YFP 404: 5 Key Questions to Ask Before Hiring a Financial Planner


Tim Ulbrich, PharmD, and Tim Baker, CFP®, break down how to find the right financial planner—covering what planners really do, how they’re paid, and the questions to ask—so you can move forward with clarity and confidence.

This episode is brought to you by First Horizon.

Episode Summary

Not sure who to trust with your finances—or if you even need a financial planner? In this episode, Tim Ulbrich, PharmD and Tim Baker, CFP® dive into what a great financial planner does beyond providing investment advice, and how they can help you navigate life’s financial twists and turns. 

Tim and Tim explain the different types of planners, how to spot someone working in your best interest, and the key questions to ask before hiring one. Plus, they break down common fee structures (like AUM, flat-fee, and hourly), the importance of the CFP® designation, and how to evaluate the return on your planning relationship. 

Whether you’re hiring a planner for the first time, reevaluating your current setup, or just exploring what’s out there, this episode will give you the clarity and confidence to take the next step.

Key Points from the Episode

  • [00:00] Welcome Back, Tim Baker!
  • [00:39] Skepticism in the Financial Planning Industry
  • [02:18] Understanding Financial Advisor Compensation
  • [03:56] The Importance of Transparency
  • [06:37] Defining Financial Planning
  • [11:27] Comprehensive Financial Planning Process
  • [20:06] Evaluating Financial Advisors
  • [32:07] Second Opinion Analysis
  • [34:47] Licensing and Compensation Models
  • [37:00] Commission-Based vs. Fee-Only Advisors
  • [37:40] Understanding Advisor Models
  • [38:53] Identifying Advisor Compensation
  • [41:44] Transparency in Advisor Fees
  • [01:04:06] Conflicts of Interest in Financial Planning
  • [01:05:54] Investment Philosophy Alignment
  • [01:12:56] The Value of Long-Term Financial Planning

Episode Highlights

“ I think it’s 5% of  financial advisors, financial planners, whatever you want to call us,  are fee-only fiduciaries. That means the other 95% are not, which means that they can put their own interests, the advisor, the planner’s interest, ahead of their clients.

When I tell pharmacists that, they’re like, are you serious? That doesn’t sound like it would be legal or true, but it is.” – Tim Baker [7:39]

“We’re not going to lay on our deathbeds and say, ‘Oh man, I wish YFP, or I wish my advisor would’ve told me to put more money into our Roth IRA.’ We’re going to say, ‘I wish I would’ve got into horseback riding again because it was a passion of mine that I just put on the back burner.’” – Tim Baker [1:00:40] 

“ When I started Script [Financial], the thing I heard from pharmacists that I started working with was, the advisor that they would work with or they would talk to would say, ‘Hey, don’t worry about your student loans. They’ll figure themselves out,’ which we know is terrible advice.” – Tim Baker [12:37]

Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Tim Baker, welcome back to the show.

Tim Baker: Good to be back. What’s what’s good, Tim?

Tim Ulbrich: Well, I’m excited. We’re, we’re gonna be talking about questions to ask when hiring a financial planner. A topic that we’ve dabbled on before we, we’ve woven in and outta this topic throughout the show in, in various episodes before. But we’re gonna directly cover five questions that should be asked.

Tim Ulbrich: Certainly not the only questions, but when you’re evaluating a financial planner and no need to take notes, we’ve got all this information and even some additional resources in our YFP Nuts and Bolts Guide to hire a financial planner. We’ll link to that in the show notes so individuals can go get that resource.

Tim Ulbrich: Tim, I wanna start with maybe what is top of mind for many people, especially [00:01:00] if they haven’t worked with a planner before, which is some of the skepticism that may be out there in terms of working with a financial planner, engaging with a financial advisor, entrusting them with something that is so important, uh, which is their own financial plan.

Tim Ulbrich: And admittedly, an industry that doesn’t necessarily have. The best reputation. So let, let’s start there in terms of, you know, that skepticism that may be there and where some of that may be coming from.

Tim Baker: Yeah, I think, um, you know, I think a lot of the, the, you know, the advisors that came up back in the day kind of came up through like the wirehouse model. So some of these big companies that we all know the names or even even the insurance world. And I think, I think in those models, and again, you know, this episode, you know, we may throw shade on other models.

Tim Baker: There’s no hate here. Like it’s just, there are diff, you know, different strokes for different folks types of things. And I’ve been in, you know, a few, you know, at least one different model be, you [00:02:00] know, before we got into the fee only. But I would say, you know, um, haven’t, haven’t been in other firms. It can be very transactional, Tim, right?

Tim Baker: Tim? So, like, you know, you, you look at the things that you have available to you as a financial advisor and you try to find the best way possible to help your clients, but also to put like food on the table. Sometimes that can mean, you know, squeezing clients into things that they shouldn’t be in and, and it kind of feeling like a, Hey, I’m being pitched a product, versus like, is this person truly in my best interest?

Tim Baker: I think the other thing that’s part of this is, um, like our industry is not transparent at all. When I come across prospective clients that have worked with an advisor or are currently working with an advisor, I’ll ask the question like, how do you, how do you pay your advisor? And they’ll say. I don’t know, or I don’t pay them anything.

Tim Baker: You know? And I, I remember [00:03:00] distinctly when I, when I became a, a financial planner, I was talking to my parents and I’m like, how do you pay your financial planner? And they’re like, my mom was like, well, let’s do your dad’s work. You know, they pay or it’s free, or something like that. And I’m like, that can’t be true.

Tim Baker: And when I uncovered how much they were paying, it was like heart attack city. It was just buried in a product somewhere and they had no idea. So to me, I think it’s that. And then I think it’s also like you, you hear stories about like Bernie Madoff or, you know, really bad apples that, you know, you’re, you’re, you’re entrusting your, your, you know, your life’s work, your, your money, you know, to, you know, a person and you know, they do something that, you know, is, is fraudulent.

Tim Baker: And, you know, that kind of makes the headline. So it, it, it is similar to like, I think, um. Medicine or, or pharmacy where you’re, you’re definitely in a position of trust, right? And I think if [00:04:00] you’re, if you’re a person that takes advantage of that or is pushing a product or things like that, I think that that’s where the public perception can be tainted.

Tim Baker: Um, so it’s, it’s, it’s definitely, I, it’s earned, right? It’s, it’s valid. But I would say the overwhelming majority of people that are out there, no matter what model they’re in, they’re trying to do their best to help their client. I just argue that there are different models that are better, um, that position, the advisor and the client better, you know, where there’s less conflict of interest, every model’s gonna have conflict.

Tim Baker: But that’s what I would say is that, you know, to that answer.

Tim Ulbrich: Yeah. And to my experience too is there’s a lot of overgeneralization. Based on your experience or maybe the experience of someone else that you then adopt that mindset or story. I’m thinking about my grandparents, who I remember growing up. They had a, a financial advisor that wasn’t necessarily a good fit, good situation, and in the eyes of my grandfather.

Tim Ulbrich: That person caused them a lot of pain and therefore, like all financial advisor, [00:05:00] right. So, you know, and, and that was fair. His, his concern, the harm that was caused in that moment, that was very fair. But as we’ll talk about during the show, there are a lot of different types and, and flavors of financial advisors, financial planners.

Tim Ulbrich: What does that term even actually mean? And when I think back to my own journey, starting this industry, before I had the opportunity to cross paths with you and learn more about the industry and what do terms like fee only and fiduciary mean. I remember very early on, after starting the blog back in 20 15, 20 16, I started to interview various financial advisors and inevitably conversation after conversation.

Tim Ulbrich: I often left with more confusion than I had answers. And I, I was trying to ask pointed questions, and I would leave with this kind of feeling of smoke and mirrors not clear on, you know, how are things being charged, what’s included, what’s not included, and, and then I was able to put terms of those things later after I would understand.

Tim Ulbrich: But the problem that I had, and I see a [00:06:00] lot of pharmacists falling into this trap in a similar way, is I applied my pharmacy training mindset. And I tried to use that as the lens in which I was understanding the financial services industry. Because in, in pharmacy, right, there are, there’s variability between one pharmacy program and another, or one residency program in another.

Tim Ulbrich: But at the end of the day, like we know what a pharm D means. We know what a PGY one or PGY two means. We know what board certification means. And while there are some differences between institutions. There’s accreditation and there’s some level of consistency between those. And so we’re able to adopt that understanding when we hear those terms.

Tim Ulbrich: And I think that what I did, and what I see minute pharmacists do, is we take that mindset and we try to apply that to financial services. And it really is on some level, the wild, wild west, you know, the term financial advisor in and of itself doesn’t really carry a whole lot of weight. And so that’s what this episode is about is how do we ask questions?

Tim Ulbrich: What questions should we be asking so that [00:07:00] we as a consumer understand what are we actually talking about in terms of who we’re working with, what the services include or don’t include, and, and ultimately, how do those individuals get paid,

Tim Baker: Yeah. And I’ll piggyback on that, Tim, like, um, I, I, I hearken back to when you and Tim Church were writing the Seven Figure Pharmacist book, and we had the chapter on this and like, I was getting confused. So like, if I’m in the industry and we’re kind of talking about different, you know, tranches of the industry and who does what, and I’m getting confused, being in the industry, how does that, how does a, a consumer, a lay person, a pharmacist that is not versed well in, in financial services or whatever, how are they supposed to navigate that?

Tim Baker: It’s super confusing. And you know, I think the other thing is, is like where pharmacists come from, you know, like I’ll say. Something along the lines and won’t get into this is like, and I think it’s 5%, 5% of financial [00:08:00] advisors, financial planners, whatever you wanna call us, are fee only fiduciaries. That means the other 95% are not, which means that they can put their own interests, the advisor, the planner’s interest ahead of their clients.

Tim Baker: When I tell pharmacists that, they’re like, are you serious? Like, like, like that doesn’t sound like it would be legal or true, but it is. Like that’s, that’s the way it is. And you know, the 95%, I’m not saying that they’re twisting their mustache and they’re trying to find ways to defraud their people, their clients, but they, they don’t have to necessarily put, you know, they can say, Hey, I, you know, I, I can sell this product, I can make a case.

Tim Baker: It is suitable for you, Tim, but it’s not in your best interest. And I think that is a shock in revelation through a lot of people. Um, I. And why we feel the fee only the fiduciary, you know, and when I left my last job, I was not a fee, I was not fee only, I was not fiduciary. And that was one of the reasons I, I broke away and, and started Script Financial, which is now YFP.[00:09:00] 

Tim Baker: Um, and I remember having a conversation with, you know, my mentor at the time, and he is like, you know, he’s like, I get it, you know? Um, but he’s like, do you, would you, do you think that I would do anything to kind of, you know, it would not be in the best interest? And I’m like, no, I don’t. But early in your career or just, you know, if you get into a money pitch, I think it puts you in a tough spot to say, it was like, okay, I can pay off this debt or whatever, or I can make sure that my clients are, you know, kind of on the up and up.

Tim Baker: So I just, I, I think, think that there’s better models, you know, to, to reduce the conflict. There’s not, there’s never gonna be a model that there is no conflict of interest. And I think that’s important to know, but I think to me, a, a. A theme in this conversation will be transparency. Transparency in what you’re paying, the service that you’re getting, how you’re paying your advisor.

Tim Baker: Um, I think that’s, that’s huge, right? Because in an industry that’s, it’s very black box of like, okay, how does this actually work? Um, and again, I’ve been in that model, you know, when, when a client would ask me, Hey, how do [00:10:00] you get paid previously? I’m like, well, I can sell you an insurance product. I can charge you an, you know, hourly, you know, all the things that we’re gonna talk about.

