The EMS Survivalist Part 2: Creating Your Own EMS Retirement Plan

The words “retirement” and “EMS” seem to go together like oil and water. It has become common belief in our industry that the only way to retire is to find a public safety job with a pension plan. I used to think the same thing. A fixed “years of service” requirement and a “guaranteed payout” for the rest of my life seemed quite appealing, and why wouldn’t it? It’s a plan that essentially requires nothing more than my loyalty for 30 years.

Here’s the problem.

While pension plans are a wonderful benefit, a lot of stars have to align to make sure that you actually receive (or continue to receive) the payout. For starters, you must remain employed either with your employer or with another employer who participates in the same plan. An off-the-job injury halfway through your career could essentially derail your entire plan for retirement. Combine that risk with the nonsense politicians have been playing with public safety pensions, and that option starts to quickly lose its appeal.

Don’t misunderstand me, I am not against pension plans. My employer offers an awesome retirement plan, and I’m very thankful for it. However, I don’t factor it in when I’m planning for retirement. I pretend like it doesn’t exist. You will understand why at the end of this article.

The Pension Plan Problem

If you plan on being 100% dependent on a pension plan to retire, you are going to have to accept the fact that you have very little options for changing employers. For most of us, that’s probably not a bad thing. However, being tied down to a pension plan can stop a lot of people from pursuing things like starting a business or going back to school to further or change careers. You essentially tie yourself down.

Another thing to consider is the risk. As mentioned, off-the-job injuries or severe illness can derail your plans for retirement. If you have your own plan setup, then life events like this don’t necessarily disrupt your retirement--you just have to find a way to replace your income and continue your contributions. Likewise, if you decide to change jobs, it won’t affect your retirement at all unless you take a significant drop in income.

One of the biggest things that people don’t realize about pension plans is that you have absolutely no control over the growth of your money, and you actually lose your money after you die. When you receive your pension payouts, you are typically receiving around 7% of your nest-egg amount (the total balance of your fund). While the guarantee of a 7% return may sound appealing, the hidden details are anything but. The same amount of money invested in things like good mutual funds with a strong track record can return anywhere from 10-12%. If you paid yourself 7% every month, you could use the remaining 3-5% to continue to build your nest egg and therefore actually continue to receive “pay raises” as your fund grows. Not to mention the fact that you can leave your investments in your will to your kids, grandkids or anyone you choose after you die. With a pension, that money is gone after you die.

Setting Up Your Own Plan

There’s a myth floating around EMS that it’s impossible to retire on what we make. This just isn’t true. Think of it this way, if you can build up a fund with 10-times the amount of your average annual income, you can essentially replace your income with interest payments indefinitely. So, if you live off $50,000 a year, you need around $500,000 in the right investments to replace that income. Now, this may sound unreasonable, but you can build that up much quicker than you think using compound interest on investments like mutual funds that average 10-12% growth. This could be accomplished by contributing $160 a month over the course of 30 years. Increase that amount to $300 a month and you could have over a million dollars in your nest egg! Think that’s unreasonable on an EMS salary? Cutting out a daily Starbucks coffee or “value” meal could essentially fund your million dollar retirement plan.

Setting up a retirement plan may seem complicated, but using a reputable financial advisor can make this process rather painless. As a basic rule of thumb, you should contribute at least 15% of your gross income into your retirement. If you think that you’re going to have trouble disciplining yourself to make the contributions, then have your payroll department automatically deposit 15% of your income into a ROTH IRA and allow your financial advisor to invest it from there. You can also apply the same practice to your 401k or a combination of both.

The Benefits of Your Own Plan

I said it before and I’ll say it again: Pension plans are not a bad thing. I have one, and I love it. I think it’s a great benefit and when it comes time to retire, it will make an amazing addition to my personal plan. The good news is, I won’t be dependent on it.

Setting up your own plan creates a level of freedom most of us in EMS will never experience. You will never have to work a job that you don’t like simply because of a retirement plan, and you’ll never work a day longer than you want to.

Think about your family and your children and what could be done with your nest egg after you die. The options are limitless. Funding your grandkid’s college, buying and maintaining a family “getaway property,” or even setting aside money to provide your family with a debt-free life are just a few examples of the amazing things your money can do. When you rely on a pension plan, you lose that opportunity.

Nothing that I’ve discussed in this article is out of reach for EMS providers. The truth is, many of us are doing exactly this right now. Be smart with your money and make the most of your hard work. I promise you it will pay off.

Sean Eddy has worked as a paramedic for 10 years and now resides in North Texas. He is the author of MedicMadness.com and the founder of the #MoneySmartMedics campaign.