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Originally published Saturday, April 21, 2012 at 8:03 PM

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Financial makeover: Just starting out and already planning for retirement

A young pharmacist with ambitious financial goals gets a plan to help him achieve them.

Special to The Seattle Times

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TJ Reynolds has always taken a practical and cautious approach toward money.

Growing up in Montana, he learned several lessons from his father, such as never put anything on a credit card, that have served him well.

Now 27 years old, single, living in a Renton apartment and 1 ½ years into a career as a pharmacist, Reynolds is now at a crossroads. He's done well by himself so far, but he identified three goals that he wanted to achieve and had doubts he'd be able to tackle all three of them:

• He wants to buy a condo in the next two to three years.

• He wants to save enough so he can retire at 65 and continue to live comfortably. • He wants to pay off his $90,000 in student loans.

He also has other goals, such as going back to get a master's degree in a specialized field of pharmacy, or traveling more, but those are secondary to his primary concern of taking care of his financial future.

When he filled out an online survey to participate in a free financial makeover, he wanted a plan that would clarify for him and help him prioritize his long-term goals.

"What I've been trying to do is do all three of these things at once," Reynolds said.

The only problem with that is that he doesn't feel he's progressing on any of those goals quickly enough.

So far, he's been able to set aside nearly $37,000 in his 401(k) plan through his job with a large chain of pharmacies. He also has saved $10,000 in cash, about $1,500 in a Roth IRA and about $1,800 in a stock-market account with Ameritrade.

That isn't enough to make a now-typical 20 percent down payment of $60,000 on a $300,000 condo, nor retire with what he estimates he'll need in assets — $2 million — to maintain his lifestyle.

And while he's on a 10-year plan to repay his student loans (which have varying and sometimes variable interest rates), the payments of more than $900 a month take a large bite out of his available spending. After taxes and 401(k) deductions are made, his take-home on a base salary of $115,000 a year comes out to about $6,000 a month.

"It doesn't give me a lot of flexibility when your fixed payment is $900 a month," he said. That puts him on a 10-year term to repay his loans, but it still feels like a lot.

His monthly expenses in addition to the student-loan payment include $1,425 for rent and utilities, $345 for his car loan (he owes about $15,000 for his 2010 Nissan Altima), about $280 for cable, Internet and cellphone service, $300 for groceries, $175 for gasoline, and about $750 for entertainment, including meals, coffee shop and bar purchases, as well as movies and other forms of discretionary spending.

He acknowledges he spends a lot on entertainment but also notes that his social life is his primary expense outside of his basic needs, as he doesn't travel much, and while he enjoys skiing, he doesn't go often enough for it to be a significant expense.

Ethan Broga, a certified financial planner with Seattle-based Empirical Wealth Management and member of the Financial Planning Association's Puget Sound chapter, said that on the face of it, Reynolds is doing well for someone less than two years out of school, although achieving all of his goals would be challenging.

While Reynolds makes good money, "over time, the salary grows at a much slower pace than perhaps other jobs he could have chosen," Broga said.

"The real magic occurred when I examined his student loans," Broga said.

Broga's plan calls for Reynolds to consolidate his student loans, an administrative step that makes sense regardless, but also to take advantage of an opportunity to consolidate them into a low fixed-interest loan with a 25- or 30-year term. He recommends doing it within the next couple of years to take advantage of still-low interest rates.

That could reduce his monthly payment from $900 to about $450 a month. The savings could be redirected toward a down payment for a condo two years from now.

Broga also recommended Reynolds cut his discretionary spending by about $150 per month, and to take the current $100 a month going into his IRA and redirect that also into saving for a down payment. Saving a total of $700 a month for two years would give him $16,800, plus the $10,000 he's already saved.

That's well short of $60,000, but the remainder can be borrowed from Reynolds' 401(k) plan. By deferring 12 percent of his salary into the plan for two years, he'll build up a balance of $70,000, and he'll be able to borrow up to half that at a 3 percent interest rate on a 15-year term, or about $225 per month.

Once he buys the condo, his monthly payment goes up to about $1,750 per month (once taxes and insurance are figured into it), but he'll still be saving $375 per month more than he is currently. That can be redirected toward paying down the student loan or 401(k) loan more quickly, or saving up for a master's program.

If he redirects the savings toward the student loans, he'll still be able to pay them off in about 10 years, Broga said.

Broga also recommended that once the condo was purchased, that Reynolds max out his 401(k) contributions ($17,000 in 2012, but with a 5 percent employer match Reynolds will save nearly $20,000 per year) to put him on a faster track toward retirement. Broga's plan has Reynolds retiring at 63, and still projecting $80,000 a year as a budget until age 100.

Reynolds appreciates that the plan provides a bit more flexibility going forward, and a route toward achieving his goals of buying a condo and getting out of debt.

"As far as saving for retirement, I was happy to hear that he thinks I will be able to retire," Reynolds said.

Even going back to school is not out of the question, Reynolds said, given that the financial plan allows for some future savings that can go toward that, and that his employer might contribute up to $5,000 for tuition.

Specializing in a field, such as pharmacy and medicine therapy and ambulatory care, would open up more career opportunities, working in clinics rather than large retail chains, for example. Correspondingly higher pay would help cover the additional education expense.

And while stretching out the term of his student loan to free up the cash makes him a little nervous, he does feel it's doable in that it will help him achieve all of his long-term goals.

Just to be on the safe side, he anticipates being prudent with his savings and reallocating his investment portfolio into a more conservative mix.

"Knock on wood, I don't need to be as aggressive" as others with fewer assets might, he said.

That gives him comfort going into the years ahead.