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Come join a groundbreaking new podcast that promises to change the way you think, the way you live, and the way you manage your future. Grab a cup of coffee, a 6mg Zyn, some noise-canceling headphones, and get lost in the world of the Fiscal Firehouse. With your co-host Jon Beattie and Louie Barela, the Fiscal Firehouse is your guide to financial freedom. Tailored to union firefighters, we will discuss problems, solutions, and benefits that are unique to our profession. Change your finances, change your life at the Fiscal Firehouse. Brought to you by Local 1309.
Jon: Welcome to the Fiscal Firehouse,
a podcast dedicated to promoting
financial literacy to firefighters.
I'm your co-host, John Beatty, executive
board member of Local 1309, a lieutenant,
and also a certified financial planner.
With me, I have the other co-host of the
fiscal firehouse, Louis Barella, executive
Board member of Local 1309 ambulance
driver, and want to be financial expert.
Together, John and I hope to bring
clarity to the world of personal finance,
specifically relating to firefighters.
Firefighting is a
difficult job making sound.
Financial decisions shouldn't be.
In today's episode of the fiscal
Firehouse, John and Louis will go
over the defined Benefit Pension Plan
administered through the Fire and Police
Pension Association, also known as FPPA.
John and Louis will discuss how the
pension plan is funded, what the
contribution rates are, and then also
what your expected, defined benefit.
Is going to be John and Louis will also
briefly discuss different retirement
options regarding the pension plan.
This is part one of a two-part series
regarding the defined benefit pension
plan Without further ado, let's kick
it over to local 1309 studios and the
recording of the fiscal firehouse.
Welcome back to another episode
of the Fiscal Firehouse.
I'm your co-host John Beatty.
With me as always, I have my friend
and partner, LB Louis Barella.
What's going on today, Louie?
Louie: Oh man.
So much going on today.
So much going on today.
So much going on the a shift.
John, if you don't mind, I just
wanna start with a point of personal
privilege, as we like to say, I guess,
in, uh, in union meetings, union plan.
today we rung out a legend after 18 years.
Ronald T side bottom retired out
of station three on the a shift.
he was my engineer and he
is, just a dear friend.
This guy, as you know, John was.
He's the best of West Metro.
He's a hard worker.
He's always happy and positive, and he
has an enthusiasm unknown to mankind.
he's just an amazing mentor too.
And so, yeah, we had a, we had
a really nice last set with him.
Had a dinner on night two, steak dinner.
His family, his son came
and, it just was really cool.
He got some cool retirement gifts
from past and, current crew members.
And, it was just, it
was a really cool night.
And talk about a guy
that has done it right.
He made his mark on this organization
and on the guys that he worked with.
And, he was the sole of
our crew for a long time.
I mean, he's been the soul of three A for.
Eight, eight years.
And so, uh, it was just really special.
he, like I said, he did it right.
Like I said, he did it right.
I and, Ron, I just want to give you a
special shout out, but I know you're
retired now and you're probably
like, I don't need these guys.
I don't need this Financial
Independence podcast.
I'm all done with that.
But, if you are listening, I
just want you to know that,
I love you and I'll miss you.
I'll miss Apple 30.
I'll miss the late nights laughing around
the firehouse table and, all the bullshit
we gave each other while on shift.
So have a great retirement and
thank you for being a great friend.
Jon: Well said Louie.
And, uh, Ron, although I don't have
the relationship that you had with
him, he is the epitome of what you
look up when you see work ethic.
Like you wanna see a person
that just works hard.
That's him.
And, shout out to him and Kathy
and the rest of his family.
I know he is, got a lot of stuff
planned, and, he's no spring
chicken, so get to it wrong.
Get on those Harley rides
and, ride off into the sunset.
So, yeah, well said.
So.
Yep.
Nice job, Ronald.
and while we're on the, points of personal
privilege, it's almost, February 28th,
which is my wife, Katie's birthday.
technically.
Technically speaking, it's February 29th.
She's a Leap Day kiddo,
Louie: So
Jon: she's actually 10 and a
quarter starting, on Friday.
special shout out to Katie.
To
Louie: Happy birthday, Katie.
Jon: right.
She, she supports, obviously me and
the podcast and everything else.
All of our spouses and family
put a lot of time and effort into
sporting us to do what we love to do.
So special shout out to her for
Louie: And Katie on her own accord gave
us a really nice gift during Christmas.
She gave us these really cool
shirts with our podcast logo on it.
just really cool.
She got one for the whole family.
We're still waiting to get a picture of
my family, all my kids, including the
baby in the little shirt that she got us.
So that was a very thoughtful,
very cool gift that she
Jon: Yeah, maybe we'll see some,
maybe we'll get some merch.
Maybe we'll start pushing some merch, on
the, on the Instagram and on the website
so we can, start making some money.
Oh, wait, no, this is a nonprofit.
This is a union sponsored podcast,
but it's for the greater good.
But, yeah, shout out to her.
So we're gonna kick things off.
this is gonna be the pension
episode, the heavy hitter, as
you call it, the cornerstone.
Yep.
This is what allows us to hopefully
get outta here at a reasonable age and
have a nice, lifestyle as we leave.
but before we get into the pension,
some of the feedback that we've had
from the listeners is, they're like,
man, I love what you guys are doing.
This is awesome.
I'm learning a ton, but so much of
what you guys are talking about.
Is forecasting into the future.
And that's so far off.
I just got hired and you guys are
talking about the 4 57 plan and all
these other things, but dude, I'm
not gonna touch that for 30 years.
Is there anything, any advice, is there
any quick wins that I can have that I can
start saving a little ching right now?
So we're gonna start trying to incorporate
some quick little hits and potentially
some, lost money out there if you
will, in which you can, find a little
bit of extra ching in your pocket.
So, uh, there is something in the
great state of Colorado called
the Great Colorado Payback.
So this is actually
administered through the,
The Department of Revenue, and this
has actually been going on for many
years, at least the last five or
six years, and they'll advertise
it every once in a while on tv.
But a shout out to Kyle Lupe,
we were at the training center
eating some lunch the other day
and he was talking about it again.
I was like, oh man, I haven't
done that for a while.
I haven't looked up that stuff.
So just Google it.
You can get on the website.
It's super easy to fill
out, I promise you.
It's not a phishing scam.
There's no Nigerian prints
offering you millions of dollars.
But there is something, where all
the companies, if you've registered
with, whether it's bank accounts,
phone companies, cable, all sorts of
things, if you have money returned
to you and they can't verify your
address or something else like this,
it goes to the Department of Revenue.
And they basically keep it
until someone claims it.
So according to their website.
Over $765 million has been claimed
since they've gone live with this
thing, a tremendous amount of money.
So just in Colorado.
So when this thing first kicked
off, I did my little search.
And I'm not gonna shit you, I got
like 1200 bones back in my pocket.
If those of you that don't know me, I was
a little bit of a vagabond for a while.
Traveled a lot of places, lived in a
lot of different apartment complexes.
So most of it was, like I said,
some type of deposit that was owed
to me or something else like this.
And it's super easy to claim it.
So go on there.
You basically just type in your
demographic information and then depending
on what it is, they might make you upload.
Like I had to upload my driver's
license photo and that was it.
And I just did it again today
just for grins to see if I
had any lost money out there.
Louie: And
Jon: I got 87, 78 coming back
Louie: Oh yeah, baby.
Jon: within, 30 days is what they promised
Louie: almost a wine app
membership for a whole year.
Jon: almost.
