Nearly 2 in 3 Americans say running out of money in retirement scares them more than even dying¹. Spending your later years in poverty, without the means to maintain even the basics of daily life or provide for yourself, should be a fear powerful enough to stop anyone in their tracks.
For firefighters who often hang up their gear in their early 50s, that fear can hit even harder. One analysis found the average firefighter retires around age 52², meaning you could be looking at 30 or even 40 years of “after the firehouse” paychecks.
Your pension might cover a good base, but it probably won’t replace your full salary (and many firefighter pensions lack cost-of-living increases). Meanwhile, your 457(b) plan and other savings will rise and fall with the markets. How do you keep steady income through market rollercoasters, early-retirement gap years, and the chance you live to 90+? Let’s look at three tools to help get it done: retirement guardrails, a cash bucket, and a QLAC.
Retirement Guardrails: Keeping Your Income Steady
When you first retire, it’s tempting to set a fixed withdrawal (like the classic “4% rule”) and hope for the best. The 4% rule means you withdraw about 4% of your savings in year one and adjust that dollar amount for inflation each year thereafter. It’s simple. But real life isn’t so simple.
Markets don’t just go up in a straight line, and your spending can change year to year. If you rigidly stick to a set amount, you could end up in trouble if the market tanks early, or conversely, living more frugally than necessary if the market does great.
That’s where retirement spending guardrails come in. Guardrails are a dynamic withdrawal strategy: you start with a target withdrawal amount, but you adjust your income up or down if your portfolio hits certain “guardrail” thresholds. If the withdrawal rate rises too high because investments decline,you reduce your income level. If the withdrawal rate falls significantly because investments grow, you increase your income level.
Think of driving down a winding road: your target spending rate is the center line, and the guardrails mark the outer boundaries. If you drift too far one way or the other, the guardrails nudge you back toward center. For example, you might start retirement withdrawing 4.5% of your savings. You then set an upper guardrail maybe 20% above that (around 5.4% of the portfolio) and a lower guardrail 20% below (around 3.6%).
If a market downturn causes your withdrawals to suddenly equal ~6% of the shrunken portfolio (hitting the upper guardrail), you’d cut your withdrawal by, say, 10% to bring it back in line. You might postpone a big vacation or trim some non-essentials for a bit, but your essential bills are still covered by pension and the remaining withdrawals.
On the flip side, if the market rallies and your withdrawal falls to 3% of the now larger portfolio (hitting the lower guardrail), you give yourself a 10% raise to enjoy life a bit more.
Retirement Guardrails in Action
When your withdrawal rate drifts toward a guardrail, you adjust spending to stay on course.
Studies have found that guardrail strategies can significantly improve retirement outcomes. In fact, one analysis based on Morningstar’s research showed that a guardrails approach could support an initial withdrawal rate just over 5% and deliver about 30% more total income over 30 years compared to a traditional fixed, inflation-adjusted withdrawal strategy, all while keeping failure risk very low³.
In practice, guardrails act like a financial shock absorber. Your firefighter’s pension stays steady as the base layer of income, and the portion of your budget coming from investments “breathes” a little with market conditions. That way, you’re not yanking too much from your 457/IRA when the market’s down, but you’re also not stuck on starvation rations just because you fear the unknown.
Building a Cash Bucket: Your Early Retirement Safety Net
Another key piece of the puzzle is your “cash bucket.” This is a reserve of safe, easy-to-access money set aside specifically to cover your near-term living expenses. Many retirement planners recommend keeping about 1–3 years of expenses in this cash bucket, so that if the market takes a nosedive right after you retire, you don’t have to sell stocks or other investments at a loss to pay your bills. You can ride out the storm using your safe cash reserves, giving your portfolio time to recover before you tap it.
