Written By Clint Proctor
Financial planning is important for all of us. But a pharmacist retirement plan may require more strategy and thought than other professions. Why? Because pharmacists tend to have two things — high incomes and high student debt.
When you have a high income, tax-sheltered investing options become even more important. And when you have high student debt, choosing the wrong repayment strategy could cost you tens, if not hundreds of thousands of dollars.
When it comes to building pharmacist wealth, having the right financial plan is critical. Let’s take a look at how to approach pharmacist retirement planning and which retirement plans to use.
Pharmacist retirement and financial planning
For most pharmacists, paying off their student loans will be one of their life’s biggest financial hurdles. Choosing the right student loan repayment strategy could make a huge difference in how much you pay overall. And if you invest this difference, your student loan strategy can have a direct impact on the size of your retirement portfolio.
But pharmacist student loan repayment isn’t a one-size-fits-all topic. To find the right strategy for you, you’ll need to consider a few factors.
Private vs. public sector work
When most of us who aren’t in the industry think of a pharmacist, we think of the person working at the local Walgreens or CVS. But the reality is that many pharmacists take jobs at nonprofit hospitals.
And this presents a unique student loan repayment opportunity. If you work as a pharmacist at a public or nonprofit hospital, you may qualify for Public Service Loan Forgiveness (PSLF). With PSLF, you can receive tax-free student loan forgiveness after only 10 years (120 qualifying payments). And during those 10 years, your payments would be manageable (usually no more than 10% to 20% of your discretionary income) because you’d be on an income-driven repayment (IDR) plan.
Related: How One Pharmacist is Overcoming $200k in Student Loans
If your employment qualifies for PSLF, strongly consider applying for it. But if you work in the private sector, you’ll need to think about a few more factors.
Part-time vs. full-time work
Do you plan to work full time throughout the entirety of your pharmacy career? If so, you may want to refinance your student loans and pay them off as soon as you can.
But depending on your family and lifestyle goals, you may want the freedom to change your workload in the future. Perhaps you’d like to work full time for a few years and then scale back to part time after starting a family. Or perhaps you’d prefer the freedom to spend time on other hobbies or travel.
In this case, refinancing wouldn’t be a good idea because you’d have no payment flexibility. Instead, you’d want to use an IDR plan like Pay As You Earn or Revised Pay As You Earn. With an IDR plan, your payment will scale down in tandem with your income.
You’ll be eligible for forgiveness on any remaining balance after 20 to 25 years on an IDR plan. And whether you’re working full time or part time doesn’t matter with IDR forgiveness (unlike PSLF forgiveness).
Residency vs. immediate employment
When you graduate from pharmacy school, you may decide to work for a year or two in a residency training program. Postgraduate Year One (PGY-1) and Postgraduate Year Two (PGY-2) programs can help you build your knowledge and skills. But they can be a bad thing for your student loans if they’re not handled properly. Here’s why:
Many pharmacy students choose to put their loans in deferment or forbearance during residency. This is a really bad decision because interest will continue to accrue during your deferment or forbearance period. And if you don’t pay off the accrued interest before you begin repayment, that interest will capitalize.
If you plan to attend a residency program or fellowship after pharmacy school, enrolling in an IDR plan is a much better choice.
First, your monthly payments will be based on your lower income.
Second, you’ll be eligible for an interest subsidy on any interest not covered by your monthly payment. For instance, on the REPAYE plan, the government will pay all of the unpaid interest for three years and then 50% from that point forward. With unsubsidized loans, you’ll receive the 50% interest subsidy right from the start.
And third, if your residency program is at a non-profit hospital or clinic, you’d be making qualifying payments towards PSLF.
Related: A Prescription to Cure Pharmacy School Debt
Which pharmacist retirement plans should you use?
If you’re wondering where to invest your retirement money, here are two questions to ask yourself:
Do you have an employer-sponsored retirement plan?
Many pharmacists have access to employer-sponsored retirement plans. If your employer offers a 401(k) or 403(b) plan, you should probably max these out first – especially if you’re offered a match.
Any contributions you make to your 401(k) or 403(b) plan will reduce your taxable income. Since pharmacists tend to have high incomes, this is another reason why you may want to begin with your employer-sponsored plan. And if you max out your 401(k) or 403(b) contributions, you can save extra money in a traditional or Roth IRA.
Do you want to retire early?
Retirement accounts come with great tax advantages. But there’s a trade-off: You can’t touch your money without penalty until you’ve reached retirement age. But what if pharmacists want to retire earlier than age 60? If they do, they’ll need a taxable brokerage account.
If you’re looking for a brokerage account, you may want to consider Betterment. Betterment is a robo-adviser that will build you a custom portfolio to match your preferences. And it uses technology to offer portfolio optimizations like automatic rebalancing and tax-loss harvesting.
And the best part? The price. Betterment charges a low 0.25% annual fee and has no minimum balance. And for account balances above $100k, you can get unlimited access to a team of Certified Financial Planners for a 0.40% annual fee.
Pharmacist retirement planning: Optimize your lifestyle first
Essentially, pharmacist wealth building should be focused on optimizing your lifestyle. Do you want to work part time or full time throughout your career? Is maximizing your income most important to you, or would you find work at a nonprofit hospital more fulfilling? Do you want to work into your 60s, or would you like to retire early?
Every person will answer those questions differently. But the answers you give will help you find the best pharmacist retirement plan for you.
