If you're like so many police officers we work with, you believe in being prepared for anything and the biggest topic of conversation among you and your friends is retirement. You might have an AR-15, two weeks of water, and canned beans at home, but do you know if you're going to participate in DROP? Do you have a plan to help make you financially bulletproof?
You have all the ingredients of a retirement including a 457 Deferred Compensation Plan, a pension, DROP, and maybe even something your spouse has put together, but to most, it's all just alphabet soup. Hind sight being what it is, you've probably already looked back at your savings and wished you had done something differently. Experience can be a harsh teacher. We find that the longer most law enforcement officers wait to address the question of retirement, the more their plan becomes about damage control rather than creating a proactive guide to the lifestyle they want to keep.
No matter where you are in your career, now is the time to get started, but how do you do that? Don't worry, we're here to help with our LEO's Guide to Preparing for Retirement.
First of all save. Start early and do it without fail. When you begin, the important thing is to establish the habit. You'll want to create a cash savings that equals three times what you need to pay for your basic monthly necessities. This is your emergency fund and what will keep you from paying accidental bank charges when you spend a little too much or give you the extra you need if you have to purchase an emergency plane ticket.
You might be thinking to yourself, "but that's what credit cards are for." Let me just step in right now and put an end to that thought. Credit cards are a way of keeping you in debt and keeping a constant flow of money to the banks. Don't be a sucker. If you save on your own, you eliminate the need for credit cards and create opportunity for yourself instead of making yourself a slave to interest payments and rising debt.
Address your insurance needs early as well. An under insured person is risking their nest egg when something unforeseen happens. Consider something as simple as car insurance. You may have a nice savings built up, but if you don't have the right amount of insurance and find yourself in an accident, even if you're not at fault, you could be on the hook for paying thousands in repairs, medical bills, or even a new car. An expense like that can wipe out your entire savings. We mitigate catastrophe through insurance.
Next, you'll need to invest. If you qualify to save to a Roth IRA, you may want to take advantage of a program that allows for tax free growth. It's likely that later in your career you could find yourself making enough money that you are no longer eligible to contribute to the Roth. If tax deferred growth is important to you, you should look at saving to your 457 Deferred Comp Plan instead. Not sure which is right for you? Don't be shy about contacting a financial planner for advice even early on. There is a misconception that planners only work with the rich, but as I tell my clients often, I didn't know many millionaires when I started in this business. I had to grow them.
Create a retirement plan. Stay organized and make a road map that you'll follow each year on your way toward retirement. You'll want to know how much you need to save and invest each month, the rate of return you need from your investments, and the total amount your lifestyle will require at the date of your retirement.
At each stage, you may want to consult with a professional planner to be sure you're on the right track. Financial coaching not only provides direction, but it keeps you honest as you become accountable to your planner.