So, what goes into a cash bucket? Typically, stable, low-risk vehicles. Think high-yield savings accounts, money market funds, short-term CDs, or fixed multi-year guaranteed annuities (MYGAs). The goal here is to protect what you’ve earned and help ensure it’s there when you need it. For many firefighter retirees, a combination of bank CDs and MYGAs works well, since these offer guaranteed interest for a set term. You might roll over a portion of your 457(b) into an IRA when you retire (many do this to get more investment options), and use part of that to fund your cash bucket in these safe products.
Let’s break down how you can structure it:
- Figure out 1–3 years of expenses to cover. For example, if you need $40k a year from savings to supplement your pension, you might target $40k × 3 = $120k in your cash bucket.
- Choose safe, accessible accounts. This could be a simple high-yield savings or money market for part of it, plus some longer-term CDs or MYGAs for the rest to earn a higher rate. The idea is to ladder these so cash becomes available each year. For instance, you might put one year’s worth in a 1-year CD, another chunk in a 2-year CD, and another in a 3-year annuity or CD – so something is maturing each year to replenish your spending money.
- Use it when the market “firestorms” hit. If the market is down or your investments are temporarily hurting, you draw from your cash bucket instead of selling off stocks at lousy prices. This covers your needs in Year 1, Year 2, etc., while your other assets get a chance to recover. If markets are fine, you can still use your cash bucket as planned and then replenish it by investing any excess or using interest earned.
Your Cash Bucket Structure
Example: $40,000/year needed from savings to supplement pension
One common approach is a CD ladder – say a 1-year, 2-year, 3-year CD each holding one year of expenses, so each year one CD matures to fund that year’s spending. Another approach is a MYGA + CD combo. Perhaps keep Year 1 in cash or a 1-year CD, and put Years 2–3 in a 3-year MYGA (many MYGAs let you withdraw interest or 10% annually without penalty).
The MYGA likely pays a higher rate, boosting your bucket’s yield. Speaking of yields, interest rates have been pretty attractive lately (as of late 2025). Bank CDs are no longer the near-0% deals of a few years ago. Top 5-year CDs are around 4.3% APY or so, and even 1-year CDs are in the 4% ballpark. Meanwhile, MYGAs often offer 5%–6% annual guarantees for 3–5 year terms⁴.
In fact, at the end of 2025 the best 5-year MYGA rates are roughly 6.3%, versus about 4.3% for the best 5-year CD – nearly 2 percentage points higher⁴. That means you can potentially earn more interest in your cash bucket by using a MYGA for part of it, without taking on stock market risk.
MYGA vs CD: Cash Bucket Options
Comparing 5-year rates for your safe money (late 2025)
Now, there are a couple of caveats.
Liquidity is one. A bank CD can be cashed out early if needed, though you’ll forfeit some interest; a MYGA has stricter surrender charges if you withdraw more than the allowed 10% per year early on. And if you roll your 457 into an IRA to buy these products, remember that any withdrawals from the IRA before age 59½ could incur a tax penalty (457(b) plans themselves allow penalty-free withdrawals at any age after you separate from service)⁵.
So if you retire young (like 50) and might need the money immediately, plan carefully, as you might want to keep some cash bucket funds in the 457 plan itself or other penalty-free accounts for flexibility.
QLACs: Turning Part of Your 457(b) Into Longevity Insurance
By nature, firefighters spend a career preparing for worst-case scenarios on the job. Retirement requires preparing for a different kind of scenario: living longer than you ever expected and outlasting your money. We’re so used to worrying about an early death in this profession, and while longevity is obviously a good thing, it carries its own financial risk.
If both you and your spouse reach age 65, there’s better than a 50/50 chance that one of you will live into your 90s⁵. In other words, you might be retired for 30+ years. Will your savings and pension hold up that long? One way to bolster your “later years” income is with a Qualified Longevity Annuity Contract, or QLAC.
A QLAC is a special deferred annuity you buy with retirement account money (like funds from your 457(b) or IRA) that waits to start paying out until much later in life – for example when you turn 75 or 80 – and then pays you a guaranteed monthly income for the rest of your life. It’s like creating a second pension that kicks on down the road.
The U.S. Treasury designed QLACs to encourage retirees to insure against outliving their money, and one big incentive is that any money you use to buy a QLAC is excluded from your required minimum distributions (RMDs) until the payments begin. That means you can stash some of your IRA/457 money into a QLAC in your 60s, and you won’t have to start withdrawing (and paying tax) on that chunk at age 73. You can defer taxes on it until, say, age 80 or 85 when the annuity income starts⁶.
Suppose at retirement you roll over your 457(b) into an IRA (this is common to gain more investment choices). You decide to take, for example, $100,000 of that and purchase a QLAC with a start age of 80. From now until your 80th birthday, that $100k stays with the insurance company, growing on paper, and it’s not counted in your RMD calculations.
Fast forward to age 80 when the QLAC begins paying you a guaranteed income for life. The payouts will depend on insurance rates at purchase, but because of the long deferral, the numbers can potentially be large. In our example, $100k at 60 might fetch on the order of $30,000 per year for life starting at 80 (around 30% of the premium as annual income)⁷.
Even if markets fall or interest rates change along the way, that income is intended to stay steady under the annuity’s rules. And if you or your spouse live into your mid-90s or beyond, the payments are structured to continue for as long as the contract provides.
How a QLAC Works
Qualified Longevity Annuity Contract — Your "Second Pension"
Money excluded from RMDs
Tax-deferred growth
Payments for LIFE
Can't outlive it
Now, why would a firefighter with a solid pension need another lifetime income source? A few reasons:
Inflation erosion of your pension.
Many firefighter pensions lack robust COLAs. Some are fixed or only adjust 2–3% per year, and a few (hello, New Jersey!) have frozen COLA increases entirely. Over 20+ years, inflation can seriously erode the buying power of a fixed pension check. A QLAC that kicks in at age 80 can act like a supplement just when your pension’s real value might be faltering.
Tax and RMD management.
If you’ve built up a hefty 457(b) or IRA, the forced RMDs in your 70s can shove you into a higher tax bracket and even hike your Medicare premiums. Moving a chunk into a QLAC reduces your taxable withdrawals in your 70s since that money isn’t pulled out until later. You’ll still pay taxes on QLAC income when it starts, but potentially at a time when other income streams have lessened. It’s a way to spread out your tax burden more evenly over your whole retirement instead of front-loading it⁶.
Longevity and market risk reduction.
If a large part of your savings is in stocks/bonds, there’s always the risk that a bad sequence of returns in your 70s or 80s could deplete your portfolio, right when it’s hardest for you to adapt. A QLAC mitigates that risk: in exchange for your premium, the insurer guarantees you (and a spouse, if it’s joint) income no matter how long you live or how markets behave.
This can provide huge peace of mind. In fact, research by the Employee Benefit Research Institute (EBRI) found that adding a longevity annuity significantly improved the retirement security of those who live the longest, with only a minimal reduction in leftover assets for those who don’t end up living as long⁷. In other words, for the roughly 25% of retirees who do end up reaching their mid-90s or beyond, a QLAC can be a game-changer for maintaining financial stability, while folks who pass earlier typically don’t “lose” much because unused QLAC premiums often go back to heirs if you elect a return-of-premium feature.
Of course, QLACs aren’t for everyone. If your pension (and Social Security, if you’re eligible for it) already cover 100% of your needed expenses with room to spare, and your investment accounts are just “extra” you plan to spend down or leave to heirs, you might not feel a need for an extra annuity. Likewise, if you have serious health issues or a family history suggesting you might not reach the deferred payout age, a QLAC would be a poor bet.
Liquidity is another consideration. The money you put in a QLAC cannot be accessed on a whim. Once it’s purchased, you’re committing those dollars to future income and you generally cannot pull the lump sum back out if you need a big chunk for an emergency.
