Episode 63 – Firefighters and financial planning: what we can learn
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Now at DRS, we work with lots of different types of public employees as we help them into retirement and with their retirement package throughout their careers. In our office, firefighters have a reputation for being very knowledgeable about how their pensions work and are frequently saving in voluntary retirement accounts, such as DCP.
So today we’ve invited AJ, who’s a firefighter, to talk about why firefighters think more about retirement and what lessons we can learn. Welcome, AJ.
AJ
Thank you. Happy to be here.
Seth
So, AJ this came about because I visited a firehouse a number of years ago, as a representative of DRS and was at a benefit fair. People were talking about life insurance and whatnot, and I was shocked. I shouldn’t have been shocked, but I was shocked by the number of very young employees that came up and started asking me really specific questions about their retirement, what the maximum they could contribute was, how long they needed to work.
And I’m just curious, as Jenny mentioned in the intro, has it been your experience that firefighters are maybe more knowledgeable about their retirement plans than the average public employee? And why do you think that is?
AJ
Yeah, absolutely. I think our members with the Washington State Council Firefighters are definitely very well-versed in how the pension system works and the different ways for them to save for retirement. And I think mainly that is because of the work we’ve done through our union, trying to educate people, you know, the ways that you can save and why it’s important to save.
All of our collective bargaining agreements have a four-hour union intro when you get hired. And we spend a lot of time talking about retirement savings and how the pension system works and where we started, you know, 100 years ago with our pension systems and where we’ve come from since then and where we’re at today. And, we really drill that into, our younger members heads when they come on board that it wasn’t always like this.
You know, it’s taken a lot of hard work. We passed initiative 790 in the year 2000, which created the LEOFF 2 board. And we do a lot of education through that as well. And so yeah, I mean, our members, they’re always asking me the most detailed questions. And, and a lot of times I don’t know the answer. But I have a lot of contacts where I can get them the answer and frequently I’m surprised with the questions they come up with.
Seth
Yeah. I’m really curious how that goes over for new employees when we live in a culture that doesn’t really talk about money that much and personal finance is really a taboo subject. You know, oftentimes people are more comfortable talking about death or, you know. How does a new employee react to that conversation? What does that like in a sort of onboarding process?
AJ
Well, it’s different for us because everybody that you work with knows how much money you make. Because it’s written right there in a collective bargaining agreement. And typically at the end of each year, most of our local unions will do a public records request to see how much everyone made. And it’s just for our own internal, knowledge not to, share with anyone else.
So it’s no surprise. I mean, we have a different relationship with money because I know exactly how much you make. You’re a firefighter. You’ve been here for four years. You make this much. It’s written right here on this piece of paper. As far as our newer employees, you know, a lot of people, when they get this job, it’s the most money they’ve ever made.
Especially if you’re, you know, 20, 21 years old, you’re fresh out of college or, you know, you probably you might still live with your parents. You know, I think that they are interested in making sure that they’re doing the right things.
You know, when I first got hired, somebody told me, “hey, don’t go out and buy a truck and a boat.” And when I first got hired, 2007, I thought I was rich. I was making $43,000 a year, and I thought I was rich, and a guy I worked with said, hey, look, make sure you’re putting money away. Make sure you’re saving money, you know, in your own savings account. Make sure you put money into your Deferred Comp and you know that money over time, you know, we all know how, you know, interest works.
So, you know, that will pay off in the long run. And, there’s a lot of people like that around the firehouse that are passionate about making sure that our members are not making kind of silly financial decisions. Now, people still do it, but, you know, for the most part, we’re good about, hey, make sure you’re putting money away and in Deferred Comp because most of us don’t get Social Security.
Our retirement age is 53. You don’t want a bunch of 65-year-old firefighters out there. And so, we’re really on our members about making sure you’re saving, and they’re really receptive to it. They want to do it.
Jenny
It kind of reminds me I’ve heard a lot about these like, sports stories, same sort of thing where these young guys starting in the NFL or MLB, they’re making millions of dollars and they’re like 20 years old. And I think these sports teams are doing more like education now to kind of help these young men transition to having money, managing your money. So yeah, just having a lot more education around it.
AJ
So, we’ve all read the story about, you know, sports star made $15 million when he was between 20 and 25. And by the time he’s 30 is bankrupt. Luckily, that’s the nice part about a pension. The chances of you going bankrupt in retirement are pretty slim, because you’re always going to have that security.
