Let’s talk about Deferred Retirement Option Plans (DROPs) and timing, a topic as critical to a firefighter’s retirement as having the right gear on a call. Not all states or cities even offer DROP plans¹, but where they do exist, they’ve become incredibly popular. In Philadelphia’s fire department, for example, roughly 80% of eligible firefighters ended up using the DROP once it was available and matured². Clearly, when a DROP is on the table, it can be a game-changer for your retirement. The key questions are: should you enter the DROP, when should you enter it, and how long should you stay in to get the most out of it?
What is a DROP
A Deferred Retirement Option Plan (DROP) lets you essentially “retire” on paper while still working a few more years. When you enter DROP, your pension is locked in based on your service and salary at that point – it stops growing as if you retired right then. Instead of receiving your monthly pension checks, those funds go into a special DROP account earning interest while you continue to draw your firefighter salary³. After your DROP period ends (usually a fixed number of years), you officially retire and collect two payouts: your regular lifetime monthly pension (which was frozen at the level it was when you entered DROP) plus a lump sum of all those diverted pension payments (with interest) that piled up in your DROP account. In short, a DROP lets you keep working and double-dip: you earn your salary and bank your pension in a lump sum for a few years.
Why do departments offer DROP?
Mainly to retain experienced firefighters. It’s a way to encourage vets to stick around a little longer instead of retiring the minute they hit 20 or 25 years. You get an incentive (big lump sum later) for continuing to serve, and the department keeps a seasoned firefighter on the roster. Since you only get to do a DROP once (in most cases) and it forces you to actually retire after the DROP period, you want to make sure you enter at the right time and don’t leave money on the table.
Timing is everything. Enter too early or too late, and you might shortchange your retirement benefits. Here are the key factors to consider.
When Should You Enter DROP?
Future Raises or Promotions
Are you due for a promotion soon? Wait to enter DROP if significant pay raises are coming. Your pension calculation freezes at DROP entry, so locking in at a higher pay grade means a bigger monthly pension for life.
Pension Maxing Out
If your pension benefits are already maxed out under your plan's formula, there's no benefit waiting longer. Enter DROP to start accumulating that lump sum without sacrificing pension growth.
Financial Readiness
Consider your financial picture 3-5 years ahead. You must retire when DROP ends. Ensure outstanding debts, college expenses, and financial goals align with your DROP timeline.
Emotional Readiness
Ask yourself: "Will I be ready to retire in 3-5 years?" Once in DROP, the countdown begins. Make sure you're mentally prepared to step away when your DROP period ends.
Future Raises or Promotions
Are you due for a promotion or significant pay raise soon? If you expect your salary to jump in the near future, you might want to wait to enter DROP. Once you join a DROP, your pension calculation is frozen, and any future raises won’t increase your pension. Your retirement benefit is based on your salary at DROP entry, so locking in at a higher pay grade means a bigger monthly pension for life. Don’t drop the ball by locking in a pension based on a salary that you could significantly improve within a year or two.
Pension Maxing Out
Some pension plans have a cap on benefits (for instance, a maximum percentage of salary or a maximum years-of-service credit). If you’ve reached the point where additional service years won’t increase your pension, that’s a strong signal it may be time to enter DROP. In other words, if your pension benefits are already maxed out under your plan’s formula, there’s no benefit in waiting longer¹ – you’re essentially working without boosting your eventual pension. At that stage, entering DROP lets you start accumulating that lump sum without sacrificing any further pension growth (since there is none).
Financial Readiness
Think about your financial picture five years down the road (or whatever the DROP maximum is in your system). Once you enter DROP, you must retire when the DROP period ends, usually in 3 to 5 years (some extend a bit longer). Are you going to be financially ready to hang up your helmet at that time? Consider outstanding debts, kids’ college expenses, or other financial goals you aim to meet before fully retiring. For example, if you still have a hefty mortgage or want to finish paying for your child’s education in the next few years, ensure the end of your DROP aligns with having those ducks in a row. You’ll be drawing your pension after DROP, but no more salary, so plan accordingly.