Tim Baker: And it’s like, okay, what does this actually mean? Like, what, what does that mean to me? And it’s a little bit of a chicken and the egg, it’s a catch 22. ’cause like, until I start working with you, Tim, I don’t really know what insurance product you need or how much you need, or what’s that gonna cost, right?

Tim Baker: So it’s a little bit, it’s not all on the advisor. It’s, it is a little bit of, like, you, you, you don’t know until, you know, type of thing. But that just leads to a lot of like, you know, what the heck? You know, what does this actually look like? So, yeah.

Tim Ulbrich: Tim, before we jump into the five questions, you, your, uh, share just reminded me of the John Oliver piece, uh, last, last week, tonight. We’ll link it in the show notes if you haven’t seen it before. I just looked it up real quick. It was back in 2016. I can’t believe it’s almost 10, 10 years ago, which is wild.

Tim Ulbrich: But he has a great piece on retirement plans. Um, that really highlights well in an entertaining way, um, some of the fiduciary fee only [00:11:00] types of concepts that we’re talking about. So if you’re looking for some re reinforcement or seeing that from a different angle, make sure to check that out. We’ll, we’ll link to it in the show notes, Tim.

Tim Ulbrich: So we’re gonna walk through five questions to ask when hiring a financial planner, again, these aren’t meant to be all inclusive, of course there’s more than just five things we wanna be thinking about. Um, and some of these seem very obvious, which question one is the case, but these are things that we can over overlook as we’re in the decision making process of working with a planner.

Tim Ulbrich: And so I encourage people before they go out and determine what is or is not the best fit for them. Have these questions in, in your back pocket. Right? These become the framework in, in which you can use as you’re evaluating some of the different options that are out there. And that first question we have, Tim, is what’s your process for offering financial planning AKA what?

Tim Ulbrich: What does financial planning actually mean when working with you or working with your firm? Right. We talk about that term a lot, a financial plan, financial [00:12:00] planning, comprehensive financial planning. But this can look and be very much apples to oranges between one firm and another. So before you sign the dotted line and you pay any fees, what are we actually talking about?

Tim Ulbrich: Right? What’s included in here?

Tim Baker: Yeah, I think, I think most people, I think most advisors, this is gonna be super generalized, but I think it in, in most firms, it’s very investment centric. Poten. It could, so investments in retirement. I think it’s, it’s probably pretty product centric like insurance life, disability, um, and then probably some light financial planning if I had to paint a broad stroke of what the, what the industry offers.

Tim Baker: Um, and so it’s important to know, you know, like what, what it is. So like if you say, Hey, it’s financial planning, like what does that actually entail? I think when I started script the, the goin, you know, the goin I think, um, thing I heard from [00:13:00] pharmacists that I started working with was, you know, the advisor that they would work with or they would, they would talk to it would say, Hey, don’t worry about your student loans.

Tim Baker: Like, they’ll figure themselves out, um, which we know is terrible advice. Um, I’ll, I’ll, you know, I’ll set up a Roth IRA, I’ll invest that for you. I’ll sell you a crappy insurance product that you probably don’t need, and then I’ll talk to you every couple years until you have assets for me to manage. So that was the way for them to help you know them.

Tim Baker: And I looked at that and I’m like, there is a huge gap in the market because we know, you know, often, especially if you’re in your new practitioner years and maybe plus like the tail that wags the dog for your financial plan are the student loans. So as the, you know, if you, if if we have 106 figures worth of student loans, that’s the tail that wags the dog, right?

Tim Baker: So as the loans go, so does the rest of the plan. So I looked at that and I’m like, this is a super underserved, you know, community of people. And that’s what I really hung my hat on in terms of, in terms of the business model. So that would be the [00:14:00] question I would ask. It’s like what that actually looks like.

Tim Baker: You know, for us, the way that we do this, Tim, is, you know, we, I would say that we are very comprehensive, right? So we, we look at what we call delivering the financial roadmap over the first year of our engagement. So when you, once you become a client, um. We go through the onboarding process. We, um, you know, part of that is linking all the things to your client portal.

Tim Baker: So we have a client portal that, you know, you link your check in, your savings, your credit cards, your, your investments, the value of the house, the mortgage, the student loans, all that stuff. And for a lot of people, it’s the first time they see all of their stuff in one, one spot, right? Because we, we bank over here, we have investments over here.

Tim Baker: We have debt over here. If you have a, a, a spouse or a partner, sometimes like that’s a little bit of a black box if you can’t directly see. So it feeds all this information in a read-only fashion. And it, and when we deliver this financial roadmap over the first course or the first year, the first stop on that roadmap, Tim, we call [00:15:00] the get organized meeting.

Tim Baker: So that’s where we’re gonna go line by line through all the things. And what we’re really trying to establish here, which again, I think is overlooked, is what is your starting net worth? What’s the first data point? What’s the before picture, so to speak? So. That’s the first stop. The second stop, once we establish that is, okay, now that we know where we’re at, let’s talk about where we want to go.

Tim Baker: So we call this second meeting the script, your plan meeting. So this is, um, hey, I wanna retire at this age. I wanna make sure I’m take these, these trips. I want to pay for my kids’ education. I want to take care of my parents that are, you know, that are aging. I want to, you know, retire by 60 or 65. Um, I want to volunteer.

Tim Baker: Whatever those things are, we gotta know where we’re going. And I think sometimes, yeah, I think sometimes planners would, will do good at kind of the, Hey, what are the investments? What are they? But they don’t necessarily do a deep dive on like the why. So. FP drinking game. If you’ve ever heard me say, it depends, right?

Tim Baker: When [00:16:00] a pharmacist asks the question, it depends on what’s the balance sheet look like and what are your goals, which are gonna be unique to you, right? So this is where I kind of scoff a little bit at the water cooler talk of like, oh, my colleague’s doing this, my colleague, you know, my, my uncle’s doing this, my cousin’s doing this.

Tim Baker: You’re a unique snowflake, Tim. So your balance sheet and your goals are gonna be unique to you and Jess. So we have to tailor the plan to that. And I think those two foundational meetings, which, you know, in the beginning of where are we at, where are we going, changes the, it depends to, this is what I think you should do.

Tim Baker: This is in your best interest. So. To me, it’s important to take those steps. And then really meeting three and beyond is, uh, on the roadmap is getting to the meat of that. So everyone starts with fundamentals. So it’s, we look at cash flow and budgeting. We look at a savings plan that’s gonna be anchored by an emergency fund, but we, you know, if you’re like, Hey, I’m, I want to be a big, I’m a big traveler.

Tim Baker: I wanna see a travel bucket, I wanna see a home purchase bucket, a home maintenance bucket. Maybe it’s a kids’ bucket. [00:17:00] Uh, so the short, medium term goals, which are not necessarily suited for like longer term investments, we have buckets of, um, you know, for, for us to be able to fund those goals. So it’s a, it’s cashflow and budget in, it’s a savings plan, and then it’s a plan for the debt.

Tim Baker: So often that’s a student loan analysis. It’s like, Hey, I have credit card debt, I have car note, I have a mortgage, I have a line of credit. How are we efficiently, um, you know, what’s the optimal way to tackle that debt? So that’s kind of the, the foundation for which longer term planning can then sit on.

Tim Baker: So really we get into retirement planning investments. Um, how much do I need for retirement? You know, I used to, I tell the story that back in the day we would say, Hey, you need 2.6 million to retire. And then we were on to the next thing. How can we actually break that down into a number in 2025 that actually makes sense, or, Hey, I’m five years away from retirement.

Tim Baker: What does that look like? How do we then start? I think one of the things that the CFP does well, Tim, is they’ll, they’ll, they’re good about, about, hey, the accumulation phase. But [00:18:00] once we, once we get to retirement, what the heck do we do? How do we, how do we turn these big pots of money into a paycheck for time unknown.

Tim Baker: We don’t know how long we’re gonna live, so investment retirement A to Z, you know, we manage investments at YFP, so we have a. A custodian that, you know, we set up accounts, we move, we move accounts over from, uh, other custodians. We buy and sell all, all that stuff we do conversions. Um, and then really the last two meetings, Tim, is gonna be things like, um, wealth protection.

Tim Baker: So meeting five, we do insurance planning. So what’s, you know, do we have the right life, disability, professional liability? If you’re getting to be my age? You start talk, talk, thinking about long-term care insurance. You know, do we buy our own policies? Do we just get the policies through our employer? You know, the big difference between us and a lot of the other guys is, and gals is, you know, if we, if I say, Hey Tim, we think that you should get this life insurance policy, it’s not because we’re lining our pocket with additional commissions because we think it’s in your best interest.

Tim Baker: Um, [00:19:00] so you know, some of those open enrollment questions that you have with your employer, we, we work through. And then lastly, the big thing is. The estate plan. And I, I often joke, this is the redheaded stepchild of, of the financial plan. I can say that as a, as a ginger, but, um, often forgotten. But do you have the proper wills, living wills, power of attorneys, trusts, you know, if, if you, if someone depends on you or if you have a pulse, like these things are really important to have in place.

Tim Baker: Um, so we get those documents in place as part of our fee in the state that you live in. Or if you have those in place, we evaluate them and then make sure that they’re good. So that’s our, you know, that’s our, the meat of our financial plan. We, we also do things with like business planning at a high level sour negotiation, which kind of stem from, Hey Tim, I got a new job.

Tim Baker: And I would say, great. Like, what did you counter? And they’re like, ah, I didn’t, you know, just, I was just happy. So things that are kind of, you know, more tangential to the plan, we’ll, we’ll look at. Um, but I think it’s important to kind of go back to the root of the question to say, okay, [00:20:00] what does the service actually look like?

Tim Baker: What am I getting? Um, and, and, and be clear about that because I think often if you say, Hey, I do, I do financial planning a lot of the time it’s very investment centric, it’s very insurance product centric, and that’s it, you know, so, um, be, be it’s a question I would definitely put at the top of the list.

Tim Ulbrich: Yeah. One of the things I’ve heard you say many times before, Tim, as it relates to our services, is, Hey, at the end of the day, if it has a dollar sign on it, we wanna be a part of the

Tim Baker: Yeah. Or at least quarterback a solution.

Tim Ulbrich: that’s right. That’s right.

Tim Baker: And we’ve, we’ve had clients recently that are like, or prospects that are like, ah, I’ve been working with someone at x, y, Z firm and I have a quarter million dollars in student loans that I need to figure out, you know, 10 years after I, you know, I, I graduated. No, you know, no hate.

Tim Baker: And can you help me with that? And I’m like, well, if you’re paying your advisor thousands of dollars that you don’t know, you’re pa, like why are, why are they not helping? And they’re either saying, Hey, I have a guy or a gal that can help you, that I can outsource this [00:21:00] to you, or, um, I just can’t help you.

Tim Baker: And to me, that’s unfathomable. You know, like, you know, one of the things we have to be wary of about is like, you know, we, we can’t give advice on things that we don’t, are not, you know, we, we don’t have, um, education in, or we’re not certified to do. That’s important to, to, to remember, but I would never look at a client and be like, I can’t help you.

Tim Baker: I would at least try to find a resource for them. You know, if someone’s like, I, I really wanna invest in a franchise that’s not in my wheelhouse, but I would try to find a resource that would say like, okay, like how can we go about it? I would, I want to quarterback a solution. Um, so that’s, that’s one example.

Tim Ulbrich: Yeah. And I think the point that we’re trying to make here as we’re talking about this first question, right, what’s the process for offering financial planning? Is, is are you clear on what that term means as a part of the engagement? And is that in alignment with what you need and what you want? And as Tim kind of articulated our roadmap, right?

