Don't Just Count On Your Pension Plan For Retirement. Why You Need To Save More.
Think pension jobs guarantee an easy retirement? Here's why you still need to save.
I recently caught up with Ryan Luke, a police lieutenant and self-taught personal finance expert and blogger. His blog, Arrest Your Debt and Build Your Future, speaks to first responders about how to get out of debt and build their savings. He decided to launch his blog about 1.5 years ago when he realized financial literacy is a missing piece of most first responder wellness programs.
Ryan shares personal stories with the hope he’ll inspire first responders and other government workers to become more active in saving for retirement.
Go beyond the pension contribution to establish savings strategy
MELISSA: Tell me about a “day in the life” for you?
RYAN: I am a lieutenant, which means I’m a few levels up and I don't get to do all the fun stuff like I used to, as far as kicking in doors and wearing a uniform. I'm over in our property crimes unit, which includes financial crimes, auto theft and commercial crimes.
MELISSA: Are you planning for your retirement and/or do you have a date in mind?
RYAN: Yes, in four years I become eligible for retirement. As a public employee where I live you become eligible for a pension. The longer you work past 20, the higher your pension will go. For instance, at 20 years, you get half of your highest-paying three years for the rest of your life. So if I made say $100,000 a year, I would get $50,000 for the rest of my life. It tops out at 80% of your salary when you hit 32 years of service.
MELISSA: That's pretty sweet. Jobs with a pension are few and far between.
RYAN: Right. They're kind of a thing of the past.
MELISSA: Tell me about your blog, Arrest Your Debt.
RYAN: My blog offers lots of information about responsible personal finance. I talk about how to pay down your debt and how to budget. There are ideas for making more money and topics for families looking to spend less.
MELISSA: What made you want to launch a blog?
RYAN: I know from my early experience as a young officer, that public employees expect the pension to be there when they retire. After I moved up and became, essentially, a manager, what got me was I would walk into a precinct parking lot and look at everyone's lifted trucks with big tires. And I'm like, “I know how much you guys make. You can't afford this.” It drove me nuts how these young guys would spend everything they made.
A lot of them, off duty, including myself, are working different jobs. So my days off now and then, I might work at a mall and do security to earn some additional money. But a lot of the guys will work all of their days off doing just to pay for their boats and big houses that they're never able to use because they're always working.
So witnessing that is kind of where it all started. I decided to write a book about how to build wealth on a public servant salary because my wife and I have learned to save well and manage our money fairly well.
My idea evolved from a book though. I realized, talking to some of the younger millennials, that they don't really read books anymore. They do more of podcasts and YouTube and blogs and things like that. So I was like, oh, man, I'd be wasting my time here.
I already had a lot of material already prepared that I could transition into blog posts. I started writing the book about five years ago so I had plenty of content to convert into blog posts, in addition to inviting guest bloggers to contribute.
MELISSA: I heard you are teaching as well. Tell me about that.
RYAN: I teach a lot of police officers, as well as other types of first responders about the importance of saving for retirement. I remind them that cities, such as Detroit, have gone bankrupt and pensions can be ruined. I also encourage them to think outside the box of relying on your pension.
I tell them “you might live for another 30 years after you retire.” We don't always get cost of living raises either. So a lot of these retired guys are having to go back to work and get second jobs because they didn't think about putting money into our deferred comp/457b retirement accounts.
The best advice is to pretty much ignore the fact that you have a pension. I don't know about you, but I personally would rather control my own future and let the government figure it out.
MELISSA: Yeah, so if your city, for example, went bankrupt, would you lose your pension?
RYAN: My pension is funded by the state [of Arizona], but Detroit officers had a city-funded pension. It’s very unlikely we would ever all lose our pensions, but I still invest about 18 percent outside of my 7 percent pension requirements, just to make sure that I’ll be able to live a healthy and wealthy life.
MELISSA: Do you have like an IRA a 401k or a different type of investment vehicle?
RYAN: First responders have 457b accounts. And they're pretty much like a 401k. However, they have slightly different rules. So we also have the option of putting in a 457b Roth or the traditional 457b, which allows before-tax annual contributions of up to $19,500 this year. We are eligible to withdraw from it without penalty immediately upon separation, whether you are retirement age or not.
