A Special Risk Participant’s Guide to the Florida Retirement System
Navigating the complexities of the Florida Retirement System (FRS) is essential for Special Risk employees like law enforcement officers and firefighters. With so many options, understanding how the system works can help you make informed decisions for your retirement and family. This guide dives into many of this retirement system’s components so you can better understand how to optimize your finances.
Request your free copy of this guide for FRS Special Risk employees and get tips on choosing the path that works best for you. Learn how to avoid mistakes, and get valuable to-do lists to help keep you on track.
The Florida Retirement System offers retirement plans for state and local government employees, including public school teachers, county employees, and law enforcement officers. The FRS is designed to provide retirement income, disability benefits, and survivor benefits to its members.
The Special Risk Class within the FRS includes firefighters, law enforcement officers, and correctional officers. Due to their physically demanding and hazardous jobs, these members typically have higher contribution rates and can retire earlier with full benefits.
This article covers the benefit decisions facing Special Risk participants, but we also have an in-depth book written by our Investment Advisor Representative Gary Gonzalez, a retired Miami-Dade Fire Rescue Battalion chief. We’re happy to send you a copy!
As a Special Risk participant, you have two primary retirement plans to choose from:
Pension plan: This is a traditional defined benefit plan in which a formula determines retirement benefits based on years of service and average final compensation. This plan provides a guaranteed monthly benefit and can offer stability and predictability, which can be reassuring if you prefer a fixed income in retirement.
Investment plan: This is a defined contribution plan where retirement benefits are based on the performance of the investment funds you choose. While it offers the potential for higher returns, it also comes with investment risks. This plan might be suitable if you are comfortable with market fluctuations and seek greater control over your retirement funds.
You have the flexibility to adjust your retirement strategy as your career and finances evolve. For example, you might switch from the pension plan to the investment plan to take advantage of its growth potential as you approach retirement. Making the switch requires consideration of your retirement goals, risk tolerance, and the timing of the transition, among other factors. Watch our video “When Should I Move to the FRS Investment Plan?” for thoughts on making this decision.
Deferred compensation is another aspect to consider within the FRS framework. This plan allows you to set aside a portion of your salary to be paid out later, typically during retirement, when your tax bracket may be lower. Deferred compensation can be valuable for building additional retirement savings beyond your primary FRS benefits.
When considering deferred compensation, it’s important to understand your tax implications and investment options. Contributions to a deferred compensation plan can reduce your taxable income in the current year, but they will be taxed when withdrawn. Additionally, managing your investments within the deferred compensation plan requires consideration of your risk tolerance and retirement timeline.
Including deferred compensation in your retirement strategy could provide extra financial stability and help bridge gaps between your FRS benefits and retirement income needs.
The Deferred Retirement Option Program (DROP) allows eligible FRS members to accumulate retirement benefits while still working for up to 60 months. During this period, your monthly retirement benefits are deposited into a special account, earning interest, while you receive your regular salary. This program could significantly enhance your retirement savings and provide a smoother transition into full retirement.
You could accumulate a substantial amount in the FRS Trust Fund, which can grow with interest.
You continue to receive your salary while your retirement benefits are set aside, allowing you to build a larger retirement fund without sacrificing your current income.
The DROP program provides a phased approach to retirement, giving you more time to adjust to life after full-time work.
Once you enter the DROP program, your retirement date is fixed, and you must retire at the end of the DROP period.
The interest earned in the FRS Trust Fund might be lower than other investment options outside the program.
Opting for a lump sum payment at the end of the DROP period could have significant tax consequences, depending on your financial situation.
Request your free copy of this guide for FRS Special Risk employees and get tips on choosing the path that works best for you. Learn how to avoid mistakes, and get valuable to-do lists to help keep you on track.
FRS retirement benefits are calculated based on factors such as years of service, average final compensation, and the member’s class.
The length of your service plays a critical role; more years of service typically result in higher benefits. Your average final compensation is usually determined by your highest-earning years, often the last five or eight years of employment, which means that increasing your earnings during these years can boost your retirement income. The member’s class (e.g., Regular, Special Risk) also impacts the benefit calculation, with Special Risk members often receiving higher benefits due to the nature of their work and higher contribution rates.
What’s more, understanding the differences between the pension and investment plans is important for achieving your retirement goals. The choice between these plans can involve assessing factors such as career stage, long-term financial objectives, and personal preferences. For instance, the pension plan might be more suitable if you plan to remain in public service for a longer period, as it rewards extended service with higher benefits. The investment plan could be the right choice if you anticipate career changes or want the option to manage your investments actively.