Emotional Readiness
Retirement isn’t just a financial decision – it’s a life decision. Ask yourself honestly: “Will I be ready to retire in 3-5 years?” If you absolutely love riding on the engine, enjoy the crew camaraderie, and can’t imagine life out of the firehouse yet, you might not want to start the DROP clock ticking. Once you’re in DROP, the countdown to your last day begins – most plans won’t let you work beyond the DROP period. firefightersfirstcu.org Make sure you’re mentally prepared to step away from the job when your DROP ends. It’s perfectly fine to say “I’m not quite done yet” and delay entering DROP until you feel ready to transition. On the other hand, some folks are emotionally burnt out by the time they hit 20+ years; if that’s you, a DROP can provide a light at the end of the tunnel – you know you’ll be done after that defined period, with a nice nest egg waiting.
“DROP Duration” Trade-off
This one’s a bit tricky: Should you work a few more years before DROP (shortening your DROP period), or start DROP as soon as you’re eligible to get the maximum DROP years? In other words, is it better to do, say, 5 years in DROP right at eligibility, or work 2 extra years, then do 3 years in DROP? The answer depends on your situation. If by working two more years you significantly increase your pension (via raises or extra service credit), a shorter DROP with a higher monthly pension might net you more in the long run. But if your pension would only grow marginally in those extra couple of years, you’re likely better off grabbing the full DROP period. Essentially, it’s a balancing act between a larger lump sum (from a longer DROP) versus a larger monthly pension (from delaying entry).
How Long Should You Stay in DROP?
Once you’ve entered a DROP, the next strategic question is how long to ride it out. Most DROP programs have a maximum time limit – often around 3 to 5 years – and many participants naturally plan to stay for that full period to maximize their lump sum. In fact, data shows firefighters tend to stick in DROP for as long as they’re allowed. In Philadelphia’s DROP, for example, the average participant stayed 3.3 years out of a 4-year max, and a huge majority hit the full four years². It makes sense: the longer you remain in DROP (up to the cap), the more pension payments get stashed into your account and the bigger your eventual check.
That said, you don’t always have to stay the maximum if it doesn’t suit you. Some reasons you might leave DROP (retire) earlier than the limit include personal or family considerations, health issues, or even external opportunities. Remember, once you’re in DROP, you’ve already “retired” for pension purposes. Leaving early just means you stop working sooner and start your monthly pension checks earlier (your lump sum will just include whatever had accumulated up to that point, of course).
Consider also the interest rate factor: If your DROP account isn’t earning much interest (like those Philly folks after the rate cut), there’s arguably less financial incentive to stick around till the bitter end, especially if you’re feeling burnt out. In a low-interest DROP, you might reason that you could retire, take the lump sum sooner, roll it into an IRA or other investment, and potentially earn more on it in the market. On the flip side, if your DROP offers a juicy guaranteed interest (say 4-5% as in some plans) that’s risk-free, that’s a strong reason to utilize the full period – it’s hard to beat a safe return like that nowadays.
Let’s break down an example to see how the length of DROP (and timing of entry) can impact your benefits:
| Option A: DROP at 25 YOS 5 Years in DROP | Option B: DROP at 27 YOS 3 Years in DROP | |
|---|---|---|
| 🎖️ Final Service Years | 30 years (25+5 DROP) | 30 years (27+3 DROP) |
| 💰 Final Avg Salary | $80,000 (at DROP entry) | $88,000 (after promotion) |
| 📊 Annual Pension at Retirement | $60,000 (75% of salary, 25 yrs × 3%) |
$71,300 (81% of salary, 27 yrs × 3%*) |
| 🏦 Total DROP Lump Sum | ≈ $333,000 (60 mos of pension + interest) |
≈ $190,000 (36 mos of pension + interest) |
Now, let’s look at the numbers for that scenario:
In the scenario above, Firefighter A ends up with a much larger lump sum (about $333k vs $190k for B), because A stayed in DROP two years longer. Firefighter B, however, retires with an annual pension that’s roughly $11k higher than A’s (about $71k vs $60k) for life. Which option is “better” can depend on how long you live in retirement and what you do with that lump sum. If B lives long enough, the higher monthly checks will eventually outweigh A’s extra $143k lump sum. On the other hand, A has a big pot of money upfront that could be invested, used to pay off a house, etc., and A locked in the pension without waiting for a promotion that might not have come. B took on a bit more career risk (needing that promotion and working two extra high-stress years).
