The average pharmacists make around $125,000 a year, according to the Bureau of Labor Statistics. That’s a really nice living, but it’s not enough to guarantee becoming rich. Income is just a piece of the equation. Other factors could actually be more important to building wealth in the long run.
Here at Student Loan Planner, we’ve helped 71 pharmacists with an average of $216,557 in student debt come up with the optimal plan to pay it off. By working one on one, hearing their stories and doing our own research, we’ve found several factors that impact a pharmacist’s ability to build wealth.
I’m going to take you through those important factors in this article and show you how to leverage that nice income to build a rock-solid financial future and get rich as a pharmacist.
1. Choose a pharmacy school that won’t destroy your finances
The first way to become wealthy is to spend only what’s necessary to get your Doctor of Pharmacy (PharmD) degree and not more than you have to in order to earn that nice pharmacist salary. Whether you have the money saved up for school or you have to take out debt, we want to keep the cost to a minimum.
There are 143 pharmacy schools in the U.S., but not all are created equal. Some cost a bunch more than others without offering any benefit to future pharmacists. If you’re getting the same education, why pay more?
The best option is to choose an in-state school. Fortunately, 47 of the 50 states, plus Washington, D.C. and Puerto Rico, have pharmacy schools — all but Alaska, Delaware and Vermont. Not to say that all of these in-state schools are the cheapest, but it’s best to explore that first. The expected cost of attendance should be $170,000 or less.
Private schools are in the most expensive category. The cost of attendance is well into the $200,000-plus range, with many in the $250,000 range. Why spend $80,000 more on the same education as an in-state school? What else could you do with $80,000? I can think of many better ideas. These should be avoided at all costs.
Travis Hornsby, founder of Student Loan Planner, wrote an excellent article on this: “4 Types of Pharmacy Schools Ranked By How Much They Destroy Your Finances.” Check it out if you’d like more details on inexpensive versus expensive pharmacy schools.
2. Choose a pharmacy job that pays well
There are a number of different places to pharmacists can work. For example, a pharmacist can work at a hospital, in a big-box retail store, a local pharmacy or even an online pharmacy. Where they work will impact their pay.
According to Salary.com, retail pharmacists get paid the most. The average base salary is around $144,000 while a clinical pharmacist makes $127,000. That may not seem like a huge difference, but it’s $17,000 per year. That could be an extra $1,000 per month in take-home pay, depending on the pharmacist’s tax situation. That extra $1,000 can go a long way if it’s saved — but we’ll get into that later.
That being said, plenty of pharmacists aren’t working full time. There have been layoffs (most notably at Kroger) as well as many recent graduates entering the fray, making full-time, good-paying pharmacist jobs even more competitive. If there’s a decision between a lower hourly rate with full-time hours versus a higher hourly rate without being full time, be sure to do some math to see which one will pay you more money each year.
3. The right pharmacy student loan repayment plan
Meet Amber. She’s done everything she can to become a rich pharmacist. She went to a lower-costing school and left with $170,000 in student loans with a 6.5% interest rate. She’s now working at a retail pharmacy full time earning $140,000. Should she get on Pay As You Earn (PAYE), or should she refinance?
She makes the smart move to refinance to a 10-year term at a fixed 5% interest rate. This plan will save her about $111,000 paying back her loans compared to PAYE. That money is hers to keep!
PAYE isn’t even a viable option because her income-driven payments are projected to be high enough to pay off the loan in full in 19 years anyway. She’d be paying back a 6.5% loan over 19 yrs versus a 5% loan over 10 years. That’s where the six-figure savings comes from. Plus, she’d be debt-free in virtually half the time.
If Amber owed $200,000 while making $120,000 or was eligible for Public Service Loan Forgiveness, we’d want to find a better plan for her. It would be a good idea for her to schedule a consult with us if this were this case.
4. Savings rate is paramount
Amber is in great shape. She kept her loans to a minimum by choosing an in-state school. She chose a high paying job and is optimizing her student loan repayment. This on its own is pretty awesome.
