Why Police Officers Need Different Financial Advice

Law enforcement can be a rewarding and fulfilling career. On the other hand, that fulfillment can also come with stress, missed family gatherings, and unpredictable schedules. 

Understanding Your Pension

A career in law enforcement can present some unique opportunities in retirement. The biggest opportunity is most retirees will often be entitled to receive a defined benefit pension payment.  

Calculating Your Benefits

Most law enforcement pensions are calculated using a mathematical formula consisting of years of service, final salary, and sometimes age. Many pension systems are now moving towards a hybrid system for new members, which consists of a lower defined benefit pension plan combined with a separate investment account (similar to a 401k style plan).

Unknown Legislation Reforms

It is also vitally important to remember that even though pension plans are defined benefit plans, changes can still be made through legislation. This has happened in several states for both active and retired pension members.

Dealing With Inflation

Speaking of pension reform through legislation, many states are also eliminating the cost of living adjustments for retired officers. This will reduce the buying power of your pension as you get further into retirement because of inflation.

Will Guaranteed Income Be Enough?

One of the great benefits of a pension is the guaranteed income for life.  However, these pensions also create an unusual problem that is unique to police and fire pensions.

Supplement Your Pension

As mentioned earlier, many states are eliminating the cost of living adjustments for retired officers, which is creating a clear need to have a supplemental nest egg. Generally, as you near retirement, your investments should usually become more conservative and less volatile because you may not have time to recover from significant losses.

Choosing The Best Supplement

To maximize the value of any additional accounts to your pension, it also becomes vitally essential to take advantage of tax-advantaged accounts.  These accounts can include a traditional IRA, Roth IRA, 457b, or deferred annuity.

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