Tim Ulbrich, PharmD, RPh€¦ · • Choose a loan repayment option that is most appropriate for your financial plan. • Describe the pros/cons of the public service loan forgiveness

2/27/2018

1

Preparing to be Financially Fit

Tim Ulbrich, PharmD, RPh

www.yourfinancialpharmacist.com

My personal journey to $200k in debt…


2/27/2018

2

Learning ObjectivesAt this end of this session, you should be able to:

• Choose a loan repayment option that is most appropriate for your financial plan.

• Describe the pros/cons of the public service loan forgiveness (PSLF) program.

• Describe the differences between consolidation and refinancing.

• Discuss how to balance paying off student loans with other financial priorities.

• Describe the step-wise process for creating a monthly spending plan (budget).


Learning Objectives

At this end of this session, you should be able to:

• Determine how much money should be saved in an emergency fund.

• Evaluate insurance coverage that may be needed to protect your

financial plan.

• Complete a retirement savings nest egg calculation.

• Differentiate tax-advantage retirement savings vehicles.


Pharmacist Salary$122,230 / year

Financial Success

2/27/2018

3

Strong Financial

Foundation

Income Protection

Elimination of Debt

Investing in Yourself and the Stock Market

Pharmacist Salary$122,230 / year

Financial SuccessPositive Consistent Behaviors

5 Building Blocks

1. Having a plan for paying down debt.

2. Establishing a spending plan (budget).

3. Building an emergency fund.

4. Having appropriate insurance coverage.

5. Investing for the future.

#1 – Having a plan for paying down debt.


2/27/2018

4

What is your greatest financial stressor?

• “Student loan debt.”

• “Repaying loans while being able to have financial freedom for retirement, home, etc.”

• “Paying off student loans and managing with other large debt - whether to refinance or keep current loans, balancing finances.”

• “Balancing many different types of financial decisions (e.g., student loans, mortgage, life insurance, credit cards, retirement).”

• “Loan repayment during residency years.”

The median amount borrowed for students

graduating from pharmacy school in 2017 was

$159,386.

AACP Graduating Student Survey, 2017

0

20000

40000

60000

80000

100000

120000

140000

160000

2009 2010 2011 2012 2013 2014 2015 2016

Dollar A

mou

nt

($

)

Year of Graduating Class

Graduating Pharmacists Debt Load vs.

Median Pharmacist Salary in US (2009-2016)

Pharmacist Salaryin US (Median)

GraduatingStudent DebtLoad, All Schools(Median)

Reference: Bureau of Labor Statistics (BLS) Pharmacist; AACP Graduating Student Survey, 2009-2016

2/27/2018

5

Your Financial Pharmacist Podcast on iTunes

Understanding Interest Rates


A. $100

B. $300

C. $500

D. $700

Upon graduation, Jessica has $100k in student loans (6% interest). How much would she owe in interest for the first

months payment?

2/27/2018

6

$150,000 of school loans at 6% interest for 10 years =

$1,665 payment / month

Total payout = $199,837


Federal Loans Private Loans

StudentLoans.govFSA ID

Credit Reportannualcreditreport.com

Repayment Option

Payments Notes

Standard Repayment

Fixed payments made over 10 years Highest monthly payment; lowest amt. of interest paid

May be difficult to make payments during residency

GraduatedRepayment

Payments start as lower and increase gradually (approx. every 2 years)

10 year repayment (or longer if consolidated)

Will pay more interest than standard repayment

Extended Repayment

Fixed or graduated payments up to 25 years

Lower monthly payment

Highest interest paid

2/27/2018

7

Repayment Option

Payments Notes

Revised Pay as You Earn (REPAYE)

10% of discretionary income

Balance remaining forgiven after 20-25 years

Monthly payments can be higher than 10-year Standard

If married, both incomes will be considered regardless of how taxes filed

Pay as You Earn (PAYE)

10% of discretionary income

Balance remaining forgiven after 20 years

Payment never > than 10 yr. Standard

If married, spouse’s income only considered if taxes filed jointly

Borrowers (10/1/07) w/ high debt: income

Income Based Repayment (IBR)

10-15% of discretionary income

Balance remaining forgiven after 20-25 years

Must have high debt: income

Payment never > than 10 yr. Standard


Income Contingent Repayment (ICR)

Lesser of 20% discretionary income or amount that would pay as a 12-year fixed payment based on income

Balance forgiven after 25 years

Payment can be > than 10 yr. Standard


What Is Your Game Plan?