Ready to use rocket fuel to become a rich pharmacist? I know she is! It all comes down to one simple factor: Savings rate.
Did you know that savings rate is one of the biggest predictors of future financial success? Income is important, but savings rate is even more critical. We’ve all heard about broke lottery winners. These are people who have won more money than 99.99% will ever have, yet they blow through it. Why? It’s not how much you make, it’s how much you have left over.
Feel like it’s impossible to become a millionaire with six figures of student loan debt? Quite the contrary — it’s extremely possible!
What is a savings rate?
Before I go into more detail, let me define savings rate. What I mean by “savings rate” is how much money is left over after what is spent. Add student debt payments and retirement plan contributions back to this amount. Then take what’s left over and divide it by income.
For example, Amber’s refinanced student loan payments are about $1,800 per month ($21,600 per year). That’s 15% of her income ($21,600 / $140,000). If she only made payments toward her student loans, we’d consider that to be a 15% savings rate. If she were to do that and save an additional $14,000 (10% more of her income) in a retirement account, we’d call that a 25% savings rate.
What does “being rich” mean?
Next, let me talk about what I mean by being rich. When I say “being rich,” I’m referring to having a substantial net worth. A net worth is what you own of value, including money in savings, retirement, home value and so forth minus what you owe in debt. Right now, Amber has zero in savings and owes $170,000 in student debt. She has a negative-$170,000 net worth.
Many would look at this and never think that they could have $1,000,000 and be student debt-free. Not Amber. She knows how to pay off her loans and be a millionaire by the time she’s halfway through her career.
How does she do that? By focusing on her savings rate.
Savings rate examples
We’re making the assumption that the savings rate is first applied to making the student debt payment and that any money left over is invested. We’ll assume a 5% annual return on investment. Not super aggressive nor super conservative.
Let’s start with Amber keeping that 15% savings rate. First, all of that money is going toward her loans. But as her income grows by getting 3% raises each year, she now has money to invest after making her student loan payments.
If Amber has a 15% savings rate and gets 3% raises each year, what would her net worth be over time? In 10 years, she’d have just finished paying off her student debt free and have $62,000 in investments. So, $900,000 in 25 years and over $3,000,000 in 40 years. Sounds pretty good, right?
But what about at a 25% savings rate? In 10 years, she’d have just finished paying off her student debt and have almost $300,000 in investments. Close to $2,000,000 in 25 years and over $6,000,000 in 40 years. That’s amazing!
Let’s go crazy here now. What about at a 40% savings rate? In 10 years, she’d have just finished paying off her student debt and have $650,000 in investments. So, $3,400,000 in 25 years — and yes, $10,000,000 in 40 years. That’s an eight-figure net worth!
OK, OK — a 40% savings rate is a little extreme. But 25% is totally attainable. Not bad to retire with $6,000,000 when starting from a $170,000 hole!
Take a look at this table to see how her net worth could change drastically by increasing her savings rate.
This, by the way, doesn’t include any spousal income. If she gets married, these numbers would get even higher with a dual household income.
Even if Amber did everything wrong — including going to an expensive private school, picking an inefficient student loan repayment strategy and taking a low-paying job — the savings rate still makes her a millionaire. It would just take an extra five to 10 years to get there.
How to become a rich pharmacist with pharmacy school debt
After all of the consults and research we’ve done with pharmacists, here’s a recap of the four main factors to become a rich pharmacist, even with six figures of pharmacy school debt:
- Choose a credible but inexpensive in-state pharmacy school
- Take a high-paying, full-time position
- Get the optimal student loan plan
- Focus on savings rate
The biggest mistakes we see are the antithesis of these. Earning a good living is not a guarantee of being financially successful. It takes a combination of all four of these factors.
If you make a mistake in one or two of these categories, it’s not the end of the world. Do what’s most in your control. The third and fourth factors are 100% in your grasp and up to you. Take the time to get the optimal student loan plan and, at the very least, focus on your savings rate.