By Gary Gonzalez
Hello. I'm Retired Battalion Chief Gary Gonzalez, and today, I'm just taking it easy, reading a great book. Back when I retired in 2009, I knew I needed a retirement that was as worry- and stress-free as I could make it so that I could enjoy my retirement without the financial concerns that so many of us have.
One of those big concerns is the cost of health insurance and what we have available to help us with those costs in retirement, and that's what I want to talk to you about today. It's one of those areas where we hear a lot of misunderstandings about what we have available to us to help offset the burden of those costs.
3 Sources of Insurance Subsidies
So let's dive right into it. It's important to know that there are three sources of insurance subsidies potentially available to you. The first is the health insurance subsidy that is provided to all vested FRS employees by the state of Florida. Under this subsidy, you receive a monthly benefit of $5 for each year of creditable service, for a minimum of $30 and a maximum of $150 per month.
That's a nice chunk of change to apply to your monthly insurance payments, and thanks to the Pension Protection Act of 2006, you can apply those dollars tax-free up to a maximum of $3,000 per year.
The second benefit is provided by Miami-Dade County—currently, $150 a month for the first 10 years of retirement to all firefighters who have completed 25 years of special risk service or more. It's important to remember that there is no prorating of this benefit. It's all or nothing. If you worked 24 years and 11 months, you do not qualify. You must have completed 25 years of special risk service or more to receive this benefit.
Last, but definitely not least, retirees who are or have been union insurance trust members may be entitled to receive up to $450 a month until age 65 when Medicare kicks in. At that time, the amount is reduced to $225 a month. There are two different participation rules depending on when you were hired: before July 1st, 2000, or after. I'll explain both rules one at a time with examples.
Rule #1: If you were hired before July 1st, 2000, you must have been a union insurance trust member for 25 years or more to qualify for the full benefit. You must have participated at least 20 years to receive any benefit at all, and the percentage you'll receive will be:
3% x Years of Service x Maximum Monthly Subsidy
OK, so under Rule #1, if you worked less than 20 years, you would not receive any supplement. If you worked between 20 and 24 years—let's say 23 years as an example—and you are younger than 65, you would multiply 3% times 23, which is 69%. Then you multiply 69% times $450, and the resulting amount is $310.50.
Rule #2: If you were hired after July 1st, 2000, you would have to reach retirement eligibility under FRS guidelines for firefighters hired before July 1st, 2011—namely, age 55 or 25 years of service—to be eligible for this union subsidy. For Rule #2, the multiplier is:
4% x Years of Service x Monthly Subsidy Amount
So a firefighter who retires early, before age 55, with less than 25 years of service, would not receive any union subsidy.
If you meet full retirement eligibility—age 55 or over, or 25 years of special risk service at any age—you would receive the amount equal to 4% times years of service times the monthly subsidy amount for a maximum of $450.
So, using this rule, if you retire at age 55 with 23 years of special risk service, you would receive 4% times 23 years or 92% times $450, which works out to be $414 per month—again, until age 65 when Medicare kicks in. At that point, you would receive $207 a month, which is 92% of $225. See? It's really not that difficult.
Your Deferred Compensation Account and Health Insurance
I'd like to circle back to the Pension Protection Act of 2006 and touch briefly on one of the benefits of funding your deferred compensation account as it relates to health insurance. Your deferred compensation account is a qualified governmental account, and because of this, you can have Nationwide or ICMA send the remainder of the $3,000 allowed annually directly to your insurance provider to take full advantage of the tax-free benefit.
You calculate this amount simply by subtracting the yearly health insurance subsidy you receive from $3,000. I'll elaborate more next time on why I believe funding your deferred compensation account as fully as you are financially capable is so important. So, thanks for watching, and I hope you found this helpful. I'll post a new topic every couple of months or so to keep you informed of benefits available to you as well as pitfalls we see firefighters fall into that you want to make sure you avoid.
If you'd like a copy of A Firefighter's Guide to Retiring from the Miami-Dade Fire Rescue Department that talks about the health insurance subsidy, as well as many other important things you need to know before you retire, just give the office a call at 954-693-0030, and we'll send you a free copy.
A special thank you to Dale Sutton for helping me navigate through the various rules of the union insurance subsidy. As always, if you have any questions or concerns, feel free to contact me at Northstar Financial Planners or on my cellphone. Until next time, be safe out there.
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