So those listeners out there,
Louie: do it.
I, Hey, I haven't done it in a
while, but I've done it a couple
times and I've not gotten anything.
I have $0 out.
I'm already pretty pension and
Jon: we know how very, uh,
you know, you're just very
analytical, very organized.
You've got all the stuff that's
coming to you for those, the of
you that are not organized like me.
look at this though.
It's called the great Colorado payback.
Go on the website, put in your information
and see if there's any lost money.
Now there are some things, especially
that are through the state.
they will make you have a lot more
verification when it comes to who
you are, producing other documents.
But for the majority of us, it's just
uploading a driver's license, maybe a
social security card, something like that.
But, yeah, let's see if
there's any lost money.
And I'd be curious, let us know if you
guys, uh, maybe we should have a contest
Who found the most lost money out there?
Maybe we will, throw in a little
gift card or maybe some merch.
I was
Louie: I was gonna say, maybe
whoever finds the most can
take us out and buy us a drink.
Come on, man.
Like this free money.
Let's go it
Jon: a drink.
Absolutely.
Louie: that's the great Colorado
payback is Colorado's website.
If you are from a different state,
other states have something similar.
It'll be called, not necessarily
the Great payback, but it'll
be called something like that.
there's an association, it's
called the National Association of
Unclaimed Property Administration,
where, it lists like different
states, websites where you can go.
So if you lived in a different state
and you might have money, outstanding
from one of those other states, you
can search on their website as well.
So yeah, look, if you're, even if
you're outside of Colorado, that's
Jon: a good point.
And I know we've got some outside
listeners outside the state,
but we also have a ton of people
that just moved here and they're
from all sorts of other places.
So yeah, you might have unclaimed
property and wherever other beautiful
state that you lived in before here,
yeah, don't let that state take it.
I don't know what, I'm sure
there's statute of limitations to
Louie: Yeah.
I'm sure
Jon: some point it just goes back
at the general coffers, yeah,
don't, don't wait too late on that.
So that's our little quick tip for,
how to find a little extra money
that, that you may be entitled to,
that you just didn't know about
and how to go ahead and claim that.
Yep.
All right, so that being
said, we're gonna kick it off.
so this is gonna be a
two part series, right?
So there's a lot to unpack when
you're talking about the pension plan.
and we don't wanna make this a three
hour conversation, so we're gonna
give you some of the highlights today.
and then we will get into some of the
finer details for part two of the episode.
But Louie just want to kick it
off and just talk about what the
pension plan is in generalities.
And I will highlight this.
The plan that we are gonna talk
about is, Colorado specific,
firefighter and police specific.
So FPPA.
So if you have something on any of your
documents that says you're part of the
FPPA plan, this episode is for you.
Louie: Yep.
Yep.
so yeah, we'll kick it off.
Like John, you mentioned that I
like to call it the cornerstone
of financial security.
For most firefighters, most
professional firefighters in Colorado,
this is the thing that will get
them most of the way to being able
to retire with financial security.
like you mentioned, the plan that
we're talking about specifically
is a defined benefit plan.
There are other plan plans that we may
discuss at a, at another date, but this
specific episode is for the FPPA defined
benefit plan that covers many professional
firefighters in the state of Colorado.
So there is a ton of info, of
information related to your pension.
and because it's so vitally
important for all of our retirements,
we, like you mentioned, we'll
split it up into two episodes.
this first episode, we're just gonna give
you a general, a general high level view
of what the pension is and how it works.
And then, in the next episode
we'll go ahead and talk about
deferral options, about, the drop.
A lot of people talk about
that, especially as they're
getting closer to retirement.
So we'll just give you an
overview of the pension as it is
today, the regular pension plan.
but at the end of the day, having
a pension is awesome, right?
It is.
It's guaranteed income in retirement.
So this is something that the 4 57
or a 401k or IRA plans do not offer.
Those are plans where you invest money
and the return that you get in the market
based off of your investments is what
you have, whereas the returns of the
pension are formulaic, they're based off
of a formula that we'll go into later.
but this will give you a
predictable income stream every
month while in retirement,
Jon: which is amazing, for
a lot of different reasons.
a lot of the coursework when I was
going through my studies, there's a
lot of literature and studies that talk
about just how stressed people are out
about trying to make a lifetime income
stream and worried about running outta
money and being responsible for that.
And basically the pension is
going to take that risk, right?
They're gonna take on that liability
and it shared just like an insurance
product, it really does take a
lot of that worry outta the way.
So it's very similar to working right,
where you get a monthly check that
comes into your mailbox every year.
Pretty much guaranteed, and you just
don't have to worry about market
fluctuations and stuff like that.
Now, that's not to say that they're
foolproof, and it's not like it's any
better from like a risk standpoint.
if the market goes down by 75%, everyone's
invested in the market, our pension is
invested in the market, we're all gonna
feel something, but they just spread that
risk out a little bit more because they
still have people paying into the plan.
They haven't paid out all the things.
So it's just like from a peace of mind,
I have found that a lot of people, it
just makes planning and retirement.
A lot easier for our members where
they don't have to worry about that.
They know what the
calculation is gonna be.
It's based off of, years of service.
And we'll talk about
that here in a minute.
But it's a way more predictable
plan for them to start
taking, income in retirement.
And like I said, just from a psychological
perspective, from a spending perspective,
that's the other part is people are
scared to spend money in retirement.
They really are.
They're just worried about I don't know.
Am I gonna live 30 years?
Am I gonna live 40 years?
What's the market gonna do?
So they end up always spending,
for the most part, way less
money than they could have.
Yeah.
'cause it's just that fear of running
outta money and longevity and the
pension helps protect against that
Louie: Or sometimes what also happens
is people that are managing their own
investments, they freak out when there is
a big downturn in the market and there's.
Probably a lot of people that
would think if they experienced
a 30% drop or a 40% drop in the
market, that they would be fine.
But the truth is it doesn't
always work that way.
There's a lot of people that would freak
out and they sell low, so they start
selling off the investments in their
401k 'cause they're worried about it
going down by another 20 or 30 or 40%.
So they sell a bunch of stocks at a low
and that really hurts 'em in the long run.
Whereas the pension, it, like you
said, it takes that risk away and it
lets you have a set income, even when
the market goes down temporarily,
which all dips in the market are
temporary, they eventually come back.
And having the fortitude to wait
through that is, made a lot easier
If you have a guaranteed source of
income, which is what the pension is
Jon: a hundred percent.
It's that behavioral nudge that kind
of keeps you from running over the
cliff and making a really bad decision
that if you would've just waited it
out or if you would've had a different
source of income to, to ride out that
market, you would've been just fine.
But it, it's scary, man, and
I get it the closer I get.
I'm by no means an old bull by any
means, but I'm getting closer every
day and I tell Katie that every day.
I'm one day closer.
but I get scared and I find myself.
just wandering and being more
conservative as I get older.
we are blessed to have
the defined benefit.
it's something that for a lot of, the
private sector employees, they used to
have, I look back at some research, and
this was based from the Bureau of Labor
Statistics, but like back in the early
eighties, man, they had 60% of private
employers had some form of a pension plan.
So you think of the big ones like GE,
Ford, all of these ones had really.
Big, robust and dressed
real pension plans.
But as the risks, as the
liability started to build up,
they started to get rid of those.
And then there was the creation
of the 4 0 1 plan, right?
The 4 0 1 A and K plan that really
took it off of the employers and
it put the ones on the employee,
to, fund their retirement.
So a huge change in legislation and what
that was and how that's been effective.