Payoff Strategy

1. Accelerated payoff

2. Public Service Loan Forgiveness (PSLF)

3. Tuition reimbursement/repayment program

4. Minimum payments over term of the loan


2/27/2018

8

Public Service Loan Forgiveness (PSLF) Program

Reference: Federal Student Aid: An Office of the US Department of Education. Public Service Loan Forgiveness.

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

• Forgives loan balance on Direct Loans after making 120

monthly payments

• Full time employment (30 hrs. or employer definition)

required

• Qualifying employer = Gov’t organizations, tax-exempt

non-profit, AmeriCorps / Peace Corps

• Loan repayment option = income-driven plan

PSLF in the News

• “Trump May End Public Service Student Loan Forgiveness.” –Forbes, May 18, 2017

• “On track for Public Service Loan Forgiveness? Good news, you’re not in danger from Trump’s budget.” –Washington Post, May 23, 2017

• “Education department casts doubt on Public Service Loan Forgiveness.” –NPR, April 4, 2017

• “House Republicans May End Student Loan Forgiveness.” –Forbes, December 6, 2017


Student Loan Quick Start Guide


yourfinancialpharmacist.com/studentloanguide

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

yourfinancialpharmacist.com/studentloanguide

2/27/2018

9

Refinancing Student Loans

Usually a good option for those with:

• High(er) interest rate loans

• Higher the debt load = higher potential savings

• Not pursuing PSLF

• Able to make aggressive payments

• Not dependent on benefits of federal loan repayment program


Before you refinance…

• No prepayment penalty

• No origination fees

• Determine which loans you do and do not want to refinance


#2 - Establishing a Budget


2/27/2018

10

What does the word budget mean to you?

John Maxwell

“A budget is telling your money where to go instead of wondering where it went.”

Why should you have a budget?

2/27/2018

11

The median amount borrowed for students

graduating from pharmacy school in 2017 was

$159,386.

AACP Graduating Student Survey, 2017

44%

Households with Credit Card Debt

$15,654

Avg. Credit Card Debt per Household

• Confidence and relief

• Prevent overspending

• Improve your marriage/relationship

Other Benefits to Budgeting

2/27/2018

12

Why don’t people use a budget?

Reasons people don’t budget

“It takes too much time.”

“I already know how much I

spend.”

“I don’t know how to make one

and follow it.”

“I’m afraid of what I might find when I track my

expenses.”

“I like to be spontaneous.”

“I make enough money so I don’t

need one.”

•No Budget, Budget

• 50/30/20 Budget

• Zero-based Budget

Three Budgeting Strategies

2/27/2018

13

No Budget, Budget

$ To pay all Essentials

Save or spend what’s leftover

Your Income

20%Saving / Debt /

Investing50%

Essential Expenses30%

Discretionary Expenses

50/30/20 Budget

Zero-Based Budget

Total Income

Total Expenses

$0

2/27/2018

14

• Every dollar has an assignment

• Should be set up before month begins

• Unique every month

Key Features of ZBB

4. Determine disposable income and allocate

Money left over after all expenses paid for that goes toward your top financial goals

3. Determine discretionary expenses

Things that are nice to have. Think lifestyle –eating out, entertainment, vacations

2. Determine essential expenses

Necessities like housing, food, transportation, insurance, minimum debt payments

1. Determine take-home pay

Your monthly income you actually receive

Case Study – Gabby Penten

• PGY1 Resident

• $43,000/year

• $3000/month net pay

It’s February and she wants to create budget for March

#1 Financial Goal = Save $1000

2/27/2018

15

Step 1: Determine Take Home Pay for February

$3000

Step 2: Determine Essential Expenses

Expense Amount Balance

Rent $1000 $2000

Renter’s Insurance $20 $1980

Utilities $100 $1880

Groceries $350 $1530

Gas and Tolls $150 $1380

Personal care/healthcare $75 $1305

Student Loan Payment $300 $1005

Life insurance $30 $975

Disability Insurance $100 $875

Liability Insurance $15 $860

Car Insurance $75 $785

Cell Phone $75 $710

Internet $50 $660

TOTAL $2,340

Step 3: Determine Discretionary Expenses

Expense Amount Balance

$660

Clothing $75 $585

Restaurants/Entertainment $250 $335

Netflix/Hulu/Cable $75 $260

Total $400

Step 4: Determine Disposable Income and Allocate Toward Goals

$3000 – ($2,340 +$400) = $260

#1 Financial Goal =Save $1,000

$260 $0

What about non-monthly bills?