Tim Ulbrich: The idea is, is [00:22:00] we have clients coming to us that are looking for service and we’re trying to determine, hey, what’s going on in their situation? What do we offer and is there a good fit? That roadmap is a visual to say, this is the expectation of what you’re going to go through over the first year. So before we make, and it’s important, this is a joint decision, is it, is it a good fit on both sides?

Tim Ulbrich: Before we make that decision, are we clear on what’s included and is it in alignment with what you need? And then there’s some more granular questions here, right? Exactly. Are we clear on how, how many times we’re gonna be meeting, how we’re gonna be meeting. Is that virtual? Is it in person? Is it over the phone?

Tim Ulbrich: You know, what does that look like? What’s the technology and the software that we’re gonna be using? What do I have access to in terms of tools and resources? Hey, if I have a question in between meetings, who do I get in touch with and how will that be received? Right? All of these are important considerations that you wanna be clear on before you engage.

Tim Ulbrich: And as Tim mention, as we look at our service in particular, you know, compared to kind of what’s out there in the general population of financial services, uh, in the industry. And what [00:23:00] we’re referencing here is a, a study that’s done by Michael Kitsis annually who’s a, a leader in the financial services space, looking at what are the components of the financial plan, what do, what’s typically covered, and how often are you typically meeting with an advisor, Tim, what we, what we usually see is most advisors are looking at an annual engagement or thereabouts, correct?

Tim Baker: Yeah, I mean there are, there are, you know, some advisors that are just like hourly. So it’s more transactional in nature. Most, most, most advisors when you go to work with them, you work with them for, for life or for, for many years. Right. Um, it’s, it’s less. I think it’s less, um, where it’s more you’re in, you’re out, that type of thing.

Tim Baker: I mean, and that’s for us, from our perspective. Like we’re, we’re trying to build relationships with clients that we’re gonna work with for many, many years, for the long term. Um, so yeah. And, and, and look at that, you know, the graph that he has, I’m looking at it that we will, you know, I’m sure we’ll share in the notes or at least a link, you know, the, the things at the top, you know, components [00:24:00] included in the financial plan retirement.

Tim Baker: 98% of advisors, you know, help with retirement investments. 96, tax planning, 92%. Social security, 86, estate planning, 84, life insurance, 82%. So these are things that it’s, it’s almost like, you know, when you think about, when you ask the public what a financial advisor does, like that’s what, what it is. The, the analogies, like when you, when you ask the public, well, what does a pharmacist do?

Tim Baker: They think about someone, you know, counting pills standing by on the bench. We know there’s a lot more that pharmacists can do, but if you look at the bottom of the graph, you know, I, I look at things like held away 401k. Um, 45%. So what

Tim Ulbrich: would be like an employer 401k.

Tim Baker: yeah, so something that you’re currently contributing into, which this is, this is bonkers to me.

Tim Baker: And then oftentimes outside of the house, it’s the biggest, it’s the biggest asset that you own. So more than half of advisors. So Tim, you hire me, I’m going to sell you insurance. I’m gonna, I’m gonna set up your IRA at my, at my [00:25:00] custodian, a brokerage account. And then you’re gonna say, Hey Tim, thanks for a lot of that advice.

Tim Baker: Can you help me allocate my 401k at Vanguard or Fidelity that, you know, my, my, uh, employer’s contributing and I’m, you know, I’m getting a match. And they say, no, that’s nuts to me. Like, that is crazy.

Tim Ulbrich: Well, especially what we see, Tim, a lot of our clients, you know, Hey, I’ve been working with Kroger for 10 years, or I’ve been at this hospital for 12 years. I mean this easily. For some people it’s half a million dollars or more. Um, could be much more if they’re further along right. Until those might roll over to certain buckets.

Tim Ulbrich: So thi this is a big part of the plan.

Tim Baker: Yeah. Yeah. I mean, college fundings, I would say only 71%. So if you’re kind of a older millennial, younger, you know, maybe younger Gen X, like that’s kind of the world that I’m in is, is like, that’s a big part that I have to look, you know, we have to look at, um, employee benefits 50%. Again, I look at that as, that’s a major part of your comp.

Tim Baker: Like, you know, that that’s something [00:26:00] I would wanna look at and make sure that you’re optimized the one that’s a little bit higher to me, Tim Life Plan is that 49%

Tim Ulbrich: I saw that. Probably interpretation of what that is.

Tim Baker: Yeah. Like what, how you define life plan and, and we’re big proponents of, you know, you build out a life plan that’s supported by the financial plan, not the other way around.

Tim Baker: And I think if we look at like, transformation and impact, a lot of it is centered around like a life, life plan and story. Um.

Tim Ulbrich: Well, and Stu, I’m looking at looking at student loans too, to the point you just made of a couple prospects here in the last week. Right. 31% student loans, so that, that matches a lot of what we’re hearing of. Hey, I work with an advisor probably who’s helping with retirements, insurance, et cetera.

Tim Ulbrich: Most likely not in a fee only. We don’t know that for sure. And hey, they don’t know what to do with my student loans. That data, you know, only 31% of advisors, part of that is generational. They may not work with clients that have many student loans, but we also know from experience with people that come our way, that there are often advisors that just the borrower, the borrower still has that [00:27:00] debt.

Tim Ulbrich: They just aren’t, aren’t helping them. And for the reasons you’ve already mentioned, it’s really hard to advise on the rest of the plan if you have a couple hundred thousand dollars of debt.

Tim Baker: yeah, I mean, I, yeah, it like it if you have a couple hundred thousand dollars of debt, like who cares about your investments? And I, and I say that somewhat facetiously, but I. It is the tail that wags the dog. Right? Of your, of your, you have to figure out the, the strategy and the plan. And I kind of ach in the student loans a little bit to like digital assets.

Tim Baker: So back in the day, you know, again, when I got into the industry 10 plus years ago, the, the advice was, we either can’t help you with the student loans or don’t worry about the student loans. You make a great income. They’ll figure themselves out or pay the one with the highest interest rate or the lowest balance, which is the snowball and the avalanche method.

Tim Baker: Right? Which we know Tim is it’s crap advice for your, for your student loans. And I, I remember having this like debate with an advisor that was very like, investments, insurance, blah, blah blah. And they’re like, well, what’s [00:28:00] like, what’s the big deal? It’s just like paying off your house or anything. And I’m like, if you have a quarter million dollars in student loans, the, the.

Tim Baker: The, um, the impact on your wealth building could be anywhere where you pay 80 grand if you’re in A-P-S-L-F and you’re completely optimized. So think about that as like a negative interest rate. Two, you’re paying 500, $600,000, or you drag it out over 30 years. And he is like, oh, okay. Like, that’s the spectrum of outcomes.

Tim Baker: And to me it’s, it’s just really important. Right? And, you know, I don’t want to just harp on student loans, but like, yeah, 31% of advisors, they’re either saying, I can’t help you, or I have a person that I can direct you towards, um, you know, 6% career salary benchmarking. And I think like, if we weren’t as niche, like if we worked with pharmacists and attorneys, and we, we do work with everyone, but our, our niche, you know, I would say probably 90, 95% of the, the households that we work with, Tim, there’s a pharmacist in the household.

Tim Baker: Um, but we kind of like, [00:29:00] I, I just got to the point of. Again, a a a client would say, Hey, Tim, I’m, I’m, I’m changing jobs. I just accepted this offer. And I would say, did you counter? And they’re like, no. And I had a client recently, um, shout out to her who recently came on, and she’s like, I’m fixing to get a, a job offer.

Tim Baker: Can you help me with that? And we did, and we earned our fee that day. Like we, you know, she got more base, she got a bonus, she got some, some stock. Um, and she’s like, I would, I would never have thought, and I don’t have the confidence to do that. And I, to me it was just kind of like, you know, the, the, in the income is what feeds the financial plan, what sticks is your net worth and things like that.

Tim Baker: So to me, it’s important to at least advocate for yourself and have the tools and the ability to do that. So it’s kind of a tangential thing. And I personally still do it. I love doing it. That’s probably the one thing that I, you know, that and some of the business consultant stuff that 20% of the, um, advisors will do.

Tim Baker: But, you know, these are all things that I think. [00:30:00] I think to go back to the question of like, what’s included and then from a frequency perspective, you know, the overwhelming majority of of financial planners, you know, they’re gonna meet with you two or three times in the first year to kind of complete the plan.

Tim Baker: And then after that, it’s typically every year or every couple years. In terms of like maintaining the plan for us, like our delivery of our roadmap is typically six or seven meetings, um, over the first year, typically seven meetings, and then we go into a semi-annual kind of rhythm, which, which is about 10% of advisors will do that.

Tim Baker: Um, so high touch and we typically do like an annual review and then a plan checkup. The warm blanket though, that I think, and this, you know, when I talk, when I spoke about that sour negotiation, um, the warm blanket w with working with a company with YFE, and I think most people are, most firms are like this, but, um, is if there is something that’s super time sensitive.

Tim Baker: Like, Hey, I got a job offer. Or We’re buying our house. We’re selling our [00:31:00] house. You know,

Tim Ulbrich: Investment property. Yeah.

Tim Baker: property. Hey, guess what? I’m retiring. You know, I thought it was gonna be in three years. Now I’m retiring. Now, you know, you can meet with us PRN as needed. Right? And that’s, we used to not call ’em, we used to just call ’em, like, we call ’em PRN meetings now.

Tim Baker: Um, so as needed, we can, you can meet. And that to me is like, Hey, we want to be able, and I think sometimes if you’re paying an advisor like hourly, and I kind of always joke about. Remember, Tim, we, like, we’ve had attorneys in the past where I’m, it’s like we, we would pay them hourly and I

Tim Ulbrich: Keep the email short.

Tim Baker: I would spend the, yeah, the email.

Tim Baker: And then I would spend the first 45 minutes reminding the attorney of like, who I am, what I do, and then get this huge bill like I I, and again, no shades or hourly invest or hourly planners out there that they exist. But to me it’s super transactional that I don’t, I don’t, I don’t want people like counting hours or anything like that.

Tim Baker: So, um, yeah, I would say comparatively super high touch with regard to, um, the, you [00:32:00] know, the, the frequency.

Tim Ulbrich: So brass tacks on this first point, and we’re, we’re intentionally spending the most time here because thi this is the meat on the bone, right? In terms of, you know, are you, are you getting what you need? So, brass tacks here is, does what you need and what you’re looking for help with the financial plan, does it align with what they offer?

Tim Ulbrich: Does what they call financial planning advising, does that align with your needs for the plan? And I’m gonna put a plug here, Tim, for us, we, we are beta testing what we’re calling a second opinion analysis. Maybe we’ll change the name on that, maybe we won’t. But the idea is for those that are already working with an advisor and having this nagging feeling of, Hey, I’m, I’m not sure it’s the best fit, right?

Tim Ulbrich: Whether it be frequency of meeting or questions getting answered, or maybe a lack of transparency in the fee structure, or, Hey, they don’t know what to do with this part of the plan. There could be a myriad of reasons. Um, through the second opinion analysis. Our goal is that they have an opportunity to sit down with you.

Tim Ulbrich: We can learn a little bit more about what’s going on in their situation, do an analysis of the current [00:33:00] engagement, what fees are being assessed, whether that’s transparent or not to them now. And then of course we can talk more about our services and see whether or not it makes sense to move forward. So we’re looking for some people to help beta test that for, for us.

