How to Recreate Your Firefighter Income in Retirement

You’ve worked decades as a firefighter, and retirement is knocking on your door. You have some tough choices to make. Besides the looming changes retirement will bring, such as the loss of camaraderie, lack of a stable paycheck, and adjusting to regular civilian life, you need to decide on your retirement package. Will you take the pension, which is a lifelong, basically guaranteed payment? Or should you cash out your pension, invest it, and continue to work?

Ideally, you would want to recreate your final salary so you can live comfortably in retirement. In this article, we’ll delve into some of the potential options firefighters face when heading into retirement.

Pension Payouts

Firefighter pensions vary state by state, so we’re going to create a general scenario to illustrate our point.

Introducing John, a firefighter who, after years of dedicated service, decides to retire at 55. With a final salary of $60,000, he is entitled to an annual pension of $36,000. However, he can also elect for a lump sum payout equivalent to 15 years of his pension, which amounts to $540,000.

John isn’t keen on downsizing his lifestyle to $36,000 a year by retiring completely. He considers two options to maintain his lifestyle – for the time being, at least.

Take the Monthly Pension of $3,000

He could get a job earning at least $2,000 a month to replicate his $60,000, then retire at 67 and take Social Security.

Take the Lump Sum Payment of $540,000

He can find an equal-paying job, roll his lump sum into an IRA, let it grow, retire at age 67, and take Social Security.

Which option is the best? Most importantly, which will help recreate his income at retirement?

Let’s look at the advantages and disadvantages of each.

Scenario 1: Pension Payments

Finding a job that pays at least $2,000 a month probably won’t be too difficult for John. In fact, it could likely be a part-time job, allowing him to pursue his post-retirement dreams and wishes in his free time. And if John is in ill health, can’t work much, and doesn’t expect to live a long life, this may be the only realistic option.


There are a few benefits to this option: for one, his pension is guaranteed; he won’t have to worry about market ups and downs or outliving his savings. Each month, he’ll get the same check, month after month, without having to worry about getting laid off or his company going bankrupt. It’s much easier to create a budget and stick to it. This approach offers peace of mind, especially for those wary of market volatility. There’s something to be said for stability!


However, there are also quite a few downsides to this approach.

If John expects to live a long life, periods of inflation may wreak havoc on his pension payment. Yes, many pension plans have a Cost of Living Allowance increase each year, but inflation can easily outpace it in times of economic distress. Also, once you begin taking pension payments, you’re generally locked in, so if you value flexibility over rigidness, this may not be the best path for you.

And going back to our original point, will he be able to replicate his original $60,000?

Without any other income streams to fall back on, John’s only hope lies in Social Security. However, there’s a huge wrench in the works: the Windfall Elimination Provision, which penalizes workers’ Social Security benefits if they earn a pension (like a firefighter) and also contribute to Social Security. Were it not for WEP, his Social Security payment would have been $1,186.00. After WEP, it’s only $416!

What’s his monthly income?

So, by combining his pension and SS benefits, he’s only looking at $3,416 a month. That’s a far cry from his original salary. But, at least he’ll never run out of money.

Scenario Two: Lump Sum Payment

John takes the lump sum and rolls it over into an IRA, where he will have flexibility on how he invests it and how he withdraws from it. In the meantime, he finds another job that earns as much as his firefighter job. Like the monthly pension payment, there are pros and cons to this approach.


Firstly, there’s potential for growth, which may help him not just earn his $60,000 yearly salary but more. Secondly, by putting more into Social Security each month, he’ll get back more – though he’ll still get hit with a WEP penalty. There is also the possibility of leaving behind a legacy for loved ones and further rollover opportunities to optimize his situation.


The most obvious risk is investing. John may end up losing money by putting it into the stock market instead of vice versa. He’ll need a careful strategy that maximizes diversification while still earning a return. He may end up in a market downturn right when he retires, which could lead to his nest egg running out faster than expected.

Of course, investing is inherently risky. But John wants to grow his nest egg to have a comfortable retirement, so he goes for an aggressive approach. How might that play out?

Lump Sum Investment

He takes that lump sum payment and invests it in the S&P 500. We chose the S&P 500 for this article because it is a good benchmark when comparing investments. In reality, John’s financial advisor would likely formulate a more diversified portfolio to reduce risk. But for our purposes, John’s investment grows at 10% a year, and he ends up with a nest egg of about $1,700,000 at age 67. His Social Security benefit is $964, down from $1,898 after the WEP penalty.

What’s his monthly income?

Here, John has to be careful, as that nest egg is finite. A cautious and conservative withdrawal strategy would be 4% a year, which will help ensure his savings last 25 years, barring any financial emergencies or market downturns (if he keeps his funds invested).

A 4% withdrawal rate would lead to a $68,000 yearly salary, or $5,666 a month. With his Social Security benefit of $964, he now has $6,630 a month to spend. That’s quite an improvement!

But was it worth it? He had to work a full-time job for 12 more years. And in this case, John has a bit of luck on his side – the market earned him consistent returns all the way until retirement. Things could have just as easily gone south.

And those funds are set to run out at age 92. If John is one of the luckier ones and lives to the ripe old age of 100, which is entirely possible, he’s going to have problems. In this case, he may want to take a chunk of his final savings and purchase an annuity that will provide a guaranteed income later on in life. Alternatively, he can buy cash-value building life insurance from which he can take policy loans out as necessary later in life.

Final Verdict

In this scenario, from a financial standpoint, at least, taking the lump sum payout and investing it is the clear winner. However, when it comes to your situation, multiple factors need to be considered, such as health concerns, taxes, inflation, spousal benefits, life expectancy, risk appetite, and pension payout options, to determine what is best.

It all boils down to this: What do you need to maintain or even enhance the lifestyle you’re accustomed to? In the end, the choice remains deeply personal. That’s why working alongside a financial advisor can shed more light and offer tailored advice for your specific situation.

You’ve dedicated your life to service – let us dedicate ours to securing your financial future. We can guide you to the best path to your retirement with our expert guidance. Ready to plan confidently? Click the button below and schedule your personalized consultation!

The information contained in this article is for educational purposes only, this is not intended as tax, legal, or financial advice. One should always consult with the tax, legal, and financial professionals of their choosing regarding their specific situation.

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