2/27/2018

16

Sinking Fund Category

Monthly Amount Allocated

Target Amount

Month Due*

Home repairs $100 $5,000 n/a

Car maintenance $50 $1,000 n/a

Car insurance $80 $960 October

Next car purchase $150 $6,000 n/a

Disability Insurance $90 $1,080 November

Life Insurance $20 $300 February

Checking Account

Savings Account #1

Emergency Fund

Savings Account #2

Sinking Fund Account

My System

Final Key!

Automate, Automate, Automate

2/27/2018

17

Determine Method to Track Progress

Budgeting Template

www.yourfinancialpharmacist.com/budget

#3 - Building an Emergency Fund


http://www.yourfinancialpharmacist.com/budget

2/27/2018

18

Ref: 2015 Bankrate Consumer Survey

30 million Americans (13%) tapped into retirement

savings to cover an unexpected expense (aka

“emergency”).

Key Questions

How much?

Where to put it?

How to start as a student, resident or new practitioner?

What about with other debt?

#4 - Appropriate Insurance Coverage


2/27/2018

19

Life Insurance

Is life insurance really that important?

After all, 30% of US households have no life insurance at all.

(Ref: LIMRA Facts about Life 2013)

Disability Insurance

More than 25% of today’s 20 year-olds will become disabled before the age of 67.

However, almost 70% of those working in the private sector don’t have long-term

disability insurance.

(Ref: Social Security Administration)

#5 - Investing for the Future


2/27/2018

20

Finding Your Savings WHY

I am committed to foregoing pleasures today to save money each and every month

to have at a later date in time because:

______________________________________________________________


Nest Egg Calculation


Nest Egg Calculation

Current age = Income required at retirement =

Age of retirement = Yrs. of retirement income =

Annual income = Rate of return pre-retirement =

Current retirement savings = Rate of return post-retirement =

Expected income increases = Expected rate of inflation =

Reference: Dinkytown.net

2/27/2018

21

Why is Investing Necessary?


Inflation

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing

power of currency is falling.

Reference: Investopedia.com

The $10 Latte?


4.0

5.0

6.0

7.0

8.0

9.0

10.0

$ A

mo

un

t

2/27/2018

22

Will RPh Salary Keep Up?


100000

150000

200000

250000

300000

350000

$ A

mo

un

t

Saving w/o Investing


0

100000

200000

300000

400000

500000

600000

700000

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

$ A

mo

un

t

0% Return

At the end of 30 years….

$607,533

Magic of Compound Growth


2/27/2018

23

Compounding

Compounding is the process where the value of an investment increases because the

earnings on the investment, both capital gains and interest, earn interest as time passes.

Reference: Investopedia.com

Saving w/ Investing


0

500000

1000000

1500000

2000000

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

$ A

mo

un

t

0% Return

7% Return

At the end of 30 years….

$1,834,713

Investment Types


2/27/2018

24

Historical Rate of Return of Asset Classes (1928-2016)


0

2

4

6

8

10

S&P 500 10-Year Treasury

Bond

3 Month T-Bill

Averag

e A

nn

ual

Retu

rn

(%

)

Asset Class


-40

-20

0

20

40

1975 2014

S&P 500 Index (1975-2014)

Asset Allocation

20%

20%20%

20%

10%5% 5%

Large Cap Stock Mid Cap Stock

Small Cap Stock International Stock

Bonds Commodities

Cash Equivalents

2/27/2018

25


100000

150000

200000

250000

300000

350000

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036

6% return less 0.25% fee 6% return less 0.5% fee

6% return less 1% fee 6% return less 2% fee

Impact of Fees

Tax-Favored Investments



Tax

Roth IRA/401(k)/403(b)

Stocks

Bonds

Mutual Funds

ETFs

Cash/Equivalents

2/27/2018

26


Tax-Favored Accounts

Employer-Sponsored (401k, 403b, TSP)

Tax Deferred (Traditional)

Tax Free (Roth)

Individual Retirement Arrangement (IRA)

Tax Deferred (Traditional IRA)

Tax Free (Roth IRA)

Q&A



Preparing to be Financially Fit



Documents

Tim Ulbrich, PharmD, RPh€¦ · • Choose a loan repayment option that is most appropriate for your financial plan. • Describe the pros/cons of the public service loan forgiveness