Why Firefighters Need to Plan for the ‘Retirement Gap’

Pension Shortfalls: Good, But Often Not Enough

“Don’t worry, I have a pension. I’ll be fine,” you might think. But while a pension is a fantastic foundation, it often won’t fully cover your expenses in early retirement – especially as the years go by. Most firefighter pensions replace only a portion of your working income (perhaps 50%–70% of your final salary). That means a big drop in income right when you retire. And pensions often don’t keep up with inflation, so the buying power of that check shrinks over time.

There’s also the issue that some firefighters won’t get Social Security. If your department didn’t pay into Social Security, you could have zero Social Security benefits. Even if you do qualify, those checks won’t start until your 60s. In short, your pension might be the only game in town for a while, and it may not be enough by itself. In fact, one study shows about 62% of retirement income for the average retiree has to come from personal savings and investments, not pensions or Social Security​.

The Healthcare Conundrum: Costs Before Medicare

Another huge gap to plan for is medical coverage. If you retire at 50 or 55, you have a long road to 65 when Medicare kicks in. Until then, you’ll need health insurance and money to pay medical bills. Some departments offer retiree health plans or allow temporary COBRA coverage, but many retired firefighters end up buying private insurance or marketplace plans – which can be very expensive in your 50s and early 60s.

The average retired American will spend about $315,000 on healthcare in retirement, and firefighters might expect to pay even more due to job-related health risks. If you ignore this issue, those costs could hit you like a backdraft – sudden and devastating. Premiums, deductibles, copays, medications, specialist visits… it all adds up. With no Medicare until age 65, you could face a decade or more of paying for healthcare on your own dime.

Financial Strategies to Bridge the Gap

All these challenges might sound daunting. The good news is that, with smart planning, you can potentially bridge the retirement gap. It takes some foresight and discipline, but it’s often doable. Here are a few key strategies to consider:

1. Build a “Bridge” Fund (Non-Retirement Savings)

Set aside a special bridge fund outside your retirement accounts – money you can tap during the gap years without penalties. This could be a high-yield savings account or a taxable investment account. The idea is to have accessible cash in your early 50s to supplement your pension.

Start building this now. Funnel extra overtime pay, side gig income, or any windfalls into a separate account earmarked for early retirement needs. Live below your means so you can beef up this fund. Aim to save enough to cover at least 5 years of expenses (if you can). Even if you can’t fund the entire gap, every dollar in this account is one less dollar you might need to pull out of a 401(k) or IRA early (and pay a penalty on).

2. Look Into Bridge Health Insurance Options 

Some retirees take a job that provides health benefits (even if the paycheck is small) just to get coverage. Others plan ahead by setting aside funds specifically for health insurance premiums in their 50s and early 60s. Whatever you do, don’t leave this to chance – medical bills can burn through your savings faster than you think.

3. Leverage Your 457(b) Deferred Compensation Plan

If your department offers a 457(b) plan, take full advantage of it. A 457(b) is similar to a 401(k), but with one huge benefit: when you retire, you can withdraw from a 457(b) at any age without the 10% early withdrawal penalty​. That means if you retire at 50, you could start tapping your 457(b) immediately to help pay the bills.

So, max out your 457(b) contributions while you’re working. Some plans even allow extra “catch-up” contributions as you near retirement – use that if available. This account can be a lifeline in your 50s, bridging the income gap until your other retirement funds become accessible. (You will still pay regular income tax on withdrawals, but avoiding the penalty is a big win.)

4. Consider SEPP (72(t) Distributions) from an IRA/401(k)

What if most of your savings are in a 401(k) or IRA, and you want to retire before 59½? You can use an IRS provision called Substantially Equal Periodic Payments (SEPP) under Rule 72(t). In plain English, this rule lets you withdraw a fixed amount each year from your retirement account before age 59½ without penalties, as long as you commit to taking those withdrawals for at least 5 years or until you turn 59½ (whichever is longer).

It’s a way to unlock your 401(k)/IRA money in your 50s. But be careful: once you start a SEPP plan, you must stick with it. If you stop or change the payments too soon, the IRS will hit you with all the back penalties and interest. This strategy can work to provide steady income through your gap years, but it’s crucial to set it up correctly. Consult a financial professional to make sure the calculations and commitments are right for your situation.

5. Explore Other Income Sources (Part-Time Work or Investments)

Retiring from firefighting doesn’t always mean quitting work cold turkey. Many retired firefighters pick up part-time jobs or consulting gigs – not only to stay busy, but also to bring in extra income. You have skills and experience (leadership, emergency response, medical know-how, teaching) that can translate to other fields. Working even a couple of days a week or on a contract basis could cover some of your expenses, which means you can leave more of your savings untouched.

Also, look at investment or passive income. Do you have a rental property? Rental income could cover a chunk of your budget. Have a decent investment portfolio? Dividends and interest could help pay the monthly bills. The goal is to diversify where your money comes from during the gap. The more streams of income – even small ones – the less you’ll need to rely on any single source (like just your pension). That can make your overall plan more secure.