How These Tools Work Together for You
We’ve covered guardrails, cash buckets, and QLACs separately, but the real value lies in how they work together across your retirement timeline.. Imagine your retirement as a multi-stage journey: the early years (50s to early 60s), the middle years, and the later years (80+).
Three Tools, One Strategy
How guardrails, cash buckets, and QLACs work together across your retirement
Each of our three tools shines in a particular stage, and together they form a comprehensive shield for your financial wellbeing:
Early retirement (the “gap” years)
This is where the cash bucket is clutch. When you step out of the station at, say, 55, you might have a pension covering perhaps 60% of your old salary. You’re too young for Social Security or Medicare, and your stock investments could be volatile. By having 3+ years of expenses in your cash bucket (CDs, MYGAs, etc.), you ensure those first critical years (and any bad-market years) are covered without having to dip into your volatile assets or worry about penalty rules.
Mid-retirement (60s and 70s)
This is where guardrails take over as the hero. Once your cash bucket funds are used up and you’re relying more on withdrawals from your 457/IRA, guardrails keep your withdrawals in check relative to the market. If you hit a recession in your late 60s, guardrails signal you to trim discretionary spending (maybe delay that big RV road trip) so you don’t cannibalize your portfolio. When the market rebounds, guardrails let you resume or even bump up the fun spending.
Late retirement (80s and beyond)
If you incorporate a QLAC, this is its time to shine. Say you reach 80 – your pension by now might have lost a lot of purchasing power to inflation, and maybe you’ve been drawing down your investments for 25 years. At this stage, a QLAC begins paying you a steady stream (e.g. that $30k/year in our earlier example). It’s like a “bonus” pension when you potentially need it most. It helps cover medical costs, long-term care, or just keeps your lifestyle comfortable even if your other accounts have dwindled. Longevity risk is conquered – you know you won’t run out of income no matter how long you live. And as a side benefit, during your 70s you had a lighter RMD load because of the QLAC, which may have saved on taxes⁶. In essence, the QLAC backstops your later years, allowing you to spend more confidently in your 60s and 70s (knowing you have a safety net at 80+).
In Conclusion
This playbook of guardrails, cash buckets, and QLACs is all about keeping you in control of your retirement, rather than at the mercy of market whims or the calendar. After all, you didn’t charge into burning buildings for decades just to feel powerless in retirement.
Ready to put a plan into action? Every firefighter’s situation is a bit different; maybe you’ll use two of these tools, maybe all three, or maybe none of them fit your unique situation; but you can’t be sure without professional guidance. The best next step is to talk through it with a retirement specialist who gets it.
We’d love to help you map out your own retirement income strategy, calibrated to your pension, your family, and your goals. If you’re within 5-10 years of hanging up your helmet, now’s the time to get your game plan together. Feel free to reach out and schedule a time to chat by clicking the button below..
Sources:
- https://www.allianzlife.com/about/newsroom/2025-Press-Releases/Americans-Are-More-Worried-About-Running-Out-of-Money-Than-Death
- https://www.federalpensionadvisors.com/post/understanding-firefighter-retirement-what-you-need-to-know (average retirement age for firefighters)
- https://www.whitecoatinvestor.com/risk-based-guardrail-retirement-withdrawal-strategy/ (Morningstar research on guardrails and higher withdrawal rates)
- https://www.blueprintincome.com/fixed-annuities (Blueprint Income – Best 5-year MYGA vs CD rates, Nov 29, 2025)
- https://www.franklintempleton.com/articles/retirement/the-importance-of-planning-for-social-security-survivor-benefits (longevity statistics for couples)
- https://www.fidelity.com/learning-center/personal-finance/secure-act-2 (Fidelity Viewpoints – SECURE 2.0 QLAC provisions, $210k limit and removal of 25% cap)
- https://www.planadviser.com/qlacs-can-reduce-longevity-risk-for-some/ (EBRI study on QLACs improving retirement readiness for long-lived retirees)
