How to Recreate Your Firefighter Income in Retirement (2026 Edition)

Your pension check may not have cost-of-living increases, so its buying power erodes each year. You’ll pay for health insurance out-of-pocket until Medicare at 65. And if you didn’t pay into Social Security, you can’t count on those monthly benefits (though as we’ll discuss, a recent law changed the rules for those who did). Bottom line: you need a strategy to bridge the income gap and make your money last as long as you do.

Two Paths: Monthly Pension vs. Lump Sum

Every firefighter’s retirement benefits are a bit different, but let’s look at two core scenarios for your pension:

Take the Monthly Pension. You receive a lifetime monthly check from your pension fund. This is the traditional path – steady, guaranteed income for life. However, it might not be enough alone, so you’ll likely supplement it with other income (part-time work, deferred comp withdrawals, and later Social Security).

Take a Lump Sum (if available). Some pension plans offer a lump sum payout option or DROP (Deferred Retirement Option Plan) that lets you take some or all of your pension as a one-time chunk of cash. You could roll that lump sum into an IRA and invest it, effectively building your own retirement paycheck. This route gives more flexibility (and responsibility) to manage the money.

Both paths have the same goal: replacing your working income so you can maintain your lifestyle. But they approach it differently. Let’s walk through each scenario, then dive into the tools and strategies that can help along the way.

Scenario 1: Riding the Monthly Pension (and Filling the Gaps)

Most retiring firefighters opt to take the monthly pension. It’s predictable – you know you’ve got (for example) 60% of your old salary coming in for life. The challenge is filling that remaining 40% gap (and adjusting for things like inflation and healthcare costs). Here’s how you can shore up your income under this scenario:

Post-Retirement Work

It’s common for firefighters to start a “second act” career or side gig after hanging up the bunker gear. This isn’t just for something to do – even a part-time job can provide extra income and health benefits. Picking up a lighter job with health insurance can bridge you to Medicare at 65 and reduce the strain on your savings. Plus, many firefighters retire young enough to have 10-15 productive working years in another field if they choose. Just be mindful of any earnings limits if you plan to draw certain pensions early (rules vary by system).

Social Security (Now Friendlier to Firefighters)

Historically, a major gripe for fire service folks was the Windfall Elimination Provision (WEP), as it could slash your Social Security benefit if you also had a pension from a job that didn’t pay into Social Security. The good news is that WEP was repealed effective 2025¹. Therefore, if you qualify for Social Security (say from a prior job or a later career where you did pay in), you’ll get your full benefit now.

Many firefighters still won’t have Social Security at all, but if you do have quarters from side jobs or military service, those checks can now provide a solid supplement in your 60s without the WEP penalty. It’s worth checking your Social Security statement to see what you might get at 62, 67, or 70. It might not be huge, but every bit helps to replace that paycheck.

Thoughtful 457(b) Withdrawals

A big advantage for many firefighters is the 457(b) deferred compensation plan offered by cities and departments. Unlike a 401(k), you can start tapping a 457(b) as soon as you retire, at any age, with no 10% penalty. That means if you retire at 53 and need extra income, you can withdraw from your 457 without Uncle Sam whacking you with an early withdrawal fee. This can be a lifeline in your 50s.

The key is to withdraw strategically; use it to fill budget gaps but avoid draining it too fast. Some retirees withdraw just enough from the 457 to top up their pension to near their old take-home pay. Others might hold off and let it grow if they’re working a post-career job. Pro tip: Once you roll a 457 into an IRA (if you choose to), you lose that no-penalty privilege on withdrawals before 59½. So if you think you’ll need the money in your 50s, you might leave some funds in the 457 and roll over the rest. This way you keep penalty-free access to a portion of your savings.

Delay Big Decisions if Possible

If your pension alone doesn’t cover your bills, you might feel pressure to start selling investments or taking Social Security as early as you can. Try to pause and plan first. Can you tighten the belt for a few years? Use cash savings or a part-time job to delay tapping investment accounts? Every year you postpone drawing down your 457/IRA or taking Social Security (if eligible) can boost those future incomes. It’s like stretching your hose line a bit further to avoid running dry later.

Scenario 2: Taking a Lump Sum and Creating Your Own “Pension”

Now, what if you have the option to take a lump sum payout from your pension plan? Not all systems offer this, but some do (for example, a DROP account or a one-time Partial Lump Sum Option in exchange for a reduced monthly pension). In this scenario, you’re essentially saying, “Give me the cash and I’ll figure out the income.” It can be a bit daunting to manage a large sum, but it also opens opportunities to possibly grow that money or tailor it to your needs.