Seth
I’ve had this pet theory, and I just want to run it by you as well. You said something that goes to it that you don’t want a bunch of 65-year-old firefighters. And I think oftentimes in public service, it’s really easy to say, “I’m just going to work until I die, I’m going to work until 70 or 75.”
And everybody knows a teacher in the school that they went to, that working until they were in their 80s, maybe. And you can look across the hall and you see somebody who’s in their 70s, and that sometimes becomes the retirement plan for a person is just not to have a retirement plan. But my sense is in for firefighters, and I think this goes similarly for police officers as well, that there’s this sense of I’m not going to be able to do this forever.
So, I need to have an exit strategy. How do those conversations go, or what does that look like?
AJ
Yeah, I mean, certainly at my department, I have seen people work beyond when they should have worked. And I think that is probably the most helpful thing for our younger members is to see someone do it where they’re coming in in the morning and they’re tired when they already get to work, and then they work a 24 hour shift and you see them the next day and they’re they look awful because you can’t do this job in your 70s, you know, climbing on and off the rig and, you know, putting the gear on and staying up all night, going to calls.
It gets more and more difficult the older you get. And even me, you know, I’m 39 years old. It gets harder every year just getting on and off the rig 15 times a day. 3:00 in the morning. That’s not really what you want to do. And I can’t imagine having to do that when I’m 60.
Seth
Yeah, there’s that obvious reminder for folks that I need to think about a plan. And that leads me to my follow up question, something I’ve also been fascinated with, with firefighters that oftentimes they are thinking about a second career. They’re thinking about what they’re going to do after they retire from that job. And sometimes because of the unique structure of your shifts.
Sometimes people have side jobs while they’re working as a firefighter. They might be starting a business or working for a family member or something like that. Can you talk a little bit about what that looks like as far as career or transitions, or kind of thinking about what you’re going to do after firefighting?
AJ
Yeah, I think the firefighter having a second job thing was a lot more popular or common 20 years ago. That’s kind of gone by the wayside now. People are more interested in hobbies or, you know, whatever, spending time with their family. I think a lot of people now live in a two-income household. So, you know, your spouse works, so you don’t need to have that second job in retirement.
You know, we do see some people go out and get a second job. There’s not a lot of transferable skills, not like in the police sector where you could go out and be a, you know, some kind of high level security investigator. And make a pretty decent living using the skills that you learned from being a police officer.
But ours are not so transferable to other things. So, I don’t really see a lot of firefighters anymore with second jobs while they’re working or jobs and retirement. And the other thing we talk about too, is: if you want to retire it at 53, but you think you have to go get a second job or get a job in retirement, maybe work till you’re 55 and see how that looks, because, you know, if you’ve been there for 25 years, you’re accruing vacation at the highest level.
You’re making the most money you’ve ever made at the fire department. Why don’t you stay for a couple extra years, get that extra 4% on your pension plan, put that extra money into your deferred comp and see if maybe the next 15 years of your life looks different than it would if you retired at 53 and you have to go get a job at, you know, grocery store or something.
Seth
I think that’s also transferable for a lot of public employees or teachers, folks who could retire at 65. But maybe it makes sense to wait until 66 or 67 when Social Security is going to kick in for those folks, and they can feel like, oh, I’ve got a little bit more security now. I’ve got a little bit more wiggle room. Yeah. And thinking about that transition from work to retirement, kind of downshifting.
AJ
Teachers are a great example. My wife is a middle school counselor, so she’s in the TRS 2 system, and, you know, she can’t retire until she’s 65. Her full retirement would be 65. And, if I retire at 53, she’s two years younger than me. I’ll be retired for 15 years before, you know, she gets to retirement, which is not going to that’s not going to work out.
So, you know, we’ve talked about what are some things we could do now and make sure that we’re both putting money into our Deferred Comp plans. But teachers can go back and be substitutes. There’s other opportunities for them because they have training that is, you know, easier to get a second job or something like that.
So, you know, if I was in charge, I would talk especially to teachers, you know, “hey, look, make sure you’re putting money into your 403 B or 401.” I can’t think of what it is.
Seth
There’s a 403 B there’s a 401, DCP… teachers have lots of different [options].