Tim Ulbrich: If nothing else, I think it would shed some insights on the current engagement to help us refine our processes a little bit further. So if you are currently working with an advisor, you have that feeling of, Hey, I’m not sure if it’s the best fit, and you’d be open to helping us out, do a second opinion analysis.

Tim Ulbrich: Uh, send us an email [email protected]. Just say second opinion and we’ll get back to you and get something scheduled from there.

Tim Baker: Yeah, I, I’d love to be able to do like three to five of these, Tim, um, just kind of beta test and see what this looks like. And I think the, the way that I’m looking at this is, you know, the analysis will, will kind of be, um, similar to like what we do. We do a portfolio, insights, insights for our clients, and it kind of looks at, you know, the, um.

Tim Baker: The account location, so like [00:34:00] what and where your accounts are. So like when we try to build a retirement paycheck in the future, we want pre-tax accounts, we want taxable accounts, and we also want like Roth, like after tax accounts. So account location is, is really important. Um, you know, the other thing is allocation.

Tim Baker: So you know, kind of evaluating, you know, what are your percentage to stocks and bonds. You know, we, we, another section we talk, we talk about is move money, which is if, if money is moving in or out of your account. So, so much about is, uh, of this as, as how much you’re invested, not what you’re invested in.

Tim Baker: Um, and then like expense, like what are you actually paying, um, for, for those investments and kind of, you know, put some, um, investment analysis reports with that and, and you know, you can kind of hear some my thoughts on, on your portfolio. So I would say look into three, three to five Guinea pigs to kind of, you know, pilot this and see what it looks like.

Tim Baker: Um, would love to, I would love to do that. So, um, yeah, just email us and we’ll, we’ll figure that out.

Tim Ulbrich: Again, [email protected]. Just note, second [00:35:00] opinion in the subject line or email, and we’ll we’ll get back to you so you can get on Tim’s schedule. Tim, second question here is, are you licensed, if at all, are you licensed as a stockbroker? Are you licensed as an insurance agent? Are you licensed as an investment advisor?

Tim Ulbrich: Why? Why is this question important?

Tim Baker: So I think this kind of shows you like the underlying way, like the underlying model that they’re in. So I would say the, the three main models that are out there are, um, fee only, which is what we are, which I think makes up about 5% of advisors out there. So this is where you essentially pay for advice.

Tim Baker: You don’t pay for an investment product or a, like an insurance product. So no commissions. Um, so if you’re working with a planner, if you’re looking at a planner and you see like, um. Securities license or, um, or insurance sales. Like that means that they, they are commissioned. Um, so you have fee only that is kind of, um, like we feel the best, the most pure in [00:36:00] terms of like, you know, less conflict of interest.

Tim Baker: And then on the other side of the, the spectrum, which I don’t know if these guys and gals, um, are, are around anymore, but it’s basically like a commission only. So this is like, you know, you, you, uh, you see on the movies where you call up your stockbroker and or they call you and they say, Hey, I wanna sell you, you know, a hundred shares of x, y, Z company.

Tim Baker: And they, it’s more transactional. They’re selling you a product, they get their commission, they move on. So a lot, a, a lot less in terms of advice, right? So that’s the two ends of the spectrum in the middle where most advisors live. It’s called fee and commission, or what’s, what’s we typically call it is fee based.

Tim Baker: So oftentimes, you know, um, you know, a prospect will come to me and says, yeah, I want to, I wanna work with you because you’re fee based, you’re fiduciaries. And that’s actually a, a misnomer. We’re fee only. We’re we’re, and they sound similar, which is part of the problem, but a fee base is [00:37:00] fee and commissions.

Tim Baker: So this goes back to like, you know, in, in my previous model, Tim, if you were my client, you would say, Hey Tim, how do you get paid? I’m like, pull up a chair, it’s gonna take me a while. I can charge you hourly. I can charge you a percentage of a UM assets under management. I could sell you a life insurance product and get a commission.

Tim Baker: I could sell you a disability policy and get a commission. I could sell you an annuity and get a commission. I could sell you, you know what, whatever. So it could be a flat fee. So it’s, it’s, it’s, uh, and again, I, there’s no shade because I think what, what, what those advisors are trying to do is, you know, we, what?

Tim Baker: I was in that model, Tim. I thought we were awesome because. We didn’t work for one of the big wirehouses that we had to sell their proprietary products. We were like, we could sell whatever we wanted. And then I found out about fee only and I’m like, oh, like that’s what I want to be like. I don’t want my advice to be kind of directed by a product.

Tim Baker: I want it to be directed by the advice, the plan that’s in the best interest of the client. So those are the three broad, broad [00:38:00] buckets. So it’s fee only, which is, you know, no commissions. Essentially you have commission only, which I don’t know if they exist anymore because now we have E-Trade and Rob, we have access to the markets, right?

Tim Baker: And then we have everything in between, which is typically fee based or fee and commission. So, you know, you can look at, uh, an advisor website. So sometimes, uh, I’ll talk to an advisor and be like, Hey, I’m working with this group, or whatever. They’re fee only, they’re fiduciary. And I look at the website, I’m like, respectfully, they’re not, because at the bottom there’s disclaimers about I.

Tim Baker: Know. So if they have like a series seven, which is one of the exam, one of the first exams I passed when I got in the industry, that means that you can sell securities and earning commission if they have insurance. Um, which I used to have also, if they have, if they have insurance licenses, that means I can sell you life insurance and earn a commission.

Tim Baker: I had to give those up, the series seven and the, and the insurance stuff when I, when I transition to fee only. So I think these are more important to kind of understand the model in which they’re in, because I think even people in those models [00:39:00] don’t know what model they’re in. They’ll say, they’ll say, Hey, I’m a fiduciary while you a fiduciary all the time, or when you’re just talking about this specific thing.

Tim Baker: And that’s the thing that gets super confusing.

Tim Ulbrich: Tim, if I’m someone listening, I, maybe I work with an advisor. I have worked with an advisor in the past, or I’m looking to work with an advisor and I’m trying to answer this question like, which of these three models do they fit in? Um, we know that most people are probably in that middle one. You described that, that fee, fee-based.

Tim Ulbrich: Um, how do they figure this out? Is it information on the website disclosures? Is this for the a DV form comes in? Tell us more about that. If that’s the case, what, how, how do they do their homework on this?

Tim Baker: Yeah, the first place that I would look at, like first, like really quick, like when someone says, Hey, I’m working with this, and I, and I’m trying to suss out like what they, what they, I look at their website and typically at the bottom there’ll be, you know, um, you know, we use this, um, broker dealer. If you see like the words broker dealer, that’s typically their, their fee base, their fee and commission.

Tim Baker: Um, if you see things about insurance things. So typically at the bottom of their [00:40:00] website, there’ll be some type of disclaimer. That says like who they’re affiliate with. Um, you can ask them and see like, you know, the, the circles they might talk, talk in. Um, and then I think the last place would be like, go to broker.

Tim Baker: I think it’s broker check, broker check.com, and you can, um, basically look at their A DV brochures. So the A DV, I’m not even sure what the A DV stands, A DV stands for, but it’s basically there’s, there’s different, there’s part one, part two a, part two B, two A is gonna basically say it’s like, you know, for us it’s like a 40 page document that show that, that that kind of says, this is who we are, this is the services that we provide, this is the, this is the fees that we charge.

Tim Baker: Um, and it kind of gives you more of the detail. So if you think, see things like insurance or, um, again, security sales, things like that, you’re gonna be working with probably a fee-based advisor. So it would be ask them, it would be look at the website and it would go, and I would say, I would go to broker check to look [00:41:00] for the A DB brochures.

Tim Ulbrich: We’ll link to that in the show notes is broker check.finra.org. Um, so you can enter in an individual or affirm. So we’ll link to that in the show notes, and then we’ll also link to the page where it has Y fps, uh, a DV forms if folks are curious at looking at those more carefully as well. So get out a cup of coffee.

Tim Ulbrich: Uh, it’s not, not always the most exciting read, uh, but it’s an, it’s an important one. Alright, good stuff. Let, let’s continue the conversation then as we move to the third question, we start to talk about. Not only how are individuals license or which of those three models they’re in, but how do they ultimately get compensated?

Tim Ulbrich: And again, sounds obvious, but we’ll talk with a lot of folks where, hey, you know, what’s the current engagement look like? Um, how are you paying for services? And it’s either, I’m not sure, or the one I’ve heard several times before is like, I don’t, right? It’s free financial planning. No such thing. So third question here is how are you compensated and what ultimately is included in that fee and how is that calculated?

Tim Ulbrich: Right? And is that fee transparent? Tell us more about this [00:42:00] one.

Tim Baker: Yeah, so, so I think that’s the big thing is transparency, right? So like, we’re a business, you know, we’re, we’re in the business to, you know, uh, build a profitable business, you know, make money, all that kind of stuff. So, like, it’s important to say that out loud. We’re not a, we’re not this, you know, we have YFB Gibb, which is a non-profit, our main business or financial pharmacist is a for-profit company.

Tim Baker: So transparently like, you know, we wanna make sure that’s out there. I think, you know, the way, the way planners get paid, you know, some of the things I talked about is like insurance and investment products. I have a memory, Tim, of, um. Uh, you know, I, I was working with my previous firm and they’re, you know, my, one of the guys in our office is like, Hey, you know, if you, if you have the opportunity to sell your products, like a non-traded reit, do that.

Tim Baker: And I’m like, well, why? Like, what’s the, what’s the benefit? It’s like it pays 8% commission.

Tim Ulbrich: geez.

Tim Baker: And I’m like, uh, like to, I need, I need to take a shower. Like, it just is like yuck, right? So [00:43:00] it’s the same thing with like, uh, like variable annuities. Like, Hey, why pay variable annuities? It’s because the commissions are, so, I often say it’s like, typically the, the products that are better for the planner, the advisor are not good for you.

Tim Baker: Um. So, you know, if, if you’re, so when, when you, when we work with us, the only like, like we basically set the table and say, Hey Tim, you need x, y, Z insurance policy. And then we hand you off to someone that’s gonna sell the policy and not try to upsell you. Like we have, you know, organization, insurance companies that, you know, work with the only that understand that.

Tim Baker: Um, so you pay for the advice, not the product. That person that we send you to, they, they get the commission. Right. So, so there’s a, there’s a arm’s length, you know, in, in that regard. Anytime that you mix the sale of a product with advice, I think again, where you have the most conflict of interest. So, you know, if you’re looking at a statement and you’re like, I don’t really know how my advisor gets paid.

Tim Baker: Often there’ll be like an advisor’s like fee that you should see as a litem, but [00:44:00] sometimes there’s not, um, a place that you could look at is like when you sign a client agreement to, you know, to begin your, your engagement with a, an advisor. It should lay out exactly like what you’re paying. A lot of people just don’t look at that, or they don’t know, you know, typically when we sign clients, we go through the agreement together.

Tim Baker: And I do that in the spirit of transparency, Tim, because I wanna know pe, I want people to understand like what they’re paying and, and I, and part of it’s to combat the lack of transparency in the industry. And I, I always kind of go back to like, when I bought my first house many, many years ago, Tim, I felt like I was signing a tree and I couldn’t ask questions.

Tim Baker: And I just hated that feel on. So I want clients to say, Hey Tim, what does this mean? What does that mean? And, and we go through it together. Same thing with the invoice. So, but if you’re looking at a statement, there should be said, said something like advisor, um, expense or fee or commission, A lot of the times.

Tim Baker: Like a, a mutual fund. It’ll say like, it’ll have like an A or a C next to it. And that indicates that it’s an [00:45:00] a share mutual fund or a C share mutual fund, which has commissions tied to it. You just can’t see what it is. So if you, if you have x, y, z mutual fund and it says a, you would look up that mutual fund and you could see the, it’s called a front, a front loaded fee or a front loaded commission.

