Law enforcement can be a rewarding profession, but it often comes with stress, unpredictable work schedules, and financial stress.
Although some law enforcement positions offer a pension, often it is not enough to last their lifetime. In addition, many law enforcement professionals do not have another retirement savings plan in place. Also, life insurance carrier options can be limited due to the underwriter’s views of occupational risk and early death. Here we examine why financial planning is essential to law enforcement professionals due to their unique profession.
Pensions and Calculating Benefits
Most law enforcement pension benefits are calculated using a formula of yearly salary, years of service, and in some instances, age. Not every state uses the same formula to calculate pension benefits. This can leave law enforcement professionals that switch employers in various geographies ‘in the dark’ on their final pension amount. Usually, a pension is given to the professional in a lump sum at retirement and it must transfer into an annuity or IRA in order to withdraw it.
Many states are moving away from pensions to a defined benefit plan combined with a 457b or 401(k) plan, possibly with no employer match. What are some retirement savings vehicle options these professionals to contribute to in addition to their employer plan?
- Roth IRA
- Cash Value Life Insurance
Financial Planning is Essential Tip 1; Life insurance
Life insurance is available to law enforcement professionals like it is available to everyone else through their employer benefits. Often, the life insurance death benefit through their employer is limited to their annual salary to keep the benefit affordable for their employer. Or, they may have life insurance for the rest of their life after retirement, but in most instances, the death benefit decreases as they age. Just one reason why financial planning is essential.
With the risk law enforcement professionals take each day in their profession, they may pay higher term, permanent and universal life insurance rates when applying for additional life insurance outside their employer. However, a life insurance policy can provide a death benefit and accumulate cash value to be used later for retirement savings. What types of life insurance can be used for retirement and provide a death benefit?
- Permanent Life Insurance
- Universal Life Insurance
- Variable Life Insurance
Although law enforcement professionals often retire at a younger age with a pension, a more extended period in retirement can lead to early liquidation. This can leave them short on retirement savings. Many find that they want to discontinue working and enjoy stress-free the rest of their lives. However, a financial plan may reveal that finding another job and leaving the pension assets to grow versus using them for living expenses now may be more beneficial to ensure their financial security in the long term.
Financial planning includes developing a budget and paying down debts, reviewing insurance and investments. In addition, examining how a pension impacts retirement savings and spending down assets during retirement. A financial professional can help law enforcement professionals make decisions about their current financial situation. They can help them achieve their financial goals and plan for a secure future. In addition understand why financial planning is essential.
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