The point is, how long to stay in DROP and when to start are two sides of the same coin. Most firefighters will try to stay the full DROP period once they’ve started – after all, you still have your salary during that time, plus you’re accruing the lump sum. But if you’re in a DROP with a long maximum (say 8 years in Florida), you don’t have to stay all 8 if you hit a point where you’re done. Conversely, if your DROP max is short, you might feel it’s barely enough. Many firefighters only get 3 years in a municipal DROP; those 36 months fly by, and you might wish you had more time banked.
A good rule of thumb is to plan for the max, but be prepared for less. Life can throw curveballs, such as an injury, family needs, or even a dream opportunity outside the fire service, that might cut your DROP participation short. It’s not the end of the world; you’ll just retire a bit sooner. Your lump sum will be smaller than if you went the distance, but you also avoid additional wear and tear on your body and get to enjoy retirement earlier. On the flip side, if you do commit to a DROP, be ready to work those years out. As long as you’re healthy and still passionate about the work, most folks aim to finish the DROP term to maximize that payout. You’ve earned those extra dollars by staying on the job – make them count.
Making the DROP Decision
Choosing when to enter a DROP and how long to stay is a personal decision that should be made with careful analysis and, ideally, some professional guidance. Smart DROP timing can mean tens or even hundreds of thousands of dollars difference in your retirement outcomes. Take it from the many firefighters who have walked this path: do your homework. Talk to colleagues who have been through DROP, consult with a financial advisor familiar with firefighter pensions, and crunch the numbers for your specific case.
The goal of programs like DROP is to reward you for your extra years of service, so make sure you’re actually rewarded, not inadvertently short-changing yourself. If you play it right, a DROP can significantly boost your financial security in retirement (one more tool in the toolbox alongside your pension, 457/deferred comp savings, and maybe a second career). Play it wrong, and you might be kicking yourself later for not timing things better.
Appendix – Sources:
- Protection Red Blog – “Securing Your Future: Why Firefighters Should Consider DROP Plans” (Not all states/cities offer DROP plans; general eligibility requirements) – February 6, 2024 – https://protectionred.com/securing-your-future-why-firefighters-should-consider-drop-plans/
- Philadelphia DROP research (PICA report) – showing ~80% of retirements via DROP once matured, 71.4% overall participation – “The Impact of Philadelphia’s DROP Program” – City of Philadelphia data 1999–2015 – (https://www.picapa.org/wp-content/uploads/2017/12/DROP-PACKAGE-final.pdf)
- GFOA (Government Finance Officers Association) Advisory – “Deferred Retirement Option Plans” – Explanation that employees do not accrue additional service or salary in pension once in DROP (pension is frozen and paid into DROP account) – September 25, 2020 – https://www.gfoa.org/materials/deferred-retirement-option-plans
- Protection Red Blog – “Securing Your Future: Why Firefighters Should Consider DROP Plans” – signs you may want to enroll in DROP (e.g. pension benefits maxed out, etc.) – https://protectionred.com/securing-your-future-why-firefighters-should-consider-drop-plans/
- Florida Retirement Resources – FRS Special Risk Pension page – noting DROP is extended to 8 years maximum (updated July 2023) – https://www.floridaretirementresources.com/frs-pension-plan-special-risk
- Florida Retirement System DROP Guide (FRS) – DROP accumulations now earn 4.00% interest (for DROP begin dates July 1, 2023 or later; previously 1.3%) – FRS DROP Guide p.8 – https://frs.fl.gov/forms/DROP-Guide.pdf
- Firefighters First Credit Union – “How does the DROP program work?” (Los Angeles City FD example) – notes 5% interest and max 5-year participation – https://www.firefightersfirstcu.org/Firehouse-Financial/Financial-Services/DROP-Program
- Philadelphia Inquirer / City of Philadelphia Pension Board info – DROP interest rate was 4.5% (1999–2012) then lowered (near 0.3% in 2013–2015 after being tied to Treasury rates) – Pension Board DROP Interest Rate Changes – (See PICA report data) – https://www.picapa.org/wp-content/uploads/2017/12/DROP-PACKAGE-final.pdf
- Pennsylvania Municipal Retirement System – DROP option description (if offered by employer) – max 36 months participation – PMRS Retiree DROP info – https://pmrs.pa.gov/retirees/deferred-retirement-option-plan-drop/