Tim Baker: It says that, okay, you paid 5.75% when you made that initial, but it’s like, you have to know that to, to, to, to like look for that. So it could be fee, it could be commissions on products. Um, probably the prevailing, um, model that most advisors use is called a UM Assets under management. So this is, um, a percentage that the advisor is managing directly.

Tim Baker: So, uh, they’ll take, they’ll typically roll over your investible assets like an old 401k an IRA. A Roth IRA, uh, a brokerage account, they’ll move it to their custodian and then they’ll manage it directly, and then they’ll, they’ll charge a fee out of that. The problem with that model in its purest form [00:46:00] is what I found is that if you don’t have a half a million dollars or a million dollars, the advisor will say, Hey, Tim would love to work with you, but I can’t help you unless you have this money.

Tim Baker: Or they’ll say, the way that I can help you is sell you a crappy insurance product. I’ll invest what you have and then I’ll talk to you every couple years until you have assets for me to manage IE that where, where you can pay me. I think the other, the other con, you know, the, one of the main conflicts of interest is that the more dollars that they’re managing, the more fee that you’re gonna pay.

Tim Baker: Right? So, you know, they’re incentivized for you to move, you know, accounts over to them. Um, so that’s the prevailing one. Another one is called a UA Assets under advisement. So this would be what they’re managing as well as what they’re not managing directly. So a, a held away 401k. Some advisors will, will put all that into a, a bucket and they’ll say, oh, they’re gonna charge a percentage of that.

Tim Baker: Um, could be flat fee where it’s just, Hey, it’s this fee. Um, you know. [00:47:00] And that’s it. It’s a, a flat, $5,000 a year, $10,000 a year. Um, and you know, the problem with that fee typically is you, you often see major increases in the fee over time because there’s no mechanism to kind of account for inflation, salaries going up, things like that.

Tim Baker: Um, or they’re typically higher, like a lot of flat fees. It’s like, Hey, you know, our minimum fee, flat fee is $7,500 or 10 grand, or, or things like that. So flat fee is definitely, uh, one and then hourly, you know, an hourly fee. And then there can be combinations of all these things, Tim, but those are the, the prevailing, um, you know, some, some people do hourly plus a percentage of what they do, or, you know, it’s, it’s, you know, an A A UM or you know, plus a, you know, they might charge a UM and then they’ll charge a planning fee in some way.

Tim Baker: Um, so that’s the big thing to, to understand is that there’s lots of different models out there, lots of different ways to kind of. Skin the [00:48:00] cat, so to speak, and just understanding, you know, who, who you’re working with and, and how they charge.

Tim Ulbrich: Tim, since a UM is the prevailing model, you did a great job of talking about all the different buckets, right? They can get paid from commissions. Uh, and then from a planning perspective, typically we see it’s either a UM to a lesser degree, a UA, uh, assets under advisement, which as you mentioned, would, would include some of the held away.

Tim Ulbrich: So not only what they’re managing, but also hey dollars that you have, for example, inside of a 401k at your current employer. And then you mentioned the flat fee. It could be a lot of variations of that in terms of both amount and what that looks like. And then of course, something like an hourly, more of a project type of of work.

Tim Ulbrich: If we go back to the a UM for a moment, given that that’s the prevailing model gi give us for, uh, for instance, so you know, what is a typical a UM fee? Certainly not consistent across the board. And then let’s say we have a client who’s got $400,000, that would be managed by an advisor under an a UI model what, what that might look like in terms of fees.

Tim Baker: Yeah, [00:49:00] so, so typically I would say the prevailing model is typically something that for an a UM model, it’s like 1% that’s tiered down, right? So if you, you know, if you have half a million dollars, 1% of that, you know that, that the advisor are managing 1% of that, it’s five grand a year that they’re gonna build directly outta your investment accounts.

Tim Baker: Um, that’s typically the prevailing, I was talking to a guy that, um, Liam plays soccer with over the weekend. He works for a big company based in, um, based in Columbus, and their model is ultra high net worth. You know, you got that, you have to have a minimum of like one to 2 million and their, their fee starts at about, uh, 1.5% or something, something there.

Tim Baker: Um, so. You know, there, there, it’s all over the place, but typically the, the, the, the one that I see most is like 1% that’s tiered down. So the more that you invest, you know, the, the fee, the fee goes down or over, or the percentage that that’s charged over time, um, the way that we [00:50:00] do it. So we, I was admittedly pretty anti a UM when I, when I started script back in the day, Tim, and there’s probably hours of, of footage on our podcast, you know, me kind of ex exclaiming that point.

Tim Baker: Um, and I think the reason why I was anti a UM is, is because I, I actually think that the model is, is somewhat elitist. So it, it kind of, it kind of kept a lot of people, um, that needed advice. IE you know, a 20, 30, 40 something year old, uh, pharmacist, um, out of the market

Tim Ulbrich: Excluded them.

Tim Baker: excluded ’em, because again, the, the, the prevailing advice was don’t worry about the student loans.

Tim Baker: I’ll invest your Roth, I’ll sell you insurance product and that’s how I can help you. Or they’re like, Hey, I can’t help you until you have that money. Um, so there’s lots of different reasons. So, so we’ve essentially adapted over the [00:51:00] years kind of a hybrid flat fee, a UM model. The positives of the a UM model is like, it, it, because it’s the most prevalent, everyone understands it, and everyone from a compliance perspective, um, you know, they, they kind of understand like,

Tim Ulbrich: SEC likes it.

Tim Baker: the, yeah, exactly.

Tim Baker: SEC likes it. They, they, they understand it. Um, but I think. The, one of the big things that we’ve discovered over working with hundreds of pharmacists is the a UM model. Even though money is fundable, meaning your money is your money, whether it’s in a, in a brokerage account, an IRA in your checking account, what we’ve discovered is that the, the model that we would charge, especially early on in our business, would be, um, very much in the realm of, hey, like we don’t really care where the assets are, so if you wanna manage it or, or whatever, you know, we’re gonna charge you a flat fee and you’re gonna primarily pay that out of [00:52:00] cashflow, your checking account, your credit card, et cetera, either as, as, because you need to or because you don’t have assets, or just, or just because that’s your option. The problem with that is that. The paying out a cash flow is more disruptive to your life and your lifestyle. So if I’m billing you quarterly on a financial plan, eventually you get some fee fatigue. And if you believe like us, that the best results come from the longevity of the relationship and stacking years of very intentional financial planning that yields the best result.

Tim Baker: That’s, that’s a problem. So the, the a UM model, so for if I’m billing you, you know, X amount of dollars per quarter out of your checking account or your credit card, that’s very different. Even though it’s the same amount. If I’m billing it out of a couple hundred thousand dollars of, of assets, it’s a little bit of outta sight, outta mind, even though it is your money, right?

Tim Baker: I wanna make that clear. But it doesn’t disrupt your lifestyle, so to speak. So. Our [00:53:00] models kind of adapted to, um, essentially if you have less than half a million, we’re gonna charge you some type of like flat fee that’s based on complexity. Anything above that is just gonna be based on, you know, a per, you know, a percentage that’s tiered down, um, on the assets that we’re managing.

Tim Baker: And I think the other thing that we, we change is like, we used to be more, um, ag agnostic about who’s managing the assets. Now we’re not, you know, we, we’ve experimented with that where it’s like, you can manage it or we can manage it. It was too many cooks in the kitchen, you know, so this is what we do. We do it well.

Tim Baker: We do this as, you know, our, what we do for a living. Um, we’re looking for clients that are like, yeah, take, take the investments. Obviously they play a major role in how we’re constructing the portfolio, but we’re basically doing, you know, the lion’s share of the work. And it was to kind of eliminate the too many cooks in the kitchen.

Tim Baker: So we feel that this hybrid model allows us to work with clients that have zero assets to clients that have. Hundreds of thousands, if not millions of [00:54:00] dollars. Um, and, and do that over the, over the long term.

Tim Ulbrich: Great stuff, Tim. I think it’s a great summary of, of how we’ve evolved over what is gonna be 10 years this fall,

Tim Baker: Yeah. Wow. Crazy.

Tim Ulbrich: Um, and where we started and what we’ve learned and, and how we’ve pivoted. And as you said, I was actually thinking about this morning as we were prepping for this. It was way back on episodes 15, 16 and 17.

Tim Ulbrich: So this would’ve been back in 2017 that we talked about some of this topic and, and why we landed on what was income and net worth at the time, uh, which was revolutionary Tim Baker style, uh, of fee assessment and how that worked for a season. But we realized where that kind of broke, and I cannot emphasize enough that we really believe the ROI of the relationship. Not only is it beyond just the quantitative, it’s also the qualitative, which gets overlooked so much in this industry, and it’s harder to measure. But even on the quantitative side, it comes from the years as you [00:55:00] mentioned. Compounding these wins and having the accountability and stacking those. And if that’s an 18 month relationship because the free structure doesn’t align such that it can’t be continued on, then you reduce the ROI of that long term.

Tim Ulbrich: And so, you know that that’s in part how we’ve arrived to, to the point that we have today.

Tim Baker: Yeah, and I would just piggyback on this, like there was a study done, um, by our friends up north, the Investment Funds Institute of Canada. They did a, they did a study, Tim, from 93 to 2008, um, that basically looked at. What was the impact of, of net worth or assets? Um, you know, with, you know, a group that didn’t work with a, an advisor and then those that did, and, you know, the impact on net worth for advise individuals was greatest by the end of study period of the study period.

Tim Baker: Suggesting that the impact of a financial advisor grows over time, which is kind of like, no duh, right, but I say that

Tim Ulbrich: any other [00:56:00] coach,

Tim Baker: yeah, yeah. I say that because like in a microwave society. We want results yesterday, completely get that. But you know, they, they’re, they have a graph that’s basically like no advice compared to, you know, those that, you know, have advice for seven to 14 years.

Tim Baker: It’s typically like two x now, I think based on what we do, like our results are a lot better than that. Um, you know, no promise for future, you know, uh, you know, like, that’s not a promise, but like, I, I feel like the transformation that we show with clients, it’s, it’s, it’s necessarily more impactful. ’cause I think we just cover a lot more than the, than the traditional advisor.

Tim Baker: So, um, to me it’s important to, you know, you’re, what you’re saying is that just like, invest in the value of advice compound compounds over time, and it’s stacking, you know, months, quarters, years, decades of really intentional planning. And I often, I, I tell the story. You know, when I, you know, before I was in, um, you know, financial services I worked in, I was a logistician.

Tim Baker: I worked in [00:57:00] warehouse. And so I would drive to the office at five o’clock in the morning, you know, go into a warehouse with no windows. You work all day, you know, 12 hours, you know, uh, leave the office at five or six, drive back in the dark. And I wouldn’t remember those drives at all. I was just on autopilot.

Tim Baker: And I think part of that, like, that, that can be an analogy of life and part of working with a financial planner, I think a good financial planner that’s looking at the life plan is questioning, like, like, are we on track? Is this what we, is this the way we want to do? Like, let’s, let’s have some introspection.

Tim Baker: And sometimes it, it, it requires a third party to ask those pointed questions to me to say like, Hey, let’s get off of io, uh, like of autopilot, and let’s ask some pointed questions about, you know, is this, is this a wealthy life for you today? And are we on track for a wealthy life, you know, 10, 20, 30 years in the future?

