Retirement planning isn’t just about numbers—especially for firefighters and first responders, who face unique financial challenges after years of service. From pension benefits and medical costs to inflation, there’s a lot at stake. One wrong move could mean leaving thousands of dollars on the table at best or even facing a ruined retirement. While it may not be possible to get everything right or avoid every pitfall, being aware of these risks is the first step in setting yourself up for success.
1. Choosing the Wrong Pension Payout
For most firefighters, their pension is their core retirement asset that they’ll rely on. When you retire, you typically have several options for receiving your pension: a Straight Life Payout, a Joint and Survivor Payout, a rollover, or a lump sum. A Straight Life payout provides you with a monthly benefit for your lifetime but ends when you pass away, which is a good option if you are single and want to maximize your monthly income.
On the other hand, a Joint and Survivor payout offers a reduced monthly benefit that continues for the life of both you and your spouse, helping to provide financial security for your partner if you pass away first.
A lump sum payout can be tempting, but it often isn’t the best choice. If not rolled over properly into another qualified retirement account, such as an IRA, you could face significant taxes, which could throw off your tax planning. Additionally, once the lump sum is spent, it’s gone, along with the retirement you worked so hard for. It all comes down to your health, marital status, financial obligations, and the options available to you.
2. Neglecting to Set Up Life Insurance with Living Benefits
According to the International Association of Fire Fighters (IAFF), firefighters have a 9% higher risk of developing cancer compared to the general population, and The National Cancer Institute estimates that the average treatment cost for the year after a diagnosis is $42,000. A 2018 estimate places the average total cost of treatment at about $150,000. Additionally, cancer patients are 2.5 times more likely to declare bankruptcy, and those who declare bankruptcy have an 80% greater chance of succumbing to cancer. These financial hazards don’t end at the hospital for treatment or the pharmacy for medication—you’re also looking at lost pay during your treatment and recovery, which could take a year or even more. This is why having comprehensive life insurance is so important.
Setting up a private life insurance policy early that includes living benefits and riders specifically tailored for first responders can help mitigate these financial risks. These policies can cover more than just direct treatment—they can also replace lost income, cover daily expenses like mortgage or rent, and help pay for alternative treatments that aren’t fully covered by health insurance. So, if you do fall ill, you’ll be able to focus more on treatment and recovery instead of worrying about how to pay the bills.
3. Delaying 457 Plan Rollovers
If you’re worried that your pension may not cover your retirement needs, you’ve likely looked into contributing to a 457(b) plan if your firehouse offers one. With tax deductions and tax-deferred growth, they can be a potent tool to harness the power of the stock market.
Upon retirement, you can leave your savings inside the 457(b) plan, take a lump sum contribution, or roll them over into an IRA. It may be convenient to just leave your funds in the 457(b) account, but if the plan comes laden with high-cost fees, your savings might find greater flexibility or lower costs with an IRA.
Another issue is not being aware of the rules and penalties around rollovers—mistakes or delays can lead to unexpected tax bills or missed growth potential. Each 457(b) plan comes with its own rules, so it’s important to assess your plan with a professional as you approach retirement.
4. Underestimating Retirement Income Needs
How much income will you need to live comfortably in retirement? Unfortunately, many firefighters discover too late that their retirement income falls short. This often happens because they miscalculate their pension benefits or fail to account for inflation, medical expenses not covered by Medicare, and unexpected costs like home repairs. As a result, they find themselves with far less than expected, leading to dire financial straits.
To enhance your retirement preparedness, it’s essential to start planning early and determine how to replace your working income once you retire. This means not just relying on your pension but also leveraging every available tool to reach your financial goals. Do you have a 457 plan? If not, perhaps an IRA or a Variable Universal Life Insurance policy can help you use the power of the stock market to grow your savings. Concerned about medical costs? Look into insurance policies with specific riders that can help protect your core savings. Worried about outliving your savings or inflation diminishing the value of your pension? Consider inflation-adjusted annuities to mitigate those risks. For every challenge, there is likely a solution—early planning is key.
5. Ignoring Legacy Planning
Planning for retirement is so much more than just setting yourself up for the retirement you deserve. It’s also about helping ensure your loved ones are taken care of after you’re gone or in the case of incapacitation. Legacy planning helps you pass on your assets smoothly and prevents your family from dealing with unnecessary legal hurdles.
Common mistakes firefighters make with legacy planning include not having a will or trust in place or failing to update beneficiaries after major life events like marriage, divorce, or the birth of a child. Without a proper will or trust, your family could face prolonged and expensive court proceedings just to access your assets. Similarly, outdated beneficiary designations may lead to your assets going to someone you no longer intend, like an ex-spouse.
Accidents can happen, and it can be a family’s worst nightmare if a loved one is left in a coma with family members uncertain about what to do or if a child enters the foster system due to an outdated guardianship arrangement. Taking a few simple steps now can help prevent such difficult situations and provide invaluable peace of mind.
In Conclusion
You’ve dedicated your life to serving and protecting your community, but it’s important not to overlook your own future. It’s never too early to start preparing for the retirement you deserve. The sooner you begin, the better positioned you’ll be to avoid the common retirement planning mistakes we’ve discussed.
Why wait to get your financial house in order when the stakes are so high? Schedule a consultation with Protection Red today, and let’s develop a retirement strategy tailored to your needs. Our team understands the unique needs of firefighters and first responders, and we’re here to guide you every step of the way.
Sources:
- https://www.pdcenterlv.com/blog/cancer-rates-among-firefighters
- https://pubmed.ncbi.nlm.nih.gov/32522832/
- https://www.aarp.org/money/credit-loans-debt/info-2018/the-high-cost-of-cancer-treatment.html
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4933128/
- https://protectionred.com/how-life-insurance-with-living-benefits-protects-firefighters/