I just set up a certain amount to be deposited from each paycheck, so it is automated and I never even see it. When you’re younger, new in your career and making less money, it’s not so easy. But eventually, every year when I would get a raise, I would bump up the proportion of my contribution by a percentage. I never felt a big hit.
MELISSA: Do you have other ways you invest?
RYAN: We have $35,000 in mutual funds as our six-month emergency savings. We also have a regular emergency fund with our bank.
MELISSA: Did you ever have to deal with paying down a great amount of debt?
RYAN: Yeah, Market Watch did a story about my wife, Courtney, and me. Some of our debt was from a consumer mentality. I once had the belief that a vehicle only lasts 100,000 miles and if you get 101,000, it's just going to break. So we had new vehicles. My wife had a brand new Tahoe and we had over $50,000 in car loans.
I had bought a condo in 2004 that ended up being foreclosed as a result of an adjustable rate mortgage I couldn’t afford after the economy crashed. We were not good with money. And I remember the pivotal moment when I realized I was awful with money. My wife sat me down and said, “you spent over $1,000 this month eating out at restaurants while you were at work.”
MELISSA: Wow! But from what I do know, spending on food is part of the culture in law enforcement, right?
RYAN: Yeah, everyone spends money on food throughout their shift. You’re on the road but that's not really an excuse.
You could easily put an igloo cooler in the backseat and throw food in it, but it's just so much. It's so convenient to go out and just eat and then you get used to it. It's only five bucks here and there and most people have no idea how quickly it adds up. When Courtney told me I had spent $1,000 on eating out one month, I realized I did not gain $1,000 worth of value in my life by eating out all those days.
It can be so unhealthy too. It makes much more sense to bring your lunch but the biggest thing is failure to plan, which is what I was doing.
MELISSA: Tell me more about “failure to plan.”
RYAN: This is what I’m passionate about—helping first responders avoid failing to plan. You see, we have plans and operations orders for everything. If there's a guy with a gun barricaded in the house, I know exactly what I need to do, I need to do A B C. It's all laid out.
Yet, when we’re done working and we head home, we don't want to deal with it. We don't want to make any decisions. When my wife says “where do you want to eat?” I'm done making decisions, I do that 40 plus hours a week. I'm in charge of things, I just want to do nothing.
I'm sure it’s the same in the corporate world and elsewhere. We invest so much of our time and energy into our jobs, that when we come home, we don't want to invest more time and energy trying to plan our lives by doing a budget. Or worrying about retirement. We kind of just expect these things to work themselves out. And it doesn't always happen that way.
MELISSA: I can relate to that. As women we often feel pressure to manage at work and at home and it can be exhausting.
Which piece of content is your favorite of everything you’ve done?
RYAN: I love the post “Is money affecting your marriage?” What I really like about it is, so many of my friends and their wives or significant others have separate bank accounts, separate cards, separate everything. They're each trying to achieve their own financial goals separately. Like the wife's trying to pay off her car and then the husband's trying to pay off his car at the same time. You want to tell them, “guys do this work together. Why do you not have one account and knock your wife's car loan out immediately?”
Working together is much stronger than working one on one. You’ve got to “live together.” It's always been more helpful from my point of view.
MELISSA: I could not agree more. And I'm always shocked when married couples have completely separate accounts. How does it work when it’s time to pay your bills? “I paid the cable bill, you pay the garbage bill,” just adds tension.
RYAN: It does.
MELISSA: What parting message do you think is most important for Think Save Retire’s audience to hear from you?
RYAN: You can live the life you want on a smaller salary than you would envision. It may take longer but it's really about budgeting and recognizing your priorities and what adds value to your life.
Seeing the cold hard truth that I was spending $1,000 a month on food during my work shift crystallized it for me.
I would much rather go on vacation, I would much rather have experiences with my family. Maybe some people would much rather have that shiny vehicle. I mean, I'm not going to tell you what your values are. But no matter what you value in life, if you budget your money, you can achieve those values while getting rid of the other stuff.
Where to find and connect with Ryan: