pulled, I think this is from my Social Security statement. If you look at my Social Security statement. If I were to retire at 62 my monthly benefit would be $1,826. if I were to retire at not full Social Security age, but 65 it would be $2290. If I then go to 67 which is my full retirement age, it goes to $2662. If I delay it till age 70 so I’m getting those deferment credits, it goes to $3,306. So the spectrum of early at 62 is $1826, to delayed is $3307.  But the big thing here, Tim, that doesn’t get enough press, is that it’s inflation protected, which there’s no other pension or annuity out there that you can get that does that. So one of the big hang ups for for retirees is like, I’m working on a fixed income. I’m working on a fixed income. But once you know inflation takes over, as we’ve seen in recent years, that really, like, you know, provides pressure on, okay, how am I going to let you know, how I’m going to make this, you know, these dollars last. So that would be the thing that I would implore, you know, people, when they’re looking at their, you know, their, their benefit for Social Security is, you know, if we’re planning this, can we plan to at least get the full retirement age, or, you know, can we delay it from 62 to 67 at least, to get from, you know, an $1,800 benefit to a almost $2,700 benefit because this will pay you out for the rest of your life, which we don’t know what that is, inflation protected. And that’s where you see that exponential benefit versus, you know, if you, if you, if you peg it at $1,800. So it’s still inflation protected, but I think you want that, that percent of your paycheck to be as high as possible that is covered by, you know, the Social Security and Inflation. So it’s really, it’s a really important discussion to have. 

Tim Ulbrich  34:21

Tim, it’s a good plug and a reminder for folks, if they’re not already doing this, to check out their My Social Security account ssa.gov just to dig into that report, what are the expected benefits? Always a good thing to build into. I typically try to check it in just once a year, kind of see what’s going on. So since you mentioned inflation, Tim, let’s jump down to that one, and that question being, have I accounted for inflation? You mentioned social security being inflation protected, but really nothing else beyond that. So, you know if we think of inflation as of late, which has been higher than historically, although that’s come down, you know, more recently, but even the historical rate of inflation, if we’re retiring, let’s say, in our early 50s and were afforded the opportunity to live into our 90s, like costs are going up right significantly over that time period. So the question here is, have I accounted for inflation when I’m looking at these early retirement numbers?

Tim Baker  35:13

Yeah, and one of the best ways to account for inflation as retire is to be in a you know, is, have some of your your assets in equities, right? Which gets scary, because then we talk about, you know, the sequence of return risk. But I think, really, for a portfolio to endure 30, 40, 50, 60, years is, is to make sure that you’re taking, you know, intelligent risk in the market. So you know, we just got news of the rate cut yesterday, and immediately, you know, you’re seeing like our cash account at our custodian went from 5.1% which is really solid, to 4.6%. So savers, and often, you know, people that have reached you know that are in retirement have a good amount of cash, or they should, because, you know they’re they’re basically taking slugs of cash out to basically build their paycheck. That’s going to affect them potentially negatively. Now, you know interest rates, you know in inflation, sometimes, you know we’ll see interest rates go go down, but we won’t see like the cost of goods go down because they’re pegged that we talked about that in previous episodes, they’re kind of pegged at that high watermark. So I think is really important, you know, when we talk about this question is, you know, are we accounting for inflation? I think the best way to do that in a retirement, you know, setting is, again, as much as your dollars can come from Social Security as possible is great. But then also taking, you know, intelligent risk in the market, where, you know, the market is kind of, you know, performing in a way that kind of, you know, keeps pace or outpaces inflation, you know, is what we want. So, you know, on the so that’s, that’s kind of on the asset side, but then on the debt side, you know, just making sure that, you know, we’re, we’re efficient, you know, there with with rates and where inflation is as well. So I think it’s important to, you know, for retirees that are potentially living on a fixed income to account for, and a lot of people this, and really, taxes. Tim, it’s kind of like, can be a second, you know, an afterthought.

Tim Ulbrich  37:20

Good point on the taxes, probably a whole separate episode, yeah, around like, tax planning and early retirement. Um, number nine on our list is, is my partner spouse significantly now they’re on the same page. We already talked about this in the context of, hey, what does that, you know, schedule look like? What does that ideal life, that rich life, look like in retirement? And, you know, what’s the I? What’s the we? But I think it’s also just a bigger question of, like, are we on the same page with this concept of early retirement, and maybe, if one spouse wants to work longer than another and one’s having to draw down from their assets, like, are we good with that? You know, does that jive? 

Tim Baker  37:55

And I think, I think this kind of starts with, you know, where are we at and where are we going? So you know, when we do this with clients, we we call the first meeting, Get Organized where, you know, we’ve plugged everything into our client portal, checking, savings, credit cards, student loans, investment accounts, value, the house, the mortgage, all the things, right? And for a lot of people, it’s the first time they’ve seen their stuff all in one spot, right? Because we bank over here, we have debt over here, we have investments over here, and then for spouses, that’s also true, right? Because I don’t necessarily see everything that Shay has, you know, if I’m not tuned in. So if we plug that all into one platform, we can kind of see the landscape of where we’re at, and then I think from there, once we establish where we’re at, we talk about where we where we’re going. And then I think this is some of these questions that come up is like, okay, Shay, if I retire and you’re still working for 10 years, like, Are you cool with that? Probably not, right. So I think those that’s the space to have the conversation again. I’m biased, Tim, right? Because, you know, we’re planners, but sometimes these are hard to have with your spouse. So having that third party, like the independent third party that has your best interest, that can ask questions, is, I think, a safe place so to speak, to have these conversations. Because, you know, if Shay says I’m going to retire early and you can keep working. I’m going to say, Yeah, that’s cool, whatever. But maybe I have some resentment about that, you know, and I think if you’re in a in a place where, you know, it’s safe, and we can kind of talk these out and get on the same page, it’s really important because, you know, we’re trying to row this boat in the same direction. And if, you know, if we’re just, you know, having these service conversations and not really getting, you know, into depth, then we’re just kind of spinning in a circle. So I think it’s really important to to make sure you know, and this goes back to life planning, to make sure that you know your vision of early retirement, you know, overlaps. It doesn’t have to be the same, yeah, but it overlaps with your spouse or with your partner to make sure that you know your needs are taken care of, but also your spouse’s needs are taken care of. 

Tim Ulbrich  40:08

What came to mind, Tim, as you’re talking about, is my I think my parents, to their credit, have done a really good job of this. My mom’s been retired now for a few years, and my dad has no plans in the near future retire. He just loves his work. It’s energizing, and he acknowledges maybe that will change at some point in the future when it does, and maybe it looks part time or consulting or whatever, but they have kind of figured out like for them individually. My mom, you know, has a ton of joy that she gets from just the daily rhythms and routines that she has, and it doesn’t mean my dad has to be doing the same thing. So I don’t think there’s a right or wrong here. It’s more about what works for you as a couple. And as you mentioned, having some of those conversations to avoid, or try to avoid, as much as you can, some of the resentment or other feelings that might come up along the way. All right, our last question, number 10 on this list of 10 questions to consider for early retirement is, am I prepared for potential long term care expenses? Tim, we talked about Medicare already briefly, but here we’re talking about some of the significant expenses that can come beyond what Medicare may cover, and specifically here thinking about long term care insurance, we talked about this on episode 296, we’ll link to that in the show notes. Your thoughts here on, am I prepared for potential long term care expenses?

Tim Baker  41:25

Yeah. So I think the stat is, is that you know, a person that’s age 65 is going to spend $157,500 on health care and medical expenses, you know, throughout the course of their life, a couple of $315,000. So you know, and this doesn’t necessarily include the cost of, like, long term care. So when we talk about long term care, this is really, you know, help with kind of the the daily living thing. So like being able to get out of bed, you know, move around your house, use the bathroom, dress, feed yourself, but also kind of more like, you know, cognitive things like being able to pay bills, or, you know, shop so, you know, oftentimes, and actually one of the biggest, the biggest cause for, like, you know, a long term care policy to get triggered, is Alzheimer’s. But the second one is, the second biggest is arthritis, Tim, believe it or not. So, you know, a lot this is one of those things. It’s like, Ah, this will never happen to me, or I don’t got to worry about that, or I’ll figure this out later. But you know, it’s, it’s one of those biases that we have that, you know, it often can come and bite us in the rear end. So what we talk about with long term care is, there’s, there’s really two ways to prepare for this. One is to self insure. So just like we’re talking about being able to, like, pay our own health care and things like that, this is kind of, this is not that. This is where we’re basically saying we’re going to forego a policy. We’re basically going to, you know, if this comes up, we’re going to reach into our own pocket, reach into our own portfolio, and pay for the care that we need. The alternative, and what I would recommend, is purchasing a long term care insurance policy where it really affords you access to benefits that allow you, at a minimum, to age in place. So these, you know, there’s studies that show that, you know, couples are willing to spend, you know, $2500 to $3,000 a year on a long term care policy. And you can get a policy that you know can kind of get you a basic, a basic policy that will have, you know, someone come in the home, or things like that. I think a lot of people, when they think of long term care, they think of like, of like a nursing home and things like that. This is really trying to, you know, get, get a policy that provides benefits that can bring people into your home to assist you as you age. So, you know, there’s typically a Goldilocks zone. Is that you should start, you know? So we talk about early retirement, you should start discussing this, probably in your 40s and 50s, start really assessing it in your 50s. And the kind of, the sweet spot the purchase of policy is, like, early 60s, yeah. So this is really important, because, again, like the once you once you kind of go into, like, a facility, if that, if that’s the case, like, that’s where expenses can get really astronomical. So the longer that you can stay in place and have the help that you need, the better, I think it is for you from a psychological perspective, but also from a financial perspective. And again, this is one of the ones. It’s like, like, not going to happen to me, Tim. I think important to look at. And I think we look at these policies as almost as like a a coupon for future care. So, like, hey, you know, if I get a benefit, that’s $3,000 a month, but you know what I need is $4000 then I’m only reaching in my pocket $1000 bucks to kind of cover down on the difference.

Tim Ulbrich  44:54

Again, episode 296, five key decisions for long term care insurance recovered that topic in depth. We’ll link to that in the show notes. Tim, great stuff. And one thing I would say to our listeners, early retirement or not, we touch on a lot of areas of the financial plan. We talked about the importance of having a life plan, having the vision for where we’re going, why we’re going there. We talked about building a retirement paycheck. We touched on insurance, Social Security, investing priorities and decisions to make around investing and how to prioritize different parts of the investing plan. And at YFP, this is what our team of certified financial planners and tax professionals do. We support pharmacists at every stage of their careers to take control their finances, reach their financial goals and build wealth through comprehensive – looking at all the different areas we discussed – fee only, financial planning and tax planning. And we’d love to have an opportunity to talk with you, to learn more about your situation, to learn more about our services. Determine if there’s a good fit. You can book a free discovery call with Tim by visiting yourfinancialpharmacist.com top of the page there, you’ll see an option to book a discovery call. Thanks so much everyone for listening. We’ll catch you again next week.

Tim Ulbrich  46:01

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

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YFP 377: 10 Moves to Make to Become Financially Fit


Gathering wisdom from his own journey and those of many other pharmacists, Tim Ulbrich, YFP CEO, shares ten moves that are key in building a strong financial foundation.

Episode Summary

YFP CEO and Co-Founder, Tim Ulbrich, distills the lessons learned from his own financial journey and from speaking with thousands of pharmacists about their financial plans into a list of ten moves that are key in building a strong financial foundation. 

Whether you’re just getting started and have the opportunity to build a strong foundation from the beginning or you’ve been at it for a while and sense the need to reinforce that foundation, this week’s episode is for you.

About Today’s Guest

Tim Ulbrich is the Co-Founder and CEO of Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 15,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. To date, YFP has partnered with 75+ organizations to provide personal finance education.

Tim received his Doctor of Pharmacy degree from Ohio Northern University and completed postgraduate residency training at The Ohio State University. He spent 9 years on faculty at Northeast Ohio Medical University prior to joining Ohio State University College of Pharmacy in 2019 as Clinical Professor and Director of the Master’s in Health-System Pharmacy Administration Program.

Tim is the host of the Your Financial Pharmacist Podcast which has more than 1 million downloads. Tim is also the co-author of Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt and Create Wealth. Tim has presented to over 200 pharmacy associations, colleges, and groups on various personal finance topics including debt management, investing, retirement planning, and financial well-being.

Key Points from the Episode

  • Financial Moves to Build a Strong Foundation [0:00]
  • Commitment to Living Off Less Than You Make [4:05]
  • Building an Emergency Fund [5:59]
  • Developing a Plan to Eliminate High-Interest Debt [10:17]
  • Determining the Best Student Loan Repayment Strategy [12:07]
  • Tracking Net Worth and Understanding Insurance Needs [14:53]
  • Starting to Invest Early and Often [19:03]
  • Refusing to Accept a Fixed Income [20:04]
  • Implementing Systems and Automation [21:30]
  • Conclusion and Encouragement [24:51]

Episode Highlights

“As I truly believe everything else we talk about, right the X’s and O’s, whether it’s investing, insurance, debt repayment, tax planning, whatever it may be, all that stems from understanding and improving our own financial IQ.” – Tim Ulbrich [4:07]

“Life happens, and you want to be prepared. I want to be prepared so that those bumps don’t derail momentum and progress in other areas. The last thing we want is that we feel like we’re finally making progress towards building wealth, saving, investing for the future, achieving the goals that we’ve desired to achieve, and all of a sudden, we haven’t prepared for an emergency, and something sets us backwards and disrupts that momentum.” – Tim Ulbrich [5:00]

“Your six figure income – it’s a great tool, but it is not a financial plan. Without a vision and a plan, that good income is only going to go so far.” – Tim Ulbrich [27:51]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody. Tim Ulbrich here and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom. This week, I’m flying solo with an episode that is short and to the point. One that distills a lot of learning from my own journey and from speaking with 1000s of pharmacists about their financial plans. I’ve taken those experiences and narrowed it down to a list of 10 financial moves that are key in building a strong financial foundation. Think of these as the prerequisites to building wealth and living your rich life. So whether you’re just getting started and have the opportunity to build a strong financial foundation from jump street, or perhaps you’ve been at it for a while, and sense the need to reinforce that foundation, this week’s episode is for you. And if you’re looking to identify areas within your own financial plan that could use some love and attention, we’ve got a great free resource for you. 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, where you’re doing well, and resources that can help along the way. So head on over to yourfinancialpharmacist.com/fitness and see how your financial health is tracking. Again, that’s yourfinancialpharmacist.com/fitness will also provide the link in the show notes. 

Tim Ulbrich  01:25

All right, let’s jump right into our list of 10 moves to make to become financially fit. Number one on our list is be a sponge. Be a sponge. This is intentionally number one on the list as a consistent commitment to learning, I believe, is going to yield the greatest return on your investment. The earlier you learn, the higher the return on investment of your time. At most, some pharmacy schools offer a personal finance elective but the vast majority have little to no personal finance that’s embedded in the curriculum, whether that’s at the graduate or the undergraduate or even the K through 12, although we see that expanding more recently. While you don’t need a master’s degree in finance to be successful with your money, you should have the basic knowledge that helps you make good decisions and develop good habits. Read books, listen to podcasts, watch YouTube videos, whatever works for you. Some of my favorite personal finance books that have had the most impact on my journey include Rich Dad, Poor Dad by Robert Kiyosaki;  I Will Teach You To Be Rich, by Ramit Sethi; The Millionaire Next Door, by Tom Stanley; Money: Master the Game by Tony Robbins; and of course, I’d be remiss if I didn’t mention the book that we wrote, Tim Church and I co authored, Seven Figure Pharmacist. These resources, as well as many other podcasts for me in my own journey, were instrumental to just developing that hunger and habit to learn, recognizing that there’s always an opportunity to grow, right? This is a journey. This is a marathon. This is not a sprint when it comes to long term financial success, and we have to put the work in to make sure that we’re upping our financial IQ over time. So be a sponge. When I think about some of the guests that have been on this show recently, right Brandon Gerleman on last week’s episode 376, that shared his debt free journey paying off about $160,00 of debt. Or Dr. Manny on Episode 375, a new practitioner that has opened up his own community pharmacy, is building his business. Or Mike Beyer from 365 who shared his story, going from a net worth of zero to becoming a Seven Figure Pharmacist. These are just a few of the stories, but one consistent theme and thread that I think of from their journeys is that they really believe there is no arrived. There is no arrive. When it comes to the financial plan, they are hungry to learn, to grow, despite the success that they have, they recognize there’s always an opportunity to learn, to improve and to grow. So that’s number one on our list. As I truly believe everything else we talk about, right the X’s and O’s, whether it’s investing, insurance, debt repayment, tax planning, whatever it may be, all that stems from understanding and improving our own financial IQ. 

Tim Ulbrich  04:22

Number two on our list is make a commitment to live off of less than you make. Make a commitment to live off of less than you make. Outside of learning, outside of being a sponge, this is at the top of the list because other goals require cash flow. It’s that simple, right? If we want to pay off debt, if we want to save and invest for the future, if we want to invest in experiences and travel, whatever goals we have, they’re dependent on cash flow. And cash flow comes from living off of less than we make now, easier said than done. Many of you know that firsthand, but until we figure out ways to take off the cap on our income. We’ll talk about that here in a little bit. The cash flow will come from the difference between what you earn and what you spend. The financial plan is this simple and this hard right. Executing, of course, is the hard part. But without cash flow and without a monthly system, we’re going to talk about that here in a little bit as well. We’re going to find ourselves spinning our wheels financially long term, right? We want to implement a system that from the breathing room and the cash flow that we create, we’re able to fund our goals each and every month, and know that we have a process in place for those goals, the dreams that we have to become a reality. So that’s number two on our list. Make a commitment to live off of less than you make.

Tim Ulbrich  05:48

Number three, you’ve heard me say it many times on the show before, build an emergency fund. This is not just about the dollars in the account. It’s about the breathing room that this creates in your financial plan, getting out of the day to day, month to month, year to year, mindset, and ensuring that we can have the peace of mind. So if you haven’t already done this, open up a high yield savings account or money market account that is separate – keywords – separate from your checking account, and label it as your emergency fund. One of these, my partner, Tim Baker, often says is, hey, if you’re doing the mental accounting, do the actual accounting. What does he mean by that? He means that if we’re looking at our funds, let’s say you’ve got 20, 30, $40,000 that’s sitting in a high yield savings account, or perhaps in a checking account. Hopefully not the case. But if we know that, hey, about five or 10 of that is for an emergency fund. About five or 10 of that is for an upcoming trip, about 10 of that is for a future roof replacement in the home, right? That’s the mental accounting. So if we’re doing that, let’s create the buckets here. We’re talking an emergency fund, label it and do the actual counting of putting it in a fund that is earmarked specifically for the emergency fund. Now we’re going to want to work towards saving three to six months of essential expenses. That’s our goal. That’s our target, general rule of thumb. But don’t let that number overwhelm you if you’re just getting started, or perhaps you’re doing some cleanup work in other parts of the financial plan, because here’s the reality, if you’ve never had an unexpected car or medical expense or another emergency, it’s only a matter of time. Life happens, and you want to be prepared. I want to be prepared so that those bumps don’t derail momentum and progress in other areas. he last thing we want is that we feel like we’re finally making progress towards building wealth, saving, investing for the future, achieving the goals that we’ve desired to achieve, and all of a sudden, we haven’t prepared for an emergency, and something sets us backwards and disrupts that momentum. Now here are five questions that I think you need to answer for your emergency fund, just to get you started and hopefully to get you on track. Number one is adequately funded. We talked about that general rule of thumb, three to six months of essential expenses, not all expenses, essential expenses. So what does that mean? Housing, food, transportation, clothing, minimum debt payments, things that you would continue to fund, even in the event of a short term job loss or emergency add those up. Multiply them by three to six. That’s a general target we’re shooting for with an emergency fund. So that’s question. One, is it adequately funded? Number two, a problem, but a good problem to have is, do you have too much saved in an emergency fund? I’ve talked with several pharmacists that have done a great job saving, but big numbers in an emergency fund, and ideally, we would put these funds, probably elsewhere, to use in the financial plan now, right now, because of where interest rates are at, it’s not a terrible option to have money sitting in an account earning four to 5% in high yield savings account. But if we have other high interest rate debt, or we’re looking to build up our long term investing or savings, there is an opportunity costs that can come from having too much saved in an emergency fund. So that’s question two. Number three, are you optimizing your emergency fund? So what I’m talking about here is making sure it’s not sitting in a checking account, that we have it working for us, especially with where interest rates are at right now. Whether that be a high yield savings account or money market account. You know, right now, at the time of this recording, most of those are in the four to 5% range. So are we optimizing that fund. Number four is, does it need a boost? So this is something that we can set it but forget it, and we have to come back and look at this, right? So, you know, especially for those that are earlier in their career, where expenses creep at a rapid rate, right? Perhaps when you when you graduated, maybe you didn’t have a home, or you didn’t have a family, all of a sudden you wake up in 3, 4, 5, years, our expenses have gone up significantly. So we want to visit this, revisit this at least once a year, and maybe at one point you hit that target of three to six months. But do we need to look at it again? And finally, our fifth question here. Is, as I mentioned already, is it separate from our everyday checking account? Right? If we’re doing the mental accounting, let’s do the actual accounting. So that’s number three on our list, build an emergency fund. 

