How to Help Maximize Your First Responder Pension and Retirement Benefits

If you're a police officer, firefighter, EMT or paramedic, your pension is a cornerstone of your retirement, rewarding your hard work and service with the security of a guaranteed income stream.

Like many retirement plan participants, however, you may have questions about how to get the most from your pension, and the pros and cons of options your plan might make available to you. We’re here to help guide you through some typical pension features and the decisions that could have a lasting impact on your retirement.  

UNDERSTANDING YOUR PENSION AS A FIRST RESPONDER

As a first responder, your pension is part of a state or local public pension system. For example, the California Public Employees’ Retirement System – CalPERS – includes a program specifically to provide PO/FF, or Peace Officer/Firefighter retirement benefits.

Your pension is what's known as a defined benefit plan, meaning that it promises a specified, pre-determined monthly benefit at retirement. That sets it apart from a defined contribution plan, like a 401(k) plan, where participants take on the investment risk and don't get a guaranteed retirement benefit. Most state and local government employees have access to a defined benefit pension, and in 2022, 87% of those workers participated in them. In the private sector – where 401(k) and similar plans are more common – only 15% of workers had access to pensions.

Public pensions typically determine benefits based on a formula that includes three factors:

• Final average salary – In most states, this is the average of the last three or five years of salary, though other systems use the three or five highest years of salary throughout your career.
• Service credit – Your length of employment, which can also determine eligibility for retirement.
• Retirement multiplier – This percentage determines the amount of the annuity, the pension’s guaranteed payment.

For example, you retire with a final average salary of $100,000, with 30 years of service, in a plan with a multiplier of 2%.

Your annual pension benefit would be $60,000 ($100,000 x 30 x .02).

Your years of service times the multiplier – 60% in this example – is also known as your “replacement rate,” the percentage of your final average salary you receive as a retirement benefit.

WHEN SHOULD YOU RETIRE? TIMING IS EVERYTHING

With retirement benefits tied closely to your years of service, you might have pondered when it makes the most sense to stop working – both from a financial and an emotional standpoint.

For law enforcement officers, firefighters and other first responders who are members of public sector pension systems, early retirement is usually an option. However, you’ll need to meet both vesting and early retirement eligibility requirements (minimum age and/or years of service), which differ by plan and can depend on your specific job class.

The hazards and stress of the job could play a role in your decision. In New Jersey, a “burnout” law was enacted to allow some police officers and firefighters to retire with a partial pension after 20 years of service – regardless of age or enrollment date.

The risk of burnout is one important factor when weighing whether to retire early or keep working. But there are many others. If you’re enjoying your work and you’re in good mental and physical health, you can continue to grow your salary and increase your service credit – and your future pension payout. If you’re eyeing a new direction for your career, however, you can take early retirement benefits when eligible and continue working in another capacity. Ultimately, your decision comes down to what’s best for you and your family, and how you value both the monetary and intrinsic rewards of the job.

STRATEGIES TO HELP MAXIMIZE YOUR PENSION BENEFITS

One of the biggest advantages of a pension is that there are built-in ways to increase your benefit over time and help maximize your retirement paycheck.

BANK MORE YEARS OF SALARY – AND POTENTIALLY OVERTIME

As we’ve seen, working additional years can help increase your service credit, your final average salary and your ultimate payout at retirement. Overtime hours can also help boost your pension benefits, but it depends on your plan’s rules. While some public pension systems include overtime in pensionable earnings, many plans cap the amount that can factor into the final average salary calculation. In New York, for example, some members of the Police and Fire Retirement System have an overtime limit of 15% of their regular earnings.

KNOW YOUR PENSION MULTIPLIER

The pension multiplier that’s part of your benefit calculation can also go up the longer you work, so it’s important to know the pension formula and multiplier (sometimes known as a benefit factor) that applies to you. Let’s look at CalPERS for an example. One of its formulas for Peace Officers and Firefighters is “2.5% at 55.” You can retire as early as 50 with a 2% multiplier. But the multiplier increases by .1% each year, maxing out at 2.5% at 55 or older.

