Broker Check
Financial Planning Tips for Police Officers

Financial Planning Tips for Police Officers

April 14, 2023

Police officers have one of the most stressful—and dangerous—jobs in the United States. As a result, they also have different retirement benefits that may allow full retirement after only a couple of decades of active duty.1 For some officers, relying on the police pension may not be enough to retire comfortably and confidently. Here are four financial planning tips for police officers.

Understand Your Pension

Police officers may qualify for a defined benefit, commonly called a pension, after a certain number of years of service. However, not all police pensions are the same. It is important to know if your pension payments are taxable. You want to learn what income and length of service are the basis for calculating your monthly benefit amount. When you plan for your future, be sure to use accurate pension numbers to have confidence in your calculations.

Protect Against Inflation

Some police pensions include a cost-of-living adjustment (COLA). Other pension plans may not have this benefit. If your pension does not include a COLA, it may be necessary to take additional steps to help protect your pension's earning power in retirement. Suppose inflation is 2% per year, and your pension does not have a COLA. Then, after only 10 years, your purchasing power may decrease by up to 20%.

Some assets may help prepare for inflation better than others. Talking to a financial professional may help you get a better idea of what you need to do to mitigate the impact of inflation on your portfolio and manage any rising costs in retirement. 

Know Where Your Dollars are Going

One way to consider improving finances is to cut unnecessary expenditures in your budget. If it has been a while since you took a comprehensive look at your monthly spending, it may be worth considering what costs, if any, you can cut. You might be surprised at how much money you might free up each month simply by cutting out unnecessary recurring expenses. Examples of potential savings are pausing streaming subscriptions for a month or two, using coupons at the grocery store or refinancing any high-interest loans.

Consider Supplementing Your Pension

For decades, public employers chipped away at pension benefits as the life expectancy increased and pension obligations became more expensive to support. As a result, it is important to evaluate alternate income streams to supplement your pension. Having more income may guard against inflation and some increases in the cost of living. The broader your income sources in retirement, the more flexibility you might enjoy.

Supplementing your pension might include some of the following strategies:

  • Getting a part-time job
  • Purchasing a rental property or renting out your home
  • Teaching as adjunct faculty at a local community college
  • Publishing a book or another publication that provides you with royalty payments
  • Investing in dividend-producing assets

Since there is a relatively short window to build this supplemental income, the earlier you get started, the better. Do not rule out one or more of these options as part of your second career after retiring as an active officer.



Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

LPL Tracking #1-05252365