Tim Ulbrich  10:11

Number four on our list of 10 moves to make to become financially fit, develop a plan to eliminate any high interest rate revolving credit card debt, or any high interest rate revolving consumer debt. Now, if you don’t have any revolving, high interest rate consumer debt, credit card debt, high interest rate, car loans, etc, great, right? Let’s move on. But if you do, baby steps, baby steps, this, along with the emergency fund, is really a top priority, given the interest rates this debt often demands, right, especially when talking about credit card typically north of 20% we have to plug this hole before we can start playing offense with other parts of the plan. Now, I know that sounds obvious, but I see this mistake commonly made, where because student loan debts there’s there’s an emotional burden there, or because there’s a feeling that I need to catch up and save and invest for the future, we can often get these priorities mixed up, right? So if I have high interest rate credit card debt that’s accruing interest north of 20% but I’m paying down debt at 5% 6% whether that be student loans, or I’m trying to save and invest in various retirement accounts. I may have those out of order, right? So we got to look at that. Now. Last thing I want to say here is, if you have credit card debt, know that you aren’t alone. Okay? We often think that, hey, all my other pharmacist friends have this figured out. They’re making a great income. I’m the only one with credit card debt, I can assure you that is not the case. This is a fairly common struggle that we see, especially with new practitioners. Although others are not immune to this, but there’s a lot of expenses that ramp up in that final year of pharmacy school, or those that transition into residency or fellowship. High cost of living areas. There’s a tendency to accrue some credit card debt at the end of that training program. So know that you’re not alone doesn’t mean or minimize that we have work to be done. Of course we do, but you aren’t alone, and we got to really start to begin to tackle this. So that’s number four, develop a plan to eliminate any high interest rate revolving consumer debt. 

Tim Ulbrich  12:15

Number five is we have to get clear on determining what is the best student loan repayment strategy for you. Now, if you’re listening and you have no student loans, you’re further along in your career. Great. Keep moving on, right? But for those that do have student loans, this is often a huge piece of the puzzle that we have to figure out, given the magnitude of it so that we can then plan around it. Because what you’ll notice, if you’re not already aware, especially when it comes to federal student loan repayment, there are a variety of options that can result in either big, big, big monthly payments or much smaller monthly payments, depending on which repayment plan you choose. And so we have to understand what fits into the budget. What is ideal, what is optimal for your situation, so that we can then plan and budget around it. Now, the median debt load for a pharmacy graduate here in 2024 covering right around $160,000 and for many grads, this is one of the most important and overwhelming decisions that they’re going to make. And to be fair, this is way more complicated than it needs to be, both on the federal and the private side. For those of you that have private loans. And to make that worse, this is just a hot mess right now, right. There’s a lot of changes that are going on with student loan repayment, a lot of uncertainty. The Save program has been held up. We don’t know what’s going to happen with that in the future. And by the way, we’re in the midst of a presidential election where student loans are often discussed and used in terms of political jockeying, so there’s a lot of unknown, which means for a lot of borrowers, it’s kind of a wait and see. Right now, it’s a wait and see for many people. So if you’re not already plugged into Studentaid.gov, make sure you get plugged in. We’ll link to that in the show notes so that you can stay up to date. We’ll also try to bring information here on our channels with what’s happening with student federal student loan repayment. But again, given the size, given the magnitude, notice, I didn’t say debt free, and I was intentional there, because for some of you, this is going to be a loan forgiveness pathway. But what I did say is we have to get clear on what our strategy is. We don’t want to be wandering when it comes to how we’re approaching our student loan. So once we can determine what is the optimal repayment strategy, we can then figure out what does that mean for a monthly payment. And then, as I mentioned, we can begin to build around that. So that’s number five, determine your student loan repayment strategy. Number six is, start tracking your net worth. Start tracking your net worth now if you’re early in your journey, especially if you have student loan debt or credit card debt, you’re not going to like this number, right? Because it’s a number that’s going to highlight especially if we have a high amount of debt that hey. We make a good income, but we’re probably not at the point we would like to be in terms of our overall financial health. Net worth is your assets or what you own minus your liabilities or what you owe. And I believe this is a much better indicator of your financial health than is your income, right? Because your income a six figure income. It’s a tool, but it’s not a financial plan, and it’s a tool that we can leverage to grow our net worth by paying down our debts and growing our assets that are hopefully compounding over time, but net worth is really going to shine a light on are we or are we not making progress. And so understanding and respecting this calculation can propel your financial plan. I really think about this as the 20,000 foot view on what’s going on for Jess and I in our own financial plan. So this is something that we’re tracking monthly. Very easy to do. I’ll share with you the template that we use. If you go to your financial pharmacist.com/toolbox. You’ll see a network tracking sheet there. You can save a copy for yourself, edit it. Nothing complicated. You can set up your own sheet as well. It’s a simply a listing of all the accounts that we have, checking savings, retirement accounts, real estate accounts, etc. Add up all the assets, subtract the liabilities. Amount that’s due. That’s our net worth. We’re tracking that over time to make sure that we’re heading in the right direction. If you’re not already doing this, even if you don’t like the number implement a system a recurring task to track your net worth each and every month. That’s number six on our list of 10 moves to make to become financially fed. 

Tim Ulbrich  16:36

Number seven is determine what insurance policies you do and do not need and do not need is perhaps equally as important. And while there are a lot of different types of insurance to consider here, I’m talking in specifically about three that I see get overlooked most by many pharmacists: professional liability and having your own professional liability insurance policy independent of your employer. Term life and long term disability. With the latter two, term life, long term disability, we’ve got to be thinking about what coverage we need in addition to what our employer policies are providing, not only to plus those up if they’re not enough, but also we got to remember that those policies aren’t going with us when we transition jobs, right and so as time goes on, as we get older, these policies typically become more expensive. So if we can lock these in in terms of our own independent Term Life policies, long term disability policies, while we’re younger and we can get the coverage we need, that’s probably going to be the best action that we can take. Now, when it comes to long term disability, you put a lot of time, energy and effort to be able to become a pharmacist and make a good income, and that’s why it’s so important to protect it. Disability Insurance for pharmacists is really income insurance. It’s addressing what would you do and the event that you’re unable to work as a pharmacist, right on the term life insurance side, what we’re trying to do there is especially if we have dependents or someone else that relies upon our income, in the event that you were to prematurely pass away, and that income is needed. What is that term life insurance policy going to produce? What expenses is it going to cover both short and long term now, we’ve got more information and resources on all of this. You can check those out at our website, yourfinancialpharmacist.com, I’ll link to a couple resources we have specifically on term life and long term disability in the show notes; guides that we’ve written specifically for pharmacists, what you do need, what you don’t need. Make sure to check those out. That’s number seven on our list. Determine what insurance policies you do and do not need. 

Tim Ulbrich  18:54

Number eight is we have to start investing as early as we possibly can. Now I know we’ve all been told this, but again, as with many of these items easier said than done, because when you’re flooded with things like student loans and other debt, it can be hard to balance prioritizing investing, and it’s easy to fall into the trap and perhaps feel that you can put off retirement savings for a few years, but the reality is that you want to take advantage of compound interest, time, value of money, and the earlier you start contributing, the better. And your investing strategy, it’s going to evolve over time. It’s going to get more complicated. But don’t succumb to inaction, because you’re overwhelmed with all the options. Start typically, what we’re focused on is starting with the employer match to a, 401K or 403B, 401 k, for those that you work work for a for profit, 403B for those that you work for a non profit, assuming that you’re there long enough to be vested, that’s a key factor we have to look at. And then we’re going to build from there, right? We’re going to look at things like IRAs Traditional and Roth IRAs, typically. Roth IRAs for pharmacists. HSAs health savings account and other investment vehicles along the way as well. We have talked extensively on the show about various investing strategies, long term retirement plan strategies, so make sure to check out those episodes for more information. 

Tim Ulbrich  20:17

Number nine on our list of 10 moves to make to become financially fit is refuse to accept your income is fixed. Now, common misperception I see among many pharmacists is that there is a ceiling on their income, and that mindset can lead to stagnation. Stagnation. It can lead to career dissatisfaction, and it can really limit on what is possible. So whether it’s pursuing additional opportunities within your organization, or perhaps for some of you, it’s starting a side hustle or business or investing in real estate, these are just a few of the many examples of how pharmacists are taking the ceiling off of their income potential. Bob Berg, the author of the Go Giver, said that your income is determined by how many people you serve and how well you serve them. I believe that to be true, whether it’s people that start their own business, whether that’s people that get started in real estate and develop great collaborations and partnerships, or whether that’s folks within their own organization that really are able to demonstrate and provide the value that then unlocks additional opportunities for them. So that’s number nine, refuse to accept your income as fixed because,

Tim Ulbrich  21:25

as we talked about earlier, all financial goals stem from the cash flow that we create by living off of less than we make. One way to do that is cut expenses. The other way we’re talking about here in our ninth point is growing our income. 

Tim Ulbrich  21:37

And finally, number 10 on our list of 10 moves to become financially fit, implement systems and automation as soon as possible. Now, if you’ve listened to the show for a while, you know that I love automation, and Ramit Sethi he talks about this in his book, I Will Teach You be Rich when he says, and I agree that automation can be the single most profitable system that you ever build. And as you’re getting started, it’s the process, not the outcome. It’s the process that’s most important. Remember, this is a marathon, not a sprint, and building and automating a system is ultimately what’s going to allow you to identify and fund your goals. You are directing your financial plan rather than reacting to it. That’s what we’re talking about here with automation. And it’s so apparent, so effective, so easy to implement, but it’s vastly underutilized. It involves essentially scheduling the transfer of funds to predefined goals, and doing so confidently, knowing that you’ve already accounted for it in your monthly spending plan. That’s what we’re talking about with automation. So whether it’s paying down your debt more aggressively through extra payments, whether it’s saving and investing money to an IRA or another type of investment account, whether it’s putting money towards a down payment on a home or investment property, whatever the goal is that we’ve identified and we account for in our monthly spending plan, once we identify that goal, automation, the next step here is to move those funds after we get paid, rather than waiting to see if there’s money left over, right? It’s proactive versus reactive. Sure, it takes a little bit of time to set up, but once it’s set up, it provides a long term return on your time, benefit and peace of mind, knowing that you have thought about, you’ve prioritized and you have a plan that is working itself to fund your goals. Do not underestimate how powerful that can be in terms of momentum and confidence. Now, what does this actually look like? So for my wife and I, we have a high yield savings account. We use Ally for all our online banking, this is not commercial for Ally, but in our high yield savings account within that, we have various buckets, and we name them according to the goals that we’re setting out to achieve. Now, of course, if there’s anything that I want to go directly to an account, not to sit in a high yield savings account, right? Perhaps this would be funding a Roth IRA or a brokerage account, or putting money into 529, those are going to be automated directly to that account. But for anything else, as I mentioned before, the mental accounting and the actual accounting, for example, this year we’re finishing, right now, a basement remodel project. So we have a bucket in our high yield savings account for a basement remodel. It could be a vacation. It could be the next car purchase. It could be gifts that you are funding throughout the year. It could be your insurance, homeowners or auto insurance that you pay once a year, twice a year, that you save up through throughout the year. Right? Any of these goals, we can create a bucket, and we can automate the contribution of the funds to that, and then we can see, and have a visual representation of what our goals are, and whether we’re not or not, we’re on track to achieve those. So this system, it took us about 15 minutes to set up, and could just as easily be achieved, probably through your own bank, or if they don’t have a bucket tool like that, through tracking in a simple spreadsheet. Again, resources I have that you can see more of our system. You go to yourfinancialpharmacist.com/toolbox, feel free to download any of those templates or resources and make them your own. 

Tim Ulbrich  25:06

Now, if you’re someone that’s listening, that’s feeling perhaps financially stressed or stuck or overwhelmed or confused or anxious, whether you’re a new practitioner, mid career, approaching retirement, or maybe you’re wondering, why am I not further along? Right? I’ve earned a good income, or I am earning a good income. Why am I not further along? I want you to close your eyes for a moment, unless you’re driving, of course, don’t do that and imagine a scenario where you are regularly investing in time to enhance your financial IQ, whether that’s reading, podcast, whatever you’re consistently learning and growing in this area. I want you to imagine where you have a fully funded emergency fund, where you have the peace of mind knowing that you have a backstop in place. I want you to imagine a scenario where if you have any high interest rate revolving debt, that that’s gone, and for other debt, you have a plan in place for how that’s going to be paid off and where that fits in the budget. I want you to imagine a scenario where you’re regularly tracking your net worth over time each and every month. I want you to imagine a scenario where you’re saving and investing each month and hopefully growing that each month, taking advantage of compound interest and time value of money. I want you to imagine a scenario where you’re advocating and negotiating for your income to be commensurate with the value that you’re providing and the confidence that can come from that. And I want you to imagine for a moment that you have a system in place that is accounting for and automatically funding your goals each month. And as you imagine those things. How does that feel? What emotions are coming up, and how does that contrast against those feelings of feeling stressed or stuck or overwhelmed, confused, anxious, notice that there is nothing complicated about what I have shared today. Sure, there’s a time and place for more advanced strategies, many of which we have talked about on this show, but first we have to do the foundational work that will put us in the position to take some calculated risk. And this just this isn’t just new practitioner stuff, right? I know many pharmacists, myself included, that sometimes we have to go back to the foundations, whether we’ve been out five years, 15 years or 25 years. And while all of this is pretty straightforward, you and I both know that executing consistently over time is a different challenge. So let me wrap up by saying that if you could use some help and guidance, we have a team of certified financial planners and tax professionals at YFP that can help. Your six figure income. It’s a great tool, but as I’ve said already once on this show, it is not a financial plan without a vision and a plan that good income is only going to go so far. That’s why, in part, I started Yfp back in 2015 because at Yfp, we support pharmacists at every stage of their careers to take control their finances, reach their financial goals and build wealth through comprehensive fee only financial planning and tax planning. Our team of certified financial planners and tax professionals work with pharmacists all across the country and help our clients set their future selves up for success while living a rich life today, both are important. So if you’re ready to see how yp can help support you on your financial journey, you can visit your financial pharmacist.com, and at the top right, you’ll see an option to book a discovery call that will take you to a scheduling page to book a meeting with my partner, a 60 minute meeting. Tim Baker, fee only, certified financial professional, where we’ll talk and learn about your situation, your goals, what’s working, what’s not working. We’ll share more about our services, and from there, we can determine whether or not those are good fit again, yourfinancialpharmacist.com, at the top right, you’ll see an option there to click on book a discovery call. Thank you so much for listening to this week’s episode. If you found this information helpful, do me a favor. Share this with a friend and colleague and leave us a review on Apple Podcasts which will help others find the show. Have a great rest of your day, and we’ll catch you again next week. Take care.

Tim Ulbrich  29:14

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

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YFP 371: 5 Wealth-Building Strategies to Become a Seven Figure Pharmacist


Tim Ulbrich, YFP Co-Founder and CEO shares five wealth-building strategies to include in your own financial plan.

Episode Summary

In this episode, Tim Ulbrich, YFP Co-Founder and CEO, shares five wealth-building strategies you can incorporate into your own financial plan. Drawing from his own financial journey, these strategies have been tested, refined, and used by Tim and his wife, Jess.

From setting savings goals to tracking net worth monthly to increasing your financial IQ, Tim makes setting up your financial path for success more attainable.

About Today’s Guest

Tim Ulbrich is the Co-Founder and CEO of Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 15,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. To date, YFP has partnered with 75+ organizations to provide personal finance education.

Tim received his Doctor of Pharmacy degree from Ohio Northern University and completed postgraduate residency training at The Ohio State University. He spent 9 years on faculty at Northeast Ohio Medical University prior to joining Ohio State University College of Pharmacy in 2019 as Clinical Professor and Director of the Master’s in Health-System Pharmacy Administration Program.

Tim is the host of the Your Financial Pharmacist Podcast which has more than 1 million downloads. Tim is also the co-author of Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt and Create Wealth. Tim has presented to over 200 pharmacy associations, colleges, and groups on various personal finance topics including debt management, investing, retirement planning, and financial well-being.

Key Points from the Episode

  • Wealth-building strategies for pharmacists with student loan debt. [0:00]
  • Financial struggles and debt repayment for pharmacists. [3:21]
  • Financial planning for pharmacists, focusing on strategies for success. [8:28]
  • Tracking net worth and setting savings buckets for financial goals. [12:33]
  • Financial planning, saving, and investing for pharmacists. [17:41]
  • Wealth-building strategies and financial planning. [22:33]

Episode Highlights

“And I had realized that despite the amazing opportunities that graduating with a pharmacy degree had offered, there was a little discussed truth among practitioners in the field. And that is that most pharmacists make a good income, but have significant student loan debt and feel like, hey, there should be more here; I shouldn’t feel as stressed and overwhelmed as I do with my financial situation.” – Tim Ulbrich [2:52]

“But it takes a lot of intention, time and effort to translate that income, to making sure that we’re actually progressing in our financial plan and finding the ever so important balance between saving for the future while also living a rich life today and investing in those things that are most meaningful to us.” – Tim Ulbrich [6:46]

“We learned a very important lesson that there is no such thing as arrived. When it comes to the financial plan, there is always an opportunity to grow and learn.” – Tim Ulbrich [7:25]

“These strategies are not overly complicated. It doesn’t have to include fancy spreadsheets and nuanced investment vehicles. It doesn’t take an exorbitant amount of time. And it doesn’t mean that you have to live on rice and beans. I did it and you can do it too.” – Tim Ulbrich [9:36]

“I want you to take a step back and ask yourself a few questions. What am I trying to accomplish? What’s the purpose? What does success look like? After all, money is a tool for living a rich life. And it’s up to you to decide what that rich life looks like.” – Tim Ulbrich [12:04]

“Resist the urge to try to do too much. And eventually getting to a place of frustration where you don’t make much progress at all. What is the one next move that you can make? This is a marathon, not a sprint, one step after another over a long period of time will yield big results.” – Tim Ulbrich [25:44]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey guys, welcome to this week’s episode of the YFP Podcast. I gotta admit, I’m pumped up for this one, I’m going to be talking through five wealth building strategies that you should employ in your own financial plan. No theory, no textbook stuff here. These are all strategies, all five of them, that Jess and I have tested, refined and used in our own financial plan. Now, before I get into these five wealth building strategies, I have two goals for this episode that I want to share with you. First, my hope and desire is to motivate and inspire you to take action. It is so easy to become overwhelmed, and fall into that paralysis analysis when it comes to the financial plan. So for those of you that are listening, that are feeling overwhelmed, or anxious, or frustrated, maybe stuck, or just this lingering, nagging feeling that there’s something more that could be done, I want to be a source of inspiration through sharing my own journey, and encouraging you on your journey as well. Now, that doesn’t mean it’s going to be easy. That doesn’t mean that you’re not going to have some mistakes and roadblocks along the way, there certainly will be. My second goal is to give you specific strategies that you can implement, starting today in your own plan; to take the motivation and to then take action that can yield results as you take steps in applying this to your own situation. 

Tim Ulbrich  01:25

Okay, let’s jump in. I’m going to start with my own story that really begins back in 2009. 2009. So at this point in time, I had just finished my PGY one residency, I was making a whopping $31,000. At the time, thankfully, residents make a little bit more these days. And I finally had reached the other side, right? Ready to cash in on the mystical, six figure pharmacist income that I often thought about during pharmacy school. Now, everything was looking good. Until I realized that I overlooked one very important minor detail. And that was that I was broke. No not broke, broke, but definitely high earner high income broke. My wife Jess and I were in spectacular shape on the surface. But underneath our lifestyle and this new six figure income, really our finances underneath that had a different story, we had over $200,000 of student loan debt that was almost all my student loan debt. Actually, the vast majority of that $185,000 or so was my student loan debt. We had a house at this point with almost no equity. We had very little in savings. And we soon had a growing family to support today we’ve got four boys, our oldest was born in 2011. So there was a lot of things that were going on and happening financially, perhaps some of you can relate to that. And I had realized that despite the amazing opportunities that graduating with the pharmacy degree had offered, there was a little discussed truth among practitioners in the field. And that is that most pharmacists make a good income, but find themselves in exactly the same boat that I’m describing, right. Earning a good income, significant student loan debt and feeling like, hey, there should be more here, they shouldn’t feel as stressed and overwhelmed as I do with my financial situation. Now, as I reflect on that journey, I am certainly grateful for the experiences I’ve had, and for what I have learned along the way. I also feel though, the fear and anxiety coming up when acknowledging that my perception of the six figure income and the reality of what it could be, were two very different things. Now it took me four humbling years, hopefully it won’t take you as long but it took me four humbling years to realize that this six figure income wasn’t all that it was cracked up to be. Now one book in particular, if you’ve listened to the podcast before, you’ve heard me talk about this book, but one book at this point in time 2012, 2013 hit me at the perfect moment. It was a wake up call that I needed. And that book was The Millionaire Next Door by Dr. Tom Stanley. We’ll link to that in the show notes. And that book taught me a very important lesson. And that lesson being that net worth, not income, net worth is a much better indicator of your financial health. Now more to come on this here and a little bit but understand for the time being that net worth is your assets what you own, minus your liabilities what you owe, and it paints a nice picture of what did or didn’t happen with your income, right, that’s earned. And after reading this book, I decided that it was time to put pen to paper and do our own calculation. Now when I did this, the assets column, right, on the left hand side of the paper, I had the liabilities on the right hand side of the paper and the left side was pretty blank. Didn’t have a whole lot of assets at that point a little bit in a 401K,little bit in an IRA, we had some value in the home that that was offset by the liability. But the right side the liabilities, what we owed, there was a laundry list of things that are highlighted by none other than that couple $100,000 of student loan debt that I mentioned, most of which was at a fixed interest rate of 6.8%. A number I will never forget. I know many of you are perhaps facing a similar situation. Now this calculation, this net worth calculation at the time, showed that just four years after graduating from pharmacy school, finishing up my residency, had earned about a half a million dollars of income. But I had a net worth, again, assets minus liabilities of negative $225,000. Ouch, right? Ouch. I was overwhelmed with student loan debt. I was confused about how to best save and invest for the future, I was frustrated by the fact that, hey, we’re making a good income. But we’re not progressing financially as quickly as we should be, or at least as I thought we should be. So if you are like most pharmacists that I talked with, perhaps your journey may include something similar. You might even be there right now, some of you have gone down this journey before or perhaps for students listening. It’s something that you’re thinking about in the future. And, you know, as I think about this, it wouldn’t be so frustrating if you didn’t do everything that perhaps you were told was the right quote, “right thing to do.” Right, you got the degree, you landed the high paying job, you started making some of those smart decisions, some of you have already purchased a home, you’ve been investing, maybe you got that reliable car, and you’re finally reaping the benefits of all that hard work. But it takes a lot more intention, time and effort to translate that income, to making sure that we’re actually progressing in our financial plan and finding the ever so important balance between saving for the future, taking care of our future selves, living a rich life today and investing in those things that are most meaningful to us.