But, right now, if you were to ask the
majority of people, especially people
that stay in a company for a long time,
the pension plan is, it's favored.
People do like that
predictable source of income.
And if you work in
government, you're lucky.
'cause there's a lot of defined
benefit plan and plans in there.
So if you're a listener, not related
to FPPA, maybe, your spouse is
a state employee or a teacher or
some other type of defined benefit,
they're gonna be very similar.
So I, a lot of, you'll see a lot of
similarities between what Louis and I are.
Gonna discuss, but always go back
to your plan provider and the
documents to make sure that your
plan, reads out a certain way.
We don't wanna give any misinformation,
so the stuff we're talking about
is specifically FPPA related,
Louie: advice.
Good advice.
Jon: Good topic.
Louie: Cool.
John, let's, maybe talk a little bit
about what a defined benefit pension
is, what that means when you talk
about defined, defined benefit and
how calculations are generically
performed for a defined benefit pension.
Jon: Yep.
So it's exactly, I mean,
they tried to make this as
firefighter proof as possible.
Like it's always like, how do you
define something that's in the
definition, but defined meaning
there's a certain determinant amount,
like you know what that's gonna be.
And then obviously benefit in
this case is gonna be money.
So they use different factors, right?
So first is always going
to be years of service.
So how long are you actually paying
into the plan, the longer that
you're into the plan, the more
that plan is gonna be calculated.
So the way that, FPPA is set
up, there's different accrual
amounts based on years of service.
So for the first 10 years of
service, you get a 2% per year
accrual on your base benefit.
And then after that 10th
year, it then goes up to 2.5%
for the remainder of the time
that you're gonna be employed.
And it's all based off, like I said,
years of service, but they all also
take a calculation of the three highest.
Salary years that you have in the plan,
and that's what they're gonna average
out for whatever your benefit is.
So it's a calculation.
We'll put it on the Instagram, page as far
as what that calculation chart looks like.
so you can exactly see based on
how many years of service you
have, what your base benefit.
Is gonna be, that's generally speaking
how the plan is at least calculated.
Now, there's different options you can
take as far as what's considered early
retirement versus normal retirement
versus what Louis was talking about
at the beginning, deferred retirement.
So there's different options, strategies
that you can take, and those are
all gonna have a different amount
that you're gonna be eligible for.
if you have early retirement,
you're obviously gonna take a hit.
It's very similar to Social Security.
When we were talking about social security
last month, where, if you take Social
Security at 62, you're getting penalized
because you're taking it earlier than
what the government says, or what Social
Security says is normal retirement at 67.
So if you think about it
from that framework, it's
very similar in that aspect.
So years of service, how many
years you having on the plan,
and then also what your three
highest average salary years are.
That's gonna be your base
Louie: best and then your age.
Jon: and then your age.
Correct?
Yep.
So your age is the last kicker on that.
so there has been, certain enhancements
to the plan, that have happened
within the last couple years.
One of those, I think we've mentioned
it before, is called the Rule of 80.
So the rule of 80 is something
that is your years of service.
Plus your age.
As soon as you hit 80, then you are now
what is considered normally retired.
It's no longer in early retirement.
So let's give a an example on this.
So you have a firefighter that is, let's
see, we'll say they're 25 years old.
They get hired, right?
Actually, let's make them 20.
we got a lot of young folks that we're
Louie: Believe it or not, that
Jon: that happens.
So we have a young firefighter
that gets hired at 20 and they
put in 30 years of service.
So in 30 years they're now gonna be 50.
So that's their age plus.
How many years have
they put into the plan?
30 that now equals 80.
So that particular firefighter at
the age of 50, could start taking
their pension and they wouldn't be
penalized for an early retirement
before the rule of 80 was established.
It used to be 55 was considered
normal retirement age, so they
would've been penalized for retiring
at the age of 50, even though
they put in 30 years of service.
So that's an enhancement
that's been really nice.
And we actually have some members
that are starting to go down that
road and they're retiring before 55
and they have 30 years of service.
So I think that's a huge shout out to
the plan and the sponsorship of that.
And I really encourage
our folks to strive.
You might not get there, but if you strive
for it and start saving aggressively and
doing the right things and trying to, put
yourself in a better financial position,
you might have the opportunity to be
one of those members that we're talking
Louie: yep.
Jon: so that's, that's just in general
how the, how the benefit works.
the other thing I think it's important
to understand is there's a lot of,
misinformation out there when it
comes to, the health of pension plans.
Those are always under constant scrutiny
as far as how well funded they are.
para, which is the, state plan is
one that has constantly been cited
as being completely underfunded.
a lot of it had to do with how the
contributions were set up, and we'll talk
about our contributions here in a minute.
But basically it had been underfunded
for a tremendous amount of time.
The benefits were too juiced
up or promised too good.
And then as they hired people,
they had to tear out those people.
And their benefits were different
than someone that was hired
like five or 10 or 15 years ago.
And it's terrible.
It's terrible for
Louie: It's, it's, and I, I used to
work for the state and I actually
chose not to participate in the defined
benefit, pension and instead did a
defined contribution, which is similar
to a 4 57 or a 401k with a match.
And the reason why I did that is
because it was so underfunded.
Part of that goes back
to when it was created.
there was less safeguards in
place when it was created.
Whereas when the FPPA pension
came along, there was some legal
safeguards that were put in place.
One of those being that you cannot
carry over unfunded liabilities year
to year, like you couldn't para.
So that is a way of basically.
Causing the pension board or
forcing the pension board to
say, Hey, we have a shortfall.
We need to shore it up now by either
increasing contribution rates or
decreasing benefits or doing something in
order to make it whole for the next year,
that's a, that, that might sound like,
oh, it's just a reason for them to maybe
not give us, cost of living adjustments
are something, but the truth is, what
it does is it guarantees that pension
will be healthy and funded for future
generations and for future firefighters
and police officers, it's a good thing.
So they have those safeguards which
make it a healthy pension overall.
Would you agree with that
Jon: Yeah.
Our pension is extremely healthy, and
the top tier as far as, funding status.
So you'll see that a lot
and they'll advertise it.
And I tried to look this up
right beforehand, so I couldn't
get the latest calculations.
They're typically about a year
behind, a six months behind.
But if I'm not mistaken, the
last time I looked at it, it
was somewhere like a hundred 0.7
to one oh 1%.
So overfunded to some degree.
So all that means is basically
every person that's in the plan,
every new person that they hire,
all the actuarial studies show.
That the plan is healthy enough to pay
100% of your benefit moving forward.
So that's really why that's of concern.
And a lot of, pension plans, are somewhere
around like 75 to 80% funded, status.
and that just goes to show you those
members that are in the plan that are
younger, are more at risk for having
some funding challenges in the future.
That's really, that it, the
people that are drawing out on
it already will probably be fine,
similar to how social security is.
but future benefits may have to be reduced
if they don't shore those things up.
So I'm very proud of our plan.
I'm very proud of, the folks
that sit on the boards and the
people that can consult the CPFF.
I really do think they're trying to do
best by the membership and not put the
plan at risk by, in incre increasing.
Crazy Colas and some of these other things
that we'll talk about here in a minute.
So I think they've done a really good job.
And, if you are a member of F-F-P-P-A
and the defined benefit, you should
feel secure that the money that
you're promised is gonna be there.
They're working diligent.
Louie: yeah, exactly.
I think that, there's a lot of
fear of I don't get to control
my money with a pension.