CONSIDER BUYING SERVICE CREDIT

There are several potential scenarios where you might be able to buy service credit. One of the most common is to purchase credit for the time you worked for a participating employer before becoming a member of the plan. Some pensions also allow you to purchase military service credit. The cost of service credit is a percentage of your earnings over a specified period – in New York’s pension system, it can cost between 3% and 6% of gross income plus interest, depending on your job tier. Purchasing credit requires a cash outlay now but can pay off later. Remember that the more service credit you have at retirement, the better your retirement benefit may be.

UNDERSTAND COST-OF-LIVING ADJUSTMENTS

A cost-of-living adjustment or COLA is provided on most state and local government pensions. The purpose of COLA is to help offset the effect of inflation on retirement income. Using actual inflation rates over 20 years, the purchasing power of $25,000 would have declined to $15,638 through 2022 – 63% of its original value. COLA can help make sure your pension benefit goes further. COLA calculations in public pensions vary, but in CalPERS for example, it’s based on three factors: The Consumer Price Index (which determines the rate of inflation each year), your employer contracted COLA percentage and the year you retired.

WHAT IS A “DROP” AND IS IT RIGHT FOR YOU?

If you’re eligible to begin your pension benefit but want to keep working, you may be able to take part in a deferred retirement option plan.

Here’s how it works: When you participate in a DROP, you stop accruing years of service toward your pension. Instead, your employer puts your pension money into an interest-bearing account. Once you retire – which could be required within a certain number of years of DROP enrollment – you’ll receive the amount in this account along with your regular pension payments. DROP elections are binding and irrevocable regardless of whether your circumstances change.

You may have a choice of taking your DROP money in a lump sum or in periodic installments. If you choose a lump sum distribution, be aware of the tax consequences, as you might be pushed into a higher tax bracket. However, you also may be able to roll DROP funds into another retirement account like an IRA where any growth enjoys tax-deferred status.

Not sure if a DROP is right for you? A financial advisor can help you weigh the pros and cons and make an informed decision.

DON'T FORGET THESE OTHER RETIREMENT BENEFITS

HEALTH CARE

While some employers may offer first responders retiree health benefits, it’s not a universal practice. However, programs like HELPS – Healthcare Enhancement for Local Public Safety Officers – can help make it easier to bridge the gap between retirement and Medicare eligibility. Under HELPS, you can use up to $3,000 of your pension benefit annually, pretax, to help pay health or long-term care insurance premiums. And thanks to a provision in the SECURE 2.0 Act, you can now make these payments directly to an insurance provider – so you don’t have to rely on a plan administrator to make the distribution.

SPOUSAL AND SURVIVOR BENEFITS

Your pension is a critical part of your financial security during retirement. But it may also help provide for your loved ones after you die. Your plan guidelines can explain the specific benefit available to your beneficiaries – it will probably depend on an election you make at retirement – but it may be a percentage of your remaining pension amount, paid either as a lump sum or a monthly allowance.

SOCIAL SECURITY

Until recently, a pair of provisions reduced Social Security benefits for public workers who also received a government pension. The Social Security Fairness Act, signed in January 2025, repealed those provisions, meaning if you were impacted, you may now qualify for a full Social Security benefit in addition to your pension. While that’s great news for your retirement income, it may also require a shift in your retirement strategy, including tax planning, estate planning and coordination with your spouse’s Social Security benefits. This income bump – potentially hundreds of dollars more each month – could even affect your decision about when to retire.

WORK WITH AN ADVISOR WHO KNOWS FIRST RESPONDER BENEFITS

Having a pension – and the guaranteed income that comes with it – can be a big advantage in planning for a long and secure retirement. But options and features vary in each system. Our advisors can review your plan with you, guide you through key decisions and help make the most of the benefits you’ve earned.