Now, thankfully, for our story, there’s a happy ending. Three years after that point where we realize, hey, we’re making a good income, but the net worth is negative, it’s not showing, we decided through that time period to really get serious, to stop messing around, to take control of our financial future. And in the fall of 2015, we hit submit on the very last payment of that $200,000 of student loan debt. I still have the screenshot saved at the time. Navient was the loan servicer, it’s an image I’ll never forget. Now to get there. We had to sever self teach ourselves personal finance. This was what led to me starting the Your Financial Pharmacist Community shortly thereafter, in 2015. And we made several mistakes along the way. And I’m going to talk about some of those here in just a little bit. Now, at the time, no one in our sphere no one in our community is really talking about this. And it was hard. It was hard, but it was worth it. Now, a little bit more on this story, when we hit submit on that last student loan payment is the fall of 2015, it sure felt like we had arrived financially finally, right? That would be the first however, of many times that we would learn a very important lesson that there is no such thing as arrived. When it comes to the financial plan, there is always an opportunity to grow and learn. Once we had crossed the line from a negative net worth to zero, and eventually working towards positive, it was go time it was time to play offense. Right. Finally, we could begin to play offense with a financial plan. And through methodical savings, investing, diligent spending, planning, and working our butt off building a business, we would eventually cross a net worth of $1 million in 2020. That’s right, negative 225,000 in 2012, to a net worth north of 1 million and approximately eight years. And I want pharmacists like yourself to be fully armed and empowered with the knowledge and tools needed, again, to find that balance between living a rich life today. And tomorrow, you can get there. But in addition to your income, it’s going to require that you have the right mindset, some strategy, and you have habits and behaviors in place that will help you to achieve success, it can be done. And that’s why I’m excited to share some of these strategies with you. It’s not complicated or overly complicated. It doesn’t have to include fancy spreadsheets and nuance investment vehicles. It doesn’t take an exorbitant amount of time. And it doesn’t mean that you have to live on rice and beans. I did it and you can do it too.

Tim Ulbrich  09:56

I recently had the chance to talk with a group of pharmacists and I asked them to reflect on a question that was intended to help them clarify what matters most to them in their lives and how their financial plan can support those different areas. And here are just a few of the responses that I received. From that group of pharmacists, quote, “I would love to travel the world give generously, and fund my kids hopes.” Another was, “to take my kids to see the world.” Another,  “to have a home in space and time to host family and friends often.” Another, “to volunteer locally, spend time with family and learn new skills.” Another,  “To open my new business.” “Working part time without the fear of finances would allow me to volunteer more and do something more passionate about.” Another: “To create a community center for people who use drugs to help provide basic social needs and treatment.” Yes, yes. And yes. Notice what you don’t hear here. You don’t hear people talking about having a pristine, zero based budget. Yes, I think that’s important to help us execute, but that’s not what people are talking about. You don’t hear people talking about having a certain amount of money in the bank. You don’t hear people talking about having a complicated time intensive investment strategy. You don’t hear people talking about their 4.6% high yield savings account and how advantageous that is over another one that’s only 4%. You don’t hear any comments about how to optimize public service loan forgiveness or other student loan strategies. And while there’s nothing wrong with those things, right, I myself like a good budget, like a good student loan repayment strategy, things we talked about often in the show, it’s important to remember that these things aren’t the end goals and determinants of success, but rather steps that are along the way to support again, living that rich life today and tomorrow. So before I get into these five strategies, and before you go all Type A pharmacist on me and start making moves, hitting and checking things off that list, I want you to take a step back and ask yourself a few questions. What am I trying to accomplish? What’s the purpose? What does success look like? Right? After all, money is a tool for living a rich life. And it’s up to you to decide what that rich life looks like. Okay, so let’s jump into these five wealth building strategies, it’s time to take action. Again, none of that fluffy and practical stuff. I’ve implemented all of these in my financial plan. Step number one, you probably saw it was coming based on my discussion of net worth. Step number one is you have to be tracking your net worth. As I mentioned, and that book, The Millionaire Next Door, one of the quotes from that book from the author Tom Stanley is, quote, “one of the reasons that millionaires are economically successful is that they think differently.” And what he’s referring to is that those who build wealth realize that income is not the metric of success, but rather a tool for building wealth, right, and it’s worth repeating the calculation we talked about before, net worth what you own, minus what you owe, so your assets minus your liability. Net worth not income. But net worth is the true indicator of your financial health. And if you understand and respect this calculation, it will propel your financial plan. Discovering net worth was a mindset shift and a pivot point in our own financial planning journey. Now for Jess and I, we update a net worth tracking sheet once per month, which allows us to take a step back and see the overall trajectory and bigger picture, while also focusing on the short term goals. And I have this tracking sheet along with several other resources. I’ll reference throughout the podcast available in a Google Drive, a toolbox. We’ll link to that in the show notes. You can go to that toolbox to access those for free, you can make a copy, edit, customize, make it your own, and be able to implement it in your own financial situation. It’s a very simple spreadsheet. Again, nothing fancy, right, we have a list of all of our assets, all of our liabilities. So this includes things like our emergency funds, various business accounts, kids 529 accounts, all our retirement accounts, different real estate that we own, and so forth. All assets, all liabilities, once a month. This is the big view picture of are we tracking, are we trending in the right direction. So that’s wealth building strategy number one.

Number two, you’ve heard me talk about this on the show before is setting up savings buckets. I love savings buckets. All about intentionality. Once Jess and I are on the same page with our financial goals for a given year, it’s then time to write them down and prioritize them accordingly so that we can start to implement a plan to achieve them, right? Otherwise, it’s a hope, a wish or a dream. So for each goal that we have for the year, we defined several things. First, the amount that is needed to achieve that goal. So for example, if we were to say, hey, we want to refinish the basement, it’s a goal we’re working on here in 2024, we got to put a budget to that we gotta put a number to it. And we got to put eventually a timeline to it. So first, we have to have an amount needed to achieve the goal. Second, is we have to identify the current amount we have saved towards a goal, sometimes that’s a zero. Sometimes that might be a portion of the goal. The third thing is then the gap between the amount needed and the amount saved. Right? This is common sense stuff. And the fourth thing is the monthly contribution needed to close the gap. That’s the key. So we have to know where we’re going, how much do we need? When do we need it? What do we already have saved? What’s the gap? What’s the timeline difference and a monthly contribution that’s going to help us get there because then we can implement that, right, we can do something with that, to be able to put ourselves on track to achieve it. Now, I mentioned the tool box before, there’s another resource in there. I have our savings buckets spreadsheet that you can again, nothing complicated, you can download it, you’ll see it’s just a sheet that outlines different priorities, what the status is, what the goal is, what’s the current funding? What’s the amount, what’s the gap, and what’s the contribution needed to get there with some notes for each of those items as well. So once we have this from here, once we have a prioritized list of our goals, we can then work the budget, or the spending plan, whatever you want to call it to determine how much is available each month to allocate towards the goals and make any necessary adjustments. Now just to give you some context of things that we’re thinking about here, right, this would be items like home improvements, saving and retirement accounts, putting money away into an HSA saving for vacations, saving for a future car purchase, right? These are the types of goals and things that we’re working on. And once we have this prioritized list, and we can begin to weave it into the monthly spending plan, based on hey, we know what you’re gonna make, we know the fixed expenses, the discretionary expenses, we know what’s leftover, then we can allocate whatever is projected to be left over towards the goals we’ve already defined in advance. And this is where the buckets come in. Because once we do this work, we can set up savings buckets. Now we use Ally Online Bank, this is not commercial for Ally, you can do this with many other banks, or you can track it on your own, to have a bucket for each goal. Except for those things that go directly to outside accounts. Right. So I don’t want things like IRA savings, HSAs, 529s to be sitting around in a high yield savings account. But I want those to go to work as quickly as possible for us. But for everything else, right. I mentioned several of these: vacation, home improvement projects, saving for educational expenses, not for future like 529. But for us, that would be homeschool expenses and things that we know are coming throughout the year could be gifts, insurance payments. I said vacations, vehicles, etc. emergency fund savings, right. So when I log on to our Ally online savings accounts, I see all these buckets, which are really just virtual buckets within a high yield savings account that we can then identify and earmark. It’s so important that if we think we’re saving for something, let’s actually do the accounting for it and create the bucket that allows us to see the progress made. This can sound complicated, don’t let it fool you. It’s not complicated. This system took us about 15 to 20 minutes set up. Once we had already done the work right, which is the hard work is talking about the goals and prioritizing the goals. So that’s number two, setting up the bucket system. 

Tim Ulbrich  18:51

Number three in our list of five wealth building strategies, is creating a legacy folder again, something I have talked about in the podcast before. And while a legacy folder isn’t going to directly move the needle on your net worth, don’t underestimate what it can offer in terms of peace of mind. And knowing that in the event in an emergency, all your financial documents are organized and in one location. So think of the legacy folder as a one stop shop where you have all of your important financial information, records and systems such that if someone else had access, needed access in the event of emergency, something happened to you, they could quickly pick up where you left off. So our legacy folder is a combination of a shared Google Drive folder, and a fireproof safe at home. Right. So I think about things like passports, birth certificates, etc. copy of estate planning documents, those are going to be inside of a safe, and then we’ve got other things that are on a shared Google Drive. So our financial planning team at YFP has shared access to the Google Drive as well as family who would be caring for our boys in the event that something happened to us, and then we use One Password as a tool to share and store all of our passwords. You can access again in the toolbox resource I mentioned already, we’ll link to that show notes: YourFinancialPharmacist.com/toolbox, I have a legacy folder table of contents that we use that you can download, make a copy, modify and make it your own. 

Tim Ulbrich  20:25

Alright, number four on our list of five, upping your financial IQ. So here are just some of the questions I’ve received recently, from pharmacists in our community: how much should I save for retirement? How can I best save and invest for the future? What should my asset allocation be? Do I need a life or disability insurance policy? How can I optimize student loan or other debt payments?  Should I save and invest or pay down debt instead? If any of these sound familiar, this is real life stuff. And know that you aren’t alone if several of these questions are swirling around in your mind as well. And as I reflect on my own journey, I realized that knowledge, along with community and accountability, was a key missing ingredient early on. You know, despite being a personal finance nerd today, my financial IQ early in my pharmacy career was very limited. When I was just finishing up my pharmacy school training in 2008, residency 2009. At the time, I could not tell you the difference between a 401K and an IRA a stock versus a bond secured versus unsecured debt, unsubsidized versus subsidized loans, a tax credit versus a deduction, right, the list goes on and on. And my ignorance, my lack of financial IQ led to mistakes and really led to a delay in our progress. But that really wasn’t my fault as I reflect on the journey. Now, taking responsibility of that and learning those things. Certainly, there’s an opportunity there. But know that for many of us, we just don’t have that background. Right, that strong fine foundation and financial literacy, our K-12 system, to be frank does an atrocious job of prioritizing financial literacy. And while I’m grateful for my AP Calculus class, and how that saved me from having to take a semester of calculus in pharmacy school, I use very little calculus in my life today. But contrast that with personal finance, which I use in some form, or fashion every single day. So why do we invest so little time in financial literacy, knowing that its application will be wide for everyone? That’s a great question, right. And it’s a tragedy, but it’s one that we have to overcome, and we can take responsibility to overcome. And so the good news is that we can make progress here we can up our financial IQ if we’re willing to invest some time and energy and I’m not talking about an AP course level type of time, just a little bit of time invested is going to yield big benefits. I hope you continue to listen to podcasts, attend our webinars, read our newsletters, I think those are great ways that you can stay engaged and increase your financial IQ. 

Tim Ulbrich  23:04

Alright, number five on our list of five wealth building strategies is respect the power of compound interest and time value of money. If you aren’t in awe of that time value of money, you haven’t spent enough time nerding out on a savings calculators. As Albert Einstein is credited with saying compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t pays it. This quote should pique our curiosity about the power of investing, more specifically, the power of compound interest in time value of money. It’s one of those financial jargon terms compound interest, time value, money that we throw around, that we know is important, but may not be sure what it exactly means and why it matters. And simply compound interest is the process by which an investment grows exponentially over time, because both the original investment and the interest gain earn interest over time. So we save a little bit today, it grows and then the future growth is the initial savings plus the growth plus the growth plus the growth and we continue that over and over again. And you can use a simple compound interest calculator, we have one available on our website, we’ll link to that in the show notes. Just to see that what would it mean for you when it comes to savings and where you’re at and how much you have saved? And how will that project out into the future? So what we know, which is something we’ve all heard before is that the earlier we save, the less aggressive we have to be in saving, right? And that’s where we really start to see the magic of compound interest and time value of money do its thing. 

Tim Ulbrich  24:44

Alright, so those are five wealth building strategies that I think you can implement in your own financial plan. And it’s it’s your turn now, right and as you start to implement your plan, let me give you two words of encouragement First, avoid analysis paralysis by identifying what the next move the one next move you can make. Remember, this is a marathon, not a sprint, and I just talked about a whole lot of things. And some of you are probably gonna want to this long checklist and start moving things forward. Resist the urge to try to do too much. And eventually getting to a place of frustration where you don’t make much progress at all. What is the one next move that you can make? This is a marathon, not a sprint, one step after another over a long period of time will yield big results. That’s what Darren Hardy is talking about, in his book, The Compound Effect when he says that small, smart choices, plus consistency plus time equals radical difference, small smart choices, plus consistency, plus time equals a radical difference. So that’s the first note of encouragement. The second one is your journey will inevitably include mistakes, trust me, I’ve made my fair share. Here are just a few I’ve paid too much student loan debt, because I didn’t understand the different options that were available such as loan forgiveness and refinancing. Second, I bought a home to be frank by just a little bit too early, without having enough equity in that home and a renting situation would have been fine for a little bit longer. Third, delaying the purchase of term life insurance with young children. Fourth, delaying the establishment of estate planning documents. Fifth, cashing out a small but still a pre tax retirement fund. And finally buying a car that at the time, we really had no interest in buying. So since mistakes will happen, right? It’s part of the journey, we must learn to give ourselves some grace. You’ve got this, I’m cheering you on. And I hope that you will continue to engage with our community as you go through your own journey. If you have a question that you have, in the moment, a roadblock that you’re facing, a win that you want to share, just an ear to listen of something that’s frustrating you in the moment, send us an email. I would love to hear from you [email protected]. And for those of you that are listening, saying hey, I really could use some help one on one, and really moving the financial plan forward to take all these different priorities no matter where you are in your journey, whether that’s a mid career pharmacist like myself, someone who’s approaching retirement, someone who’s a little bit early in their career, we’d love to have the opportunity to talk with you further. To learn more about our fee only financial planning and tax planning services and to determine whether or not they’re a good fit. You can book a free discovery call by going to yourfinancialpharmacist.com you’ll see a link to do so there to learn more about the services and to again, see whether or not that’s a good fit for your own financial plan. Thanks so much for listening. As always, I hope you found this episode helpful. And we’ll catch you again next week. Take care. 

Tim Ulbrich  27:51

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

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YFP 370: Your Retirement Questions Answered with Tim Baker, CFP


Tim Baker, CFP and YFP Director of Planning answers questions from the YFP community on saving and preparing for retirement. This episode is brought to you by First Horizon.

Episode Summary

Planning and preparing for retirement can feel overwhelming. In this episode, Tim Baker, CFP®, RICP®, RLP®, makes the steps to planning for retirement more manageable. He answers three questions from the YFP community on retirement planning, including:

  • How to determine the optimal amount to save for retirement
  • Strategies for dealing with market downturns during retirement
  • How different investment options impact retirement savings

This episode is brought to you by First Horizon.

About Today’s Guest

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

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

Key Points from the Episode

  • Retirement planning, investment options, and home loans for pharmacists. [0:00]
  • Retirement planning, including determining optimal savings amount and factors to consider. [2:24]
  • Retirement planning, nest egg calculation, and potential deficits. [5:51]
  • Retirement planning, including nest egg calculation and goal setting. [12:46]
  • Strategies for dealing with market downturns during retirement. [19:33]
  • Managing investment risk through asset allocation and flexibility. [24:25]
  • Retirement planning, investment options, and their impact on savings. [28:42]
  • Traditional portfolio allocation and retirement savings with emphasis on asset allocation and tax considerations. [32:49]
  • Retirement planning for pharmacists, including asset allocation and tax strategies. [37:30]

Episode Highlights

“I think the big thing is how do you define optimal [savings for retirement]? And then the factors are so important. What type of lifestyle do you want? I think what most people want is to live a similar lifestyle to what they’re living as they’re working. So they don’t necessarily want to be more lavish. But they don’t necessarily want to give up things either.” – Tim Baker [4:27]

“The nest egg calculation, to me, that’s the best way to make that big number, the kind of unknown, a little bit more digestible.” – Tim Baker [9:37]

“I think a lot of people think that they have control over when they’ll retire and they don’t. There’s a stat that says 40% of people don’t work to their expected retirement age, either because of health issues, or they were eliminated from a job, etc.” -Tim Baker [11:12]

“I think the best time to plan for retirement is now and the sooner you can kind of look at where you’re at and be able to adjust where you need to go, the better.” – Tim Baker [11:44]

“When you talk about the nest egg calculation, that is where the value really lies. The short answer of how do you determine the amount of savings needed for retirement? Nest egg calculation, three words.” – Tim Ulbrich [13:39]

“So, you know, and again, the most successful retirees are the ones that are most flexible.” – Tim Baker [25:45]

“It’s being in the right asset allocation. It’s keeping your expenses low. And being consistent with that structure. I think we’ll get people through any of the seasons that you’ll see over the course of an investing career.” – Tim Baker [28:28]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week we take questions from the YFP community on retirement planning, we discuss how to determine the optimal amount to save for retirement strategies for dealing with market downturns during retirement, and how different investment options such as stocks, bonds, and real estate can impact your retirement savings. Let’s hear from today’s sponsor First Horizon and then we’ll jump into the show.

Tim Ulbrich  00:31

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. For several years now we’ve been partnering with First Horizon who offers a professional home loan option AKA a doctor or pharmacist loan that requires a 3% downpayment for single family home or townhome for first time homebuyers, has no PMI, and offers a 30 year fixed rate mortgage on home loans up to $766,550 in most areas. 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. While I’ve personally worked with First Horizon before and had a great experience with Tony and his team, don’t just take it from me. Here’s what Payton from Tyler, Texas had to say about his experience with First Horizon: “Aaron, Cindy, and Marilyn were very easy to work with. As a first time homebuyer, I shopped around for lenders at the onset of the process, Aaron was always very quick to reply and provide me with any details I requested in order to move forward and my decision to select a lender. Once I selected First Horizon, Marilyn and Cindy did a great job of keeping my wife and I informed of the process. Closing was a breeze yesterday at the title office. And I sincerely appreciate the team going above and beyond to keep my interest rate locked despite extending closing due to negotiations with the seller. I’ve already shared my positive experience with many pharmacists on the groups. And I look forward my brother, also a pharmacist, refinancing with you guys when he decides to.” So to check out the requirements for First Horizon’s pharmacists home loan and to start the pre-approval process, visit yourfinancialpharmacist.com/home-loan again, that’s yourfinancialpharmacist.com/home-loan. 

Tim Ulbrich  02:24

Tim Baker Good to have you back on the show.

Tim Baker  02:27

Good to be back. Tim, how’s it going?

