Will Your Pension Be Enough? Guest Post by Ryan Luke
Date:Monday October 11, 2021
Retirement is a dream for many people. It means freedom, relaxation, and hopefully – financial security. However, it’s also a scary thought for many people because they’re worried about their finances. They wonder if they’ll be able to live comfortably after they stop working.
Several factors determine how much money you’ll need to retire. These include your age, your health, your savings rate, and your lifestyle. You can use these factors to calculate how much money you’ll require to retire.
As a public safety employee, you may be promised a pension when you retire. But, unfortunately, many first responders have a false sense of security in their pension plans.
Investment advisors and Certified Financial Planners can assist you in determining future needs if you’re unsure how to do it yourself. Check with your agency to see if there are any first responder resources offered for free or at a discount.
Regarding our pensions, we need to consider whether your current promised pension plan would be enough to support you in retirement if inflation rears its ugly head.
Public Safety Retirement Plans
The structure of public safety retirement plans varies from state to state. For example, there have been several recent changes to help improve the sustainability of the Arizona Public Safety Personnel Retirement System in Arizona. One such change caps the annual cost of living increases at 2% even if national inflation increases at a rate of 3 or 4%.
With this cap, a decade or even several years of higher than average inflation can destroy the purchasing power of your pension.
For example, according to the US Bureau of Labor Statistics, if you retired in 2001 with a $50,000 pension, you would need to increase your take-home pay to $78,117 by 2021 to keep up with inflation and maintain the same purchasing power.
In other words, your money today will be worth less in the future.
It’s imperative we supplement our pensions with additional retirement savings to ensure we can enjoy the golden years we deserve both immediately after retirement as well as 30 years down the road.
Employer-Sponsored Retirement Plans
If your agency offers a 457 deferred compensation plan, it will benefit you to start contributing a percentage of your income for additional retirement funds. Taking advantage of additional retirement funding options can hedge against inflation and the uncertain attacks against public safety pensions.
Rather than rely solely on the government to manage your money and ensure your pension fund remains solvent, protect yourself and your family by contributing additional income into an employer-sponsored retirement plan.
Start with 10% of your income and work to bump it up a percentage each year you receive a raise. By increasing your contributions when your pay increases, you can avoid a decrease in take-home pay and increase your retirement at the same time.
If 10% is impossible, start at 5% and work your way up from there. It’s your future we’re talking about, and you make too many sacrifices daily not to enjoy a financially peaceful retirement.
While we are blessed to be receiving pensions when we finally turn over the safety of our communities to the younger generation, it’s crucial we don’t turn a blind eye to the financial difficulties our current pensions plans face. Get in the habit of living on less than you bring home and start making considerable contributions to an additional retirement plan.
Learn more about your additional retirement funding options by contacting your human resources department or exploring other avenues like Roth IRAs or Traditional IRAs.