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 A Guide to Retirement Planning for First Responders Thumbnail

A Guide to Retirement Planning for First Responders

Retirement Funding First Responder

As a first responder, you always give 110 percent. You put in long hours, work on the weekends and contribute the extra effort needed to serve your community. But when it comes to preparing for retirement, it’s not unlikely for first responders to put off the important decisions or neglect to ask questions. 

Police officers and firefighters face unique financial concerns when it comes to their retirement, but that doesn’t mean they deserve anything less than a relaxing and well-funded retirement. Below are the top three concerns we see first responders face when it comes to their retirement - and what you can do to face them head-on.

Understanding Your 457 Plan

At a surface level, a 457 plan works similarly to a 401(k). Money is withdrawn from your paycheck pre-tax (or after tax IF your 457 Plan allows for Roth contributions) and grows in a retirement savings account until retirement.

But a major difference is that a 457 plan is typically a tax-sheltered annuity (although nowadays they often offer some mutual funds as well).  Similar to a 401(k), funds placed in a 457 plan aren’t taxed until withdrawn, and employers can choose to make matching contributions.

It’s important to note that, unlike a 401(k) plan, investment options for a 457 are limited to annuities and mutual funds.

When selecting a 457 plan from your employer, you’ll likely be presented with low, medium, and high-risk plan options - or a mix of the three. It’s not uncommon for first responders to have questions about the differences between these options, and you will likely benefit from working with a financial professional to take a look at your options as well. Choosing the wrong option for your unique retirement needs could greatly impact your future withdrawals.

The Realities of Your Pension Plan

From 1998-2019, the percentage of Fortune 500 companies offering pension plans fell from 59% to a mere 14%. Today, most pensions are held by public sector and union employees. While this is an opportunity few professionals are offered anymore, the realities of what your payouts may look like in retirement shouldn’t be ignored.

Remember that just because you are enrolled in a pension plan upon employment, does not mean you will meet the vesting requirements. For a majority of states, the requirement is five-years of employment, while some require ten. If you leave before this time, you will not be eligible to receive your pension payouts.

Additionally, how much you receive in retirement through your pension will depend on a variety of factors, including your salary and years of service. You’ll want to read the fine print of your plan and ask around to determine how much you could expect to receive from your pension plan in retirement. This can help determine how much you’ll still need to save in order to maintain your standard of living and cover expenses in retirement.

Learn more about pension plans for first responders.

Social Security Benefits (Or Lack Thereof)

For millions of retirees, Social Security offers a steady, reliable income source in retirement. While it is not meant to cover all expenses, it can help serve as the foundation of a secure retirement plan. 

However, the future of social security benefits is uncertain. Due to cost of living increases, inflation, and more, social security payouts are starting to exceed the program’s income. This means Social Security will have to begin drawing from reserve funds, leaving the state of benefits a few decades from now wildly uncertain. 

As such, we recommend thinking about social security benefits as a nice to have if it does come through, but not something you should hinge your entire plan on. As a bonus, if you’re able to comfortably retire without social security, you’ll be able to wait as long as possible to begin withdrawals if they are available. This will maximize any possible benefit you are eligible to receive.

Preparing for retirement as a first responder can come with its own unique challenges, but that doesn’t mean it should be put off or ignored altogether. Working alongside your team and your own financial advisor can help you feel confident and comfortable with your plan for retirement. Because you give your all today, it’s imperative that you let your money care for you when you need it most.

  1. https://www.bls.gov/ncs/ebs/benefits/2019/ownership/govt/table02a.pdf

  2. https://www.npr.org/sections/ed/2018/04/20/602846417/why-more-than-a-million-teachers-cant-use-social-security#:~:text=Walkouts%20And%20Teacher%20Pay%3A%20How,the%20workforce%20is%20not%20covered.%22

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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