The New Year is almost here, and while you’re already fit for duty, we can all make some improvements, especially when it comes to finances. But what kinds of financial resolutions should you make? Things like cutting up your credit cards, cooking at home instead of ordering in, and cutting down on takeout coffees while out and about are always a good start, but are they good enough? Maybe. But when it comes to your future, there are certainly other resolutions you can make today that can potentially have a much higher impact on your finances. Let’s break down some advice based on where you are in your career.
Things like cutting up your credit cards, cooking at home instead of ordering in, and cutting down on coffees while out and about are always a good start, but are they good enough? Maybe. But when it comes to your future, there are certainly other resolutions you can make today that can potentially have a much higher impact on your finances.
Let’s break down some advice based on where you are in your career.
Early Career (0-10 Years): Building Your Foundation
1. Consult a Financial Professional
You wouldn’t rush into a burning building without proper training and backup. so you shouldn’t rush into financial decisions solo either, especially when it comes to your retirement. A professional advisor who understands firefighter pensions and benefits can help you avoid costly mistakes that could set you back years. Then there’s investing to help cushion your pension and reach other financial goals. What should your portfolio consist of? Stocks? Bonds? ETFs or Mutual Funds? Plus, it’s not just choosing the right investments, it’s also about deciding when to buy and sell, adjusting your portfolio according to evolving risk tolerances, and crafting a withdrawal strategy that can help reduce the chances of running out of savings later on in life–all while keeping an eye on your tax situation. This isn’t just us talking up the advisory industry either. Vanguard research shows that a financial professional can add more than 3% in net gains to a portfolio, and one of the biggest factors is helping investors avoid common emotional investment mistakes and maintaining proper discipline–not by choosing the right hot stocks.1
2. Eliminate High-Interest Debt
If you’re carrying credit card debt or personal loans, this is your primary target. High-interest debt is like a fire that keeps growing – you need to contain it before it gets out of control. Plus, any interest you incur will likely outpace investment returns, so you’re just working against yourself by investing before extinguishing that debt, especially if it’s compounding debt. First, though, build an emergency fund, and then direct every spare dollar toward your highest-interest debt. (There’s no point in having to resort to a credit card once again if an emergency strikes.) Once that’s handled, build your emergency fund to cover 3-6 months of expenses.
3. Begin Investing Immediately
When it comes to investing, time is your friend–as long as its on your side. Every year you wait costs you. Example: Starting at age 25 investing $500 monthly could grow to $1.2 million by age 60 (assuming 7% returns). Wait until 35, and you’ll need to invest $1,100 monthly to reach the same goal. Your department’s 457 plan could be your best first move as it offers significant tax advantages compared to an ordinary brokerage account.
Mid-Career (10-20 Years): Optimization Phase
1. Help Secure Your Family’s Financial Future
Your family depends on your income – of course, you want to protect it. While we invest to grow our savings, we purchase insurance to protect what we already have. For example, you could consider adding living benefits that protect you if you’re injured or become ill–it happens more often than you think. Have kids? A 529 College Savings Plan can potentially help you pay for those sky-high college tuitions with the help of investments in a tax-advantaged manner.
2. Fine-Tune Your Financial Strategy
Your pension’s solid, but it might need backup. Consider ramping up your 457 plan contributions – even small increases add up over time. While you’re at it, take a fresh look at your investment mix and adjust as necessary. Perhaps it’s time for an IRA, brokerage account, or annuity?
3. Implement a Tax Plan
Paying too much in taxes is less than optimal at any stage of your life. Doing it in retirement can lead to you running out of money earlier than expected. So, start thinking about tax efficiency sooner rather than later, and make sure you understand how your pension and retirement account distributions will be taxed in retirement. Plus, research whether Roth contributions or conversions make sense given your current tax bracket versus your expected retirement tax rate. Finally, for a more immediate tax break, look into deductions available to public servants that could lower your current tax bill. That’s more money for investing, getting out of debt, or a deserved lifestyle boost.
Late Career (20+ Years): Transition Planning
1. Plan Your Retirement Exit
Decisions you make in your final years of service have massive implications. Evaluate DROP plans if available – they’re not always the best choice, but maybe it makes sense for you. Calculate your pension options, for example, maximum benefit versus survivor benefit, and figure out how to pay for healthcare costs between retirement and Medicare eligibility.
2. Diversify Your Retirement Income
Your pension is just one piece, and oftentimes, it’s simply not enough. It’s high time to create multiple income streams. Beyond your pension, we mean retirement account distributions, annuities, and maybe even part-time work. Know exactly how much income you’ll need and where it’s coming from before you turn in your gear. Not sure how to do that? We’ve written a great piece on how to recreate your retirement income.
3. Protect Against Financial Risks
You’ve worked too hard to leave things to chance. As retirement approaches, look at ways to shield your savings from market hits. While inflation seems to be under control for now, it can always return with a vengeance. Plus, even a seemingly low inflation rate of 3% could turn today’s $50,000 into $67,000 in just 10 years – you need to plan for that too. And since medical costs can add up, explore whether long-term care insurance fits your situation.
Making It Stick: Your 2025 Action Plan
Okay, so that’s a lot to take in. Can you stick to it? According to Fidelity’s 2024 Financial Resolutions Study, while two-thirds of Americans plan to make financial resolutions2, most will abandon them by February. By most, we really mean it: Research shows only 9%3 of people keep their New Year’s resolutions. You can help beat those odds by partnering with a team that knows the ins and outs of firefighter finances.
Next Steps
Don’t let this be another resolution that fades by February– schedule some time with us at Protection Red. While we can’t go to the gym with you or help you kick that smoking habit, we can help you create and stick to financial resolutions that makes sense for you and your family. Remember: The best time to start was when you first got hired. The second best time is now. You can set up a time to chat by clicking the button below.
Sources:
1)https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/quantifying-evolution-advice-and-value-investors.html
2) https://newsroom.fidelity.com/pressreleases/fidelity-s-16th-annual-resolutions-study–americans-gearing-up-for-unexpected-financial-events-in-20/s/5613c543-fa52-4539-a690-a9d833773754
3) https://www.driveresearch.com/market-research-company-blog/new-years-resolutions-statistics/