Additionally, consider how each plan aligns with your desired retirement lifestyle. If you prefer a hands-off approach and value the certainty of a predetermined benefit, the pension plan may offer more peace of mind. However, if you are financially savvy and enjoy adjusting your portfolio, the investment plan provides the autonomy to potentially enhance your retirement savings.
Evaluating your comfort level with investment risks, your willingness to stay engaged with financial markets, and your overall retirement vision will help you select the plan that complements your situation.
The Florida Retirement System provides survivor benefits to the designated beneficiaries of deceased members. These benefits are designed to provide financial security to your loved ones in the event of your passing.
Survivor benefits can include continued monthly payments to a spouse, lump-sum payments to designated beneficiaries, and options for children or other dependents. Understanding your options can help you balance your retirement income and your family’s needs.
Survivor benefits vary depending on your retirement plan. You’ll want to take the time to review your options and select the one that aligns with your family’s needs. You can get a head-start with our video on survivor benefits for Special Risk FRS, which breaks down your choices in the pension and investment plans.
Consulting with a financial advisor with expertise in the Florida Retirement System can also provide personalized guidance on the best survivor benefit options for your situation.
The FRS offers several options, each with its advantages and considerations.
Lifetime monthly payments: This option provides a steady income stream for the rest of your life, offering financial predictability.
Lump-sum payments: Opting for a lump-sum payment gives you immediate access to your retirement funds. However, careful management is required to help ensure that the funds last throughout your retirement.
Survivor benefit options: These options allow you to designate a beneficiary, typically a spouse or dependent, who will continue to receive benefits after your death. This choice will generally result in slightly reduced monthly payments to account for the extended benefit period.
Learn more about choosing the right pension payment option and making an informed decision that aligns with your retirement goals and financial needs.
Diversifying your investments and regularly reviewing your portfolio can help optimize your retirement income. Additionally, understanding your risk tolerance is key to developing a successful investment strategy. Younger investors might choose more aggressive investments with higher growth potential, while those closer to retirement may prefer more conservative options to preserve capital.
We believe managing emotions is critical for successful investing. It’s easy to get caught up in market ups and downs and make impulsive decisions. A disciplined approach can help you achieve your retirement goals better than chasing returns. For more insights on this topic, check out our video on what could be the biggest threat to your FRS investment plan.
Effective financial planning is important for making the most of your retirement system benefits. Regularly reviewing your plan can help align it with your evolving goals and circumstances. Significant life changes, such as marriage, divorce, the birth of a grandchild, or changes in employment, can impact your retirement benefits and require adjustments to your plan. Additionally, it’s important to stay informed about changes to FRS rules that may affect your benefits.
Seeking professional financial advice can mean personalized guidance that helps you navigate the complexities of retirement planning. We work with Special Risk Class clients to help them make great decisions and set up a comfortable retirement. We provide ongoing strategies, including budgeting, saving, investing, insurance review, and tax planning.
We help identify potential risks and opportunities and use sophisticated programs to stress-test clients’ retirement plans to help them feel confident that life’s curveballs won’t devastate their finances. We’re happy to do the same for you. You can schedule a call here.
Anticipating potential mistakes can help maximize your FRS benefits and prevent unnecessary financial setbacks. One common oversight is neglecting to update your beneficiaries. Regularly reviewing and updating your beneficiary designations helps ensure your benefits will be distributed according to your wishes.
Another common mistake is failing to consider the tax implications of deferred compensation loans. Understanding the implications and exploring alternative funding sources is essential before taking out a loan from your deferred compensation plan.
Additionally, overestimating the amount you will receive in retirement benefits or underestimating your retirement expenses can lead to financial shortfalls. It’s important to create a realistic retirement budget and account for potential future expenses, such as healthcare costs and inflation.
Finally, being overly conservative or aggressive with your investment strategy can be detrimental. Striking the right balance based on your risk tolerance and retirement timeline can help you optimize your investment returns and achieve your financial goals.
Request your free copy of this guide for FRS Special Risk employees and get tips on choosing the path that works best for you. Learn how to avoid mistakes, and get valuable to-do lists to help keep you on track.
The Florida Retirement System can be a powerful tool for building your retirement and protecting your family. As a firefighter or police officer, understanding the different parts of the FRS and making smart choices can help you achieve your goals. Whether you choose the pension plan or the investment plan, having a clear strategy can make a big difference.
At Northstar Financial Planners, we’re here to help. As fee-only fiduciaries, we don’t sell any products; we aim to provide straightforward advice in your best interest. We understand the financial challenges and opportunities of being in the Special Risk class, and we’re committed to helping you navigate your options.
Ready to take the next step? Schedule a call with us today. We’ll discuss your situation, goals, and how we can help you maximize your FRS benefits.
As always, thank you for reading, and stay safe out there!