Tim Ulbrich: Tim. And I’m even thinking about our weekly team meetings where when we talk about the impact of the team. Yeah. I mean, of course we love seeing the net worth numbers go up. You know, we love seeing the, the, the numbers in the right [00:58:00] trajectory, you know, long term. And, and we certainly, you know, have seen that, but it, but it’s those life type of wins where it’s like, oh man, this, this is when I feel like I could run through the brick wall.

Tim Ulbrich: Right? It’s someone who’s been talking about doing this life dream for five years and we’ve moved the needle. I think about some of the examples we’ve talked about lately of someone really pursuing a passion and hobby and, and, uh, around horses and the passion they have there. Uh, previously, you know, somebody who looking at their experience as a pilot and ultimately, you know, having a fraction of a plane.

Tim Ulbrich: Or, I think about Jess and I in our own journey and some of the decisions we’ve made as a part of our own life plan and like those are the things that individually when we think about significance, meaning, and impact, but also as we celebrate our clients as a firm, like that’s when the team lights up.

Tim Baker: Yeah, and I, and I, I just found out recently the, the, the, the pharmacist you’re talking about, um, you know, that huge amount of student loans, credit card debt, you know, and you fast [00:59:00] forward a couple years and, you know, she’s essentially flipped her net worth from negative 300 to positive 300 in a couple years.

Tim Baker: And that’s not what she’s talking about. You know, she’s talking about pickles, the horse, um, the big old diesel truck that she has moving from one part of Florida to another, to be closer to the National Equestrian Center. She actually just emailed me this week saying that she, she bought another house.

Tim Baker: Uh, so we’re working through that. But the other big thing for her, when we talked way back in the day, she’s like, I’ve always wanted to do an African safari. So earlier this year she told me she booked a trip with her mom to do an a African safari. So like, those are the things, Tim, where it’s, you know, a lot of pharmacists will say, get, you know, your guys are scientists.

Tim Baker: You wanna weigh the scales of like, Hey, if I pay this fee. Am I gonna get that back? You know, what’s the ROI? And I put that back on its head like, well, what is, what do you mean by ROI to me? You know, we need to be technically sound so we can make sure that, you know, a lot of financial advisors will say, and that would be a question I would ask.

Tim Baker: It’s like, how do you guys measure progress? A lot [01:00:00] of it, financial advisors will say, look at me. I got you a 10% return on your investments. But who cares if you’re like drowning in debt or you’re living a life that doesn’t necessarily line up with the, you know, your goals. Money’s a tool, right? So to me, quantitatively it’s net worth.

Tim Baker: And then what are the qualitative things that are important to you? And are we doing something about it? Part of our job is to hold the mirror up and say, you know, carrot and stick. Hey Tim, I’m talking to the my myself. Hey, Tim, nowhere in your financial plan does it say that you need to lead the league in bottles of whiskey in your collection, right?

Tim Ulbrich: Although, although you

Tim Baker: I do. Uh, but like, that’s not in my financial plan. So like, if I’m, if I, if I’m like in a pinch or if I’m not like doing the other things on my financial plan, my advisors to say, Hey, guy, like, how about we not spend this money toward, you know, the, um, the, the whiskey and like, let’s like this, this bucket that’s been sitting dormant that you want to do X, Y, and Z where, show me the money, right?

Tim Baker: Because at the end of the day, Tim, we’re not gonna, we’re not gonna lay on our deathbeds and say, [01:01:00] oh man, I wish YFP, or I wish my advisor would’ve said, I sh I, I would’ve told me to put more money into our Roth. IRA. We’re not, we’re gonna say, I wish I would’ve got into horseback riding again because it was a passion of mine that I just put on the back burner.

Tim Baker: ’cause I think I couldn’t afford it, or it wasn’t a priority or played in a band or changed careers or became a pilot. You know, you know, that was, you know, those are the things that are transformational, inspiring, and I could talk about this all day long. Um, but that’s what this is about. It’s not about.

Tim Baker: You know, the ones and zeros, it’s not, we need to do that to make sure we keep our job and we push this forward and we need to be technically sound and all that. But to me it’s about aligning the life plan with the financial plan and holding people accountable to that. And I think that’s a big thing is having a third party that knows your goals, knows your, your balance sheet, and, and, and has your best interest in mind.

Tim Baker: So, um, yeah, I [01:02:00] think that’s super important.

Tim Ulbrich: Yeah. As we say all the time, right? It’s, it’s, are we living a rich life today while we’re taking care of our future selves, right? That’s the quantitative and the qualitative and, and I get it, it’s an analytical audience, right? I am, I am an analytical pharmacist. Like the ROI is a good question. As we’re talking about, you know, the numbers and even as we’re we’re talking, I’ll link to it in the show notes.

Tim Ulbrich: I’m thinking about the, uh, the Vanguard study of putting a value on your value and what’s the actual potential. Quantitative, ROI of an advisor, and it’s, it’s really interesting because when, when they look at those numbers, it, it comes from several different things, you know, whether it be asset allocation, saving on expense rebalancing, but the behavioral coaching is a huge chunk of that, which people, I think, underestimate, uh, in, in part, maybe due to some overconfidence.

Tim Ulbrich: But what’s missing from this table altogether of the ROI is what, what is the qualitative side

Tim Baker: Yeah. Yeah. And I, and I think the Vanguard study that was done in 2001 [01:03:00] a, a value of advice advisor to Alpha. Um, it’s, it’s narrow in a sense. I think it looks, it looks at a hypothetical portfolio, half a million dollars over 25 years, you know, with an advisor. You know, that’s managing it. It grows 8% per year or to 3.4 million for a self-manage a di iyer.

Tim Baker: It’s 5% per year. So it grows from half a million to about 1.7. But again, I say that’s too narrow. Like if you wanna look at quantitative talking to about net worth, not investment returns. If you wanna look at the whole thing. I want quantitative, I want net worth, and I want the qualitative stuff. Are you living a wealthy life today?

Tim Baker: Like, are you doing the things that you’re passionate about? Um, so I think that to to, to your point, like, you know, pharmacists, what’s the ROI like, what’s, you know, what with ’em, what’s in it for me, Tim? Like, I get that. But I would, I would turn that question right back to, to you, the prospect, the listener, to say like, define that for me.

Tim Baker: Like, how do I know? You know, [01:04:00] we’re scratching that itch and I think it’s a little bit more, it’s a little bit more than I give you this fee and I get this back in some, some way.

Tim Ulbrich: Great stuff. So that’s our third question. How are you compensated? What’s included in the fee? How do you calculate your fee? Is it transparent? We, we broke down the different fees that are common in the industry. The fourth question, Tim, I’m gonna move past this one quickly because we’ve already addressed it in the areas we’ve talked about.

Tim Ulbrich: The fourth question is, what are your conflicts of interest when working with a typical client? And if we go back to the three different buckets you mentioned in terms of the commissions, the fee only, or the fee based, or the fee and commissions another term for that fee based, you can start to identify where those conflicts of interest may be.

Tim Ulbrich: And as you say, often there is no such thing as conflict free advice. Correct?

Tim Baker: Correct. I know, I think it’s Tony Robinson, one of his books, he call, he talks about conflict free advice, and there doesn’t, doesn’t exist. Um, it just doesn’t, you know, so, so to me, if it doesn’t exist, tell me what the conflicts are and, you know, let, like let’s talk about that. Let’s be upfront. Yeah. And I [01:05:00] think oftentimes, you know, you’re, you know, if you’re, if you’re dancing around that question as a planner.

Tim Baker: There’s, there’s problems. So, you know, you know, and that, and that’s I think one of the frustrating things sometimes is someone’s like, I wanna work with a fee, like a, a fee only person. And I think I’m working with them and I’m like, eh, you’re not, but then like, there’s some inertia to change,

Tim Ulbrich: Mm-hmm.

Tim Baker: you know, even if you know that they’re, you know, they’re not fee only or whatever, or that you don’t really know what you’re, they’re paying.

Tim Baker: And like, there’s a nurse there and I get that. So, you know, to me it’s, it’s having that conversation. And I think often those conversations are buried or it’s, you know, it’s, it’s, we talk in circles until we can get through the question and then we’re onto the next thing. And again, I just think tr be transparent, right?

Tim Baker: Like, like that’s, that’s huge. So, um, you know, are you obligated to act at as a fiduciary all the time? And I think that all the time is the operative word, because sometimes, you know, in some of these models, fee-based, you can say, I’m, I act as a fi fiduciary, but it’s only when I’m, when I’m working with.[01:06:00] 

Tim Baker: ERISA type funds, like a 401k. ’cause that’s, that’s the, you know, department of Labor is trying to like really narrow that down. Not, you know, some of these other entities that I think should really be drawn a firm line.

Tim Ulbrich: Tim, our last question and five questions to ask when hiring a financial planner is, what is your investment philosophy? And, and I would argue Tim thi this is an important two-way conversation, um, because the, the investment philosophy of the firm is there alignment there with the investment philosophy or preference of the client, right?

Tim Ulbrich: So talk, talk to us about why this is important and I think this one gets overlooked a lot that someone may have a preference, but that doesn’t necessarily align with, with the firm and how they approach their investments.

Tim Baker: Yeah. So what one of the questions I asked a prospective client is like, you know, if you had to make a list of the things that you want in your financial planner and for, or in your team for you to say like, Hey, these are my people. Um, you know, the, one of the things I’m kind of looking for and, and I think very rarely it comes up.[01:07:00] 

Tim Baker: But, you know, sometimes I’ll, I’ll see people that are like, I need you to beat the s and p 500. And I’m like, that’s not us, right? So we believe in more passive buy the market. Don’t try to beat the, don’t try to beat the market. If you’re more of an active, you know, um, investor, you think that there’s ways to kind of game the system and beat, you know, beat the market.

Tim Baker: And only one person I think can, can consistently do that. Warren Buffet, who can buy companies and basically extract return, you know, most of us can’t do

Tim Ulbrich: Mm-hmm.

Tim Baker: So it’s a, you know, it’s, is it, are you trying to beat the market or is it kind of more of a singles and doubles approach where you’re in the right asset allocation, you’re in the right asset location, we’re keeping expense low, those types of things.

Tim Baker: So, um, a lot of people are like, I don’t know what, what is your philosophy? And see if that that works for me. So I think if you, if you trust the market and you let it do its thing over the course of long periods of time, 10, 15, 20, 30 years plus. Market takes care of you, right? So you waste a lot of time and money trying to like, gain the system.

Tim Baker: But it [01:08:00] might be like, you know, in this day and age, like what’s your opinion on digital assets? Right? So for a long time there, it was kind of similar to student loans. It’s like, ah, like don’t worry about it. And now digital assets are, are, you know, it should be something that your advisors is at least talking to you about.

Tim Baker: You know, are you, do you like Vanguard funds? Is it ESG, which is like Sustaina sustainable, invest in, you know, are there, are there different strategies, you know, that make sense to you that, that fit more into your portfolio? So I think a conversation about this is super important. And I would say a lot of the time, you know, prospects will take the lead from their advisor, whether they’re active or passive.

Tim Baker: Um, and I, I grew up in a, you know, where I not grew up, but my, my previous firm, Tim, um, kind of helped mold me. I. Where my in investment philosophy is, and it was more of a case of like, what not to do. So, you know, when I was, when I was being mentored, you know, we, we basically [01:09:00] selected investments from the people.

Tim Baker: You know, they, they would, they would come to our office, you know, these wholesalers, these mutual fund wholesalers would come to our office in a fancy car wearing fancy suits, and they would take us out to a fancy lunch and they would f show us fancy glossies of like, why their funds were so great.

Tim Ulbrich: It’s like old school pharma,

Tim Baker: Yeah, exactly.