Tim Ulbrich  02:29

It’s going well. I’m looking forward to this episode. We’re gonna be talking about retirement planning – a topic that we’re seeing a ton of interest in getting lots of questions about. You did a webinar recently around retirement planning. Lots of engagement that came from that. So we want to answer some of the most common questions we’re getting from the YFP community around retirement planning. And we’re gonna go through four different questions around how do we determine how much is enough? What are some of the strategies to deal with market downturns while you’re in retirement, I know something that you’ve talked about before of that important window before leading up to an after? And how we think about the investment strategies. We’ll talk about some of the different investment options that can impact retirement savings, and then we’ll wrap up by talking about some of the health care costs in retirement. So let’s start with the first question, Tim, which is how do you determine the optimal amount saving needed for retirement? And really, what are the factors that should be considered when setting what this number is what the goal is?

Tim Baker  03:24

Yeah, so huge question, Tim. I think, you know, I’m going to answer the question with with a question is, like, define optimal? Yeah. Right. So like, optimal? Well, we’ve talked about, you know, is, you know, should die with zero be the goal. And, you know, what am I mean by that is, there are a lot of people that, you know, they’ll save, save and save, and maybe the goal is to pass on some, you know, money to their heirs. You know, I always I think I’ve said it said this on the podcast before my parents have said to me, like, hey, we want to make sure that like when we die, like we we give, we give you and your siblings some money, and I’m like, I don’t expect that I don’t really need that. I’m not really banking on that at all. And maybe when I’m older, I would want the same thing for my you know, for my kids, but the die was zero concept is it’s kind of like, you know, you can’t take it with you type of thing. So you’re you’re kind of spending on your portfolio, you’re giving it away, etc, etc. And maybe there’s some, you know, maybe there’s some somewhere in between where you don’t want to be right on the on the needle there. You don’t want to be with zero. So you maybe you have a little bit more cushion. So, you know, I think I think that would be the big thing is like how do you define optimal? And then the factors I think are so important. So like, what type of lifestyle do you want? I think in a vacuum, what most people I think want is to kind of live a similar right lifestyle than what they’re living as they’re as they’re working. So they don’t necessarily want to be more lavish. They don’t necessarily want to give up things either. Unfortunately, some people have to give up things just because of you know, poor planning or they have to work longer. So you know, what, where do you want to live? What’s the geography? What’s your housing situation, that’s going to be the biggest fixed expense. The biggest expense in retirement typically is housing. You know, what are your hobbies? Activities? Are you taking care of grandkids? Are you? Are you jet setting? Are you working? Are you not working? Are you volunteering? Consulting? What does that look like? And, you know, I think from there is, you know, estimating, you know what your retirement expenses would look like? So I mentioned like, what are the fixed expenses? What are the variable expenses, which could be big trips, maybe you’re paying for kids’ weddings, maybe it’s a medical expense. And really kind of zeroing in on that. Unfortunately, Tim the B word doesn’t ever go away. Right. So understanding what your budget looks like, is, is I think an integral part of of retirement planning. There are there are rules of things and way that you can slice it, there’s some planners that will look at the tax return, and then assume like, whatever’s on last year’s tax return is what I need for this coming year. And that’s kind of a very top down approach. A bottom up approaches a budget, you can use, use a rule of thumb, like a replacement ratio. So hey, if I make $100,000 and 70, or 80% replacement ratio means that I need $70-$80,000, you know, in that in that year of retirement. Looking at accounting for inflation, so do you think inflation is going to go up? It’s going to go back down to kind of the 3% levels? The big question is, is like what’s the retirement duration? Nobody knows that, right? So, you know, some people are like, Oh, I’m gonna, you know, retire at 65. And I, maybe I have a good five or 10 years on me, most people, you know, live longer when they want, they think they’re gonna retire. And that’s probably the trickiest part about all this, unlike, you know, other types of planning that are similar to this, like education planning, we kind of know that, hey, our goal was to kind of get through four years, maybe eight years of, you know, education. Here, it could be five years, it could be 45 years. We just don’t know. And that’s kind of the the major wildcard, but then understanding like, what are your sources of retirement? Is it social security? Is it a pension? Is it a, is it an annuity that you buy? Is it your traditional portfolio? Is there other types of you know, is it real estate income, whether your cash flow in real estate, or it’s a liquidation event? Are you selling a business? Is there a part time work there? So I think all of these play into play a part in it, and then I kind of how you distribute the cash also plays and how you handle taxes. So from a distribution perspective, you know, are you looking at, you know, what we’ve talked about in the past, which is a floor and strategy, which is very conservative strategy. Is it a bucket? You know, where, you know, in this, this will be, you know, another question that we have, it’s like, how do we account for like volatility or, you know, in the market? You know, is it a bucket strategy? Or is it the systemic withdrawal strategy, where it’s, Hey, we’re distributing 4%, no matter what, or we’re being flexible, depending on what interest rates what the markets doing? So lots of different lots of different ways to kind of, you know, go about this, but I think defining like, what optimal is for you is going to be important. And again, that’s why a lot of people are like, I just want to, you know, die with zero, that plays.I think the best place to start in terms of the optimal amount of savings needed for retirement to answer that question is, I think starting with a nest egg calculation is the best the best way. It is the, it is the best way, in my estimation, to deconstruct a problem and problem is not the right word, but a scenario that is years in the future, that’s a big freakin number. So, and when I was talking about this, like when we would do retirement planning at my past firm, you’d be the client and we would say, Okay, now now’s the time to talk about your retirement. Based on our time value of money calculation, you need $3.65 million to retire. Alright, let’s talk about your insurance, onto the next thing. And we could see kind of like, maybe the color come out of your face, maybe that little glossy, you know, glassy eyed look, and just, it didn’t connect with people. So, you know, it got me thinking, how can I make this number impactful to you today in 2024? So a nest egg calculation, which says, Okay, this is the number $3.65 million, but then what does that mean to me today? And we compare it to what’s currently in your retirement portfolio? What’s your contribution rate? How was it allocated? And then how does it compare, you know, to what you potentially need. So where are we running a deficit, meaning we’re behind on that $3.65 million? Or are we ahead meaning that we’re, you know, we’re overfunded? So to me, that’s, that’s the starting place. And again, it’s not a perfect, it’s not a perfect calculation, there’s a lot of assumptions in there in terms of investment returns and inflation and actually, when you’re going to retire and when you’re potentially going to die, we’re estimating all that which you would do anyway, in any type of, you know, scenario analysis. But to me, that’s the best way I think, to make that big number that kind of unknown, a little bit more digestible. There’s other ways that you can look at it, where there’s Monte Carlo analysis where you’re looking at, you know, a randomize portfolio return or other things that are related to you know, economic variables that you can say, hey, we’re going to run 1000s of scenarios and what it shows you is, hey, you’re a 85% chance of success. And that one chance of success means is that there are assets left, at the end of the plan, whether you set that for age 90, 95, 100, or whatever that is, that kind of is the next level. The rule of thumb is, you know, what people have heard of is a 4% rule. So, you know, if you’re, if you’re looking at your optimal savings plan, and you have $500,000, in retirement, if you use 4%, that means you have $20,000, over a 25-30 year return. So you might say, Hey, that’s not enough. I need more. So obviously, the right way to reverse engineer that, Tim, is to say, Okay, what do you need, if it’s 40,000, use a 25x, ROI, you need a million dollars, and that’s just a 4% rule inverted. So to me in terms of practical things that I wish I would have a listener, you know, it’s like, okay, are you getting the match, get to that race to the 10%. So your employee contribution, again, this is a vacuum. You know, I’ve talked with prospective clients that had lots of credit card debt, and other things that are going on, I wouldn’t necessarily prescribe this for them, but you know, get to the 10% employee contribution, then eventually, you know, get to a phase where you’re maxing out, and then use IRAs or brokerage accounts to kind of supplement along the way as you can. So, but remember that this is a problem set, Tim, that I think a lot of people think that they have control over that they that they don’t. You know, there’s a there’s a stat that says 40% of people don’t work to their expected retirement age, either because of health issues, or they were eliminated from a job, etc. You know, those types of things, I think where in my mind, I’m like, probably work till I’m 70 and Shay is 65. But, you know, I could lose my marbles was between, you know, before that, like, who knows? So, you know, I think I think, the best time again, I’m a planner, so I’m biased, but I think the best time to plan is now and the sooner you can kind of look at where you’re at and kind of be able to adjust where you need to go, the better. You know, one of the things that I would always kind of lament working with at my last firm was that we only worked with like pre retirees and retirees. So people would come off the street, and they’d say, Hey, I’m 55 years old, I’d like to retire in the next five years, I have $50,000, to my name, I have credit card debt, but like, it was almost like doesn’t, it doesn’t add up the math is not mathing. And so those are yeah, those are all the kinds of things that go into this. And it’s, it’s a huge thing to kind of deconstruct but I think, you know, looking at this as in a vacuum is not necessary ideal. You want to look at all the different parts. We talked about this with our own plans, and kind of, you know, where we’re trending and things like, you know, but it’s, it’s a big question, I think, and there’s just a lot of ways that kind of, you know, look at it. Yeah,

Tim Ulbrich  12:46

The thoughts that are coming to mind, as you’re talking, Tim, is I think there’s risk here to oversimplify this and be overconfident in this. And what I mean by the over over simplification is like, you can run numbers in a calculator. But if you’re not having some of the important discussions and questions of the inputs into that calculator, then we’re not doing the work that needs to be done, right. You mentioned like what what do we mean by optimal? Like, what does that actually look like? What does it mean to be living a wealthy life and retirement? As you mentioned, some huge variables of are we working at all? Are we working part time? You know, is this 55? Is this 64? You know, might we be caring for elderly parents? What does travel look like? What are all these things? And then, you know, when we think about even that word, retirement, I think can carry meaning that you and I might look at that word and say it means two very different things, right. And so, you know, when you talk about the nest egg calculation, to me that that is where the value really lies, to me the short answer of how do you determine the amount of savings needed for retirement? Nest egg calculation, three words. But to do the nest egg calculation and put in all the inputs and variables, which again, as you mentioned, are assumptions and things might change and move. And there are things that we think we have control over that we don’t, but it’s the closest we can get, and we can modify or update that look at it over time. In order to put the numbers in the calculator, we got to have some really good conversations. And this, to me is really where the planning comes to base, we’re not just trying to shove money away into accounts that were, you know, like, somebody said, I should put money in a 401 K, or an IRA or an HSA or whatever. Or we’re looking at these big scary numbers in the future thinking, Am I ever gonna get there? Looking at the individual variables, having the discussion and the conversations, answering those questions, plugging those in. And then as you mentioned, bringing it back to today. So important. Especially for the people that you know, for someone who’s two, three years out from retirement, that may not be as critical as for someone who’s in the middle of their career, or even in the front half of their career where, you know, we got to come up with a number that I can actually put my arms around and do something with today because otherwise I’m gonna look at this number 30 years in the future 20 or 40 years in the future and say, the math just doesn’t even seem possible.

Tim Baker  14:58

Yeah, in one of the things that when we go through the Script Your Plan, which is our second second meeting, and the way that we kind of start building a financial plan, we go through what’s called a Get Organized meeting, which is we bring up the client portal. And we’re basically trying to get to like a clean snapshot of what the balance sheet looks like. So the assets, the things that you own, minus the liabilities, the things that you owe equals your net worth. And our job is to hope, you know, the idea is to kind of grow that quantifably to get your, you know, your net worth grow over time. The second piece of that is Script Your Plan, which is all about like goal setting, right? So it’s like, Okay, now that we know where we’re at, where are we going? And with those two things in place, that that answer of it depends that I always give, Tim transforms into this is given your balance sheet, given your goals, Tim, this is what I think you should do. So it’s no more It depends. Because like, we know, you, we know what your goals are, we know what your passion is, this is what your goals are. But part of that Script Your Plan exercise, when we would kind of talk about a timeline, you know, we I would ask the question of, hey, like, it’s July 2024, let’s fast forward a year, what is success? And you know, what does success look like? And then we go three years, five years, 10 years, 30 years. The further you get out, you know, the further away that you go, the harder it is for you to kind of imagine that self. So with retirement planning, you know, the way that you know, with the way that I would do this, it’s like, I kind of, you know, I would say, hey, let’s get into the DeLorean. Let’s go 88 miles per hour, rev it up, we get out in, let’s see, 2054. So it’s 30 years from now, what does success look like? And for a lot of people, it’s like, I don’t know. So I’m like, okay, like, how much? How would your dad, you know, if I’m, if I’m 40. My dad’s like, imagine yourself, as your dad, like, pitch yourself, as a seventy year old, what does success look like? So it’s just like, the next day where we’re trying to, like, equate the numbers in from a from a Script Your Plan from a lifestyle perspective is, the further that gets out, the harder it is for us to kind of relate to our 10 year older self,  20 year older self, 30 year older self. So if there is a group or a person that you know, very closely that you can say, okay, like, if I’m in their shoes, and you probably do that, anyway, I’m like, oh, like, when I’m retired, I’m not going to do what my parents are gonna are doing, or I am going to do what my parents would do. So you can kind of like, take that, but even 10 years out, Tim, if you look 10 years back, from, you know, if you look back to 2014, how much of your life has changed over those 10 years,. You know, like, like, things like time flies, but, you know, to me, it’s like, you look at, you know, time is so hard for us, as humans can conceptualize. And it’s no different in in something like this. So I think it’s like, really kind of going through those, like thought experiments and, you know, kind of assessing, because I think so much of this is really about the numbers. But when you deconstruct this, it’s really not. You know, I think, you know, if you’re working with a financial planner, again, shameless plug, I think the numbers are going to be fine. Especially if you have enough time, you know, the longer that you’re engaged with, with a plan, the more success, you know, you know, whatever version of success. It’s the people that don’t, I think is where you kind of run into problems. But to me, it’s really important to kind of deconstruct like, the answer that question is what is optimal, and then plan around that, you know, the nice thing about, you know, having decades so to speak in a financial planner, is that the micro things that you do today really steer that frigget to where you can have success, you know, in the long run, so. But it’s an interesting, you know, it’s an interesting problem set, because it is a huge number. And it’s far in the future for a lot of people, it just, it doesn’t seem real, you know, I have a lot of people that, you know, will work with us in their 20s and 30s. Like, I’ll never be able to retire. And when we show them how, you know, the math to get to that, like, I think that’s transformative. Now, I think the second piece of that is like, okay, like, what is a happy retirement? What’s a successful retirement and I think people are starting to figure that out, but it’s not necessarily a destination, right? It’s just the next chapter. And, you know, especially with sometimes pharmacists, or like highly, you know, people that are higher achievers, you know, their role and identity gets really tied up together. And it’s like, okay, if you step away from your career as a pharmacist, like, who are you? What do you do? Like you know, and that and that for some people can be really difficult to kind of again, unbolt.

Tim Ulbrich  15:42

Tim, one thing I want to say and separate topic for another day that we can dive deeper into, we’ve talked about in the show before, but when you talk about time, being hard to really, you know, wrap our mind around, especially for folks that are early in their career, you know, your 2014 examples, a really good one when I think back to 2014, like it’s a distant memory and and it feels like Yeah, we were doing some savings and things now, but if it weren’t for things like automation, you could see how a 10 year period slips by you without having the intention out. This is why we believe so firmly in automation is an important part of plan. Yes, we got to do the hard work up front. Yes, we got to check in periodically. But once we start to kind of remove ourselves from that equation, and we do that hard work, and then we turn it on, whether it’s automatic contributions, it could be automatic savings buckets or other things, that’s where we’re gonna start to really see the progress and prevent this scenario where we say, How did those 10 years go by? And I didn’t make much progress on my retirement planning?

Tim Baker  19:32

Yeah. Yeah, I think it’s so important, because we just get into this, like, autopilot and you wake up. It’s like, where did that? Where did it go? 

Tim Ulbrich  19:56

Yeah. Alright, second question we have is, what are some strategies for dealing with market downturns during retirement? If we even zoom this out a little bit more? I’m guessing this person might be asking, you know, given the volatility, certainly the markets had a good run lately, but it’s been pretty volatile, right, you know, over the last couple of years. So for those that are, you know, in what you call that eye of the storm, around retirement, or coming up on, just got to retirement, or maybe they’ve been in retirement for a period of time? How do we address and deal with some of the market volatility?

Tim Baker  21:11

Yeah, so this is market risks, and you really don’t have any control over at all outside of like, taking all your money out, you know, take your investment ball home, and, you know, and go home, right? So like, this is where people get scared, they’ll go to cash, and they typically are selling low, but then they like, oh, the markets good now, and, you know, dip my toe back in, and they’re buying high. So you know, what you’re talking about a sequence risk where is where it’s basically, you know, when the timing of your retirement, and the distribution of your retirement accounts, matters a lot. Probably more so than most of the other investment or the retirement risks that are there. So to kind of zoom out of this first, Tim, this question is, you know, what are some so the question is, what are some strategies for dealing with market downturns during retirement. So what we’re assuming here is that you are no longer in that accumulation phase, you are in the deaccumulation, that withdrawal phase. But I think like the, the, my thoughts is, are consistent no matter where you’re at. You know, to me, the big things that I look at from a retirement portfolio is I want to make sure that you’re in the right allocation, and that you’re driving the expenses down as much as possible related to your portfolio. Now, what I’m taking, typically talking about here is like expense ratio. So the right allocation is probably the optimal, you know, the optimal term in and I think, if you look at the rule of thumb, that I don’t love is the rule of thumb in terms of like, how you should have your portfolio allocated is, you take 110, you subtract your age, and that’s the amount of stocks or equities you should be in your portfolio. So if I’m 40, you take 110, minus 40. And I should be in a 70%, stock portfolio and a and a 30%, bond portfolio, which I think and it’s very much a linear thing. So as you as you age, go, 60/40, 50/50, etc, etc. I think that that’s wrong. I don’t think that that’s a great rule of thumb. I think that, to me, I look at this almost as like a, my, my strategy or my thought process is more like a cliff. So my thought is like, you know, if I’m 40 years old, and I have 30% of my allocation in bonds, I think that’s a mistake. And if we, if we zoom out, you know, if you look at stocks, and again, not all stocks are created equal, but in broad strokes, stocks are typically there’s a higher potential for growth, with a lot more volatility. Bonds or fixed income, there’s less potential for growth, but less volatility. So there’s more of an exponential growth with stocks and more of a linear growth of bonds. So, to me, what you give up during the accumulation phase, if you’re in your 40s, is you give up a lot of the market, the market is still gonna go up, but I equate it to like, if you’re in mostly equities, it’s gonna be kind of Rocky Mountain in terms of ups and downs. If you put bonds and there’s more Appalachian Mountains, there’s a little bit more, you know, you know, there’s less ups less downs, but they’re still they’re still that. So to me, I think that, uh, mostly equity, you know, again, this is not investment advice, but I think like maybe mainly in equities in your accumulation phase. And then when you get to five to ten years before and after your retirement age, that’s when you’re going to, that’s when you’re really going to manage the sequence of return risks that you mentioned. So think of that as like the eye of the storm. So let’s assume that my retirement age is 65. And I’m being as conservative from a timeline perspective, at 55. That’s when I really am going to kind of that’s what that’s the cliff where I’m going to say, Okay, I’m now no longer going to be mostly in equities. That’s where I’m going to be the most conservative and go to bonds. So instead of this glide path, where I’m going from 100% equities to 80, 90, basically, I’m not doing that over a period of years, I’m doing that right when I hit 55, and that’s where I’m going into more of a balanced portfolio, which could be a 60/40, or 50/50. And then over those years in that either storm, so 55, to 75. And the most conservative sense, that’s when you’re gonna be the most conservative in terms of your balanced portfolio. And then when you come out of the eye of the storm, that’s when you start ramping up the equities, again, whether that’s 60/40, 70/30, 80/20, which is very different than kind of the, you know, most people, it’s like, oh, you’re in your 80s, you should be in a 20/80 portfolio or whatever. And a lot of people, it’s, it’s not sustainable. So the the eye of the storm is to kind of get through the sequence of return risk. So, you know, and again, the most successful retirees are the ones that are most flexible. So if you go through like the subprime mortgage crisis, or the.com crisis, and your portfolio goes from a million to 700,000, and then you’re drawing $50,000, you know, for the next couple years, the portfolio and a lot of cases are going to fail. If you were to delay your retirement and wait for the market to recover two years later, it’s completely different scenario. So that to me, is what we’re talking about here. So you know, the strategies for dealing that is, I think the best thing is the being the right allocation is to not do what you’re feeling. So I always talk about do the opposite of how you’re feeling. So if you get scared, a lot of people should go cash and a lot of ways you should be doubling down and investing. Another thing that we’ve talked about in the in the in this forum, Tim, is something like an annuity, which is hard to really wrap people’s minds around, but like if I can peel off $300,000 from my portfolio, to supplement Social Security to say, Okay, come hell or high water, I’m gonna have the steady check between social security in my annuity, regardless of what’s going on. For that, for a lot of people, that’s a peace of mind. So like the the market volatility is not as as big a concern, because I’m like, I don’t I have all my basic necessities, necessities handled. Right. So the mental thing of like an annuity might be might be a big thing. Being flexible, as I mentioned in, it could be a bucketing approach where you’re like, hey, my, my near term bucket, my zero to five year bucket is spoken for me and I have that in cash or tips, I’m good. So I don’t care what the market does, you know, as long as it’s recovered in the next five years for me to kind of replenish that bucket. And this is where we’re basically have a short term and medium term, and then a long term bucket. So short term, zero to five, medium term, six to 15, long term 15 plus, and then those buckets kind of replenish themselves as time goes. If there’s, if we’re in a time where the market crashes, but I still have $100-$200,000 in my cash bucket, I don’t really care, I’m hoping the market will return in that period of time to replenish that cash bucket. And typically, it should. A lot of the most, you know, the Great Depression in the Great Recession, you know, those recover those market recoveries aren’t decades. They are typically, you know, two to six years, two to seven years, that type of thing. So that could be that can be something as well. So, you know, the market, the market does what the market does. And I think those are that are best positioned like they they understand that. It’s not, you know, we’re not trying to like game the market, outside of very few people in the history of the market can can beat the market and kind of, you know, foreshadow what’s going to come. So it’s, it’s being in the right asset allocation. It’s keeping your expenses low. And being consistent with that structure. I think we’ll get people through any of the see any of the seasons that you’ll see over the course of an investing career.

