By Allen Giese, ChFC®, CLU®, ChSNC®

Transcript:

Investment plan or pension plan? There’s probably no bigger decision involving your FRS Retirement than that. Do you retire with the monthly pension check from FRS, leaving the investing up to FRS, or do you take the lump sum value of all those future payments, collect that one big check and take control of the investing yourself?

Over the years we have counseled hundreds of special risk FRS participants, firefighters and police officers, on what the best choice is… for them. And what might make perfect sense for one may be completely wrong for another. We’ve seen participants make good, rewarding decisions here that clearly was the right choice for them and we’ve seen others make disastrous decisions… choices that they eventually realized were very wrong for them. And we’ve learned a LOT through all these years about what the most critical factors you need to consider are. 

I’m Allen Giese, founding partner and President of Northstar Financial Planners, your FRS Special Risk wealth manager.

15 years ago one of my closest friends brought to me his entire FRS retirement plan to review, including this very decision, IP or Pension. It became crystal clear to me that so much of the advice he was getting at the time just wasn’t good… it was biased and uninformed in so many cases. That’s when we realized that we could make a real difference for so many FRS Special Risk families. Because of his experience and my 29 years as a financial planner, our passion here at Northstar has been helping Special Risk FRS participants make better decisions with their finances and better achieve what is most important to them.

So in this short video, over the next 10 minutes, I’m going to show you what we believe are the 3 most important factors to think about when considering the Investment Plan versus the Pension. Why the Investment Plan may be the best choice for you… or why it may be the worst choice for you. Our aim is to leave you with some thoughts maybe you hadn’t considered… ideas that might make your decision a little easier. Whatever the case, whether you are just starting to think about retirement, or have been working on it already or you are right on the cusp, just about to retire, you’re going to get something out of this.

1: Is legacy an important goal for you?

For many of those who have chosen the investment plan, leaving a legacy, or something for their next generation or perhaps even a charity, was very important to them. The idea that their pension income, that monthly deposit into their checking account from FRS, was going to stop when they died had just too much finality to it… and risk. The risk that, what if they were to die shortly after retirement? They felt as though they would have been cheated or short-changed by not being able to pass on all that future income if they checked out a bit earlier than expected.

And that is the nature of pension plans… they are there to provide an income stream to you for as long as you live. And that’s it… it’s just a guaranteed stream of income. It’s not a pile of money, like the Investment Plan is. And therein, is the big difference. The pension plan is a stream of income that is guaranteed to last as long as you do, or you and your spouse do. The Investment plan carries with it no such promise. It’s just a pile of money. And with that comes a different level of responsibility if you want to make it last… If you want to make sure there is something left over for your heirs when you die. It’s not guaranteed. 

We talk about some of the additional responsibility you have and how to be successful in the Investment Plan in our book: A Public Safety Officers Guide to the Florida Retirement System, which you can get absolutely free if you are an FRS Special Risk participant. Just send us an email and we’ll send you the book. It’s that simple.

So do you want to do everything you can to leave money for your kids or someone else when you die? If that’s really important to you then perhaps the Investment Plan should be something you consider.

2: Are you responsible with money? 

Are you responsible with money? Think about how well you’ve done over your life with money. Do you have a good track record of living within your means and not outspending what you make? Do you have ongoing credit card debt or have you in the past taken out loans on your deferred comp plan to purchase things for your home? 

Being able to live within your means and perhaps even sacrifice a few things you’d like to have but that really aren’t in the budget is an extremely important trait to have if you are going to be successful in the Investment Plan. You see, the pension plan gives you no choice. Each month you get a check and that’s all you get. If you run out of money in week 3 you can’t go back to FRS and say, hey, I ran out, could you front me a few bucks till payday? But you can do that in the Investment Plan and that’s dangerous. 

Those that we’ve found are successful in the Investment Plan really are those that treat it like a pension. They set up a reasonable and prudent amount of income from it each month and they stick to it. They don’t rack up debt and they don’t create situations where they need to go back for more. Not an easy skill to change if you are used to spending all you make.

So if you take an honest assessment of your life and see that in the past you’ve really struggled with always having debt and always wanting, and purchasing, more than perhaps you should, then I would urge you to consider the Pension plan as the best thing you could do for yourself. The Investment Plan could be a disaster for you.

3: Are you comfortable with investing and do you have a strategy?

How comfortable are you with investing? If the market takes a tumble, as of course it does from time to time and that’s not going to change just because you retired, does it cause you a lot of discomfort? Do you have an investment strategy? Is it time tested and are you able to stick to it?

Having a time tested, proven investment strategy that you can stick to through thick and thin is clearly something we believe you MUST have if you are going to have a good experience in the investment plan. If you don’t have a plan and just wander aimlessly through whatever investments you hear about then in our opinion you are setting yourself up for disaster.

We’ve all heard the saying, a person who stands for nothing will fall for anything, right? Well certainly, an investor who doesn’t have a clear understanding of how markets work and an investment strategy to efficiently capture the returns that markets produce, will have a tendency to basically fall for, or at the very least, be susceptible to, any investment scheme that sounds good at the time. 

There are numerous investment strategies you could follow. Here at Northstar we subscribe to an evidence-based strategy that focuses on the dimensions of returns that various global asset classes produce. That’s the strategy we use with all our FRS Investment Plan clients. If you’d like to learn more about that, drop us a line.

So we’ve touched on what we believe are the 3 biggest things you should ask yourself if you are grappling with the question of Investment Plan vs Pension Plan. It would also help you to take a look at the piece that FRS has on the myFRS.com website that talks about all the different points to consider. If you are interested I’d be glad to send you a copy of that piece… just shoot me an email and I’ll send it back to you.

Besides the Investment Plan vs Pension plan question, we get a lot of other questions people call us about. But the number one question we get is if we offer a Second Opinion on your financial plan. We certainly do. And it’s free to FRS Special Risk participants.  We’ll meet initially to talk about what’s important to you, where you are now and where you want to go. By the way, all our meetings during this time of Covid 19 are done virtually, of course. We’ll look to see if there are any gaps and give you our ideas on how to fill those. After those two meetings one of three things is going to happen. One, you might see how working with us would add some value to your life and we’ll talk about how we might be able to help you and what that costs. Two, you could be in excellent shape and there’s really nothing or not much we can help you with so we’ll tell you to just stay the course… you’re doing fine on your own and obviously don’t need us. Or three, you might need some help but we’re not the right place to help you. In that case we’ll point you in the direction for the help you need.

In any case, you’re coming out better off.

We all run into big decisions we have to make, where the outcome of that decision is really going to impact our future in a big way. Sometimes those situations are complex. I know I had such a decision recently and soon realized that I wasn’t seeing the whole picture so I sought out and found somebody who does nothing but solve this one particular situation I was in. I listened to this person and now, a few years later after following her advice I see that I was well guided and whatever I paid for her advice was well worth it. 

Here’s what I know to be true. When we have a big decision to make and seek out help from real professionals who understand the intricacies, and who, perhaps most importantly, aren’t paid based on you buying something from them, it can really give you a leg up on being able to clearly see the best options for you.

Our passion here at Northstar is helping FRS Special Risk folks make better decisions with their finances. It’s what we do. And since our existence isn’t based on selling you financial products we are able to do it in an unbiased way.

Thanks for watching and thanks for liking this video below … when you like it you are helping other FRS participants by guiding them to it.

We appreciate the important work you all do for our communities. Keep safe out there.

Schedule a complimentary consultation with a fee-only financial planner to discuss your personal situation in more detail.