It goes somewhere and then I have
to hope that it's still there
and hope that some other third
party is managing it effectively.
and they are, we're telling you
that at least so far as of right
now, they're handling it very well.
So we're very confident that for all you
young firefighters that are listening, and
you got a long career ahead, that pension
will be there for you when you retire.
And like John said, that
is a huge blessing for us.
And that kind of leads us to
our next point is, okay, let's
talk about how it's funded.
how is this
Jon: Yeah.
There's, yeah.
Louie: what goes into it?
Where does the money come
from and how does it work?
So.
all firefighters, and police officers
in our pension plan, are automatically
enrolled upon their hire date.
So when they are hired and they
start receiving paychecks, money
is already taken out of it.
So 12% of salary is automatically
deducted from each paycheck that
you pay on behalf of the pension.
HR takes it out and then it
remits it to the, to FPPA and they
invest it in their pension fund.
for future benefit.
Jon: it's something you
can opt in or opt out.
It's automatically you are enrolled,
which I think is a godsend.
I don't wanna have anyone have the
option to not, or to be able to opt
out of some type of retirement plan.
So I'm happy that it's mandatory.
Louie: can't pay more or less.
It's 12% and that is, that's it.
You, there's no option to like,
what if I wanna do more or less?
Nope.
It doesn't matter.
It's everyone pays 12%, into the pension.
Jon: And is that, do you get taxed on
that money, Louis, when it comes out?
Or is that pre-tax contributions?
Louie: contribution.
Beautiful.
You do not get taxed on
that, so that's cool.
You don't have to worry about,
taking a tax hit now on it reduces
your taxable income by that 12%.
So that's a good thing.
Jon: That is a very good thing.
I wanted to do one quick caveat note here.
and this is West Metro specific,
or it might be other agency
specific based on your plan design.
Everyone's a little bit different,
but West, a lot of West Metro,
members are what we consider reentry
So back in 2007 is when
we reentered into FPPA.
We used to do a self-manage a 4 0 1.
a plan beforehand.
but this was brought to the organization.
We adopted it, but there was a little
bit of a premium that we had to
pay in order to reenter into FPPA.
So if you were hired before 2008 and you
elected to go the defined benefit route,
you do pay another 2% additional premium.
So like me, I'm 2007, I actually pay in
14% of, of my paycheck goes into the plan.
So that's just part of the setup.
I still think it's a fair deal.
I've gotten no qualms or complaints
about it, but if you're like, man,
I'm looking at my paycheck, and Louis
said it's 12%, I can do basic math.
So just be mindful of that.
And there's no special code that
you'll see on your payroll that says
like a reentry fee or something else.
It's just gonna say, FPPA and
then what we paid into that.
The
Louie: good news about that is it
means you have the same schedule, you
have the same chart that everyone uses
in order to determine your benefit.
It's not like they're gonna penalize
you and say, you did not pay in
the pension earlier in your career,
so you don't get the rule of 80.
They, you still are
subject to the rule of 80.
You still have those same benefits that
I would have who doesn't pay the 14%.
Okay.
and, paid in for technically
a longer portion of my career.
You're making up for it now,
but you'll get the same benefit.
Yeah.
Jon: a hundred percent.
So then what else?
The employer has to kick in some
Louie: oh yeah.
Jon: free lunch
Louie: not just you, it's both sides.
The, the employer has
skin in the game too.
So your department will contribute 10.5%
of your salary, of the member
salary on behalf of the pension.
And that's as of this
year that they pay 10.5%.
it is important to note that employer
contributions will increase 0.5%
every year until it hits 13% in 2030.
So by the year 2030, the department
will be contributing 13% of your
salary into the pension plan.
And this is, as John and I were
mention, as John and I were talking
about earlier, this is a way that FPPA
ensures that the pension is healthy,
that it's fully funded, and that we have
enough going forward for all the new.
Police officers and firefighters that
are hired within Colorado, correct?
Jon: Yep.
So if you're doing some fast math,
that's somewhere, if you do an
all in contribution between the
employee and the employer, it's
somewhere between what, like 22.5%
now, and then eventually that will shade
upwards to 25 or 26% or 27% if you're a
defined, or if you're a reentry, member.
That seems like a lot of money, right?
That seems like a chunk of change.
It is.
it's a significant amount.
so that's how contributions
run out or how we pay into the
plan, how it becomes funded.
let's talk a little bit now about how
we actually gonna collect our benefit.
What does that
Louie: is the fun part.
This is
Jon: the fun part, right?
This is where we start to talk
about the second homes or, living
in a place where you don't have to
shovel, you just drive to the snow.
Like all of those, fascinations
that we all have, what kind of
sailboat or whatever you're gonna
get on, all of those things.
This is really what we strive for
and why we try to put in our time
so we get this amazing benefit.
So we'll start with
normal retirement, right?
That's hopefully what
everyone can achieve.
that's what we try.
We try to put
Louie: we shoot for.
Jon: we shoot for.
So they define normal retirement as 25
years of service credit and the age of 55.
Okay, so that's, 25 years of
service and the age of 55 is what's
considered normal retirement.
There's no penalty.
You're not gonna take a deduction.
You look at that chart and exactly what
it says, kicks out it's nicely color
coded and shaded, and it'll tell you
exactly what your benefit is gonna be.
They did talk about, the enhancement,
and that is the rule of 80.
So once again, if you are younger than the
age of 55, but you do have your, if your
total years of service and your age add up
to 80, that will also be considered normal
retirement, which is a huge benefit.
It really is.
We talked about how that's calculated
once again, 2% per year for your
first 10 years, and then your
accrual rate goes up by another
half percent after the 10th year.
So 2.5%
basically until you retire.
So it's a pretty simple calculation.
You don't even need the
chart to figure it out.
You can figure out what.
How many years you've got on and
then just do the quick math on that.
But there is a chart available, which
we'll have, on our feed for that.
And it's all based off of your three
highest year salaries when they average
all that stuff out, which for most
of us is probably gonna be our last
three years unless we take a demotion,
which I'm not in favor for anyone.
So it probably should be based
on your last three years.
Yeah, so that is normal retirement.
Now we are eligible, just like
with social security, you can take
what's considered early retirement.
So for early retirement you have to have
a minimum of five years of service credit,
and that's payable at the age of 50.
So an example for that, and we have, we
have some folks here and it happens all
over the place, but they work here for
five or six or seven years and then they
move on to greener pastures or they just
find that the fire service isn't for them
or they do something different, right?
So they don't get their, they
don't get all of that time.
So what does that look like for them?
They would then be eligible, to
start collecting what's considered
early retirement at the age of 50.
But at a minimum they had to have at
least five years of service credit.
And once again, that is calculated at
a rate of 2% per year, moving forward.
But you are gonna take a significant.
Reduction in that because you're drawing
early on it at the age of 50 and you
just didn't have that much, service time.
So I'm a huge fan of the defined benefit.
I think it works amazing for the majority
of our members, but if you are one of
those people that are not able to put
in a significant amount of time, I would
qualify that as probably 20 years or more.
You take a pretty big hit, and
it's not portable, it's just you're
your money's tied up and locked up.
So
Louie: you're penalized, so
to speak, for taking that.
And I know they, they talk about, they
use an, an actuarial equivalent basis
is what they call it, to basically say,
Hey, because you're taking it so much
earlier, we're reducing it by this amount
to give you that, those funds earlier.
that's, you work hard for it.
Even if you don't work a full career
here, you still work hard for it.
And, getting penalized by taking that
early retirement, it is an option,
might not be the best option for you.