Tim Ulbrich  28:42

Tim, let me mention a few resources for people that want to dig deeper, and this will link to these in the show notes. It’s been a while but we did a whole series on retirement planning, digging into the question of how much is enough, some of the alphabet soup of different accounts, building a retirement paycheck, things that you’ve been talking about that was episodes 272 through 275. Again, we’ll link to that in the show notes. And then 305, episode 305. We did a primer on annuities, a lot of myths, conceptions around annuities, we try to break those down, understanding what they are: fees, costs. That was a great episode. Again, we’ll link to it in the show notes. And then several of the risks that you’ve talked about, we put together a guide that’s all around understanding retirement risks. So it’s Retirement Roadblocks: Identifying and Managing 10 Common Risks. It’s a free guide that we have available. One of the most popular resources we have, again, that will be linked to in the show notes as well. Tim, one thing that struck me is you were talking you mentioned flexibility, right is a key. And this is a piece I think that pharmacists have a benefit of, right. Many pharmacists work in a position, whether that be hospital, whether that be community practice where they have an opportunity to do something like PRN shifts or work part time and make a good income. And so, you know, maybe the game game plan was a full retirement at 55, but because of some of the things that you talked about, maybe they either choose to work longer, full time or hey, if they want to pick up 15-20 hours, making $60-$65 bucks an hour, a lot of pharmacists have the opportunity to do that. And so I think that flexibility piece can be really important, specifically to our audiences as they’re thinking about retirement.

Tim Baker  30:12

Yeah. And what I This, to me, this stat still like is unbelievable to me. So this was these two stats were put out by a paper called The Power of Working Longer published in January 2018, by Stanford’s Institute for Economic Policy Research. And basically, it makes the case for working longer. That’s the best, you know, medicine for if you have a shortfall shortfall in income for retirement. But we talked about sequence risk Tim, so we know the market. So like, let’s say, you know, you know, 65, in, you know, 20 years from now, not quite there yet. But say the market is not going great. Deferring retirement by three to six months is like saving 1% more of salary for 30 years. Deferred retirement by one month is like saving 1% more of salary for the final 10 years. So, to me, there’s I know there’s a lot of pharmacists that are listening to this that I speak to, they’re like, I need to retire as quickly as possible. And I get it, I get it, I understand. But but to me, like the people that are most flexible from a lifestyle, from a timing, are going to be the most successful in terms of their retirement. So if you have a lever that you can pull that you can consult or you can do, you know, you can do a shift or medical, right, whatever that is, you know, whatever that that is like that’s going to benefit you and over and help the overall retirement picture. So those would be two stats, I would leave you with us on this question.

Tim Ulbrich  31:44

That’s great. And it’s a balance, right? We talked about this all the time, it’s a balance between, hey, you make enough of these concessions. And you could always argue, hey, I should keep working longer, right? So we’ve got to get back to like, what’s the why, what’s the purpose, but also be in tune with those numbers, which aren’t wild when you talk about one month of employment, and the impact that it has in terms of dollars that could have been saved. Our next question: how to different investment options such as stocks, bonds, real estate impact retirement savings? And I think, Tim, this is a really interesting question, because one of the things we lose sight of when we talk about nest egg calculations, retirement planning, we talked about these big numbers, 3 million, 4 million, 5 million, is that not all dollars are created equal? Right? Both in how are they invested, and the types of investments in which they’re in and then eventually, how they’re utilized to build the retirement paycheck. So what are your thoughts here in terms of how do different investment options impact retirement savings?

Tim Baker  32:37

Yeah, so this question is really about like asset classes. So when we talk about a traditional portfolio, you know, there’s a, we talked about a high level, you know, a 90/10 portfolio and it would be 90% in stocks or equities and 10% in bonds or fixed income. That 90% you can, you can draw even a finer line, you can have large cap, mid cap, small cap, you could have international funds, you could have emerging market, you could have commodities, you could have, you know, you could have sector funds that are just in biopharmaceuticals or whatever. You could have digital assets. So, the big news this year was that they released spot Bitcoin ETFs. Last week, Tim, they released nine, eight or nine spot theoreum ETFs, which have come on the market and started trading last Tuesday. So that can be part of your your asset allocation now, because they’re, they’re in ETFs. The bonds at 10%, you could buy a total market bond, or you could buy different types. You could buy munis, you could buy treasuries, you can buy a total market and international bond, like there’s lots of ways to kind of, you know, slice it. But you can also talk to, you know, real estate, you know, one of the things is like, you know, is it real? Is it real estate, you can hold real estate in a mutual fund or an ETF, or you can hold it directly. So, to me, this kind of goes back to the one of the earlier questions is, you know, the more stocks, there’s the potential for more growth, but more volatility and risk, the more bonds less potential for growth, but less volatility and risk. So I think, at a baseline, being in the right, asset allocation from a traditional portfolio is really important. And this is what I’m talking about is, you know, should you be in an all equity or, you know, a 9010, and then hit that cliff and then go to a 60/40 or 50/50. That’s what I’m going to talk about from a traditional, but the things that we have to overlay, Tim, and I was talking about this with you a couple of weeks ago, I was kind of lamenting the fact that we talked about like tax allocation with retirement with your, your investment assets. So we kind of talked about we went a little bit in column A, Column B, Column C. Column A would be pre you know, like traditional. So pre tax, so these are, you know, traditional 401 K traditional IRA, etc. Then you want a little bit in Roth, which is kind of tax free since you’ve already paid  the taxes. So this is like And when you pour out a Roth, if you have a million dollars, all that million is yours because you’ve already paid the tax man. And then the last one is a taxable account. So I was looking at my taxable account as a percentage of my portfolio, I’m like, oh, that’s exactly where I want. Now, I don’t have any designs on retirement before 59 and a half. So I don’t really need, that’s typically what you use a taxable account for the purpose of retirement. But I know like when I sell my real estate, that’s probably going to go into a taxable account. So like, like, right now, I know the plan is, it’s kind of unequal scales, though, they’ll be equaled out in the future, or when I sell my share of our business like that will probably go into partly a savings account, but partly a long term investment, you know, in the form of a taxable account. So to me, that plays a part of this as well. So I think the the idea is to be in the right asset allocation, as opposed to what I talked about, typically, the one that you’re it’s going to be more stock heavy is going to have more volatility. So the closer you are to retirement, or in retirement, the less you’re going to want to have, although it’s still needed for the kind of that longevity risk of like not live outliving your savings. Real estate, it’s going to be typically how you know how your whole net, whether you are a landlord, or if it’s in a fund. But the things that we haven’t really talked about this, as part of this is things like digital assets, things like commodities, cash – right now, Tim, you could, you know, with our cash accounts at YFP, it’s paying like 5.1%. So I’m looking at that, and like, if I’m a retiree, if I can park, my short term bucket there, I’m pretty happy with that return. Now, I know inflation has been ticking up higher. So maybe need a little bit more to offset that. But these are all the things that kind of construct the retirement, you know, savings and retirement assets. And I think, you know, doing it with a traditional portfolio, but then overlay in some of the other things that you have going on, you know, if you have a pension, that’s going to affect how you retire, you know, your allocation is, because if you have a if you have a pension plus social security, you might not have to be super conservative, because you might say like, Hey, my, most of my things are handled, or if I buy an annuity, I can be more aggressive, because I’m not going to have to withdrawal that as aggressively as if I didn’t have that annuity or that pension. So there’s lots of different things. But I think the rule of thumb is kind of looked at your stock to bond, you know, ratio, and understand that with stocks, again, more growth, more volatility. With bonds, less growth, less volatility.

Tim Ulbrich  37:30

And I think you just gave a great example there, why blanket asset allocation recommendations don’t work, right? Because, you know, if someone’s listening, and they have a pension, and they have social security, or maybe they have an annuity, like the floor that they’ve created, is completely different from someone else that maybe doesn’t have a pension or annuity, And therefore, they’re going to rely more on withdrawing from their investments. So how much risk they take with the remaining amount of whatever’s investable, and whatever buckets they have, could be very different based on you know, what those are? And I think this question gets at a couple different aspects of asset allocation, which you talked about nicely, but also a conversation. We don’t have enough, which is that d cumulation. Building that paycheck from what buckets are we taking from and how do we do that? And what order tax strategies all those things? And I think for people are listening that maybe have done the hard work, are nearing retirement, have two, three $4 million saved whatever the number is. That’s great. Now, hey, are we thinking about the decumulation side of this?

Tim Baker  38:30

Yeah, and that was one of the reasons, Tim, after going through the CFP coursework, you know, I decided to do the Ri CP, which is Retirement Income Certified Professional, because it really tackles that question that the CFP I don’t think does the best job. CFP is all about, okay, accumulation of accumulated assets and what that looks like. But once you get to that, that’s not the destination, then the next chapter, how do you take these buckets of money and build a sustainable, sustainable paycheck over time? Unknown, right. And actually, one of the open questions in in that is like, if you do build a floor for a client, and they’re, you know, they’re a 75 year old, but their allocation is something like 90/10 or 80/20. A lot of regulators will look at that and be like, that doesn’t look right. But you know, the justification, that’s why you can’t have a blanket, you know, yeah, one rule for everyone. The justification is like, we really don’t have to draw that much from that portfolio. Because, right, the floor is the floor, right? So I remember that being kind of like, oh, that’s odd. Because, you know, again, most, most planners, they kind of they go, they get social security in place. And then they say, Okay, what’s the total return? What’s the best optimal way to get the portfolio through the all the retirement years, but it’s much more nuanced than that. And I think, you know, it’s important to understand that.

Tim Ulbrich  39:54

And that’s why for the pharmacists that are listening, that are working for an employer, like the VA or whoever that still has a pension plan, be grateful for that. They’re not they’re not common, but it’s gonna play a huge role when it comes to building that floor  and creating that retirement paycheck. We’ve got lots more retirement questions. I’m gonna hit pause there. We’ll tackle more of those in future episodes, we’ve done a lot of information in a short period of time again, we got more resources. If you’re listening to this, and I want to learn more, make sure to check out the YFP podcast again, we’ll link to some of these older episodes in the show notes. You can go back and learn more, we’ve got more information on the YFP blog as well. We have more webinars that will be forthcoming related to retirement retirement planning that Tim and the rest of the team will be leading. So be on the lookout for those as well. For those that are listening and said, Hey, I really could use some one on one help with a qualified, certified financial planner, we’d love to have the opportunity to talk with you to learn more about your situation to see whether or not what we offer is a good fit in the form of fee only financial planning and or tax planning. If you’re interested in a discovery call with Tim Baker to learn more about the services, you can go to yourfinancialpharmacist.com you’ll see a link there to book a discovery call. Thanks so much for listening, Tim. Great stuff. We’ll catch you again next week.

Tim Baker  41:03

Sounds good.

Tim Ulbrich  41:06

Before we wrap up today’s show, I want to again thank this week’s sponsor of the Your Financial Pharmacist Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% downpayment for a single family home or townhome for first time homebuyers and has no PMI on a 30 year fixed rate mortgage. To learn more about the requirements for First Horizon’s Pharmacist Home Loan, and to get started with the pre approval process, you can visit yourfinancialpharmacists.com/home-loan again, that’s yourfinancialpharmacist.com/home-loan. 

Tim Ulbrich  41:51

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

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YFP 368: How Much is Enough for Kids College?


Tim Baker helps parents navigate saving for their child’s college education, from projecting costs and balancing goals to 529 plans.  

This episode is brought to you by First Horizon.

Episode Summary

Most parents desire to contribute toward their child’s college tuition; however, knowing how much to save and plan for can be a bit of a moving target. How much is enough to save for college?

Tim Baker, YFP Co-Founder and Director of Financial Planning, lays out the financial roadmap to help parents navigate the complexities of college savings. Tim emphasizes the importance of prioritizing college savings, projecting future costs, and balancing these savings with other financial goals. He also breaks down the benefits of starting early and making consistent contributions to make the goal more attainable.

Learn more about education savings options, including 529 plans and Coverdale education savings accounts. Tim also shares the ⅓ rule for funding college education that listeners may find make the reality of saving for their child’s future education more attainable. 

This episode is brought to you by First Horizon.

About Today’s Guest

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

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

Key Points from the Episode

  • Saving for kids’ college, prioritizing investments, and mortgage options for pharmacists. [0:00]
  • Saving for kids’ college, varying opinions on approach. [2:13]
  • Prioritizing investing for kids college amidst other financial goals. [6:05]
  • Financial planning for education costs, including 529 plans and other options. [11:13]
  • Education savings options for kids, including 529 plans and UTMA/Coverdale accounts. [15:41]
  • 529 college savings plans with potential tax benefits and flexibility. [21:08]
  • Saving for college, including 1/3 rule and assumptions. [25:23]
  • Saving for college using 1/3 rule and financial planning tools. [30:02]
  • College savings for a 9-year-old girl, with current balance and projected needs. [34:39]
  • Saving for children’s education expenses. [38:39]
  • Saving for college and financial planning with a certified financial planner. [42:56]

Episode Highlights

“So your retirement should come before your children’s college tuition. There’s no financial aid in retirement, and there’s still a good amount of that, you know, for your kid’s schooling.” – Tim Baker [9:54]

“The further we go in the future, the more uncertainty. But we can make some educated guesses and conjectures. Again, it goes back to the whole idea of, it’s more about planning than the plan, because life happens, things change.” – Tim Baker [13:36]

“Saving for your kid’s college is just like your retirement. It’s like when I say to clients, hey, you need $2 million to retire, you are looking at me like I have 2 million heads. It’s a big number, way in the future. The same thing holds true with education. It just feels more than what it actually is.” – Tim Baker [43:01]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, Tim Baker and I revisit saving for kids college, a topic that is top of mind for both of us in our own financial plans. Before we answer the question how much is enough when it comes to saving for kids college, we discussed the priority for investing, including where kids college savings fits among other goals, and the differences between common vehicles that are used for saving for kids college. Let’s hear a message from today’s sponsor, First Horizon, and then we’ll jump in our discussion of how much is enough when it comes to saving for kids college. 

Tim Ulbrich  00:40

Does saving 20% for a down payment on a home feels like an uphill battle?  It’s no secret that pharmacists have a lot of competing financial priorities, including high student loan debt, meaning that saving 20% for a down payment on a home may take years. For several years now we’ve been partnering with First Horizon, who offers a professional home loan option AKA a doctor or pharmacist loan that requires a 3% downpayment for a single family home or a townhome. For first time homebuyers, has no PMI and offers a 30 year fixed rate mortgage on home loans up to $766,550 in most areas. 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. While I’ve personally worked with First Horizon before and had a great experience with Tony and his team,  don’t just take it from me. Here’s what Emily from Prattville, Alabama had to say about her experience with First Horizon: “Clear communication and excellent guidance from Gail and Cindy throughout the entire process. I greatly appreciated the fact that everything was digital, because I’m allergic to paper, the ability to upload inside everything digitally made the process very efficient, which I prefer. This was by far the best mortgage process I have experienced. This is my seventh when counting refinances.” So 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 yourfinancialpharmacists.com/ home-loan. 

Tim Ulbrich  02:13

Tim, it’s good to have you back on the show.

Tim Baker  02:15

Good to be back, Tim, how’s it going?

Tim Ulbrich  02:16

It is going well, this is gonna be a fun one. We’re discussing a topic that is top of mind for both of us in our own financial plans. I’ve got four kids 12 and under, you’ve got three kids nine and under. And we’re in that prime window where saving for kids college is getting real, right? We look at our older children and say, Hey, that’s not too far off. And it really begs the question, are we on track? And I don’t know about you. But for me, it feels like early on when the boys were much younger, younger it was this concept of hey, let’s start putting money away. And we’ll worry about that later. Worried about that later is right now.

Tim Baker  02:55

Yeah, life comes at you fast, right, Tim? So, you know, a lot of a lot of people, you know, they might say, hey, I’ll get to that, or, you know, I talk to prospective clients all the time and it’s like, yeah, I really want to, I really want to put money away for my kids college. And I’ve been thinking about it for a while. And, you know, I’m like, Well, how old is your son or daughter? And it’s like, oh, they’re eight? You know, so how long did you think about this? For eight years. So it is one of those things that sometimes that’s true, that holds true for retirement too, Tim so, you know, it’s it’s one of those things where the sooner you bet, you know, the sooner you do it, the better. You know, it makes, it makes the amount that you are, you know, your what you’re trying to do easier to kind of achieve. So, yeah, we’re right in the thick of it and and hoping that, you know, the cost of college, you know, doesn’t continue to kind of inflate at what it has in the past. But you know, no control over that, obviously.

Tim Ulbrich  03:48

Yeah, and we’re going to talk about that specifically because when we get to the part of trying to determine how much is enough, we got to make some assumptions on what is going to be the cost of college into the future. Now for those that are listening, that have kids that are butting up against college, we know what those numbers are going to be or likely be. But for those that have kids that are much, much younger, trying to project out 15, 16, 17 years, what college costs may look like, can certainly be more more challenging. Tim, I want to get your perspective on what seems to be a varying philosophy around saving for kids college. I recently published a poll on LinkedIn asking individuals how are you approaching saving for kids college and there was over 260 people that responded and here Here are the results. 30% said that they plan to fully fund their kids college. 61% said they plan to partially fund and just shy of 10% said you know what? They’re on their own. Kids got to figure it out on their own. So when you hear that and interactions you’ve had with clients and anything surprised you there?

Tim Baker  04:54

Um, I am surprised, I am a little surprised. I feel like, I feel like the 60% of like the partial would have been a lot more. Like that would have been closer to like 80. And they may be like 10 and 10. On, you know, the they’re on their own, or I’m going to do 100%. So that that’s probably the only thing. Because yeah, I talk to clients all the time. And it’s, it’s, it’s, it’s those three things. It’s like, Hey, I went through this. So my kid has to go through it, I went through this, I never want my kid to go through it. And then that in between of like, I want to provide something but I just don’t know what that is. So little surprised by the percentages, honestly, how big of a sample size was that?

Tim Ulbrich  05:37

Over 260 people. So pretty large group that responded. And there was a couple of comments that I think really, you know, drive home some of the differing opinions, and everyone obviously is there on their own journey. One person said, quote, they want to partially fund they referring to the kids, they need to have skin in the game. I’ve also heard of parents giving their kids cash directly for any scholarships they get. That’s a neat way of incentivizing working hard for them. Someone else said, Hey, would love to fully fund, but also need to look at my future and retirement. We’ll talk about that here in a little bit as it relates to the priority of investing, and how we want to think about kids college among other competing financial goals. So we’re going to break today’s discussion into three parts. Part one is going to be just that we’ll talk about the priority of investing, where might kids college fit into the broader part of the financial plan? Certainly, this is not investing advice, but some considerations there. Part two, we’ll talk about the common vehicles. And we’ll spend the most time on the 529 plan. And then part three will really spend time answering the question how much is enough. And I’m excited about that part because this is a piece that we haven’t drilled down into the details as much as the other two and for reference will link to these in the show notes. But we have talked about kids college previously, on the podcast, episode 195, we talked about how to save for your child’s education, and Episode 211, we talked about the ins and outs of the 529 college savings plan. So again, we’ll link to those make sure to check those out for more information. Tim, let’s start with that first part, which is the priority of investing. And I’m gonna go back to the comment that you made that, you know, for some people, especially when they came out with six figures or more of debt, you know, I’m thinking about my own journey of a couple $100,000 of debt, there can be a reaction of, hey, I never want my child to have to go through that either at all or something along those lines. And therefore, I’m going to start shoveling money into kids college savings accounts as early as possible. And not necessarily think about, you know, where that might lie in context with my own retirement savings or emergency funds or other parts of the financial goal. So it begs this question of where does kids college savings fit as a priority as we think about other investment vehicles or options? So what are your thoughts on that?

