Many of us will spend some well-deserved time with our families over the summer. We all want the best of our family, but have we taken the time to ensure that our families will be taken care of in the long-term. While thinking of finance and death planning is not the highlight of anyone’s thoughts, if overlooked, it can ruin what we have worked for, the betterment of our family. I will discuss some areas that you should review over the summer while you have the attention of your significant other and have your family front and center to remind you why you work hard to provide for them. I will state that I am not a financial advisor, an attorney, or any other estate planning expert, but have utilized attorneys and financial advisors, as well have read numerous books on the subjects to have verification of what is sold to you, because everyone must realize that these areas work on commission, thus the only one looking out for you, is you!
The majority of paid firefighters have a pension relate to their jobs. Many of these are municipal or state-based pensions that are defined benefit pensions, which means that you receive a certain amount of money each year based on parameters set by the system, such as 67% of you top three years of earnings. This is one of the greatest benefits related to the positions, but over time, just as is the case with other pension systems, the parameters have changed. In Ohio, the retirement age has increased, and the average of salary has changed to five years from 3. In Kentucky, the pension has changed to a 401K, which is dependent upon the stock market performance and is subjected to the high fees that are often charged to this type of system. While I can guarantee that we will see more changes over the next decade, I can not predict what will occur. The advice I would suggest is the further away from retire that you are currently, the bigger the change not in your benefit will you see. While there is some validity to the solvency of the pension systems, as retirees live longer due to the increase in the average life expectancy, there is incentive to those in government to help their donors (financial companies) receive more participants, which is more commission.
In addition to a pension, many firefighters participate in a differenced compensation program, often a 457 plan, which has different rules for access to the monies due to the lower retirement age. A typical 401K does not allow access to the monies until 59.5 years of age, which could be 11 years after retirement. One of the biggest issues that presents itself in this type of plan is the sales of beating the market. I was subjected to this sales pitch and lost many dollars to high fees and churning of investments. The only person that beat the market in this scam was the guy selling us the idea. Unfortunately, this program was tied to a firefighter’s union, which made us believe it was in our interest. If you have time to listen to the book Money: Mastering the Game by Tony Robbins, it will open your eyes to the world of investing and the fees and charges associated with the system. Review the bet that Warren Buffet has that the best money managers cannot consistently beat the S&P500 index performance. Makes you wonder why we are all paying the management fees if you can just invest in a non-actively managed index fund
Will and Trusts
None of us live forever, therefore we all need to have a will and hopefully a trust in case we do not live as long as we anticipate. Hopefully as we approach the later years of our careers, we will have amassed assets, such as our savings, deferred compensation, homes, and cars. If we were to die prematurely, we hope that the smooth transition of our assets will occur for our significant others and our children. However, most states do not have this smoothness built in. When my father passed, it took nearly 2 years to settle the estate. If you have children, consider a trust. This allows your assets to bypass probate and be distributed as you wish, without delay. Imagine if your younger children could not access monies and you needed to rely on friends to buy their needs for years, if they allowed the children to stay with your friends. Don’t leave to chance that the workers in the government are going to make the same wise choices that you would make.
While this is not the exciting items that we usually discuss, this is truly the important people in your life that need your ability to provide while you are here and your proper guidance when you are no longer here. While we would like to think that many of these issues can be left to the professionals, we must know that these professionals often have their own interests ahead of yours and without the proper education, you can loose multiple thousands of dollars for you and your family by following the experts’ advice.