Tim Baker: And they would say, Hey Tim, you know, when Tim Ulbrich rolls over his money, like wink, wink, like in, you know, use our funds and, you know, to, to, to mobilize a sales force like that costs a lot of money. And who pays for that? The investor. And it’s typically in the, in the form of commissions or an expense ratio.

Tim Baker: So, you know. These, that was our criteria to pick, you know, um, you know, large cap, mid cap, small cap, like these different, you know, sleeves of investments. And they were often super expensive. The other, the other, um, mentor that I had was, [01:10:00] you know, it’s more of an active strategy. It’s like, Hey, client, we’re gonna buy x, y, Z ETFs at a hundred dollars per share, and then when it goes to a one 10, we’re gonna basically put a stop gap at 1 0 5 and then kind of lock in our gains.

Tim Baker: And if it goes at 1 0 5, we’ll sell out and then we’ll live to fight another day. And, you know, we’ll look at the VIX and all this kind of stuff. And we have core and we have explorer positions. And the, the problem with that model was like, there was a fla, I remember being in a conference and there was a flash crash where something happened in China and the, and the market went down and then went back up.

Tim Baker: So in this, in this scenario. Had a, let’s say we had a, a, a, a sell order at 1 0 5 by the time we actually got filled, because some of these ETFs were thinly traded, mean not a lot. It got filled at 80 and then the market’s back up and now we’re, we sold at 80 and we’re trying to buy at one 10 or 1, 1 0 2 or something like that.

Tim Baker: And I’m like, okay, mentor, what do we do next? And it’s like, I don’t know. [01:11:00] So, so that was more, you know, more of the active strategy. And I’m like, you know, there has to be a better way. So, um, I’ve read books like the Index Revolution, um, which is a quick read that is kind of like what I would say. It’s like, hey, trust the market.

Tim Baker: You know, if you read something in the Wall Street Journal about a biopharmaceutical stock that’s been priced in many, many weeks ago, like, you’re not, it’s not a hot stock tip. Um, so it’s kind of a, the more born investment is the better, you know, investment should be like. Paying down a debt or watching paint drive, typically the more sexy it is, the the more expensive it is.

Tim Baker: And, and the more I think risky it is. So it should be super boring singles and doubles. Don’t try to hit home runs, you know, and often you wanna do the opposite of how you feel. So, you know, if the market’s crashing, you want to take your investment ball and go home. Don’t. If you have more money to put in, do that.

Tim Baker: You know, not investment advice. If the market is flying high and people are like, I wanna buy, buy, buy. That’s, you have to be cautious. ’cause it [01:12:00] goes in cycles. Right. So, you know, you will often wanna do the exact opposite of how you feel. And, and you know, these are the behavioral things that a lot of people get in trouble that, you know, they’ll, they’ll sell, they’ll sell low, they’ll buy high.

Tim Baker: Right. And, you know, part of our job is to kind of, you know, establish a structure and a framework to potentially talk you off the cliff from doing things that are rash. You know, and I’ve done that in the past before, you know, getting into financial services. I’ve done silly things with my investments, which I, which I regret.

Tim Ulbrich: Tim, it reminded me of, uh, Daniel Crosby, who wrote the Behavioral Investor, had a chance to interview him on the show. I’m drawing a blank on what number it is. We’ll link to it in the, the show notes. But one of the quotes from the behavioral investor that he had was, humans are wired to act, markets tend to reward inaction.

Tim Ulbrich: Um, and I love his take because he, he brings a, a research-based psychology approach to how you think about your money and. A little bit of dose of, of humble pie, right? When you understand the, the limitations of what we can do and great recommendations. You beat me to it. I was gonna mention, uh, the index [01:13:00] revolution, but Charles Ellis, if folks are looking to read more on this, unshakeable by Tony Robbins is another good one, uh, that touches several of the things that we talked about during today’s show.

Tim Ulbrich: Um, but really good stuff. I know we covered a lot of ground. Uh, this is one of our longer episodes, but I, I, I really feel like one that we’re gonna be able to come back to on repeat of, Hey, what are the things that you should be thinking about looking at questions you should be asking when you’re thinking about hiring a financial planner.

Tim Ulbrich: And we’re really proud of what we have built, our team of CFPs, certified financial planners at YFP, the impact that we’re having. And we would love to have an opportunity to talk with you, whether you work with an advisor now or not, and this may be your first engagement. We’d love to have a conversation to learn more about, Hey, what’s going on in your financial plan?

Tim Ulbrich: You can learn more about our services and together we can determine whether or not it’s a good fit. You can go to your financial pharmacist.com and right at the top of the page you’ll see an option to book a discovery call. Uh, we’ll also link to that in the show notes. 

Tim Baker: Yeah. And I would just say, Tim, to add to that, like [01:14:00] sometimes I get the question from prospective clients. They’re like, oh, do I, like, do I need an advisor or should I, you know, do I have enough money? Or things like that. And there’s always gonna be a population of, of people out there that are DIYers and whether that’s, you know, handling your money, um, mowing your lawn, cleaning your house, whatever, whatever that is, right?

Tim Baker: There’s always gonna be that. I would say for the most part though. If you’re a pharmacist and you’re making a six-figure income as a household, and we’re aspiring to be, you know, a seven-figure pharmacist to kind of take from the book, you need an advisor, right? Like pharmacists are pharmacists. You do what you do.

Tim Baker: I think with the amount of money that we’re talking about, and I think the intentionality that we’re really trying to focus on, like. You hire a financial planner. Right. And, and I think sometimes I speak with pharmacists and they’re like, oh, they’re not sure. Or to give themselves permission. Do I have enough?

Tim Baker: And, and like I said, we work with clients that. Are all over the map in terms of their, like, where they’re starting net worth, which is very, very negative or very, very positive. And I [01:15:00] think to me, this is about building in a foundation and intention with your money and letting you know, a professional, you know, do that versus, you know, kind of you doing it on the side.

Tim Baker: ’cause I think there’s a lot of, you know, positive aspects from obviously the technical, um, stuff, but then just like the optimization. And I think one of the things that, you know, the, one of the. Prevailing things that I talk about, that I talk to that’s missing is like, am I optimized? Am is the money that’s kind of flowing through my household, you know, direct it in the best way possible.

Tim Baker: And there’s a variety of ways to look at that. So I would just plug that, you know, if you’re listening to this, you probably do need a financial planner, obviously bias actor, right, Tim? But, um, I would just throw that in there.

Tim Ulbrich: So Tim, I. 

Tim Baker: Yeah, thanks Tim.  [01:16:00] 

[END]

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


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

This episode is brought to you by APhA.

Episode Summary

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

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

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

Key Points from the Episode

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

Episode Highlights

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

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

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

Mentioned in Today’s Episode

Episode Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tim Ulbrich: Finally, an important reminder that the content in this podcast is provided for inve informational purposes only, and is not intended to provide and should not be relying on for investment or any other advice. [00:26:00] Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products.

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

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YFP 401: Ask YFP: Roth IRA Eligibility & Estimating Life Insurance Needs


Tim Ulbrich and Tim Baker tackle questions from the YFP community on life insurance needs for expectant parents and eligibility for direct Roth IRA contributions.

Episode Summary

On today’s episode, YFP Co-Founders Tim Ulbrich, PharmD and Tim Baker, CFP tackle two important questions from the YFP community. 

First, they dive into how to project your life insurance needs when welcoming a new baby into the family and then Tim and Tim break down how Modified Adjusted Gross Income (MAGI) is calculated to help you determine if you’re eligible for direct Roth IRA contributions.

If you have a question you’d like featured on an upcoming episode, visit yourfinancialpharmacist.com/askyfp or email [email protected].

Key Points from the Episode

  • [0:00] Introduction and Episode Overview
  • [00:54] Question 1: Life Insurance Needs for Expecting Parents
  • [01:33] Tim Baker’s Advice on Life Insurance and Retirement Plans
  • [09:17] Question 2: Calculating Modified Adjusted Gross Income (MAGI)
  • [09:34] Understanding AGI vs. MAGI
  • [14:33] Conclusion

Episode Highlights

“Having a baby tends to lead to some reflection about a lot of things, including finances, you know, savings, life insurance, disability, estate planning, education planning, all those things kind of come to mind.” – Tim Baker [1:39]

“ If you’re talking about the retirement plans, when a spouse dies, their assets essentially transfer to the beneficiary. Most of the time it’s going to be you as the surviving spouse.”  – Tim Baker [3:23]

“One of the things to remember with Roth IRAs is that you can typically take out your basis or what you can contribute without penalty or tax.” – Tim Baker [4:24]

Links Mentioned in Today’s Episode

Episode Transcript

Tim Ulbrich: Hey everybody, Tim Ulbrich here. Welcome to this week’s episode of the YFP podcast, where we strive to inspire and encourage you on your path towards achieving financial freedom today. YFP co founder, COO and certified financial planner. Tim Baker joins me to answer two questions from the YFP community.

Tim Ulbrich: One on projecting life insurance needs and another on how modified adjusted gross income is calculated to know whether or not you’re eligible to make Roth IRA contributions. If you have a question you would like for us to feature on an upcoming episode, head on over to your financial pharmacist.com/ask yfp to record your question or send us an email at [email protected].

Tim Ulbrich: And before we get started, I wanna let you know that we’re now publishing the podcast in video form on YouTube. If you wanna watch this [00:01:00] episode, make sure to subscribe to the Your Financial Pharmacist YouTube channel where we’ll publish. New shows each week. All right, let’s jump in with our first question, which came to us via email.

Tim Ulbrich: And that question is. My wife and I are pregnant and are reviewing our life insurance policies. If one of us passes away, does the other spouse have early tax free access to use the deceased spouses Roth IRA 401k SEP IRA or solo 401k, or would the spouse still have to wait until they are retirement age, typically 59 and a half.

Tim Ulbrich: To access. We’re trying to determine how much more life insurance we need to buy with a new baby on the way. My wife and I are in our thirties. Tim Baker, what are your thoughts on this?

Tim Baker: Yeah, so first of all, congrats on on baby coming. Um, that’s uh, that’s monumentous. I feel like Tim having a baby tends to lead to some reflection about a lot of things, including finances, you know, savings, life insurance, disability, [00:02:00] estate planning, education planning, all those things kind of come to mind.

Tim Baker: Um, you know, I think. If if I’m, if I’m answering this question, I separate these things in terms of, like, life insurance versus, like, you know, um, retirement plans. Um, because I think, especially when you’re young, you know, spending some money on a, on a fairly inexpensive term insurance to keep those.

Tim Baker: Retirement plans, um, unadulterated is worth it. Um, because, you know, 1 of the misconceptions is like, when you retire. You, your expenses are going to be, I wouldn’t say they’re going to be the same as if there’s 1 person versus 2, but it’s going to be, you know. It’s going to be pretty expensive. So like, I, I wouldn’t look at that as like, as insurance.

Tim Baker: So I think I would look at it in, in the, in the confines of like, okay, this is for the purpose of retirement. And this is the purpose of, you know, insurance. [00:03:00] So there are different rules for different types of accounts, um, and different types of beneficial, uh, different types of beneficiaries. So. Um, you know, if you’re both in your thirties, you’re having a baby, if you’re really healthy, I would look at term insurance.

Tim Baker: You know, I always kind of talk about the rule of 30, which I have to look at, but basically, uh, to see if that still holds Tim, but the rule of 30 was you could buy a half a million dollar term insurance policy. Um, 30 year policy. If you’re in your 30s for about 30 bucks a month. Right? So I’m sure prices have gone up since I’ve been talking about that.