Tim Baker  07:56

Yeah, so, you know, I’ve had these conversations where people are like, I really want to get started and, you know, save for Jonny’s education or whatever. But you know, we’re looking at $25,000 in credit card debt, right. So not something that should be a high priority. We have to get through the consumer debt. So obviously, like, if we talk about the baby steps, we want to make sure that consumer debts in check, Tim, we want to make sure we have a proper emergency fund. Still a lot of people don’t, you know, come to the table with that. And that’s something that we have to work on. And what is a proper emergency fund? Where should we put it? It’s not an investment. Those that are based on I think, are the the big things, I’d be looking at it. You know, I think beyond that, you know, I think what most people would agree is shift into retirement and looking at what that looks like, you know, do we have a match? At least get the match? And then I think based on that, and again, I would be doing a retirement projection and a nest egg projection, I’d want to make sure that like some of the wealth protection stuff is sure enough, like, do you have the proper life insurance disability, that we have the state planning documents in place, all that kind of stuff, to then get back into the conversation of okay, what’s the next step after this? So a lot of people again, and the analogy that I like to use is like when you’re on the plane, and, you know, they say, Hey, if we lose cabin pressure and the mask come from, you know, that’s a really crappy situation, that’s not going to be fun. But put your mask on first, right? Put your mask on first before you you, you know, handle your your kids. So that’s going to be the same when we’re talking about retirement and an education plan. So your retirement should be should come before your children’s college tuition. There’s no financial aid in retirement, and there’s still a good amount of that, you know, for your kid’s schooling. We might get to a point Tim, where we’re not going to see the money flow as much for you know, for college loans and financial aid and things like that could be a real thing. reckoning that’s happening. However, I think there will always be alternatives, whether that That’s, you know, community college or trade schools are things that you can do that or at least get started. So that, to me is the big thing. I think when you get into the nuance of, of retirement, you know, the question I would I would ask to that person that clients like, are we on track for retirement? And if we are, obviously, like, let the money flow from an education perspective. If we’re not, that’s where I would want to, you know, and I think what a lot of people to Tim, they, what they do is, it’s not even really a question about what bucket they should fill. Part of it, part of what drives us is the tax benefits related something like a 529. So in Ohio, you can get up to $4,000 per student, regardless of filing status that is per year off of your Ohio State income tax. So a lot of people see that be like, boom, that’s what I’m going to do, or I want to get a portion of that without kind of doing the ABCs of where that should go. So I think outside of the match, I would say get the match. But then there’s probably a little bit more nuance in terms of like, okay, how do we then go from here, in terms of, are we putting more into the retirement? Are we are we putting more, are we starting to kind of, you know, flow monies into education planning.

Tim Ulbrich  11:13

Yeah. And what you’re sharing right there to me is such a good example of the benefit, one of the benefits of comprehensive financial planning. Because at the end of the day, we only have so much income to work with, hopefully, we can increase that income. We can only cut our expenses so much, and we’ve got a certain amount of cash flow, that we’re going to be able to assign to different financial goals, right. That could be building up an emergency fund that could be paying down debt, that could be a real estate purchase, that could be put money in a 529, that could be retirement savings for the future. And so we’re left with this decision of, hey, I’ve got all these balls potentially, to juggle in the air. How am I going to do that? And then what order? Second to it depends, probably the most common thing that we say on this podcast is you can’t make decisions in a silo when it comes to the financial plan. We’ve got to be able to take a step back and look at all the different factors so that we can see, okay, well, if I pull this lever, then what’s the impact of this part of the plan? Right? Because by pulling that driver putting money in a 529, that means we’re not probably doing something else. And are we okay with that or not? Okay with that. And if we project that out, what does that mean, for us in terms of achieving our financial goals? The other thing I would mention, and I know this episode is not focused on what we think is the future of higher ed. But because I spent over a decade in that space, I feel the need to comment, like, when you talk about something like the contraction, potentially, of access to financial aid and student loans, man, you’ve got to believe that if that were to happen in the future, there would be a significant shift in the business model of higher education at large, right? It’s already on the brink, I would say of some level of disruption, if that’s not already happening. And if there’s less resource going into the system, what does that mean, in terms of what the actual infrastructure looks like? The degree offerings, the supply and demand. So I think that is a relevant comment because one of the lingering questions behind all of this, especially for those very, very young kids is, what will this model look like in 15 to 20 years? What will the cost be? And that we need to know, or at least project out to some level to be able to do some assumptions? 

Tim Baker  13:20

And sometimes with uncertainty, Tim, like, we can do one of two things, you know, it’s like, Well, I haven’t seen people do this with retirement, it’s like, I don’t really even know. So they maybe they over save? Or perhaps they just kind of throw their hands up there. And like, okay, whatever I have, I have. So, you know, it is a little bit you know, the further we go in the future, the more uncertainty we have, again, we can make, make some educated guesses and, and conjecture, but again, it goes back to the whole idea of, you know, you want to be you want to, it’s more about planning than the plan, because life happens, things change. And the reason I’m kind of, you know, distracted, like, I’m looking at my numbers, Tim, and we’ll go through this later, but like the numbers for like, Olivia is four year like, they went up from the last time I talked to talked about it. So I’m like, Oh, I gotta update these numbers, because they’re a little bit out of date. And what that means is, like, when I looked at these last month, the inflation numbers associated with education were higher than what they were a month ago. So the tool that I’m using was updated. So I’ve kind of updated my calculator to kind of back into that. So like, it’s planning now again, like for Olivia, who’s going to turn 10 This year, I still have eight years to kind of, you know, plan and figure this out, which makes it easier. The closer we get, obviously, you know, when she’s 16 We’ll have a little bit more of a picture of what education looks like but a whole lot less time to kind of change and plan you know, plan for that. So yeah.

Tim Ulbrich  14:48

So let’s shift gears and talk about the common vehicles. Again, we’ve covered this a little bit on previous episodes that will link to in the show notes, but there are various options out there right when it comes for saving for kids college everything from 529 plans which we’ll spend the majority of our time on, to the Coverdell Education savings accounts, UTMAs, Roth IRAs, heck, you could just open a brokerage account and save that way if people wanted to do that, but there’s clearly some pros and cons to these accounts and perhaps why the 529 has risen to the top for many, as you know, I guess if we get picked the most popular among this group, so tell us at a high level about those common vehicles that are out there and then we get into the 529s more specifically. Yeah,

Tim Baker  15:30

So the Coverdales, and the like the UTMAs and UGMAS are very similar. These are just custodial accounts that are like brokerage brokerage accounts, but they have the minor’s name on there. So the reason the Coverdale is aren’t as popular anymore, it’s because the amount of money that you could put in per year was like two or $3,000. I’ve actually I’ve never I might have seen one Coverdale account in my career in financial planning, so I don’t see them very, very often, the UGMAS and UTMAS, I see more often and actually have one for all three of my kids. And then all of my nieces and nephews is kind of my, like my nephew, Timmy just turned 10 yesterday. So I put money into as you know, he’s, he’s he lives out in Oregon, so I don’t see him as much I don’t really know what he’s into from a from a gift perspective. So I just put some cash into that. And the big thing for that, it’s like, I’m managing the account. I’m the, I’m the guardian on the account, once they age, once they reach the age of majority. So in certain states, that might be 18, other states that might be 19, or 21, that money is theirs, right? So so that for me is going to be a gift when all of my nieces and nephews and my kids like turn that they can use now they could use that for school. But they could also use that for something else, right? There’s not the strings attached like a 529 has where you have to use it for qualified education expenses. So with my daughter I’ve talked about it could be for school, it could be she’s talking about a gap year, I’m like, How do you even know what a gap year is you’re nine. It could be it could be to start a business, whatever that is so and that, and that, for me is a little bit more of a in your face vehicle for me to talk more about money on a long term basis, like right now we talk we have allowance and we have a save, spend and gift, this is kind of in the next thing. So that is a powerful tool, but not necessarily not necessarily just you know, for the purpose of education. Now, the big thing with that is like when they go to spend that money, capital gains tax is going to be a big part of that. So you have to you know, and that’s the same thing with, you know, like a brokerage account, if you’re just managing that for your kids, but their kid’s name isn’t on there. The other one that a lot of people will use is the Roth IRA, because you can take out the basis, you know, tax free penalty free. So you could use a Roth IRA, again, you could use your own Roth IRA, if your kid has like income, you could set up their own Roth IRA. So there’s a little bit of nuance there in terms of how you how you use that. I know a lot of people will use a Roth IRA, just because they don’t like the restrictions of the 529 just being used for qualified education expenses. So that’s something that people could use, I don’t personally use that, like I feel very comfortable with a 529, I feel very comfortable that the it’ll continue to continue to expand in terms of what you can use it for. So that really leaves a 529 in terms of vehicle. So the 529, Tim, is it’s a think of it as like a retirement account, except for education. So you can put after tax dollars in there, it grows tax free, you might get a state income tax deduction, like I mentioned, you can get $4,000 per beneficiary per year per person per beneficiary, in the state of Ohio. Every state’s going to be different, some states don’t have anything, some states have very generous, all all 529s are not created equal. So like you’re just some of them are gonna be really great. We were actually looking at the expenses the other day, and we were surprised that Ohio is a little bit higher than we thought. So you have to be cognizant of that. So you put the money in there, it grows tax free. And then if it’s used for qualified education expenses, which is typically tuition, fees, books, supplies, equipment, room and board, computer or like peripheral equipment or software, internet, that can all be you know, kind of, you know, part of that distribution. So, just like in a in a retirement account, you are kind of saving for, you know, 18 years or 10 years depending when you start so you have that accumulation period, and then that the accumulation period typically in retirement might be 10, 20, 30 years as you know until you until you die if you’re it’s typically four six, maybe eight years depending on what your goal is, you know from from an undergrad to, you know, masters, etc. So, that’s the big thing you put the money in, you invest it, a lot of them have target date funds, a lot of them you can you know you can pay the S&P 500. They grow the that tax free. And again, just to kind of reiterate that is, you know, when you buy when I buy XYZ ETF for my daughter in her in her UTMA account, we buy it at 100 shares, or $100 per share when she goes, You know, when she’s 18. And she’s now cashing that out, maybe that portion of her investment is $400 per share, which is great. But we have to pay the $300 per share capital gains and is going to be long term capital gains on that gain that we have. In the education account that you don’t have that. So that’s one of the benefits along with the state. So the UTMA, and the Coverdale gives you in the brokerage account gives you more flexibility in terms of what you can use it on. But there’s tax consequences, that’s the string. And I feel comfortable Tim, and we can talk about that a little bit more that there are enough outs for me from a 529, you’ll feel comfortable, you know, put in a good amount of money and into that to you know, to have for education, expenses. And if Olivia doesn’t need it, maybe my next kid or even grandkids.

Tim Ulbrich  21:10

Let’s talk about that flexibility for a moment. Because I do think that that is the probably the number one objection. Right. And and, you know, you mentioned the tax differences for those who choose to stay in a savings, you know, UGMA, UTMA or another type of custodian brokerage account. So the way I think about the 529 is this is like a Roth for college, right? It’s after tax dollars going in, it has the potential to grow or lose, right? Anytime we talk about investments and we can lose, but growth, hopefully long term tax free, then we could pull it out use it for qualified educational expenses, which there’s been an expansion of over the last decade or so. And that’s what I want to talk about flexibility because I agree with you. I think there are several things that maybe in the sense of of 529s were more restrictive that they’ve expanded upon. So right you think about what is considered to be a qualified educational expense, that would be one area that comes to mind. The expansion several years ago to allow these to be used for K through 12 private education, that’s a second one I think about. And then more recently, would be the Roth conversion opportunities, which is the third one. So it feels like all signs are pointing in the direction of more flexibility, not less when it comes to the 529s. 

Tim Baker  22:22

I think I think eventually, one of the things that got kicked out, was at the very at the very last minute with the Secure Act 2.0 was like homeschooling like that’s not that’s not you can’t use funds for homeschooling. I do think that, you know, again, like when I started advising people on 529s is back in the day, like you couldn’t use a 529 dollars to buy like a laptop for college. Like that was a restrictive thing. And they’ve they’ve improved upon that. Right now, like before, you couldn’t pay if you had, if you had money in your 529, you couldn’t take that money out and pay off a student loan without a penalty. Yeah, they they changed that now, it’s still restrictive. Like, it’s, I think it’s a $10,000 maximum limit, which is silly, in my opinion, just just use that that’s what it’s for, is that kind of, you know, minimize education expenses, like pay off the loan. Yeah, to your point, the Roth was a big thing that they put in and, and there’s, there’s a lot of, there’s a lot of hoops you got to jump through it has to it has to be open for at least 15 years or longer before you can move those dollars from a 529 into a Roth, right? The last five years worth of contributions are ineligible, right. So like, if you’re, if you put that if you put dollars in at 18, you have to wait until you know they’re past 23 to move those dollars over and the maximum lifetime transfer to a beneficiary is capped at 35,000. Which again, I also think is silly. 

Tim Ulbrich  23:49

Might change. We’ll see. 

Tim Baker  23:50

Yeah. And I think they will, I think I think there’ll be again as as I think it’ll adapt it more as like, if higher education looks a lot different. I think they’ll adapt that. They’ve shown that they will be able to and again at the end at the end of the day for me, Tim, and again, not everyone’s going to think this. But like if my kids don’t need it. Like I’m going to cascade that down to Liam to Zoey and if Zoey doesn’t need it. I’ll probably just let it ride for a grandkid. Or, or grandkids. So to me like I don’t, I’m okay I’m okay with that. Like I don’t need I don’t need to go to like, you know, every kid equally or or even my kids can kind of go down a generation. Not everyone’s okay with that. I had a I had a couple last week, Tim, that we talked about education hadn’t started anything and right off the rip they’re like I don’t want to do a 529 and I said like keep your keep your mind open. And part of it is like the tax, part of it is like are you okay with you know, everyone’s everyone’s like, I don’t know if you know, my kids are going to college, you might be different. We’re just all that’s all like fair, right? So it’s yes, we’re you know, a lot of us are open needs, when they’re one they’re toddler, who knows what they’re gonna grow up to be? But for me, you know, I think and again, I’m not looking at 100% solution. So I don’t necessarily need hundreds of 1000s of dollars, like, you know, if I was doing 100% solution. So this is kind of I look at this as kind of a coupon, you know, for future spending from the from the aspect of college tuition.

Tim Ulbrich  25:23

Yeah, and I think too, the other scenario to consider is, you know, when you talk about keeping options open, it’s like, what is the worst case scenario? It’s a 10% penalty, right, when we look at non qualified withdrawals. And the other thing I would add to the discussion, which by the way, nobody wants to pay a 10% penalty. So let’s be clear. But I would add to the discussion that there has also been an expansion beyond the what we think of the traditional four year degree, right. Trade school, certificate programs, apprenticeships like so I think we’re, that’s another example, we talked about flexibility. And I think, you know, for a lot of people, it feels like in the circles of discussions we have with other families of age around our boys about higher education, it seems like the trades is coming up more and more, as there’s some clear demand and in certain areas. So again, keep the options open. And as you begin to think about what what this looks like for you and your family, certainly there are options out there. And if you do look at the five to nine, we’ve got a great resource on our on our blog, seven things to consider before starting a 529 plan. Or if you already have one open, it’s a good refresher. We’ll link to that blog on the show notes as well. Tim, let’s shift to part three, as I mentioned in the beginning of the show, I’m excited about this. We haven’t really talked about this at length beyond the educational part of where does kids college savings fit and the priority of investing? What are the options available? And part three here is all about how much is enough? Now, just like we talked about when it comes to saving for retirement, same question we got to answer here and shout out to you in the planning team, you’ve built a really cool resource and calculator that we use with our clients that we’ll talk through at a high level here to really answer this question of as I’m saving for my four boys. I’m not flying in the dark, hopefully, because we can put some assumptions in place and determine how much is enough based on those goals? And ultimately, am I on track? Am I not on track? And what should we be doing each and every month to get on track? If that’s the case of where we’re heading? So it feels like Tim, the first step in being able to answer this question of how much enough is to figure out what the goal is? What the goal is back back to the poll question. Right, we started the episode with is, what’s the plan? Is it cover all expenses? Is it a partial fund? Is it a no fund, which I guess we could end the episode right there if that’s the case. But if it’s a partial or full fund, at what level? And we’ll talk about the third, a third, a third rule here in a moment at what level the funding is to be desired, is an important assumption we have to make in these calculations, correct? 

Tim Baker  27:52

I mean, and again, I think a lot of people, it probably is, I’m trying to think, you know, of all the hundreds, if not 1000s, of meetings I’ve had with with clients and prospective clients over a lot of people are like, I don’t know, I want to save something. What is that? And there’s, there’s, there’s a little bit lack of like structure there. It’s rare, where people are, again, it’s going to be on the tails there where it’s like, I’m not worried about at all or like I want to do 100%. So I think in the absence of that structure, it’s just a conversation of like, okay, like, like, here’s a framework. And that’s what we talked about the 1/3 rule, here’s a framework does that sound like? Because the beauty of the 1/3 rule, or at least the way you think about it, is you’re talking about what can I do today, but then you’re also pushing it off to tomorrow, because part of like, your funding is going to come in like future earnings. But then also there is that skin in the game, which I love. I think having skin in the game with this decision to go to college is huge, or even like, you know, giving money to your kids for college is huge, because we’ve seen how wasteful is probably not the correct term, but like how wasteful it can be. When you’re looking at schools out of state, private, when you’re, you know, maybe jumping around in majors, I think having some type of you know, some type of realization that like, Hey, you’re going to be on the hook for some of this. And obviously, pharmacists know this very well, is needed. At least that’s the way that I look at it. So I think in the absence of any type of structure, I think introducing that 1/3 rule is important. 

Tim Ulbrich  29:32

Let’s talk about that rule because I think that if we use that as the baseline, you can adjust whatever you want, right? We’ll talk about the three buckets and we’re gonna assume a third, a third a third, but you know, it could be 40% 20% 40% Right. So once you understand the concept, I think from there you could determine Hey, do I like that? Do I not like that and what adjustments you want to make. So walk us through what that third rule is. 

Tim Baker  29:55

So off the rip, a lot of clients we like they look at the look like what their education costs. And they’re like, no, like, like, this is impossible. If I have a couple dollars, you know, that can, you know, rub together, that would be great. But when you kind of break it down, it’s, it’s not as bad as it as it looks. So like the 1/3 rule basically looks at, okay, when your child goes off to college, the sources of that a paying for college is going to really come from three places. A third of that a third of the of that is going to be come from, like, we say, past income or past savings. So today, in 2024, I’m saving out of my paycheck into my kids 529, and it’s going to grow. So that’s the 529. It could be a Coverdale it could be a Roth, you know, whatever it looks like but it’s, it’s you’re doing something today to spend in the future, just like we talked about with retirement savings. The other bucket the another third comes from what I would say current income. And again, this is this would actually be future income, but like when Olivia is 18, and she’s looking at colleges in, you know, eight years, I’m hopefully still working that YFP, I’m making money, and I’m part of the part of that tuition bill is going to come from the cheque that I’m receiving in eight years. And then the last bucket. And the last third would would be that skin in the game, it would be that outside outside funding, where this is going to be grants, scholarships. And last but not least, loans. So this is where you know, and again, we we talked about it with our kids that they’re going to have some money, but we don’t let them know what that is. My parents were like, you’re on your own. And then they helped us like later it was kind of like a surprise. So we kind of talked about it, but they don’t necessarily know what they’re getting. But that’s those are the three buckets. It’s what you’re you’re saving and investing for future college expenses. And then when your kid is in college, using your your part of your paycheck to pay for tuition. And then the last third coming from grants, scholarships, and student loans.

Tim Ulbrich  31:57

Tim, we’ve had several, I think, at least a couple I can think of episodes we featured where pharmacists have really worked, you know, throughout school, sometimes really aggressively to help pay down. Now, you know, if you’re working at $15-$20 bucks an hour, you can only make such a dent and a couple $100,000 of debt. But that has been a significant contributor to minimizing the debt that they’re having to borrow in any given semester. So in that case, when you think about a child working, would you put that in the final bucket? Or where how do you how do you think of that portion?

Tim Baker  32:33

I would put it in the in the final bucket. Again, I think it’s kind of like their skin in the game. It’s like, Hey, you could you could not be a great student and not get anything or you know, I know a lot of people, there’s money to be out there for you know, we just gave out our first scholarship, you know, obviously on the back end for YFP Gives. But there’s a lot of people that don’t take that, you know, go through that legwork. You know, Olivia’s goal, she wants to swim collegiately that’s her big thing right now. And she just missed her JO time yesterday by a couple of seconds. So she’s, she’s, she’s doing well. And again, I think for her, I think my wife would love it if she got a scholarship for that. But I’m like, you know, if happens, great. If it doesn’t, but to me, it’s a little bit of their, their participation in this whole process, because it is a lot of money. You know, when we look at the numbers we’ve go through, if we kind of go through this calculator, the numbers are staggering, right. And like I just said, like, when I was looking at it, you know, as we were jumping on here, the the four year instate for Olivia went up, you know, when I looked at it last month, and I guess they’re just refreshing their their numbers and then in the tool that I’m using, but you know it, these things go up. So I think having a plan in place is is is the way.

Tim Ulbrich  33:44

So with the third plan of the third rules, a framework of where we get started, obviously everyone can adjust that accordingly. Talk us through then the calculation and how we ultimately get to this point of Hey, are we on track? Are we not on track? Or what do we need to be doing each month to get on track? 