It might be the best option for you.
Just know that you'll pay
in terms of money outta your
pocket for taking that early
Jon: Yeah, always obviously consult
a financial professional when you're
thinking about any of those, distribution
strategies or when you're gonna take
your pension, any of that stuff.
And that just goes not only for
early retirement, but everything
we're talking about here today.
But it's, I just, it's unfortunate
because I wish there was an alternative,
but the other alternative is what we
have with what we had before, and that's
where people put in money and then the
organization puts in money, the 4 0
1 a, and then they have to manage it.
And that creates some problems too.
So there's not a perfect solution.
There's always pros and cons, gives and
takes, peaks and valleys, if you will.
But overall, I'm very happy
with our defined benefit and
our members should be too.
So that's what, early
retirement's all about.
Louie: Yep.
And then the next, the next
thing is the vested retirement.
So this is, this confuses a lot of people.
'cause many members that I talk to
will assume that if you don't take a.
Jon: a.
Louie: a normal retirement that
you are taking in early retirement,
but there's actually this third
thing called a vested retirement.
So just like John was talking about with
the early retirement, you have to have the
minimum of five years of service credit.
but this one is payable at the age of 55.
So this is where you wait until you're 55,
Jon: 50.
Louie: Which is the normal retirement age.
but because you only, you don't have
your full rule of 80, you are getting
what's called a vested retirement.
So once again, it's the same 2% each year
for the first 10 years, and then 2.5%
benefit added for each year of service.
So you're basically getting, the
penalty that you pay basically for
not hitting the rule of 80 is reduced.
So you're getting more of your
pensionable amount, every year than
you would with an early retirement.
Still not as much as if you hit the
rule of 80 and you're taking a normal
retirement, but much, much more than
if you took an early retirement.
Jon: Very good.
That's a good explanation,
and I'll agree with you.
I would say.
The vast percentage of people
do not understand that, topic.
And it's not overly complex, but they
just, it doesn't make a lot of sense.
You're like, what do you mean I'm vested?
that typically just means, I can take
my money and I don't get penalized.
generally speaking.
So that is how things are calculated.
Once again, refer back to the
chart, and that will tell you
exactly what the kick out.
I've got most of it
Louie: I know, me too.
I got my own little highlights on my own
Jon: got my own highlights.
So 55 and 30 is, 70%.
And I think if a lot of our members
can get to that 70%, they are
really gonna be set up for success.
especially when we talk about funding
our additional retirement vehicles
like the 4 57 plan or Roth IRAs
and some of these other things that
Louis and I have briefly touched on.
Louie: and just to hit on the
brochure, so the brochure is very
good and it lists basically everything
that we are talking about here.
Actually, I will say absolutely everything
that we're talking about as it relates
to the pension is found in that brochure.
It's a really good brochure, and
you can find that at FPAs website.
We'll also link to it in the show
notes and, when we post it on Instagram
about this episode, I'll try to link
to it on there too, so you can see.
But there is one particular, chart in
that brochure that is really helpful
and that's what we're referring to.
It's called the benefit calculator, and
it's this green, blue and yellow one
sheet of information that basically lists
in one on the XA axis, it lists the age
of retirement, and I don't know Y axis.
It lists the years of service.
So for your specific
situation, you can say, I have.
X years of service and I'm this age at
retirement, or I'm going to be this age
at retirement, what would my benefit be?
And then there's this, the color
code is very significant because if
it's falls within one of the yellow
categories that shows that you're
getting a normal retirement, if it
falls into one of the blue categories,
you're getting a vested retirement.
And if you're, in one of
the green categories, you're
getting an early retirement.
So it'll show you those percentages.
It's a super easy way to just cross
'em up and look, I know it might sound
more complicated when I explain it
with all the color codes and the axes
Jon: it.
And it's pretty
Louie: it's very intuitive.
You look at it and it's super helpful if
you're trying to plan out your retirement.
Hey, I wanna retire at 57.
I wanna get outta here and I'm
gonna have 22 years of service.
what does that look like for me?
That will tell you exactly what percentage
of your three highest year salary you're
gonna get for the rest of your life.
Huge.
that's a easy way to look at it.
So get that brochure.
Look at that chart and start playing with
it and saying what does it look like?
Jon: you could play the what if game
and start dreaming or thinking about
what the future's gonna hold for you.
so we now we have a frequently asked
questions that Louis and I, often
get asked, regarding the pension and
certain parameters within the pension.
And first and foremost, and leave
it to firefighters to blow this one
up is, how is my salary calculated?
Like, how is my base benefit?
You keep referring back to base
benefits or, the more base pay and FPPA
uses the definition of a pensionable
earnings is how they define it.
so how is that calculated?
And specifically is overtime calculated
in, in that calculation, so to speak.
So if you work a bunch of overtime
or you work on a special team, or you
do a bunch of wildland deployments,
all this additional money, does
that beef up my base benefit?
And the answer is.
Louie: eh,
Jon: Eh, we had people
that, broke that system.
specifically, I'm not gonna name names,
but you can imagine, this was before our
time, Louis and I, Louis and i's time.
but they used to have, people
that would call in sick, they'd
find someone to work for 'em.
They had this whole little trade scenario
going and all of a sudden you got fi
fighters and officers and promoted folks.
They're making double what their base
benefit was and they're trying to
do that for their last three years.
'cause they're trying to juice up what
their base benefit is gonna get in.
The pension plan is smart, it's
run by actuarials, and also
there's a level of fairness.
I would say to some degree,
and it's just not sustainable.
If we're depending on you to have
a salary of a hundred thousand and
then all of a sudden it's 200,000 and
everyone is doing that, the pension
plan just cannot support that system.
It will break.
So as, as hard as it is and, dealing
with fairness and everything else
like this, it is not over time.
Additional overtime is not calculated
into your pensionable earnings.
What is based on our Fair Labor
and Standards Act, FSLA, there
is a certain amount of prebuilt
overtime into everyone's paycheck,
which you don't even see.
It just go, comes as part of your
paycheck that is added in there.
So there is that additional benefit.
It's just anything in addition to what
your normal assignment would be is not
gonna be considered pensionable earnings.
So if you wanna know more about
that, you can look on FPAs website.
They talk about different
things that actually can enhance
your pensionable earnings.
so I'm gonna refer back to, and
this is specific to the West Metro
folks and our contract, what is
considered pensionable earnings?
'cause this is important.
So all of our longevity pay
is actually in addition to,
that's considered pensionable.
2% every five years in addition all the
way through your career, which actually
towards the end of your career adds up
Louie: quite Oh yeah.
Jon: any type of paramedic pay.
So obviously our firefighter or paramedics
that's already built into their pay.
there's no additional stipend like
Louie: we
Jon: before.
It's just 108% of what a
first grade firefighter was.
But if you are an officer and you're
getting a stipend or an engineer,
whatever that nominal amount is, that
would be considered pensionable earnings.
And then last but not least, is if you
are a day worker, the contract says that
any day wages, an additional stipend that
you get, they call it, if you look at
FPPA, it talks about shift differentials.
That's how they're classifying that.
That would also be con considered,
pensionable earnings as far as.
Is what you get towards your pension.
that's, all the other, ancillary
tech, technician fees that we get.
So all the specialty folks, the
hazmat folks, all that other stuff,
you get your additional stipend.
It's just at the end of the day,
you're not gonna see that reflected
on your pensionable earnings.
So if you ever go on to, I would
encourage everyone to go on to the FPPA
website, and log onto their account.