AJ
“Make sure you’re putting money into here. You know, make sure you check your check your pension, see where you’re at, see what, you know, different ages of retirement look like, and think about picking up some sort of you know, substitute job for, you know, 1 or 2 days a month to pay the cost of your health insurance or your health insurance when you retire.”
But then you can enjoy those years when you’re 60 instead of working till you’re 65, because I think that’s what a lot of people end up doing is working longer to maintain their health insurance benefits.
Seth
It’s a huge barrier for folks just figuring out how they’re going to cover their health insurance. We’ve done a number of episodes talking about health insurance costs and different options, and it is certainly the thing that is most likely to keep a person working when they either don’t feel like they can or don’t want to.
AJ
Yeah. We, the Washington State Council firefighters created a, it’s called a medical expenses reimbursement plan, MERP is what we call it. And it’s essentially a pension for medical expenses. When you retire, everybody that works under your collective bargaining account pays in the same amount every month. And then, depending on how much you’ve paid in over the years, is how much you get back until you die. And it’s been very successful for us. It’s been able to help, a lot of our members transition into retirement and be able to afford the cost of health care.
Seth
That’s great. That feels like that might be a separate episode. Oh, yeah. It’s great. There are lots of questions about health insurance and what sort of things people are thinking about.
Jenny
And I want to go back to what you were saying about teachers with looking at maybe retiring a little bit earlier, but then kind of taking on maybe a substitute position or something, just to kind of help cover those extra costs is working like one day a week, because it also fulfills then that kind of social. Yeah. I don’t want to say obligation, but.
AJ
Your need to be out in this community. You dedicated your life to this, but you don’t want to do it five days a week anymore. It’s hard. You don’t want to be spending the rest of your life doing this. But, you know, maybe one day a week is enough, you know? Yeah, we’re desperate for substitute teachers.
And, you know, if you could get out there and go back to the district that you, you know, the district that you live in or the district you worked in and pick up one day a week? I mean, that’s a huge benefit to you and the school district and the students because they’ve got it. They actually have an experienced teacher there that day who has 30 years and who just is, you know, retired but not quite ready to phase that out of their life.
Jenny
Yeah. And it still gives people that opportunity to be social in retirement.
Seth
Are there things that are challenging for firefighters when thinking about retirement that we might not think of as kind of people that don’t work in that field? You mentioned that you’re educating younger folks, but are there conversations that maybe you’re having with people who are more in the middle of a career or getting closer to retirement that they’re not aware of, that they should be aware of?
AJ
I mean, yeah, we talked to people about the finance side of it ad nauseum. You know, it’s just a math problem for most people. How much do you need each month to make sure you can pay your bills? But the part that kind of gets lost is for a lot of us, this is our whole identity. When I coach my kids T-ball team, everyone calls me firefighter AJ.
And so, when you don’t have that anymore, I think for a lot of people, they feel like, you know, well I did this for 30 years. I am the firefighter. Everybody at my kids’ school knows that I’m the firefighter. Right? And, I think that is the part that we haven’t quite figured out yet how to transition from, you know: you’re firefighter AJ to now you’re retired firefighter AJ.
And what are you going to do? You know, you have to fill 10 extra days a month that you normally you’d be going to work. What are you going to do? So, you better have some hobbies and you better enjoy working in the yard or it’s going to be a kind of a miserable experience.
Seth
Yeah, I think that’s so true for so many public employees; people who feel like they’ve really given their life for a greater cause. And you’ve received so much identity from that. How can you translate those skills and still feel, as Jenny was saying earlier, still feel valued, still feel like you’re contributing to the greater community. And thinking about that years before you retire and how you’re going to make that transition certainly helped make that easier.
And I think we certainly see that with folks who continue to work maybe beyond when they were planning on, because they just don’t know what they’re going to do.
AJ
Yeah, 100%. I work with someone who, you know, he worked 45 years at the fire department, and it was his whole life. And, I still see him around because he lives in the community. And, you know, we talk to him and, you know, he’s glad that he worked that long. But he said, you know, I wish I would’ve retired a little bit sooner.
Seth
Yeah, that’s I feel like one of the most common, you know, conversations we have with people here at DRS is once they do the math equation that you were talking about, they realize, “oh, I could have retired a year ago. Yeah, I should have retired. I can afford this.” It just doing the actual math sometimes helps put it in perspective for people.
