With all the craziness we have faced this year, I bet many of you have been looking at the calendar to see how soon you can retire. I have seen some officers with apps on their phones that count down the days until the day they have planned for their retirement. Often, officers have two dates in mind: the earliest day they can collect their retirement and the day they reach their maximum retirement benefit. I like to call the period between these two dates the retirement window. The point we actually retire within that window depends on many personal factors.
With the chaos in our world and the direct impact that chaos has on our occupation, it is understandable that many officers, especially those who are already in that window, are now reassessing their retirement plans. While some officers would like the flexibility to leave at the earliest possible date, significant financial obligations eliminate this flexibility and can bind an officer to the job past the point they would prefer to retire.
The key to retirement flexibility is planning for retirement and being responsible with our current finances. As active employees, our income is composed principally of our base pay and our overtime. When overtime is plentiful and regular, it is easy to expand our expenses to the point that we rely on our overtime to meet our monthly obligations. This can create a significant obstacle to our ability to retire. Only by adjusting our expenses to match our income can we prepare ourselves for retirement.
When entering retirement, an employee needs to be prepared for more than just a reduction in their base income. There are many collateral reductions an officer needs to be prepared for. For an employee who is going to receive a 90% pension, it might be easy to think that you are only going to experience a 10% income reduction in retirement. An officer does not just need to be prepared for the reduction in their base pay, they need to realize that additionally, they will lose any overtime income they are used to and any other non-pensionable pay. Also, and quite significantly, often officers lose their health-care contributions. For an employee with dependents, the cost of traditional HMO coverage could easily be more than $2,000 per month.
There are two main ways an officer can prepare for the reductions in their income that come with retirement: reducing their monthly expenses and using savings and investments to offset the reduced income. It is not unusual for debt payments and mortgage payments to be a significant portion of an officer’s monthly expenditures. Creating a debt or mortgage repayment schedule where you eliminate your debt and pay off your mortgage prior to entering your retirement window can significantly reduce your monthly obligations and prepare you for a reduced retirement income. Savings, especially deferred-compensation plans, give you the ability to save money for retirement that you can use to offset your reduced income.
Negotiating for retirement medical benefits is also a significant need. Employer-paid lifetime medical benefits are the gold standard, but this benefit has become extremely expensive for employers and is nearly impossible to negotiate as a new benefit. More common are retirement health savings plans like the PORAC Retiree Medical Trust. If your association has not negotiated a retirement medical benefit, this should be a priority for future negotiations.
The earlier you prepare for retirement by living within your income, not relying on overtime to cover your expenses, managing your debt and mortgage, saving and contributing to deferred comp, and participating in a retirement medical benefit, the more flexibility you will have when you enter your retirement window and the more flexibility you will have to choose the retirement date that works best for you.