Tim Baker  34:04

So I’m using a combination of our financial planning tool called Right Capital and kind of a calculator I built. And part of it was because I wanted to kind of adapt it to the 1/3 role. So I rely on the calculator really for or the financial plans will really for the likely in the inputs I just, I just looked at so in the tool, you can say hey, I want to send my kid to a two year commuter, a four year in state, a four year out of state, four yearr private school, you can actually put in the school that you want or you can I think it’s hard unless you’re right right up against it. So we we put in a four year in state so like, hey, Ohio State’s right down the street, that would be great. So essentially like when I’m looking at Olivia so Olivia was born on Halloween of 2014. Today’s the 15th of July 2024. So her current age is 9.7 so she’s almost a 10 year old, I think she would say she’s, she is a 10 year old. So we’re saying that at 18, she’s gonna go to college. So what that leaves is essentially 8.3 years before she’s got to move out and get out, and I can turn her bedroom into a man cave. Which she doesn’t like that joke.

Tim Ulbrich  35:18

Second whiskey storage unit.

Tim Baker  35:20

Exactly, exactly. So 8.3 years is our accumulation. That’s what’s left of our accumulation. So we make some assumptions about asset allocation. So in my calculator, I put in like an 80%, equities, 20% in bonds right now, she’s all equities, we have a lot of time. But as we get closer, we’re going to be, you know, to avoid sequence risk we’re going to be more conservative when we get to that five ish years. So maybe when she’s 13, 14 15, that’s when we’ll start to really kind of get more conservative until we until we have to spend it. So I’m using kind of a blended, you know, she’s not, she’s not 100% equities the entire time. So I put 80/20, you know, we use, so that real rate of return is about 4.6%. So that’s kind of some of the, you know, if I change that to 90/10, or 70/30, it would change the calculus. So the input that I was changing, you know, that I was mentioning, when I looked at this last month, a four year in-state for her would be $183,653. 

Tim Ulbrich  36:26

With room and board?

Tim Baker  36:27

Yes. So that’s the need. So in what that means is in, I think right to the end, like today, it’s something like $28,000. But when they extrapolate that out 8.3 years in the future, that’s what’s going to cost that $28,000 With the inflation times four years. So that’s where we get the $183,000. So just as an example, my son, who is five years younger than Olivia, so Liam is five will be five next month already. His four year instate will be $234,393. So it goes from $183,600, to $234,400. Four, and then I don’t have Zoe’s calculated, but her four year end state is $284,900. So $100,000 difference between my oldest and my youngest, there’s essentially a 10 year gap for that between them. But that’s, that’s significant. And that’s why like, we’re hoping some of this changes. But that’s the number that I’m using, you know, to kind of say, Okay, this is what I this is what we need. So, if I were to fully fund it, if I needed to fully fund it, I would essentially need $183,000 in eight, eight years. Or you could say 12, and I’m still, you know, saving during that, but typically, that’s not how it works. So currently, currently, today, Olivia has, I guess it’s called a share. That’s right. So currently, Olivia has $28,629. So and we’re we we put in not quite the $4000, we put in $300 a month or $3,600 per year. So we’re on pace to save $103,000. So if you look at that, I need 183 we’re on pace to save $103k. So that our our percentage now was we’re on track to say 56% of her college. Now, that’s not 100%, which is not our goal, but it’s also a lot higher than the 33%. So like we there’s some delta there. So you know, so I kind of break down if we did want to pay 100% percent, you know, what we would need if we, for us to be on pace to save for 100%. To get to that $183k, I would need $67,634 today. I don’t have that I have $28,000. If I if I lost all the monies in her 529 today, I would essentially need to be saving or investing $1,260 for the next 8.3 years to get to that to get to that 183,000. So because I have that, it’s actually I need to increase my essentially increase my savings from $300 a month to $854 per month to get to that. Now obviously, that’s not something that we want to do. So and then I had the same thing broken down for the 1/3 rule. So 33% of 183,000 is $61,212. So again, when you break it down like that, I’m like that’s actually not that bad. $61,000, like that’s doable. Now, the conversation I had just had with Shay when I ran this was she’s like, well, we should should we start saving less and I’m like, essentially, like the argument could be you could save less or we could we could kind of stick to the status quo. My thought is is like that’s one less bill that I have to worry about in 8.3 years like it’s almost. so there’s a tricky one is correct. So like, I part of me is like, do I just get it too, and maybe we’ll talk about this in the next iteration. So like, do I go to 67%, you know, to get to my to like my two thirds of post and present income for that. And then she has a 1/3. So just to break down the math for 33%, I need $61,212. What you currently need today to be on pace would be I would need $8400 and I have $28,000. So we’re beating that. And then if I had $0, like, if I lost all that money, I would essentially need to be saving so $420. So if you have a 10 year old, and you want to send them to a four year in state and you haven’t saved anything, and you want to save at least a third, you would essentially need to be saving $428 per month, between now and when they go.

And then the last column is kind of the choose your own rule. So if I were to if I were to say, hey, Shay, like, let’s, let’s, you know, we have some room in our budget, you know, retirement looks good, etc. If I were to say, hey, let’s let’s go to that 67, that kind of checks off both for us, I would need $123,000.  I would need today $38,000. We don’t have $38,000, we have $28,000. So that lump sum to get us on track would be putting $9700 and I’m on track. And then we would essentially be needing to pay or invest $438 so I’d need to increase my monthly contribution by about $138. And then I go through the same thing with Liam. So Liam, just in broad strokes not to go through every every every calculation. He has, so his, what we need for him and for four year in state 13 years from now, since he’s five is $234,400 essentially. He has currently $13,800. We’re currently putting in $225. So not as per month, so not as much as Olivia. And then we’re on pace to save one, it will we’ll call it $109,000. So we’re 46% of the way there. We’re on track to be at $46, which is still beating our 33% roll. So we’re I look at this and we were in good shape. I think with Zoe, it’s too early to tell she only has a couple 100 bucks in hers. But that’s kind of the calculus that we’re doing from hey, are we on track or not from a from an education perspective. And again, like if the market if the market loses 30% today, Tim like right now it’s been on a bull market. But if loses 30%, and all of a sudden he doesn’t have $13,800, he has $10k, that changes thing. Right now, over the long period of time, we’re still assuming, you know, a nominal rate of return of 8.8%, which is an 80/20 portfolio, and then we adjusted down for inflation. So that’s kind of the math. I know, it’s kind of hard to follow over the podcast. But hopefully that made sense as I was going through the, the numbers line by line.

Tim Ulbrich  42:56

Yeah, what I love about it is it makes kids college savings much more practical. 

Tim Baker  43:01

And patatable, right? Like you hear those headlines. It’s just like your retirement. It’s like, you know, when I say to clients, it’s like, hey, you need $2 million to retire, you are looking at me like I have 2 million heads, but it’s a big number, way in the future. It’s the same thing holds true with education. It’s just, it feels more than what it actually is.

Tim Ulbrich  43:20

Yeah, makes it digestible with a third rule or some variation of that. I mean, it really it’s a compressed nest egg calculation.  And that’s what I love about it is we’re not flying in the dark. What what do we have saved right now? What’s the goal? We’re gonna put some assumptions in place just like we do with retirement planning. And then what do we need per month to achieve that goal. And that last part, is the piece that is so often missing when we talk about long term savings and investing, right? Whether it’s 10 years or 30 years, some of these numbers, as you mentioned, too, feel big, they feel overwhelming, they feel scary. And what we can relate to and put our arms around is what do we need to be doing per month? Or what is the goal? And then we can look at the rest of the plan, the budget all those things and figure out, can we make this happen? Or can we not make it happen? And then what does that mean, in terms of what they have saved? What does that mean for other financial goals? So yeah, I think if we think about it, in that sense, we really can start to implement this and put a game plan in place and make some adjustments if need be. And context matters, right. So I would think, how you think about this for Olivia versus your youngest, Zoe is very different, right? When you get to the potential for over saving with Olivia well, that’s different with your first and your third because option to transfer, so I think a lot of details to be considered as we look at the individual components of how you approach the 529. 

Tim Baker  44:39

I’ve really enjoyed you know, I’ve been trying to get Olivia kind of more interested in like money and the value of money and, you know, she told me the other day she’s like, you know, when I go back to school, can I buy these like $100 like Nike shoes and I’m like, No, you can’t like it’s like, we’ll spend some money and then you can save some with your money, and there’ll be a cap on what you can do. And even my wife said, like, oh, like she gets money, you know, should we put that in a 529? I’m like, I actually, like when we, when she does her allowance, I say like, Hey, any money that you want to put into your UTMA account, like, I’ll match it. So, and I did the same thing like she, she’s going to, she’s going to donate to YFP Gives. And I’ll match that, right? So I want to I want to incentivize that behavior. But I kind of want the 529 to be like, funded by me and mom, right. So like, I don’t want her spend money to go to the 529. So I’d rather have that money go into an UTMA that she can use it, she could use it for school, which she could use it for a car, a business, a gap year or whatever. But I’ve enjoyed kind of like having some of those conversations with her and kind of seeing some of the lights go on. In terms of like, investments and that’s the thing, like I’ve always struggled with like, should I kind of key them into like what we’re doing on the 529 or should be more of like, a mystery because I really don’t want her to like say like, oh, like mom and dad have it paid for like I don’t, you know, I don’t need to work. My mom took the opposite route. She’s like you have to work because we’re not going to help you at all. But I think I think these types of discussions with your kid, even when they’re young, like mine are is, is positive. And again, like, I grew up, we didn’t really talk about too much about money, like outside of like you’re on your own. But I think building some of those behaviors and kind of mindset around money is important because a lot of people that come through the door to work with us. They’re kind of an image of their parents, right. A lot of them is like, you know, if they had consumer debt issues, it’s probably because their parents did. If they were oversavers, its probably because their parents were. You know, some people look at the parents and say, I don’t want to be like that. And they’re trying to fix it, but like the natural inclination is to spend or save. So I think it’s a good opportunity to at least start the conversation around money with kids. 

Tim Ulbrich  46:58

Great stuff, Tim. And that’s a topic we’re gonna talk more about on the show. One because we haven’t talked about it enough. And two, we’re living it firsthand with our own kids. We’re excited to share that journey as well. Let me wrap up by saying for those that are listening, yes, talking about kids college, but also other parts of the financial plan, saving investing for the future, retirement planning, tax planning, debt pay down and so forth. We’ve got a team of certified financial planners, and Sean Richards, our CPA and tax professional that can help you in working one on one as it relates to your own financial plan. If you’re interested in learning more about the services, you can visit yourfinancialpharmacist.com. From there, you can book a discovery call with Tim to learn more about the services and determine whether or not they’re the right fit. Thanks so much for listening. If you’d like what you’ve heard on this episode, other episodes of the podcast please do us a favor and leave us a rating and review on Apple Podcasts or wherever you listen to the show. Have a great rest of your week. 

Tim Ulbrich  47:51

Before we wrap up today’s show, I want to again thank this week’s sponsor of the Your Finanicial Pharmacsit Podcast, First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of First Horizon’s pharmacist home loan, which requires a 3% downpayment for a single family home or townhome for first time homebuyers and has no PMI on a 30 year fixed rate mortgage. To learn more about the requirements for First Horizon’s pharmacist home loan and to get started with the pre approval process, you can visit yourfinancialpharmacist.com/home-loan again, that’s yourfinancialpharmacist.com/home-loan. 

Tim Ulbrich  48:37

[DISCLAIMER] As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcasts. 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 yourfinancialservices.com/disclaimer. Thank you again for your support of the Your Financial Pharmacists Podcast. Have a great rest of your week.

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YFP 366: Your Medicare and Long-Term Care Questions Answered


Tim Baker, YFP Director of Financial Planning, breaks down Medicare and long-term care insurance and what to consider when deciding on a policy.

Episode Summary

Tim Baker, YFP Director of Financial Planning, breaks down the importance of long-term care insurance in retirement planning, highlighting the need to carefully consider the cost of these policies and how they fit into one’s overall financial plan. 

Tim also discusses Medicare parts A, B and D and the importance of understanding the enrollment period to avoid paying penalties.

About Today’s Guest

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

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

Key Points from the Episode

  • Medicare and long-term care insurance with questions from the community. [0:00]
  • Long-term care insurance costs and factors that affect premiums. [4:10]
  • Long-term care insurance policies, including elimination periods and riders. [10:23]
  • Long-term care insurance policies and their importance in retirement planning. [17:28]
  • Medicare penalties for late enrollment, including Part A, B, and D. [23:15]
  • Medicare changes and penalties, with tips for avoiding them. [29:40]

Episode Highlights

“Start assessing what kind of policies you want and what you want to do and what your plan for long term care in your 50s. The sweet spot to purchase a policy is in that 55 to 65 year old range. If you’re too early, you’re paying premiums for a long time and you may not reap the benefit for 20 or 30 years. If you’re too late, you’re paying much more in premiums or you could even be denied. So unlike most health insurance, you can be denied for pre-existing conditions. There’s really that zone, that sweet spot – the Goldilocks zone where you really need to kind of get this just right.” – Tim Baker [4:32]

“A lot of people think you need a 100% solution to put my kids through college or you need 100% solution for this. It’s not about that. It’s really about providing a baseline benefit for you that you can then pull the levers on other parts of your financial plan to form a fully comprehensive plan with regard to long term care.” – Tim Baker [9:58]

“I think the main misconception about long term care is that Medicare is going to cover this and it really doesn’t.” – Tim Baker [23:51]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast where each week we strive to inspire and encourage you on your path towards achieving financial freedom. On this week’s episode, we take questions from the YFP community on Medicare and long term care insurance – two critical, yet often overlooked, and might I say boring, parts of the financial plan. We discussed when it makes sense to purchase Long Term Care Insurance, what policies typically cost penalties for late enrollment in Medicare and policy changes and trends for both long term care and Medicare that listeners should be aware of when planning for the future. Now as we crossed the midway point of the year, it’s a good time to check up on your financial progress for the year and dust off those goals that you set back at the turn of the new year, which perhaps feels like a distant memory at this point. Whether you’re focused on investing in the future, paying off debt, saving for kids college, or growing a business or side hustle, our team at YFP is ready to help. At YFP we support pharmacists at every stage of their careers to take control their finances, reach their financial goals, and build wealth through comprehensive fee-only financial planning and tax planning. Our team of certified financial planners and our CPA work with pharmacists all across the US and help our clients set their future selves up for success while living a rich life today. You can learn more and book a free discovery call by visiting yourfinancialpharmacist.com. Again, that’s yourfinancialpharmacist.com. 

Tim Ulbrich  01:29

Tim, welcome back to the show.

Tim Baker  01:34

Good to be here, Tim. Let’s do this thing. 

Tim Ulbrich  01:36

All right. So at the time of this going live, we’re actually on our annual YFP mid year break, it’s a week that we take off every year as a team around the Fourth of July a week that we can pause, reflect, get some time with family and friends. So Tim, any any big plans for the family this year? 

Tim Baker  01:52

No, it’s interesting, Tim, I am reading Michael Hyatt’s Free to Focus and he’s like, the way to kind of become focused is to is to do less. So I think it’s a good time to kind of stop and reflect on you know, the the first part of the year and then think about, you know, what’s ahead for the second half of the year, we have some friends coming in town that have young kids, so we’ll be spending the Fourth with them, but kind of just staying home and hanging out. How about you? Any big any big plans for the Ulbrich family?

Tim Ulbrich  02:22

Yeah, we’re hitting the road. We’re going to see Jess has family up in Bowling Green, to do some fireworks, Fourth of July stuff, see her grandma, and then we’re making a trip to Buffalo. My brother and his wife put in a new pool. So we’re gonna we’re gonna enjoy that with them for a couple days and make make the most of the week. Boys are super excited, great, great age for traveling. And it should be. It should be a fun week. So hey, when you when you figure out the Free to Focus, let me know how that works. I need to figure that out. So the genesis for today’s episode is, Tim, you led a webinar for us a couple weeks ago on Medicare and long term care insurance. And you know, this is a topic that I think we often think about, of course, we know it’s important, but it’s one of those topics, both of these topics where we’re like, ah, kind of boring, like, how much do I have to really think about this part of the plan. But as you shared, I mean, the engagement, the questions, the interest was, even exceeded our expectations, which is great. And so we decided, hey, let’s do an episode that focuses specifically on the community members questions around Medicare and long term care. Now, we have talked about both of these topics on the show before. We’ll link to these in the show notes. Episode 329 I brought on Certified Insurance Counselor Josh Workman to talk about Medicare selection and optimization. He had some great insights to share from his experience helping people with Medicare selection. And then episode 296, Tim, you and I talked about five key decisions for long term care insurance. So we’re not going to rehash the background of these topics, make sure to go back and listen to those but rather jump into questions that our community had on these two topics. So, Tim, let’s start with long term care. First question, which is probably I think, the most common question, which is, when do I need this policy? Right. So what is the ideal age range to purchase a long term care policy? 

Tim Baker  04:15

And in the presentation that we did in early June, the I kind of talked about this as like the Goldilocks zone, right? So if you’re too early, it’s not great. If you’re too late, it’s not great. So the way that I have broken this out, Tim, is you start discussing this in your late 40s. Start assessing kind of policies and what you want and what you want to do and kind of what is your plan for long term care in your 50s and then really kind of get the sweet spot to purchase a policy is in that 55 to 65 year old range. If you’re too early, you’re paying premiums for a long time and you may not reap the benefit for 20 or 30 years. If you’re too late, you’re paying much more in premiums or you could even be denied. So unlike most health insurance, you can be denied for pre-existing conditions. So there’s really that, that zone, that sweet spot, so to speak, is the Goldilocks zone where you really need to kind of get this just right. And again, if you’re, you know, if you have chronic issues, maybe you do that earlier. But I think one of the questions we’ll talk about, what do these premiums look like, and I kind of have these different age bands, so we can kind of talk about that. But, you know, started discussing in your late in your late 40s, kind of start assessing, you know, your plan and 50s. And then and then have a policy that meets that plan, you know, in that 55 to 65 year range.

Tim Ulbrich  05:42

So, Tim, we’re officially in the decade, you said end of forties. So something we’ll be thinking about here in the not not too distant future, which is hard to believe. But let’s talk about costs, right? Because I think sometimes these policies certainly can have some sticker shock. Everyone’s situation, of course, is different. But what are we looking at in terms of average premiums of a standard long term care policy?

Tim Baker  06:06

Yeah, so before I get into that, like, I think one of the I think this was Lincoln Financial, you know, did it did a study that that showed, like, what couples are willing to spend on long term care insurance, I think, I think the number was like $2500 to $3,000 per year in premiums. So I had that in the back of my mind, as I was kind of researching, you know, this. So according to the 2023 Long Term Care Insurance Price Index, that’s put out by the American Association for long term care insurance,  AALTCI. General estimates, and this is for this is for a policy that has an initial benefit amount of $165,000, it grows at 3%, compound inflation. So that’s kind of the general baseline. At age 55, for a single male individual, those premiums range from $1700 to $2,100 per year. So obviously, you’re in that that range of $2500 to $3000. Single females, unfortunately, ladies, your premium jumped quite a bit, you tend to live longer than men. Single female, it’s actually $2675 to $3,600. And then a shared benefit, so a couple that kind of combines their benefit together is is $3,000 to $4,800. So that’s at age 55. It jumps age 60, for a single male goes from $2100 to $3000. So that’s up from $1700 from $2100, single female jumps from $2675 to $3600, to $5000. And then the couple $3800 to $5500 combined. And then lastly, it’s 65, single male $2600 to $3135. So that’s a jump from the $2100 to $3000, single male $4230 to $5265, and then the couple $5815 to $7150. So, and I would say, Tim, that the factors are influencing these premiums, the probably the big one here is going to be the inflation protection. So it’s probably the most the most expensive rider that’s out there. And if you actually tie it, I don’t even know if they sell them. I don’t think they sound like this. But they’re they’ve been insurance products in the past to actually tie it to the CPI. I think they don’t necessarily do that. It’s like how you pick a 1% 2% 3% 4%. That’s going to drive the biggest cost to the to the you know, to the premium. Age of purchase, obviously, as we kind of outlined here is a big factor your health so health are healthier individuals will qualify for better rates, the benefit amount and duration. So a highly highly daily benefit or a bigger benefit pool. And a longer, you know, longer period won’t increase your premiums, elimination periods. Will I think it talks about this another in another question, the shorter the elimination periods and think about this as a time deductible or a deductive deductible that’s in time, results in higher premiums. I mentioned the inflation protection and then additional riders so, you know, other things that could be outside of inflation, shared care will increase the cost. So these are kind of the factors but you know, I think almost all being equal, you know, if we were to strip away the 3%, which again, that’s a major rider, I think they’d become a little bit more affordable. And I think if you’re looking at a baseline policy that that will allow you to age in place, meaning like age in your home as long as humanly possible. I think if you can look at these policies almost as like a coupon for that care. Not that you know, we talked about this. A lot of people think like oh, I need 100% solution to put my kids through college or I need 100% solution for this. It’s not about that it’s really about providing a baseline benefit for you that you can then pull the levers on other parts of your financial plan other other, you know, assets that you have to then, you know, form a fully comprehensive plan with regard to long term care.

Tim Ulbrich  10:22

Yeah. And Tim, as you share that, it reminded me of bringing Cameron Huddleston, on the show who wrote mom and dad, we need to talk we had her on episode 321. Navigating some of those financial conversations with aging parents, and some listening might might be thinking about this as the coverage for themselves. Some listening might be thinking about this as, hey, what about my parents, right, that are aging? What what do they have in place, and obviously, there can be a direct line from their coverage or lack thereof and their own financial plan. And so, you know, when you’re talking about the different factors that can affect the cost to me, but I also hear in there is like, we’ve got to zoom out and understand, like, what are the desires and the needs? What what is the goal in terms of long term care, obviously, things may happen or not as we would like them to happen. But having some clarity on you mentioned, like care in the home versus a facility type of care, like, those conversations are going to be really important for us to think about individually, but also with our parents to then look at some of these policies and determine, you know, what we want these policies to be doing in the coverage.