AJ
And it’s complicated too, because you look at your paycheck and you think, oh, okay, well, this is how much I get. This is enough. But that’s not when you do the calculator on the website. “I’m not going to get that much”, you know, because you’re not thinking about “well I’m paying, you know, union dues, my money to the LEOFF system.
I’m putting money in Deferred Comp, you know, taxes.” We have a $10 a month house fund at our stations, you know, to buy mayonnaise and mustard and ketchup. All that stuff adds up, and people don’t look at that until kind of it’s too late and like, oh, gosh, I could have retired a year ago. Well, that’s a whole year of your life you could have been enjoying, you know, being retired.
Jenny
Yeah. We actually did an episode about that, about how your deductions change in retirement and another reason why we push the retirement calculator so much. So, you can go on the DRS website and log into your account and run those scenarios of, if I retire next year, what what’s my pension going to look like if I retire 2 or 5 years from now. What’s my pension going to look like?
Seth
Yeah, it’s really about thinking about take home pay versus pretax pay. And those are difficult things to do sometimes without a spreadsheet or without really writing everything down and looking at all those different categories. Your take home pay is significantly impacted when you’re putting a lot of money in your Deferred Comp, and you don’t realize that you’re not going to continue to contribute to retirement once you actually retire.
AJ
Yeah, 8.5% to the LEOFF system you’re putting in, you know, $17,500 a year into the Deferred Comp. And, you know, yeah, you just don’t think about those things. Then you got to switch your mindset once you retire. Oh, I have, I’ve been saving I’ve been saving all this money for so long. And now I got to spend it, you know, and I hope that people do that.
Once you retire, please start spending your money. You’ve spent your whole career saving this up. Now’s the time to, you know, make those withdrawals, you know, figure out your math problem and make those withdrawals and, enjoy your retirement.
Seth
It’s one of the hardest things. I’m blown away. I’ve read a number of articles and studies about — I’m not going to get this number right — but it’s something like half of people die with more money than they had when they retire, because it’s so hard to spend it because, you know, you built up that muscle of save, save, save, save.
And to flip that around. And how do you force yourself to spend? Because it’s easy when you’re getting a paycheck, you know, that money is there and available. If I’m already doing all my automated savings, I know that money is leftover. That money is extra. That money I can do whatever I want with. But when you’re retired it, there’s nobody telling you exactly how much you can spend. It’s up to you to figure out. It’s really tough.
Jenny
Okay, AJ, is there any other advice or things you’d like to share?
AJ
You know, a couple years ago we did pension benefit improvement for LEOFF 2, which was a one time lump sum for our retired members. You get to make a choice when you retire. If you’re already retired, you get a one time lump sum payment. But if you’re still working years 16 through 25 are now worth 2.5% of your final average salary.
And I’m curious to see. And it will probably take a few more years to look at the data. But how that changes people’s retirement behavior. Because now all of a sudden, at 25 years instead of 50%, you’re going to get 55. You know, that was our ultimate goal when we did that was let’s encourage people to retire younger.
A 25-year career is a really long time in the public safety area. And so we want to make sure that people are not working too long. So, in the next 3 or 4 years, I imagine there’ll be some pretty good data on what that looks like and see if people’s behaviors changed, or if maybe they just kept doing what they’re doing and are taking that extra 5% is like a bonus.
Seth
Yeah. Yeah, it’s I think a really interesting question how retirement plans impact behaviors and how many people we see this all the time in the office where people may have stopped working much earlier and they come to us when they turn 66 or 67 because they think we’re Social Security. And then we’re like, “oh, no, you can actually start your pension at 65.”
We’ll pay you retroactively back on the payments you missed. And it’s like a really nice bonus for people, they get this lump sum. It’s just the way the plan is structured makes them think, you know, whatever. And I am very curious on what will happen with LEOFF 2 as well. For that reason, if people will say, well, the 26th year isn’t worth it because I’m only getting 2% now, and I was previously getting 2.5%.
You see this a lot with people, in the PERS system or Teacher’s system, school employees, where you get a much better early retirement option once you get 30 years. Yeah. So there’s lots of folks who want to get to 30 years. And then when they get to 30 years, they may make different decisions because they get that higher pension benefits.
AJ
So yeah.
Seth
Well thanks for coming AJ.
AJ
Yeah absolutely. This is great, I love talking about this stuff.
Seth
Yeah. If anything else comes up you’re always welcome to come back.
Jenny
So, thank you very much.
AJ
Yeah, thank you guys.
[music outro]
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