Investing For First Responders

First responders face unique financial challenges. Long hours and irregular schedules punctuated with physically and mentally high-risk work environments can present obstacles to planning and managing their financial stability and long-term investment goals.

UNIQUE FINANCIAL CHALLENGES OF FIRST RESPONDERS

First responders are regularly faced with the possibility of career-threatening injuries, making good disability and life insurance a must. Just as vital is having a financial backstop. This is why it is important to begin investing as soon as possible. The sooner you start investing, the more comfortable your retirement will be, as well.

THE FOUNDATION OF YOUR WELL-BEING

The life of a first responder makes it easy to put off thinking about things like retirement, but being proactive now can prevent trouble in the future. Having a budget and a solid investment plan is vital to building a foundation for your long-term success. As well as needing to know how much you can invest, you need a specific goal and timeline to motivate you.

The place to begin your financial planning is your pension.

PENSIONS (and other tax-deferred investments)

Pensions are one of the big perks of being a first responder. They can provide a level of retirement funding surpassing the 401(k) savings of someone in a high-paying job. Having said that, many pensions suffer from chronic underfunding and mismanagement as administrators take on risky bets to cover the shortfall. You may need to look outside your pension to fund your retirement.

First, make sure you are getting the most out of your pension. Your union should have someone who can help you maximize your benefits. Secondly, if your employer offers a 401(k), especially if they match contributions, you should fund it to at least the level to maximize those matching contributions. It’s even better if you can contribute as much as possible without causing financial hardship to yourself. The tax advantages of a 401(k) and the ability to choose where your money is invested (unlike pensions) mean that you are nearly always better off investing through a 401(k) than making regular investments.

Cities and states may offer 457 plans instead of 401(k) plans. These plans were specifically tailored for governments. They mostly follow the same rules as 401(k) plans. One key difference is that the IRS does not levy a penalty for early withdrawals from a 457 plan. Some governmental bodies will offer both 401(k) and 457 options for tax-deferred retirement savings as an addition or replacement for pension plans.

FORMING AN INVESTMENT TEAM

As a first responder, you likely don’t have the time or mental energy to do all the research required to choose investments. This is why you need a financial planner and a tax advisor. Poll friends and family for recommendations when choosing a financial planner.

Make sure that the professional you choose is credentialed. Two major types of financial advisors are Certified Financial Planners (CFPs) and Registered Investment Advisors (RIAs.) Remember that anyone can call themselves a financial planner or investment advisor without needing to have any training.

Make sure to hire a fee-based financial advisor instead of one who earns commissions. Commissioned financial advisors are paid by the companies whose products they sell to customers. Fee-based financial advisors are compensated by you. Making sure the counselor has a fiduciary duty to you is equally vital. Fiduciaries have an ethical obligation to prioritize your needs before their own.

RISK MANAGEMENT FOR FIRST RESPONDERS

Deliberately putting yourself into risky situations is part of being a first responder. This is not how you want to invest, however. One of the first things to do when making your investment plan is to determine your risk tolerance. Great rewards come with great risks, and smaller risks have smaller rewards. One advantage of a long-term investment mindset is that losses can be made back, given enough time.

Taking your appetite for risk into account when making investment decisions makes it less likely that you will sell an asset under unfavorable conditions.

INVESTING FOR FIRST RESPONDERS

Being prepared to act on a moment’s notice is a necessary survival skill in your job. You have to resist that urge when investing. Warren Buffett is one of the best investors in the world, and even he doesn’t try to time the market.

It’s important to have a buy-and-hold mindset. Putting money into a broad-based index fund is a good “hands-off” way to invest. Better yet, most 401(k)s offer index funds as a choice for your tax-advantaged investments. The combination of pension and index funds will give you a stable investment foundation to build upon. This opens the path to more active investments.

This can be a more focused ETF or individual stocks.

When choosing individual stocks to invest in, start by looking at companies that make things that you know and like. Ask your financial planner for feedback and advice. If your investments aren’t large enough to pay for a financial planner, you will need to do your own research. Whatever you do, don’t look for good investment advice at the station house or from “investment advisor” shows on the radio or TV, or anywhere else that promises hot tips and can’t-miss longshot trades.

RETIREMENT AND FAMILY

You might be surprised at how much you will need to save for a comfortable retirement, especially if you plan to travel. This is one reason to start investing as soon as possible. Many first responders can fall prey to thoughts that they won’t live to see retirement, but the odds are in your favor that you will. This makes it important to regularly grow your investments so that you can retire when the time comes instead of being forced to work in your old age. Even if the worst comes to pass, you will want to leave a legacy to your family to help them after you’re gone.

INVESTMENT: THE EASIEST HARD CHOICE YOU CAN MAKE

Being a first responder means making hard choices every day. Choosing to invest toward retirement will be the easiest hard choice you will ever make. While it means cutting back on unnecessary spending now, it will pay off later in life.