Tim Baker  11:25

Right. Yep, exactly, right.

Tim Ulbrich  11:28

You mentioned riders a couple times before we go to the next question. Can you can you just define that for those that may that may be a new term as they’re looking at insurance policies?

Tim Baker  11:37

Yes, riders are things that they’re like, the kind of like, add on features. So when an insurance writer, you know, wanting like, like for a life insurance policy, a permanent policy, or a disability policy could be like a waiver of premium. So like, if you have if you’re deemed disabled, you could put a rider in that policy that basically says, if you are disabled, the policy will remain remain in force, however, you don’t have to pay the premium. For for the what we’re talking about is cost of living. As you know, things increase every year and inflation goes up, the policy kind of keeps pace with inflation, or at least there’s a flat rate. So all a writer is is a additional feature that’s bolted onto the policy that makes it more enticing to the policyholder holder. However, it often comes with expense, you know, it comes with an additional premium that’s tied to that. So that’s all rider is.

Tim Ulbrich  12:43

Great stuff. So we talked about what’s the ideal age range, we’ve talked about the average premiums, what goes into that costs, several different factors. You mentioned, some of those riders, age of purchase health, what the actual policy entails elimination period. Let’s talk about elimination period. That was one of the other questions that came through is, you know, is there an elimination period with a long term care policy similar to what folks might be familiar with with a long term disability policy? So if you could first define elimination period? And then answer that question?

Tim Ulbrich  13:11

Tim, as you’re sharing all of these nuances and details regarding long term care insurance policies, you know, as can be the case with buying insurance, right, you pull back the onion. And there’s another question to consider, another question to consider what the policy should be made up of which all informs the cost, right? And what we have to answer the question when it comes to insurance, whether it’s long term care, or long term disability life, whatever we’re talking about is, what do we need? And what do we not need? Right, because obviously, we want to have a certain level of protection, that’s going to protect the rest of our financial plan. But we also don’t want to be overspending on premiums so there’s an opportunity cost that those dollars can be used elsewhere in the financial plan. And I think this is important point to selfishly plug, the work that we do and other fee-only financial planners were when you’re engaging in that work in a fee-only relationship, meaning that you’re paying the advisor for the advice that they’re giving. And there’s not a compensation stream coming from the recommending of products that may or may not be in your best interests, we really can sit down and have these conversations of what do you need, what you not need, without there being a bias in the advice that’s been given. So important.

Tim Baker  13:11

Yeah, so the elimination period, as I mentioned, is kind of like, think of this as like, when you get in a car accident, and you are, so your deductible is $500, or $1,000. You have to pay that, you know, as part to kind of access the policies policy. So if I have a, you know, an accident, and I need work on my car, that cost, you know, $2000, for that, for the policy to pay out that $2000, I have to actually pony up the deductible, which is, you know, 500, or whatever it is. So it’s it kind of what it what it what it’s meant to do is create somewhat of a barrier to care, they don’t want these policies don’t want to be accessed or have claims against if they’re if they’re nominal or minimal. So in a long term care insurance policy, you pay that in time. So to back up, when we talked about when you know, the process of purchase and long term care, I kind of broke this up into five steps, it’s actually deciding when to purchase a policy which we talked about, it’s to choose kind of a monthly benefit. The third one is a truce of deductible, which I’ll break down here in a second and then four and five is that decide how long the benefit will be paid. And then the fifth one is decide, you know, what is what riders you want? Do you want an inflation rider or not? So, to go back to step three of choose a deductible, deductibles come kind of in all shapes and sizes. So in terms of a time you can get a deductible, that is, you know, the elimination period I should say that the deductible and time that is 30, 60, 90, 180 or 365 days out. The most common is 90. So the idea behind this is, once once a professional physician says, you know, Hey, Tim, you need help with assisted daily living, like the task of transferring or eating or whatever, then that’s when the clock starts. So if I have a 90 day elimination period, and the doctor determines that July one, then essentially on October one, and sometimes it takes another month to actually get the benefit, you know, October one or November one, that’s when actually the policy starts to pay out. Now, what I just described was a calendar based a calendar day elimination period, there’s really two types, there’s calendar day. And then there’s service day. So the calendar day is based on the total number of days from the start of needing care, i.e. that physician says, hey, Tim, you need care, regardless of how often you use services, as opposed to a service day elimination period, which is based on the actual number of days he received paid care. So think about when you think about long term care, it’s often intermittent care, you don’t have someone around the clock, maybe they come in, you know, three days a week to clean and help you do some things around the house. So there’s pros and cons on each on each, right. So if you have a service day, service day care, if you have a 90 day service day elimination period, and you receive care three times a week, it would take approximately 30 weeks to meet the 90 day. So we’re versus like, if you have you know, on that first example, July one, I need care, you know, October 1, I’m getting, you know, I’m getting my policy to pay. So, you know, there’s pros and cons of each, you know, typically the calendar days going to be more expensive than the service day. You know, if you if you only need intermittent care, and it’s it’s maybe even less than, you know, weekly, you need it, you know, once a week or whatever it is, and the maybe the service day, you know, works. So this, these these elimination periods is all about trying to find, again, the Goldilocks zone for what type of care you need, what you what you want to pay for your policy, and then adjusting it for that. So that’s the elimination period, Tim. So again, most common is the 90 day. I think, I’m not sure what is more common between service and calendar day, I think if you want more of a known timeline, then calendar is kind of what you want. But then, you know, again, that’s probably going to be more expensive when it comes to paying the premium. That you have the the overlap between advice and the sale of a product, there’s going to be a conflict of interest, because often often that sale of a product, you know, means there’s a commission that’s in place. And yeah, and I’ll bring up one of the things. You know, I feel like when I was presenting, you know, I think the the latest data says that a couple, a couple that’s age, age 65, see if I can bring up the number. A couple that’s a retired couple age 65 can expect to spend after tax $315,000 on health care and medical expenses during retirement.

Tim Ulbrich  19:14

After tax. 

Tim Baker  19:15

Right. So and I think you might look at that be like, Oh, that’s not that bad. But like, a lot of people I look at that. I’m like, that’s a that’s a significant chunk of my, you know, traditional, like portfolio. Right? So and then the thing with this is that, you know, the last time I looked at this a year or two ago, like these numbers, they’ve jumped significantly. So, I think again, you know, if you’re and this is like if you think about like the biggest cost in retirement is really not like health care and medical expenses, it’s housing. So you know, if you think about this plus housing and that’s a significant chunk of a lot of people’s, you know, retirement nest eggs. So the the idea of behind, you know, long term care is to provide a baseline, again, you know, simple math, you know, you could spend $3,000 for 30 years and you know, spend, you know, $90 grand and give you that baseline, and again, you know, it can change. But to me, it’s about, again, getting those products in place for the plan that you’re trying to design without kind of some of those strings that you mentioned that are attached to that. So. Yeah. 

Tim Ulbrich  20:27

Yeah, this is you’re talking, it’s all good reminder for me, you know, my conversation with my parents. We’ve had an open conversation. I know they have a long term care policy, I don’t know the nuances of the policy. I know they’ve been diligent in that work. I know, it’s something they’ve talked about, they’ve they worked through intensely. But obviously, the the next level of that is to really ensure that my brother and I have a understanding of what’s there as well. Before we move on to Medicare, last question, related to long term care is, are there any recent policy changes or trends in long term care insurance that our listeners should be aware of when planning for their future?

Tim Baker  21:06

Yeah, I kind of see three, the big one I mentioned already, is, I think there’s a big push towards the aging in place initiatives, the the longevity of a person of a patient increases, when they can age in their home for as long as possible. And actually, a lot of these policies, Tim, are really designed to provide as much care and benefits to do that. So whether that’s setting up things like ramps or handrails or modifying the home to make it better, to, you know, again, have more of a focus on in home care than in a facility, once you pivot to a facility. You know, it’s it’s, it’s, it’s better for you to stay in home as long as possible. So there’s, there’s a growing focus on aging in place programs. And also that include kind of like wellness interventions like home modifications, and, you know, use of technology to monitor health and provide care remotely, so kind of more of a telehealth type of stuff. The second one is shift into more like hybrid policy. So there’s an increase in preference for hybrid long term care policies, which are often combining long term care benefits with life insurance or annuities. So, you know, if you were to decide to peel off, you know, a couple $100,000, a quarter million dollars of your, of your retirement portfolio to create a baseline floor, so you know, what you get for security plus, what this annuity pays you for the rest of your life, there’s, there are riders that you can put in that also provides long term care. So these policies policies offer more flexibility. And it’s, it’s, it’s less about, like, a lot of people with really annuities and long-cares, like, you know, you kind of lose it if you don’t use it, right. So making them more attractive to consumers, compared to kind of a traditional policy. Right. So that’s, that’s, that’s another one is kind of that hybrid approach. And then the third one, is, we’re starting to see more chatter and action initiatives for public long term care programs. So states, like Washington have introduced public programs, called Washington’s called the Washington Cares Fund, which began payroll contributions in July of 2023. And the basically what they’re trying to do is provide basic long term care benefits to residents. So they have something in place, because I think the the main misconception about long term care is that Medicare is going to cover this and it really doesn’t. So I think certain certain state governments are looking at this as a way to set aside money for residents to have some type of benefit in place for the purpose of providing, you know, long term care.

Tim Ulbrich  24:15

Great stuff, Tim. A topic, we’re going to continue to come back to, as I know, there’s lots of questions out there from the community. And since you mentioned annuities in that second update, and you know, we’ve talked before about that concept of creating a retirement paycheck, creating a floor between social security and annuities, whether or not that’s the right fit is another discussion, but we did talk about annuities on episode 305. Understanding annuities, we did a primer for pharmacists. So if folks are hearing that are like, oh, I want to want to learn more. We’ve covered that before we’ll link to that in the show notes. Tim, let’s shift gears to talk about Medicare. And again, we’ve discussed this briefly on the show before, Episode 329 with Medicare selection and optimization. Many pharmacists are aware of the different parts of Medicare from the work that they do every day. So let’s jump into some specific questions. The first one being for Medicare Part D, is there, (D as in dog), is there a penalty if you delay applying?

Tim Baker  25:14

Yeah, so so Medicare Part D is for a prescription drug plan. So yes, there is a penalty if you delay enrolling in Medicare Part D, the late enrollment penalty is an additional amount added to your Part D premium. And it’s calculated based on the length of time you went without Part D. The big thing here, Tim, is that it’s permanent. So once that penalty hits, it’s gonna hit as long as you have a Part D. So the way they calculate it, this, it’s 1% of the national base premium beneficiary premium for each full month, you went without coverage. So, and this goes up and changes every year. So as an example, the in 2023, the National base beneficiary premium was $32.74. So it’s not a ton of money. 1% of that is 33 cents. But you know, if you miss three months, that’s a whole whole dollar that you’re permanently paying on top of that. So it adds up, it’s one of those things that you don’t want to miss. So this is again, if you if you forego enrolling in Part D, you want to make sure that you do that when you’re you know, general enrollment comes up. So that’s that’s the penalty for part D. 

Tim Ulbrich  26:29

I think getting out in front of this, I’ve observed this time with my father-in-law and in my conversations with Josh, that we had on the show, Episode 329. This is just a big decision. You mentioned the permanent penalty, but also, this is people getting flooded with all types of information. Right? You know, I think there can be a paralysis just with the overwhelming amount of information. So starting this process early, making sure you’re doing research working with professionals that really understand this and have your best interests in mind is, is huge. The second question is what are the potential penalties for late enrollment in Medicare Part A, B, and D, we talked about D already. And are there any exceptions or circumstances where these penalties can be waived?

Tim Baker  27:09

Yeah, so so for Part A, most people don’t pay a premium for Part A, that’s kind of what your, you know, your payroll taxes already where you pay into Medicare while you’re working. However, some people do, do and if that’s the case, you have a monthly premium that may go up by by 10%. And you have to pay the higher premium for twice the number of years, you could have had Part A but you didn’t sign up. So again, most people, they’re going to, they’re going to dodge this because they’re not going to pay a premium for Part B. Again, just like Part D is that there is a penalty, and it’s permanent. So if you don’t sign up for Part B when you’re eligible. So this is your Part A is your hospital insurance, Part B is kind of easier is your outpatient, the penalty is added to your monthly Part B. So you calculate the this by looking at the penalty is 10% of the standard Part B premium. And I think in 2023, that premium was essentially $165, $164.90. So 10% of that, that that can add up, right. So and then the duration, you have to pay this penalty for as long as you have Part B the penalty is permanent and will be added to your premium. So if you delayed signing up for Part B for two years, your penalty would have been 20%- two years times to 10% of the standard premium. So in this example, your monthly premium would be a penalty, it would have been $164.90. But then, because you waited two years, the new premium is $197.88 cents. So more dire than prescription higher premiums, probably more punitive penalty. So this is really important as you are approaching your window. So just a reminder, you know your window, it’s the month before and after your eligibility date, so I should have this here. Here we go. So individuals that age 65, it’s a seven month period. So it’s three months before you turn age 65. The month you turn 65 and then three months after you turn 65 is your general or is your initial enrollment period. And that’s where you really want to make sure that you enroll in A, B and D at a minimum to avoid the penalties.

Tim Ulbrich  29:40

Great stuff there. Last question we have on Medicare, same one we heard on the long term care insurance side. Are there any recent policy changes or trends in Medicare that individuals should be aware of when planning for the future? And I guess we should say as we talked today, there’s a presidential debate tonight. I’m guessing this will become a topic in the presidential elections as it often is. So some of that will be hearsay, but anything that has been solidified or any changes that folks should be aware of?

Tim Baker  30:07

Yeah, and I’m going to answer this, Tim. And I want to go back to some of the exceptions that I didn’t answer for the question before. So the really the only things that I’m seeing for part D in for Medicare is related to part D. So starting this year, the 5% co-insurance requirement for Medicare Part D enrollees will be eliminated. So, I think what they’re what they’re trying to do is, is really go after high cost medications. So this is meant to reduce out of pocket. Beginning in 2025, though, there’ll be a $2000 annual out of pocket spending cap for part D, which will also provide significant savings with regard to high prescription drug costs. And then the two other trends that I’m seeing, is ones around consumer protection. So they really want the government really wants to kind of crack down on deceptive marketing practices. And so they don’t, they don’t want you know, companies that, you know, talk about these plans to kind of mentioned specific plans, and more oversight for like agent and broker monitoring to kind of, to kind of reduce predatory behavior. So kind of, you know, they want to prevent seniors from being pushed into a plan that they don’t necessarily want or need. And then the expansion of telehealth and digital health education is another thing in Medicare that they’re trying to, to focus on. To go back to the second part of the question that I didn’t answer, where the penalties can be waived. There are certain circumstances where the penalties can be waived. So if you are if you or your spouse are still working, and you have health care coverage through your employer, you can sign up for Part A during a special enrollment period without a penalty. And the special enrollment period typically lasts for eight months, after employment ends, or the group health coverage ends, whichever happens first. For part B, it’s the same thing. If you have, you know, coverage through an employer, that that can be, you know, something that, you know, avoids the penalty. And then Part D, if you have if you have like, coverage through your employer or TRICARE, or you’re a veteran, that, that that will waive the penalty. And then if you are in a disaster zone, like a disaster, like they’ll give you like a waiver for the penalty, if you can kind of prove that you were there or the extra help. It’s kind of a low income subsidy. If you didn’t sign up for Medicare, that’s another waiver. But you know, typically, outside of those, you’re gonna you’re gonna see that penalty. So that the kind of round out that second question there, Tim.

Tim Ulbrich  32:49

Great stuff. Tim. Lots of questions and engagement from the community on this topic. Be on the lookout – we have more webinars coming throughout the year, you can always find information on our website, yourfinancialpharmacist.com. If you’re subscribed to our newsletter, you’ll get updates there as well. We’d love to have you attend one of our future webinars covering a wide array of different financial topics for pharmacists at all stages of the career. And if you have a question on these two topics or another question, feel free to send us an email [email protected]. Again, [email protected]. And we’ll try to tackle that on an upcoming episode of the podcast. Now as we cross the midway point of the year, it’s a great time to check up on your financial progress for the year and dust off some of those goals that you set back at the turn of the new year. If you’re like me that perhaps feels like a distant memory at this point in the year. Whether you’re focused on long term care insurance and Medicare like we talked about today, or investing for the future paying off debt saving for kids college growing a business or side hustle. Our team at YFP is ready to help. At YFP we support pharmacists at every stage of their careers to take control of their finances, reach their financial goals and build wealth through comprehensive fee-only financial planning and tax planning. You can learn more and book a free discovery call with Tim Baker by visiting yourfinancialpharmacist.com. Again, that’s yourfinancialpharmacist.com. Tim, great stuff. We’ll be again back again next week.

Tim Baker  34:12

Yeah, sounds good.

Tim Ulbrich  34:16

As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist unless otherwise noted and constitute your permits as of the date 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.

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


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

Episode Summary

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

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

About Today’s Guest

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

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

Key Points from the Episode

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

Episode Highlights

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

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

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

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

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

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich  00:00

Hey everybody, Tim Ulbrich here and thank you for listening to the YFP Podcast where each week we strive to inspire and encourage you on your path towards achieving financial freedom. This week, Tim Baker joins us back on the mic to talk through six financial moves to make as a mid career pharmacist, we discussed the importance of resetting the vision for the financial plan, how to determine whether or not you’re on track for retirement, gaps to look for in your estate planning and insurance coverage, and much more. For more information and details on each one of these areas, go to yourfinancialpharmacist.com/midcareer. That’s one word again yourfinancialpharmacist.com/midcareer. 

Tim Ulbrich  00:37

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

Tim Ulbrich  02:05

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

Tim Baker  02:07

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

Tim Ulbrich  02:09

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

Tim Baker  02:17

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

Tim Ulbrich  02:28

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

Tim Baker  04:05

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

Tim Ulbrich  09:16

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

Tim Baker  10:23

Yeah, absolutely. 

Tim Ulbrich  10:24

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

Tim Baker  11:09

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

Tim Ulbrich  14:33

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

Tim Baker  15:09

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

Tim Ulbrich  15:42

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

Tim Baker  16:45

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

Tim Ulbrich  22:43

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

 

Tim Baker  24:57

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

Tim Ulbrich  29:13

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

Tim Baker  30:10

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

Tim Ulbrich  33:39

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

Tim Baker  34:44

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

Tim Ulbrich  37:47

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

Tim Baker  39:25

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

Tim Ulbrich  43:53

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

Tim Baker  44:27

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

Tim Ulbrich  44:53

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

Tim Baker  45:32

Thanks, Tim. 

Tim Ulbrich  45:34

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

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YFP 357: Emergency Fund Check-Up: Five Questions You Must Answer


Tim Ulbrich, PharmD (YFP Co-Founder & CEO) covers five questions that you should ask related to your emergency fund to determine whether or not it is adequately funded and optimized.

This episode is brought to you by First Horizon.

Episode Summary

This week we’re diving deep into a financial fundamental that often flies under the radar: the emergency fund, also known as the rainy day fund.

Saving for unexpected expenses isn’t easy. It requires discipline, patience, and a leap of faith to stash away money for something you can’t predict. Especially when other financial goals, like paying off debt or investing, are competing for your attention.

In this week’s episode, we explore why having an emergency fund is crucial. From unexpected medical bills to home repairs or sudden job loss, life throws curveballs when we least expect it. But having a well-stocked emergency fund isn’t just about having the dollars to cover these surprises; it’s about gaining peace of mind and confidence.

Join host, Tim Ulbrich, PharmD, as he covers 5 questions you should ask related to emergency fund to determine whether or not it is adequately funded and optimized.  Remember, when life throws you a curveball, your emergency fund will be there to catch you.

About Today’s Guest

Tim Ulbrich is the Co-Founder and CEO of Your Financial Pharmacist. Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 15,000+ pharmacy professionals via the Your Financial Pharmacist Podcast podcast, blog, website resources and speaking engagements. To date, YFP has partnered with 75+ organizations to provide personal finance education.

Tim received his Doctor of Pharmacy degree from Ohio Northern University and completed postgraduate residency training at The Ohio State University. He spent 9 years on faculty at Northeast Ohio Medical University prior to joining Ohio State University College of Pharmacy in 2019 as Clinical Professor and Director of the Master’s in Health-System Pharmacy Administration Program.

Tim is the host of the Your Financial Pharmacist Podcast which has more than 1 million downloads. Tim is also the co-author of Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt and Create Wealth. Tim has presented to over 200 pharmacy associations, colleges, and groups on various personal finance topics including debt management, investing, retirement planning, and financial well-being.

Key Points from the Episode

Episode Highlights

 

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Episode Transcript

 

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YFP Gives accepts advertising compensation from companies that appear on this site, which impacts the location and order in which brands (and/or their products) are presented, and also impacts the score that is assigned to it. Company lists on this page DO NOT imply endorsement. We do not feature all providers on the market.

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