How We Work With Firefighters

Hello!

If you are visiting this page you are probably a firefighter or fire family member. This page is written by Weyers McKeever Financial Partners’ team member, Linda Grizely. Linda is a fire wife and has found that firefighters and fire families are sometimes not aware of these key points that are beneficial to financial planning for fire families (as well as other families with government pensions). We hope you will find these useful.

The Top Five Financial Things Firefighters Need to Know
 

1. The Social Security Issues You May Face

There are two main Social Security issues that may affect you.

  1. The Windfall Elimination Provision (WEP)

The WEP comes into play if you will be receiving a pension based on work not covered by social security, generally through government employment. This applies to firefighters who do not pay Social Security from their wages and expect to receive a government pension. 

Firefighters often work second jobs or have earned income from social security paying employment outside of their government employment. However, just because they have paid into Social Security from other jobs does not mean that they will receive all of that benefit. There are minimum earnings requirements that need to be met, numbers of years earning those minimums that need to be met, and a scale of percentages of Social Security benefits that will be received based on those requirements.

If you paid into Social Security through your work as a firefighter and will also receive a pension, there is a good chance this will still affect you, though not to the same extent. Research wild need to be done on your own specific situation.  

  1. The Government Pension Offset (GPO)

The GPO has to do with your spousal and widow(er) benefits possibly being reduced due to your government pension.

Here are three useful web page links regarding these:

  • https://www.ssa.gov/benefits/retirement/planner/anyPiaWepjs04.html Use this WEP Online Calculator link to estimate your benefits. You will want your most current Social Security Statement handy in order to complete the estimation. Instructions for getting your most current Social Security Statement can be found on the web page.
  • https://www.ssa.gov/benefits/retirement/planner/gpo-calc.html Use this GPO Online Calculator to estimate your benefits. You will need an estimate of your monthly pension amount from your government job and the estimated amount of your spousal and widow(er) benefits. Information on how to calculate spousal and widow(er) benefits can be found on the web page.

 

2. The Gap Between Your Current Lifestyle and Your Retirement Lifestyle.

You are probably wondering how there can be a gap in lifestyle. It is really a gap between your income/cash flow while you are working and your income/cash flow in retirement. The difference might affect your budget, and therefore your lifestyle. Will you be able to keep up with all the things you have and do on a percentage of the salary you have become accustomed to? You should not rely on your pension to fully cover you in retirement.

You probably have other savings or a deferred compensation that you plan to draw upon. But how do you know if it fully covers the gap or how long that savings will last? How do you know if that savings would survive a financial or health crisis? What happens when you start to draw upon it in retirement? What happens if/when that savings is depleted?

Through our lifetime holistic planning process, we can help you to try to cover all those bases and build a financial plan that will help maintain the lifestyle you desire and succeed under most circumstances.

 

3. A Lapse in Life Insurance

If the only life insurance you have is your life insurance through your employer, chances are that insurance will terminate with your retirement leaving you without any life insurance. You might be thinking, you won’t need it then, or that you’ll look at getting additional coverage when that time comes. The problem with that is that, when that times comes, you will probably wish you had acquired additional insurance sooner. It can be pretty certain that your family will wish you had too. You might be at a much higher insurance risk class by the time you retire, and it can get costly to insure a high risk. Worse yet, if you become ill or injured and need to separate from your employment early, you may be uninsurable and not able to replace that death benefit.

How does life insurance help? It can help and be beneficial in many ways (and we’d love to talk to you about how those can work for you), but the most obvious thing it does is to provide tax free cash for your family to take care of bills, immediate expenses, and your final expenses. They will have enough to worry about if you are gone and they won’t want to be worrying about money too.

If you have life insurance outside of your employer, that is great news! However, if the only life insurance you have is term, and not permanent, you should understand your options for converting it. A permanent life insurance policy can be utilized for more than just a death benefit.

Life insurance is not just about dying anymore. A significant addition to many life insurance policies these days are Living Benefits which can be used while you are living for Critical Illness (e.g. cancer), Critical Injury (e.g. severe burns or traumatic brain injury),  Chronic Illness, or Terminal illness.  This brochure explains this in further detail:

Living Benefits – There’s More to Life 62824(0320) TC113648(0420)3

 

4. Health Care Costs and Long-Term Care

Firefighters work in demanding and dangerous conditions, which can take a toll on their physical and mental health. Firefighter occupational cancer is the leading cause of death in the line of duty (according to IAFF Fire Fighter Cancer Awareness Month, January 2021). Many fire departments have mandatory retirement before Medicare eligibility kicks in at age 65. These are just some of the reasons that health care costs and long-term care costs can be of increased significance to fire families. Planning ahead to cover health care and long-term care costs can help to alleviate the financial stress these can cause.

Health care costs are at the top of financial concerns for people in the United States. The solutions are not just saving money and buying long term care insurance, which can be expensive. There are other planning options that can be looked at depending on your own personal circumstances.

 

5. Your Retirement Income, Medicare, and IRMAA

According to Medicare.gov if you generate too high of an income in retirement, federal law requires an adjustment to your monthly Medicare premiums in the form of surcharges through the Income Related Monthly Adjustment Amount (IRMAA). This is of particular importance to those with pensions and retirement accounts that are taxable as income in the future.

Why do you need to think about this now? Because you will want to look at how much you are investing in your tax deferred accounts to make sure your retirement income isn’t projected to be too high. You’ll want to understand that there are basically three types of taxed accounts available:

-Taxable (non-qualified), which has no special tax treatment, e.g. savings, investment, or brokerage account. You’ll pay income tax or capital gains tax on any earnings each year.

-Tax-deferred (qualified), which means you will deposit the money on a pre-tax basis now  and pay tax later as you take it out, e.g. 457 Plan, 401k Plan, IRA, etc. 

-Tax-free, which means you don’t receive any special tax treatment now, but you should in the future, e.g. a Roth IRA, Life Insurance, etc.

An IRMAA letter reads something like this:  “Your Social Security Benefits will increase by 2.8% in 2019 because of the cost of living. The Social Security Act requires some people to pay higher premiums for their Medicare Part B (Medical Insurance) and Part D (Prescription Drug Plan) based on their income. We will increase your premiums because of your income…”  This is not a letter you will want to be receiving.

Why hasn’t your tax professional mentioned this to you? Well, we can’t actually speak for them, but chances are it is because their main job is to look at your 1040 tax return for “today”. They will most likely always recommend taking a deduction or deferring income to save the most on taxes now.

The IRMAA limits can change, but we have created this flyer with today’s rates for reference:

What is IRMAA TC118955(0121)1

We have additional resources available to help you determine how IRMAA might affect you.

 

We hope you have found this information helpful. Our team would love to help you to better understand these concepts and discuss other specifics of your personal situation such as, figuring out how much to save, investing, the three tax account types, creating a financial plan, retirement planning, budgeting, getting out of debt, good debt vs bad debt, maximizing income, protecting your assets, college planning, estate planning, etc.

Feel free to email Linda at grizely_linda@nlgroupmail.com with any questions or to set up an introductory appointment. We are able to meet in person at our office, or a mutually agreed upon location, or online via Zoom.

 

It is not our position to offer tax advice. You should seek the advice of an accountant regarding your own situation. This information does not replace the information provided to you by the Social Security Administration.

TC119220(0121)1