Here’s how you tackle recreating your paycheck with a lump sum:

Roll It Over and Invest

Typically, you’d roll the lump sum (which is pre-tax money) into an IRA to avoid taxes on the transfer. Once in your IRA, you can invest it in a diversified portfolio – stocks, bonds, funds, whatever fits your risk tolerance. The idea is to generate growth and income from this portfolio to replace your paycheck. One common guideline is the “4% rule,” which suggests you can withdraw about 4% of your portfolio in the first year of retirement (and adjust for inflation each year) and have a decent chance of the money lasting ~30 years. But remember, firefighters could be retired much longer than 30 years, and markets can be volatile. Relying on a static 4% withdrawal might not cut it over decades. That’s where a more dynamic approach, like guardrails, comes in (more on that in a moment).

Build a “Paycheck” Plan

When you manage a lump sum, you’ll want to set up a deliberate withdrawal plan – basically your own pension payment to yourself. For example, you might decide, “I need $5,000 a month total. My pension (or other steady sources) give me $3,000, so I’ll withdraw $2,000 a month from my investments to make up the difference.” Setting this on autopilot (many IRAs allow automated monthly withdrawals) can mimic that biweekly paycheck feeling. But unlike a true pension, your portfolio isn’t magic. If the market plunges, taking out the same $2,000 could start eating away at the principal faster. You have to be ready to adjust if needed.

Watch the Taxes

Rolling into an IRA keeps things tax-deferred, which is good. But every time you withdraw from a traditional IRA, it’s taxable income. Large lump sum withdrawals can bump you into higher tax brackets. The strategy here is to be tax-efficient: perhaps fill up lower tax brackets each year with withdrawals, but avoid jumping into much higher brackets if you can. Also, remember Required Minimum Distributions (RMDs) will force you to start pulling money out by age 73 (for now), whether you need it or not, unless you use certain strategies like Roth conversions or QLACs (we’ll cover QLACs shortly). The point is, plan your withdrawals in a way that gives you the income you need and manages the tax hit.

Don’t Forget Your 457(b) and Other Savings

If you take a pension lump sum, you likely also have a 457(b) or other retirement accounts from your career. Those can be rolled over or managed alongside the lump sum. In practice, you’d consolidate that money (pension lump + 457 + any IRAs) into one big portfolio pot. This pot is now your personal retirement fund to generate income. A silver lining of having everything under your control is you can tailor your investments to your needs.

Taking a lump sum is often a decision to make with professional advice, because the stakes are high. If invested wisely, the lump sum could potentially produce more income or leave a legacy for your family (pensions usually die with you or your spouse). But you also take on the longevity and market risk that the pension fund was handling. It’s critical to have a solid plan for turning that lump sum into a stream of checks for yourself.

Tools and Tactics to Recreate Your Income

Whether you’re supplementing a monthly pension or crafting a plan for a lump sum, there are a few key concepts that can help you keep your income steady and sustainable. Think of these like the equipment in your financial toolbox for dousing any retirement money fires:

Safe Withdrawal Rates and Spending Guardrails

You might have heard of the classic “4% rule” of thumb for retirement withdrawals. It’s a starting point: withdraw ~4% of your nest egg in the first year of retirement, increase that amount with inflation each year, and historically you’d have a decent chance of not running out for 30 years². But real life isn’t static, especially with markets that can flare up or die down unexpectedly. Spending guardrails are a more flexible approach.

With a guardrail strategy, you set an initial withdrawal rate (maybe it’s 4.5% or something that fits your plan). Then you also set upper and lower “guardrails” around it – thresholds where you’ll adjust your spending if things change. For example, you might decide if your withdrawal rate ever climbs by 20% because your investments dropped (meaning you’re suddenly taking out, say, 6% of the portfolio due to a market dip), you’ll trim your spending by 10% to get back on track. That’s the upper guardrail.

And an opposite rule might be if your withdrawal rate falls by a certain amount (portfolio grew and now you’re only taking 3% out), you give yourself a raise and spend a bit more. These guardrails let you “steer” your retirement income so you don’t accidentally overspend when the market is down or underspend when times are good.

Your target speed is the middle of the lane, and the guardrails on either side tell you if you drift too far off course. By agreeing ahead of time to adjust (cut 10% of discretionary spending in bad markets, etc.), you avoid making panicked moves or, worse, doing nothing and running your savings off a cliff. Many firefighters with investments find this approach keeps the checks coming steadily.

In a rough year, maybe you skip a big vacation or delay a new truck. In great years, you splurge a little. The pension check keeps hitting the bank regardless, and the portion of your budget coming from your portfolio can breathe with the market. This way, you dramatically reduce the risk of outliving your savings even over 30-40 years. Studies have shown guardrail strategies can often let you start with a higher withdrawal rate (maybe 5% instead of 4%) because you have a plan to adjust³. For an early retiree like a 52-year-old firefighter, that flexibility can be a game changer.