If you haven't set one up, it will
tell you every year basically what
FPPA has on your records for what
is considered pensionable or not.
And that should pretty much align, with
what your paycheck is, minus over time
and then minus any other, technician pays
or any other type of non differential
pays is how I'd classify that.
So we get that question asked a
lot, but if you, but there's always
a but, but the thing is, we talked
about fairness and, and equity.
All they care about is
the three highest years.
So if you are a firefighter and then you
promote at the very end of your career
and you work your way up the ladder
for, to an officer and then to a chief
level, and you're only a chief level for
three years, you will get whatever the
chief levels three highest years are.
and you only paid into that for three
years, so there is that as well.
just in how that is calculated
and how that's factored in, are
Louie: And there, there are members
that do it for that particular
Jon: Sure.
Oh yeah.
Louie: beef it up and that's
a legal, way to do it.
Jon: Nothing outside of what is in inside
the guidelines, inside the documents,
and they're abiding by all the rules.
and it's a significant enhancement
to fund their retirement.
Louie: Yeah.
And then I would say this is probably
the biggest question that we get.
This next question comes up a lot and
there causes a lot of heartache and a
lot of confusion and a lot of, even hurt
fillings, I would say, because of it.
And that is, does the pension have a cost
of living adjustment also known as a Cola
Jon: Oh, leader A cola
Louie: does it, does
it, does it have a cola?
Tell me It does.
John, tell me,
Jon: me.
Speak to me.
Speak to me Louie.
so it does not have a guaranteed cola.
Now there are certain provisions and
parameters in which FPPA is allowed to
have a cola and it is a compounding cola.
It is within the board of directors,
it is within the directors
of FPPA to authorize that.
But they have to go through a lot of hoops
and hurdles and make sure that the funding
status of the plan will support whatever
cost of living adjustment they're gonna
give their colas, the compounding colas.
And this has been a huge issue.
we founded a, pension committee last
year to specifically address this.
I don't wanna say that there's
been a lot of misinformation.
I think a lot of people, a lot of our
members are still under the pretense
that there is some type of cost of living
adjustment, whether guar guaranteed.
And it's just not, it's just
not true and it's not accurate.
And we want to try to dispel that myth.
so there's certain things that the
board will look at to decipher whether
or not, basically what is the COLA
gonna be and how much can they afford
and what the compounding cola is.
But they did make, what I would
say is a pretty fair concession.
back in 2023, they
passed some legislation.
FPPA got it through the
legislator to change.
This is through the state.
So everything that changes with
the documents has to be, has
to go through the legislature.
but they were able to find a happy medium.
And at first Man I thought man,
these guys are super creative.
I would've never thought of that.
Upon further investigation, this is
actually pretty common that a lot
of other pension plans have done.
But basically what the plan
is now allowed to do is give.
One time non compounding colas.
All right, so there's certain parameters
that they have to hit, and I'll
talk about those parameters here.
But they also, they will also reference
this as what they call a 13th check.
And the way that gets distributed is
in October, obviously they'll take the
last year's, they'll take the investment
performance, all these other things,
they'll take inflation into account and
then they'll figure out what potentially
could be the non compounding cola.
So specifically if the board is to approve
a non compounding ko, they can only do
it under these specific circumstances.
So first and foremost,
the compounding cola.
That is given, it has to be less than 1%,
which I'll talk about that in a minute.
For the last decade or so, it
has definitely been less than 1%.
FPPA also has to determine and make
sure that the long-term investment pool
has averaged a return of at least 6.5%
over the last five years.
So mainly that is a lot of the stocks
that they have invested in, that's
long-term horizon, what they're thinking
about paying long-term in the future.
they just have to make sure that
reaches that minimum threshold of 6.5%
over the last five years, which for
the last few years has had no problem.
In fact, I think last year the
annual performance was almost 10%, so
they've been able to hit that mark.
Pretty quickly.
And then they factor in, inflation.
All right?
So then they're gonna take in, the CPIW,
which is just an inflation metrics, and
then they're gonna, and then they're
gonna subtract whatever additional
compounding COLA was, and then they're
gonna multiply that from the base benefit.
So that sounds like a mouthful.
So let's give an example.
I think this, I'm always about, context
and giving me examples 'cause I just
sound like a bunch of numbers right there.
So let's say that we had a firefighter
who's 55 years old who had retired, and
their annual base benefit was $70,000.
70 K is what they're.
Annual base benefit was gonna get.
So if you go off of last year's version,
all right, the board approved a 3.66%
onetime annual benefit, which
would be added to that $70,000.
All right?
That will be paid out in October.
And basically how they got to that is
they took the, compounding cola and
subtracted it from the previous inflation.
So that was 3.8
was last year's previous inflation.
And then they subtracted what the
compounding Cola was, which was 0.14.
And that's where you get the 3.66.
So for this particular person that
was, had an annual benefit of $70,000.
It was a check of $2,562 added to the,
their October monthly distribution that
they got, which is no chump change.
Like it's, it's a way why, why the
math works and why, uh, pensions like
this, it doesn't add the additional
liability of that in the future, which
is what a compounding hole it does.
And when they start talking
about when FPPA was giving their
presentations and saying we get it.
All the retirees, people that are
getting ready to retire, like they,
you know, inflation in 2022 was 9%.
They're like, we need way more
than what you guys are giving us.
Why can't we do this?
We got a hundred percent funding.
You know, they start kicking out a 3% cost
of living adjustment just in year one.
And then in year two, you know,
within like three years that thing's
funding status is down to 85%.
Like it's just precipitous and
almost exponential I guess is
the word I was looking for.
And how fast you can drain
that without it being
Louie: Yeah,
Jon: And what it really comes down to, and
I was on the committee and we looked at
this, what it really comes down to is the
funding mechanism for our pension plan was
never, ever designed to have compounding
colas that kept up with inflation.
It's just not, if you look at plans that.
Offer, a generous compounding
cola of two and a half to 3%.
The average roughly contribution rate that
the plan is putting in is about 45%, 20%
more than what we are currently paying in.
So that's the message as well.
It's if members want changes and they
want to go to FPPA, basically we gotta
come up with another 20% in contributions.
And I'll be honest, I don't know of
any of our members that are beating
down the door to put in another 10%.
Our employers are already
paying another half percent.
So it's just doesn't seem like it's
gonna be in the cards and realistic.
So it's a short term solution, the
one-time check to try to get people
by, but the message has to be that
you cannot rely on the pension to
have a cost of living adjustments.
Yeah.
If they have room in the pension,
they will, but it's just not
dependable, so please don't do it.
I think
Louie: And I think that the key takeaway
here, so you know, John, and I think
we work pretty well as a team because
he is able to eloquently explain it and
then I try to dumb it down as much as
possible so that I can understand it
and people like me can understand it.
And I think the way to look at this is.
For that firefighter that has a $70,000
pension, they might get a, that 13th
check or that extra payment of $2,500.
But the very next year, even though
the cost of goods has increased
permanently, that firefighter will
go back down to a $70,000 pension.
And then maybe, or maybe not in
that next year, will they get,
an additional one-time payment?
Who knows?
It all depends on the funding status.
the important thing to remember
there is it's not base building.
And if your pension when you retire is
set it, let's just go to the $70,000
and let's say you get a 70,000 pension,
which is a great pension, you have
to assume that it's gonna stay around
that level and it's not gonna, it's
not gonna keep up with inflation.
I think that's the biggest takeaway
that we can tell you is it is not
guaranteed to keep up with inflation.
