The Final Twelve Months Before You Separate From Service

Find out what is actually true

Everything that follows depends on numbers you do not have yet. Most of what people believe about their own pension came from a conversation in a station kitchen years ago, and some of it was wrong when they heard it.

• Get your accrual history in writing from the plan. Not an estimate off a website. The actual rate applied to each period of your service, signed by somebody at the plan. Many plans stack two or three different rates by date, and some published summaries disagree with the plan documents.
• Confirm your normal retirement date under current law. Not the rule you were told at the academy. Pension law changes, and it has changed recently in ways that moved retirement dates by years in some systems. Ask which statute or ordinance governs you, by number.
• Request a formal benefit estimate for at least three different separation dates. The difference between going in March and going in October can be larger than people expect.
• Pull every account you have. Pension, deferred compensation, any supplemental or share account, any union trust, old employer plans, IRAs. Write down what each one is worth and what the rules are for getting at it.
• Check every beneficiary designation. Pension, deferred comp, life insurance, IRAs. Not what you think you put down fifteen years ago. What the form actually says today. Divorces, remarriages and deaths do not update these for you.
• Price your health insurance. Find out exactly what you will pay the day after you separate, and what it changes to at 65. This is covered in its own section below because for most firefighters it is the single largest number in the whole plan.

Make the decisions that cannot be undone

This is the window where the permanent choices get made. Give them the time they deserve, because you will not get a second pass at any of them.

• Model every survivor option in dollars, and do it with your spouse in the room. Ask the plan what your monthly benefit is under each election. Then ask what your spouse receives under each one if you die first. Write both columns down side by side. This is a decision about somebody else's life after yours, and it is usually made alone, in a hurry, in the last few weeks.
• Decide on DROP, if your plan has one, and understand the mechanics. Not just whether, but when, how long, what interest rate applies to you specifically, and what it does to your leave payout. In some plans entering DROP caps what you can cash out.
• Find out what your leave is actually worth, two different ways. How many hours you can cash out, and how many of those hours count toward your pension calculation. Those are often different numbers, and the gap is cash with no pension value attached to it.
• Ask whether your plan will take part of that leave payout as a 457(b) deferral. It is not a rollover, so it has to be elected before the money is paid, and for a 457(b) the election must be in before the first day of the month the check is issued. Most people find out about this a month too late. The rules and the limits.
• Look at the tax year. A final paycheck, a leave payout, and a lump sum can all land in the same calendar year and push you into a bracket you have never seen. Sometimes moving your date across a January solves it. Sometimes it does not. But you want to know before, not in April.
• If you are near 65, start Medicare. Apply at least 60 days before you need coverage to begin. Late enrollment penalties are permanent.

File the paperwork, and watch the clocks

From here on it is deadlines. Most of them are short, several are unforgiving, and nobody is going to chase you about any of them.

• File your retirement application. Ask what the processing time is and get the date your first payment is expected, in writing.
• Ask about the start date rules. Some systems will not let your benefit or your DROP begin before the first of the month after they receive your paperwork, and will not make it retroactive. A form sitting on somebody's desk for a week can cost you a month.
• Understand the retiree health insurance election window, because it is the one people lose. Coverage is frequently not automatic. In many systems you must elect and pay within 30 days of your retirement date, and once coverage is cancelled it cannot be reinstated. Missing it is permanent.
• Apply for any health insurance subsidy you qualify for. Some are retroactive only a few months, so applying late means money you never get back.
• Set up direct deposit and tax withholding on the pension. Decide the withholding deliberately rather than taking the default.

Confirm in writing, and do not cancel anything

• Confirm every form was received. Call. Get a name. Write down the date. "I mailed it" is not confirmation.
• Have the cash ready for the gap. See the section below. This is where people get caught.
• Do not cancel any coverage you cannot get back. If you are unsure about a plan, stay on it. You can drop it later. In most systems you cannot re-enroll.
• Make copies of everything. Every form, every election, every confirmation. Keep them somewhere your spouse can find them without you.
• Tell your plan where you are going to live. A pension check mailed to an address you moved away from is a problem that takes weeks to fix.

Close the loops

• Final leave balance confirmed in writing, with the payout amount and the date it will be paid
• Last day of employer health coverage confirmed, and first day of retiree coverage confirmed, with no gap between them
• Life insurance decision made. Most employer policies end or shrink at retirement, and conversion windows are short
• Contact information updated with every plan and every carrier
• A written list of every account, every plan, every phone number, left somewhere your family can find it

What most people are not told

• Do not rush the lump sum decision. If you have a DROP balance or a deferred comp balance, you usually do not have to decide what to do with it on day one. Rollover rules, tax treatment and access rules differ between a governmental plan and an IRA, and moving money can quietly change what you are allowed to do with it and when.
• If you are a retired public safety officer, look into the $3,000 health insurance exclusion. It lets qualifying retirees pay health premiums from a retirement account without the distribution being taxed, up to a yearly limit. It is written into federal law, it applies squarely to firefighters, and almost nobody claims it. How it works.
• Check your withholding against reality after two or three checks. Pension withholding defaults are frequently wrong for people with other income.
• Revisit beneficiaries once everything is settled. Accounts move during a retirement and designations do not always come with them.
• Put the whole thing on a calendar for twelve months out. Open enrollment, Medicare milestones, and the year your subsidy or supplement ends all arrive without a reminder.