Recognizing the sacrifice and dedication of their law enforcement personnel and other public safety servants, most states provide a pension plan designed to benefit those who are retiring after long careers of service to their communities. In the vast majority of those cases (84–90%), public employees—law enforcement, fire safety, other public safety personnel, teachers, government workers, and others—are covered by a defined benefit plan: a plan designed to guarantee payment of a specific monthly or annual benefit that is calculated by a formula based on the individual’s age, years of service, and wage history while actively employed.
Defined benefit pension plans may be contrasted with defined contribution plans (401Ks, 403Bs, and others) that prescribe a certain amount to be contributed to the plan—by the employee, the employer, or sometimes both—with the accumulated funds, plus their growth in value, available to the employee upon reaching retirement or some other qualifying event. With these plans, the amount paid upon retirement is not guaranteed, but rather is governed by the amount contributed and the increase (or decrease) in value of the funds in the plan. The overwhelming majority of retirement plans offered by private employers (around 90%) are defined contribution plans.
So, one of the perks of a public law enforcement career is access to a guaranteed retirement income. Typically, this benefit is available to those with at least 20 years of active service, though requirements vary from state to state and from local government to local government.
Questions to Consider
But will your pension be enough to support your desired retirement lifestyle? That is the question that many law enforcement veterans begin to ponder, especially as they enter the “glide path” toward retirement from the force. And it’s an important question to consider, since the years just preceding retirement may offer you the best chance to make any additional plans needed to support your retirement.
“How much will my pension be?”
The first and most obvious question to ask is, “How much will my pension be?” Fortunately, most pension plans are now offering access to secure online assistance and calculators that allow you to input your variables (your age, years of service, current pay level, anticipated retirement date, etc.) and get an estimate of your monthly or annual guaranteed benefit. You may also be able to input other factors, such as the age of your spouse—if you plan to guarantee payments to your survivors after your passing—and other desired variables.
Broadly speaking, defined benefit plans calculate your guaranteed benefit by a formula that generates a benefit in the range of 50% of your highest annual salary during active service (though each state and local government may use a slightly different calculation that could be fractionally higher or lower). According to the US Bureau of Labor Statistics, the mean annual wage for law enforcement officers in the US during 2021 was $70,750. For an officer retiring with full benefits, that would yield a guaranteed annual pension payment of around $35,365, or $2,948 per month. If you wanted to guarantee an income to a surviving spouse or other beneficiary, your benefit could be reduced, depending on the requirements of your pension plan. For more specific information about the formula used by your state, you can go to the website of the National Conference of State Legislatures.
“What if my pension isn’t enough?”
So, what if you don’t believe your pension benefits will be enough? First, you’re far from alone. After all, most public safety pension plans allow for earlier retirement than private plans, typically offering full benefits starting at age 50, while IRAs and other retirement plans make you wait until 59 ½ for penalty-free retirement withdrawals. With many law enforcement professionals retiring at earlier ages, their chances of living 20, 30, or more years in retirement may be higher than the general population. In other words, you may have a need for sources of retirement income beyond those provided by your pension.
“What about extra savings between now and retirement?”
Of course, anyone can open and fund an IRA account. You can put in up to $6,000 per year ($7,000 if you’re 50 or older), and the funds grow tax-free until you tap them for retirement (at age 59 ½ or later). But as a law enforcement officer, you may have access to even better options: a 457 deferred compensation plan, or, if your employer offers it, a 401A plan. In a 457 plan for 2022, you can contribute up to $20,500 (or 100% of what the IRS calls “includible compensation,” whichever is less), but unlike 401Ks and IRAs, you can start withdrawing money from your 457 plan earlier than age 59 ½ (this does not apply to 401a plans; withdrawals earlier than 59 ½ are subject to a 10% penalty).
Final Takeaway
Whether your plans for supplemental retirement funding include part-time work, other retirement accounts outside your pension, or even a second career, Mathis Public Safety Retirement can help you plan better and make the best decisions for your unique circumstances. Learn more about our retirement planning services for first responders, including our step-by-step, interactive “asset map” to chart your course to a secure retirement.
*This is meant for educational purposes only. Information presented should not be considered investment advice or a recommendation to take a particular course of action. Always consult with a financial professional regarding your personal situation before making any financial decisions.
