By Mike Gibbons, RICP®
Navigating the financial landscape can be as complex as the groundbreaking work you do every day in the pharmaceutical industry. Whether you’re in research and development, sales, or corporate management, your financial health requires as much attention and care as your professional endeavors.
Today we hope to simplify that journey for you by exploring five pivotal financial planning tips specifically crafted for pharma employees. While these tips won’t cover every scenario you’ll face in your financial life, our goal is to empower you to start making smart, informed decisions so you can have a better financial future. Let’s dive in.
1. Maximize Your Benefits
Some people are unaware that around 30% of an employee’s compensation comes from benefits. For employees in the pharmaceutical sector, where your company understandably wants to keep you and your skills, the benefits might be even higher. Every company has their own unique set of benefits, but regardless of what they offer, it’s key to review and maximize the ones most important to you.
For instance, some companies offer stock options, which can help increase your investment accounts and build your net worth. These can be great assets, so long as you understand their vesting schedules, the tax implications, and when you should exercise them.
Many companies also offer a match on retirement plans, which helps increase the amount contributed to your account every year. It’s crucial to contribute at least enough to get the full match, which can make a huge difference in your financial situation over time.
Furthermore, you might have access to a solid health insurance plan, as well as additional perks like tuition reimbursement, wellness incentives, or flexible work arrangements. Using every benefit applicable to your situation can help you move forward in your financial life.
2. Invest in HSAs and FSAs
For employees in the pharmaceutical industry, especially those with higher incomes, health savings accounts (HSAs) and flexible spending accounts (FSAs) present unique opportunities for tax-efficient healthcare spending and savings.
HSAs are especially advantageous for high earners as they offer a triple tax benefit: contributions are made pre-tax or are tax-deductible, the account’s growth is tax-free, and withdrawals used for qualified medical expenses are not taxed. This triple advantage is rare in the world of personal finance and remains equally beneficial for high-income individuals, who often can’t take advantage of certain benefits because of that income.
FSAs, on the other hand, are useful for setting aside pre-tax dollars for healthcare expenses. While they don’t have the investment advantage of HSAs, FSAs can still offer immediate tax savings, particularly beneficial for covering predictable medical costs.
3. Plan for Retirement Many Years in Advance
A number of people make the mistake of waiting to really start planning their retirement. While it is possible to catch up in a hurry, the best time to start planning for retirement is years—or even decades—before you get there. This period is key for clarifying (or creating) your retirement strategy, while also making any tweaks and adjustments that need to be made.
First, consider maximizing contributions to retirement accounts like 401(k)s and IRAs if you have enough cash flow in your budget. But you should also assess your potential income streams in retirement, such as Social Security benefits, pensions, and any annuities.
In addition, if you’re very close to retirement, you’ll need to review and potentially change your investments. Are they properly suited for distributions, or are they still geared toward appreciation? Is that the right fit for your current goals?
Finally, consider the lifestyle you envision in retirement and calculate the necessary budget to support it. This includes evaluating healthcare costs, potential long-term care needs, and leisure activities. If you have debts, creating a plan to minimize or eliminate them before retirement can relieve financial pressure later.
4. Proactive Tax Planning
Effective tax planning for those nearing retirement is especially important. Every dollar that doesn’t go to Uncle Sam can be used in your retirement, and there are a number of strategies to consider.
For instance, tax-loss harvesting in investment portfolios is an effective way to offset capital gains and reduce taxable income. Or you can place high-growth-potential investments in Roth IRAs so those long-term investments get the benefit of tax-free growth and distributions (when following all the proper rules).
Further, you can consider a Roth conversion, which involves transferring funds from a traditional IRA or 401(k) to a Roth IRA, where future withdrawals are tax-free, in exchange for paying taxes on the converted amount in the current year.
For best results, though, consult with a tax professional who can verify you are utilizing all these strategies correctly and efficiently.
5. Create (or Review) Your Estate Plan
For those nearing retirement, it’s essential to create or thoroughly review your estate plan. This process distributes your assets according to your wishes and provides clarity and ease for your loved ones in managing your affairs. Do you have a trust or a will? If so, does anything need to be changed based on family dynamics or new assets that weren’t previously accounted for?
Additionally, double-check your beneficiary designations on retirement accounts and life insurance policies so you have the right people named on the right accounts. You’ll also want to review (or create) powers of attorney for both your finances and healthcare needs, designating trusted individuals to make decisions on your behalf if you’re unable to do so.
Once created, regularly review your plan so it stays aligned with your current circumstances and any legal changes that have occurred.
Start Planning Your Next Chapter
Ready to take control of your retirement plan? Whether it’s fine-tuning your investment strategy, optimizing your tax situation, or updating your estate plan, every step you take now is a stride toward your ideal retirement.
If you’d like help staying on the right track, our team can help you create a strategy that aligns with your goals. Call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.