Tim Baker: So I have to, I have to make sure

Tim Ulbrich: Sounds about right. Yeah.

Tim Baker: I think that is important to understand. So, um, but when, if you’re talking about the retirement plans, when a spouse dies, each. their Their assets essentially transfer to the beneficiary. Most of the time it’s gonna be you as the spouse, um, the surviving spouse.

Tim Baker: So there’s really five options with, with these types of IRAs. Now, 4 0 1 ks and 4 0 3 Bs will be a little bit different, but I’m gonna speak specifically about IRAs. [00:04:00] But first option you can do is you can keep the IRA so a beneficiary can withdraw the funds even if they’re younger. Then 59 and a half 59 and a half without paying a 10 percent early withdrawal penalty.

Tim Baker: If the deceased has already started taking distribution. So in this case, that wouldn’t be that wouldn’t be it because you’re younger. Um, a surviving spouse, a minor child or disabled person is required to take what’s called RMDs required minimum distributions based on the deceased person’s age. Rather than the beneficiary, if the, if the air is not a spouse and there’s different rules.

Tim Baker: So there’s, there’s kind of spousal rules and non spousal rules. One of the things to remember with, with Roth IRAs is that you can typically take out your basis or what you can contribute without penalty or tax. Right? So that’s important to know off, off the rip. The second option is, Roll over the IRA.

Tim Baker: So beneficiaries can roll assets into a personal IRA without paying income tax or early withdrawal penalties, unless they are 59 and a half. So a rollover [00:05:00] into an inherited IRA does not incur penalties. If the assets have been in the accounts for 5 year, 5 years. Um, and this option Tim is only. Uh, open to our surviving spouse who must transfer to the same type of account.

Tim Baker: So traditional to the traditional or Roth to Roth. Um, the third option here is to convert to a Roth IRA. So that in this case, you know, we’re talking about a Roth IRA. You could also disclaim part of the assets. You say, I don’t, I don’t want it or cash out the IRA. So in most cases, what I would say from a planning perspective, um, what I would say is Don’t think of your spouse’s, um, retirement house assets as a form of insurance.

Tim Baker: I would say by the insurance, but if you do get into a pinch from a, from a cashflow perspective, you can access those funds, especially, um, if you are the spouse and if you’re looking at basis without taking the penalties. So there’s, there’s a few different layers of sorts that I would go through before.

Tim Baker: You know, get into a point where you can [00:06:00] completely cash out the IRAs. But is, this is just like a, um, this is typically just like a. Um, like a backdoor Roth conversion, the flow chart on this can be very complicated in terms of, okay, when did they start distributing it? Did they not? How old’s the, the, the deceased spouse?

Tim Baker: How old’s the surviving spouse, et cetera. So it can be very complicated. So I think if I’m in my thirties, I’m basically layering a little bit more. Uh, term insurance where I feel comfortable and I’m, I’m treating that, um, deceased spousal IRA or 401k as if it’s, you know, my own retirement plan and not, you know, not an insurance, um, bump, so to speak.

Tim Ulbrich: Yeah. Tim, I like how you’re separating out these two things. And I do love the question, right? Because there’s a, there’s an intentionality and I can tell some in depth analysis going on that we’re not just applying blanket rules of how much term life insurance do I need, but actually trying to get to the question, which needs to be answered when it comes to buying term life insurance, which is what do I [00:07:00] need this policy to replace?

Tim Ulbrich: And in this question, there’s some background questions of, Hey, well, if there are retirement Will those be accessible or not? I’m with you, right? If someone’s in their thirties, you know, not advice for them, but I would think of it the same way you are. If I’m in my thirties, babies on the way, assuming relatively healthy, inexpensive term life insurance policy.

Tim Ulbrich: If I’m looking at these two things, just to put some numbers to this, and I’m looking at, Hey, maybe I’d need a million dollar term policy versus a one and a half or 2 million. If I were to exclude these, uh, retirement assumptions, when you consider the cost of these policies, again, we’re making some assumptions of health and other things, but based on age, like that feels kind of like a no brainer, right?

Tim Ulbrich: In terms of keeping it clean separation of these two things and relatively inexpensive, assuming that the monthly budget can handle the extra, whatever it’d be, you know, 20, 30 bucks a month to add on to the term coverage. So, um, I like that because I think sometimes we can make these things maybe overly complicated and, uh, you know, [00:08:00] I, I like the intent of the question, but, but I also like thinking of these buckets separately in there.

Tim Ulbrich: And there’s a peace of mind component here too, knowing that, Hey, we’ve got the life insurance piece that’s purely for the sake. Hopefully we never use it, but if it’s, if it’s there, you know, we have access to those funds.

Tim Baker: Yeah. And there, and there are other things that I would potentially pull levers before I would even look at retirement plans that could be. You know, leverage in debt or other things, you know, like, uh, a HELOC or something, I think, even before I would, I would start cashing in retirement plans. So, again, I think it’s, uh, all the reason to have, you know, this is about planning, not a plan, you know, all the reason to have a planner to kind of work through life events and hopefully nothing like this ever happens.

Tim Baker: But I think it’s a great thought experiment to kind of go down

Tim Ulbrich: One last thing I’ll say on this before we move to our second question is for those listening that maybe don’t have term life insurance or wondering about, you know, what’s all involved in a term life insurance policy. How do I begin to think about and evaluate what the [00:09:00] need is? Or if you have a term life insurance policy, uh, wondering if, if that coverage is appropriate, or maybe you just have an employer.

Tim Ulbrich: Policy and you’re wondering about your own policy. We’ve got a very comprehensive resource life insurance for pharmacists the ultimate guide Uh that will give some great background educational information on this topic We’ll link to that blog article in the show notes so you can read more and learn more on that Tim said you mentioned backdoor roth.

Tim Ulbrich: We got it. We got to go there, right? So

Tim Baker: my

Tim Ulbrich: your favorite topic. Yeah, so our second question Our second question is also came into us via email. How do you calculate? Modified Adjusted Gross Income to know if you’re eligible to contribute. To a Roth IRA. What, what are your thoughts on this one?

Tim Baker: Yeah. So a lot of us use magi and AGI synonymously. So modified adjust, just to adjusted to gross income is not the same as adjusted gross income. Um, although we, again, we use them the same. So to [00:10:00] determine, so just to kind of throw out some numbers, um, if you are filing single and you’re modified, adjusted gross income is.

Tim Baker: 150, 000, we’ll say it’s 150, 000, 165, 000, once it gets to 165, 001, the door for you to be able to, um, Contribute directly into a Roth IRA shuts. So once you make a, once your magi is $165,000 and 1, you can no longer make a direct contribution. So this is where you have to contribute to traditional, go through a bunch of steps and then, and then move it over to

Tim Ulbrich: Are you talking about for individuals or joint filing?

Tim Baker: That’s that’s for single file and for, for Mary phone jointly, the phase out is phase out is 236, 000 to 246, 000. So once you make 246, 001 dollars, you cannot directly put, you know, contributions into a Roth IRA. So how do [00:11:00] we get this number? The modified adjusted gross income. Um, so really what you want to do is you want to actually start with AGI.

Tim Baker: So AGI, I believe is line 11 on form 1040.

Tim Ulbrich: Nailed

Tim Baker: Um, awesome. So then you have to add back in. Certain deductions, um, to get your magi. So these would be things like student loan interest deduction, which, you know, a lot of people aren’t getting that because they make too much money, um, tuition and fees deduction.

Tim Baker: If that’s available IRA contributions, deduction, um, if you’re contributing to a traditional IRA and taking a deduction. Also, typically not available. It could be rental losses. If you’re, if, uh, the rental losses are subject to pass passive activity, uh, loss limits. Um, other things could be, uh, excluded foreign earned income.

Tim Baker: excluded employer adoption benefits, half of self employment tax deduction, any passive loss or passive income interest from series E savings bonds used for education. [00:12:00] And finally, losses from publicly traded partnerships. So once you add back these deductions, that gets your Modified adjusted income, and that’s, um, gross income.

Tim Baker: And that’s essentially the number that you use to say, okay, can I make a contribution directly into the Roth or do I have to do a backdoor strategy to go from a traditional into a Roth? Um, that’s Magi. So it’s often the case for a lot of people that they don’t have a ton there. So that’s why we kind of use it synonymously.

Tim Baker: But, but there is slight differences in that AGI and MAGI number.

Tim Ulbrich: Tim, I think this is a really good question. Not, not only from the Roth contribution, but you’re starting to dissect. The IRS form 1040 a little bit, right? As you’re talking through the different things, when we look at, you know, the terms we throw around income and gross income and adjusted gross income modified, adjusted gross income, understanding what are the above the line deductions, other deductions, credits, et cetera.

Tim Ulbrich: [00:13:00] Here, we’re talking of things that are above the line that you were, you were listing off. But the reason I’m going there and I’m not suggesting we need to go down the tax rabbit hole, but the more we understand. Okay. Thank you. Kind of the flow of dollars from a tax standpoint and what these terms mean.

Tim Ulbrich: We start to see some of the levers that we could potentially pull from a tax optimization standpoint, as well as being able to answer questions like this one, which is like, Hey, can I make direct contributions to a Roth? Do I phase out? Do I need to consider it back to a Roth? And then if so, you know, what does that look like?

Tim Ulbrich: And how do I make sure I’m doing that correctly? We’ve addressed that on the show previously as well.

Tim Baker: yeah, I’ve talked about this with tax. It’s like, you know, understanding the 1040 kind of gives you not the answers to the test, but you can kind of start to see visually how the form is populated. And then I think it can ultimately affect your behavior and how best to optimize. Again, I sometimes people do some crazy things just to get a tax benefit, which doesn’t [00:14:00] necessarily work.

Tim Baker: You know, fit with their overall financial plan. So it’s kind of just doesn’t make any sense. But I think if you understand the construct of, you know, the, the tax code and the tax form, then you can, you know, your, your behavior can then be, you know, slightly altered to, to optimize your tax situation.

Tim Ulbrich: Yeah. And if you’re listening, you know, here in some of these terms wondering what, what are these guys talking about in terms of, you know, a backdoor Roth versus a direct contribution, we actually talked about this recently on an RX money roundup, episode 18. And we answered the question, can I do a backdoor Roth IRA myself?

Tim Ulbrich: That’s why I was joking with Tim that it’s his favorite, favorite topic to talk about. So we’ll link to that in the show notes, make sure to check that out. And, uh, you’ll, you’ll find a good resource there that will help you, uh, in your own. Planning as well. Thanks again to the two questions that we had submitted, uh, this week.

Tim Ulbrich: And, uh, if you have a question as you’re listening that you’d like to have us feature on an upcoming episode, head on over to yourfinancialpharmacist. com forward slash ask YFP. You can record your question there, or [00:15:00] you can send us an email at info. At your financial pharmacist. com. Thanks again for listening.

Tim Ulbrich: If you like what you heard, please do us a favor, leave us a rating and review on Apple podcast, which will help other pharmacists find the show. And finally, an important reminder that the content in the podcast is provided 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 product.

Tim Ulbrich: For more information on this. You can visit yourfinancialpharmacist. com forward slash disclaimer. Thanks so much for listening and have a great rest of your week. 

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


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

Brought to you by First Horizon.

Episode Summary

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

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

Key Points from the Episode

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

Episode Highlights

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

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

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

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

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

Links Mentioned in Today’s Episode

Episode Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tim Ulbrich: Right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tim Baker: Yeah,

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

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

What are your thoughts here on timing?

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

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

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

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

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

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

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

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

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

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

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

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YFP 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.

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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

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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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