And in fact, it probably won't.
During some of the years when inflation
was high over the last, three, four years
ago, there was inflation that was seven,
8% a year, and those guys were getting.
0% or 0.5%.
So they basically, that was
reducing the power of their pension
by 7%, six and a half percent.
That is big over time.
Jon: And that's, and I don't think
people, it's hard for us to visualize or
forecast even mathematically what that
means, 10 or 15 or 20 years in the future.
We're just not built that way.
our brains aren't designed to
think abstractly about that.
And to Louis's point, yeah.
When we did the research on
the history of the compounding
Colas and FPPA, 2018, it's 0.4%.
No cost of living in 20 19, 20 20, 20,
21, 20, 22, half a percent each year.
It's just not meaningful enough to keep
up with, even at the two point half or 3%.
And every year you fall a
little bit further behind.
So I know in the past, if you
guys, a quick way to think
about it is, the rule of 72.
We've talked about this when we
talked about why it's important to
invest in the doubling of your money.
In the very basic principle that basically
if you take the number 72 and then divide
that by whatever your rate of return is
gonna be, that will give you how much time
it will take for that money to double.
So very basic math is.
If you had a 10% annual return, you
know it's gonna be 72 divided by
10, so it'd take you seven years to
double that money, assuming you get
that return for that amount of time.
Inflation works the exact same way, so
you can take 72 and then divide it by
whatever the current inflation rate is.
And in the circumstance, if it's a,
if it's around three, it's gonna be 24
years that money is gonna be halved,
your purchasing power is gonna be hald.
And it's just really tough.
If we got people leaving at 50 and
55 and they're living to 90, which I
hope for everyone, when you hit 75,
you are definitely gonna feel that
because the pension has not even
come close to keeping up with that.
That's where we talk about having the
supplemental retirement vehicles having
additional monies to help support that.
because it's just, it's easy for
that money to get eroded and our
brain just does not work like that.
It just
Louie: it doesn't.
and it's hard to visualize it.
And that's, I think that's why
it's important to keep it in mind.
If you retire, and you have a
$70,000 pension, just keep with that.
Same example.
if the Fed is able to keep
inflation at around 2.5%,
which is around their
target, they may or may not.
some years they're better than that.
some years it's worse than that.
But let's just say that in the
future, they can keep it at about 2.5%
every year.
That means that in about 25 years,
your purchasing power is cut in half.
So if you had a, if today you retire
with a $70,000 pension, 25 years from
now, that pension will be able to
buy you about $35,000 worth of goods
and services that it can buy today.
So you can have.
These one-time payments, which help,
but at the end of the day, your
base will be about half of what
it is when you retire in 25 years.
That those are just rough.
And it all depends on the actual inflation
rates and how well the pension is doing.
But in general, it's safe.
I like to tell our members that
it's safe to say that your pension
is not really inflation adjusted.
It is not.
So we encourage John and I like to
encourage people to give yourself a cola.
What's the best way, John, to give
ourselves a cola in retirement?
Jon: that would be, I can't
remember what episode, what, when we
talked about the 4 57 plan, right?
And investing in the 4 57 plan.
throw as much as possible as you can
into that and your future self will.
Thank you.
But that is the money that you can then
draw on to basically make up for the
lack of a cost of living adjustment.
And the secret is, a lot of people
don't think about it, but the things
that actually go up, as you get older,
that are higher than the average,
normal CPI inflation, healthcare
costs, food costs, all these other
things, they are way higher than 3%.
most people would pray for a
Louie: pay God, God forbid you want
to eat eggs in retirement, man, you
better have a 4 57 if you like eggs.
Jon: That's exactly right.
Yeah.
Whatever.
$10 a dozen.
yeah.
We should all, go to the fire stations and
start getting the chicken coops up there.
That would just be a perfect
thing for us to start saving some
Louie: Yeah.
Combat
Jon: Combat inflation.
But, so I know we harp on it, but there's
always a rhyme and a reason and we're
not, I try not to be a vigilante about
this stuff and have a lot of dog mu but
it, I truly feel like this is the path
forward in order to set us, set everyone
up here in the organization for success.
and if it wasn't about that, we
wouldn't be hammered in every time.
So my goal is every time, we
encountering in someone, they
actually talk about, Hey, just opened
up the 4 57, or what do you think?
should, and I love to have that dialogue.
That means that you're engaged
and you're making action.
That's the other part is doing action.
It's a lot to
Louie: Oh, dude, I congratulate
people when they're like, Hey
man, I'm opened up a 4 57.
I'm contributing to it.
I'm like, dude, congratulations.
That's awesome.
That's your first step towards
financial freedom, financial
independence, and giving yourself
that, that inflation adjusted pension.
So when cost of goods go up and FPPA
says, Hey, we don't have enough for a big,
inflation adjustment, a cola or even a
one-time payout, it's hey, that's okay.
You got this big old 4 57 pull of money
that you can just be like, I'm gonna
pull $5,000 out from it this year and
give myself a cola and make sure that
my, my standard of living stays the same.
It's one of the smartest things
you can do, and it's the one two
punch of retirement for us, right?
that's how you do it.
you got the pension, you got your 4 57.
Those things together will get
you to financial independence.
Jon: 100%.
Yep.
so the last question that, I get
asked sometimes, and I think there's,
sometimes a sense of, frustration.
There's always a sense of, uh, you know,
equality with some of this stuff, but
a lot of people wanna know, like, you
know, mathematically who's better off.
Would it be to invest in the defined
benefit if you had the option?
we don't currently have the option,
but this is somewhat of a hypothetical,
but this is also to, I would say just
assure the, the folks that have a 4 0
1 a plan, that have a money purchase
plan, a defined contribution plan.
Your benefit is more than likely, unless
you went really crazy on some investments,
is probably gonna be very similar to
what the base benefit of someone on
the do divine benefit plan's gonna be.
Now there's always, there's always
exceptions, but generally speaking,
so the way that you could do that,
if you were at all curious, once
again, this is an example, right?
Another example.
So we have a 55-year-old firefighter
who's retiring after 30 years of
service, and they, They topped out
their three highest years were a
hundred, was a hundred thousand dollars.
Alright?
Based on our little cool little
benefit chart, we look on that.
We say, okay, 55 years old, 30
years of service, that's a base
benefit of 70% of their highest
three years, which was a hundred K.
So they're gonna get 70
K per year, all right?
If you do that into a monthly
basis, that would be $5,800.
And then obviously we gotta
pay the tax man on that.
It'd be less than that.
So what basically is
the present day value?
If you had to go and buy that same kind
of benefit, what would that look like?
And it's called an annuity.
Alright.
That's basically what we are all have.
When you have a pension, you have an
annuity, we have a contract with FPPA
with the pension provider, and they
are going to more or less guarantee
us this benefit moving in the future.
So the easiest way on an apples to
apples comparison, how you'd want
to do that is you want to compare
it to what's called a SPI A or a
single premium immediate annuity.
Big nerd talk here, big nerd talk.
But basically that's saying I'm
gonna hand over all this money
right now, and the next day you're
gonna start paying me out at this.
So in order to get that calculation,
in order to get that $5,800 a
month, and every insurance company's
gonna be a little bit different.
So this is just take it for a
grain of salt, a rule of thumb.
It would be about one
point, a little over, $1.1
million is what you would have to have
in your 4 0 1 a account in order to
purchase basically that same benefit.
Now, there's additional factors that
we'll talk about in episode two, and
that talks about, when you think about
survivor benefits and other options,
that add some complexity to it.
But just on a general speaking,
so if you really feel like
you're getting shafted, right?
I don't want to say, I don't know if
this is a healthy exercise or not, but
if you invested your money in just the
stock market, it didn't get super crazy,
didn't sell when it was really low.
I can almost, especially with.
The way that the market has been over
the last 25 or 30 years, I'm pretty
confident that it would be very close
to what that benefit's gonna do.
'cause honestly, that's.
What FPPA is using, their barometer for
what their average Expected returns is
about 7% and that's pretty much more or
less what the stock market has offered.
Even a little bit higher than that, but
that's a pretty conservative amount.
So I don't want to feel like people
are, are somehow, at risk if they
don't have a defined benefit.
That's the other part.
Like you guys have been
putting a lot of money away.
The department has been kicking
a lot of money away, into that.
but that's just a way that from a
mathematical standpoint, how you can
value what is your pension benefit.
And where a lot of advisors will
work on people is when they have
the option to either take a lump
sum or should they annuitize this.
So basically take a monthly payment in
the future and they can all run those
calculations if you worked at another job
or you have a spouse that has that option.
there's another way to figure
out what makes the most sense.
But that's a pretty, pretty simple
rule of thumb is what's my pension
worth if I retire today and I have this
benefit, like in, in real time dollars.
Yeah.
Louie: Yep.
Jon: Yeah.
Hopefully that makes sense.
Louie: Yeah, I think that's really good.
and we were kind of mentioning earlier,
we think that the pension is awesome.
We think it's secure.
We're confident that it's gonna be
there for us when we retire, and
it's gonna be a central part of our
own personal retirement plan, John's
retirement plan, my retirement plan.
and we are absolutely relying on it.
but we're also telling you that
don't let it be the only thing,
like all don't it's nice to have it,
but don't let it be the only thing.
There's a lot of guys out there, a
lot of firefighters, John, that I've
talked to who are like, this is it.
I gotta keep working way
past my expiration date here.
But I have to because I.
I don't have enough in the
pension, and that's all I have.
I don't have a 4 57.
I haven't been contributing to that.
I don't have a Roth IRA.
And so this is all I got and
I gotta keep beefing that up.
We don't want people to be that way.
We, we almost named this show 55 and
out because we were like, we want
people to be able to get outta here
when they want to get outta here and
have a long, fruitful retirement.
And give yourself that option.
Don't put all your eggs in one basket and
spread that risk around, or spread that.
Diversify.
Yeah, diversify.
and you can do that easily with a,
with your pension, with your 4 57.
and if you want to go crazy with a
Roth, IRA too, you can, spread things
out like that and then give yourself
the flexibility and the options
to get outta here when you want to
get outta here and have the kind of
retirement that you want to have.
Jon: Yep.
And there's a lot of, we'll talk
about it in part two of the episode.
Some of the stuff that we didn't
get to today, just because we didn't
wanna make this, like I said, a two
and a half or three hour, episode.
But we will talk about things
specifically like the drop plan,
the deferred retirement option
plan, which a lot of people talk
about and they sing their praises.
There's also something called
deferred retirement, so you're
not taking your retire retirement,
you're holding off on that.
and then we'll talk about,
survivor options or spousal
options and what that looks like.
'cause there's kind of some things here.
And try to get into some more of the
nuances with some of these other things
that make our pension a little bit more
unique than just, a traditional pension.
So there'd definitely be a lot more
to come 'cause we know we've gotten
a lot of feedback specifically.
differentiating between should
I enter the drop plan or is the
deferred retirement a better option?
And we're gonna give some case studies
on what LA looks like and potentially
who should be thinking about what,
in those particular circumstances.
So definitely more to come.
So I hope this was beneficial.
I hope this is just I would say this
is kinda level one and just getting
an understanding of how the pension
works, how it's funded, how much we
pay into it, what's it look like when
I retire, all of those other things.
and it gives us the foundation that
now we can talk about some of these
more, complex topics regarding
the pension and what options, you
should consider or just what's
Louie: Yeah.
Yep.
So we're excited for the second part
two to talk to you guys a little
bit more about those other options.
And then John, I was
just thinking about this.
This just came up.
We didn't even game plan this as we were
talking, but, we might have to do like a
third episode or come back to it later.
But I can already tell you one of
the questions we're gonna get is,
how does divorce impact my pension?
Which is, significantly, it's
gonna significantly impact it.
And we haven't made any kind of show
notes on that or talked about that.
But we'll just tell you that your
pensionable amount is gonna be
all screwed up and messed up and
blown up potentially by a divorce.
Jon: Yeah.
We can also have some,
case studies of that.
And that's honestly, I would say
overarchingly a lot of the members that
have been here for a long time, that
is one of the big reasons that they
are still working is because they had
a divorce at some point in their career
Louie: or two divorces, or three divorces.
Jon: the old baker's dozen.
and it is, yeah, every time you
just take a little bit more,
a little bit less off of that.
So it's something, Louis and i's one of
our cardinal rules is one of the most
important financial decisions you will
ever make is basically who you end up
marrying, co cohabitating with however
you wanna qualify it or, describe it.
that is super important.
Yeah.
Louie: so Katie and Caitlin, we love you.
That's great.
We value you.
We're so thankful for you.
And, don't divorce us.
Jon: please, yes, please
do not divorce us.
But, that's it for today.
hopefully that was, beneficial.
Yeah.
it's always something that we like
talking about and it's a heavy topic,
But it's an important topic and
it's just something that we want our
members to be front and center of and
thinking about and just knowing that,
they are already set up for success.
A lot of Americans would
love to have what we have.
Yeah.
And we should be, grateful for that.
it's a blessing honestly, to have
that optionality, to be able to
hopefully retire at, a somewhat early
Louie: an earliest early-ish
Jon: earliest age.
Yep.
So everyone out there listening, once
again, thank you guys all for tuning in.
you guys have just showered us with a
lot of kudos and support, and we truly
do this because we enjoy it, we enjoy
the feedback, we enjoy the conversation.
It makes us better, it keeps us
engaged in some of this stuff.
It's anything else.
If you're not really thinking about
it, it's easy to forget about it.
So, uh, yep, huge shout out
to everyone that's tuning in.
Louie: And of course, as always,
if you guys have any comments or
feedback, you can send that to,
at Fiscal Firehouse on Instagram
or ask fiscal firehouse@gmail.com.
We're always looking for feedback
and suggestions and willing to
answer your questions if we can.
maybe even on air.
That's, I know that's always fun
for guys when they get one of
their questions answered on air.
So we always encourage that.
And, yeah, I think that's,
that about wraps it up,
Jon: That's it for, yep, that's it
for, part one of the pension episode.
Tune in for part two of the
pension episode and everyone
stay safe out there and, have a,
Louie: have a great, couple
weeks until our next episode and
Jon: Yeah.
Happy St.
Patrick's Day.
I think that's the next holiday, I guess
is what we got on the horizon, yep.
until next time, everyone take care.
And Louis, as always, thanks for
being here, and offering all your
wonderful commentary and, perspective.
Yep.
And, we'll catch you guys later.
The Fiscal Firehouse Podcast is
a podcast curated specifically
for local 1309 members.
This podcast is for informational
and educational purposes only,
and should not be construed as
professional financial advice.
Should you need professional
advice, consult a licensed
financial advisor or tax advisor.
The opinions of John Beatty, Louis
Barilla and their castmates are
solely their own, and don't reflect
that of West Metro Fire Rescue.