5 financial concerns to address when leaving the fire department
From unused vacation time to long-term investments, there’s lots to settle before saying farewell
The fire service is changing. For many fire departments, the days of the 30-year employee are long gone. Many departments have evolved their retirement benefits away from pensions toward portable retirement accounts, such as a 401(a) or 457(b).
Going from one department to another or leaving for another job is no longer uncommon. After all, when someone else is offering more pay, better benefits and no mandatory overtime, many firefighters are going to question their current situation.
Does this sound like a situation you’re facing?
Whether you are hanging up the helmet for good or trading it in for a new shield, you need to proactively address these five financial concerns.
1. Unused leave balances
If you are leaving with unused vacation time or personal time off (PTO), your employer may be required to compensate you for your remaining time. Contact your HR department to clarify and calculate how much you will be owed. At my department, you get paid for your vacation leave, but not accrued sick leave.
Burning unused sick leave can be controversial (if you aren't actually ill). Still, I wouldn't feel bad for taking a couple of mental health days, especially if you never call out. If you know you are leaving well in advance, consider scheduling any necessary medical procedures and utilizing scheduled sick leave or Family and Medical Leave Act (FMLA) sick leave.
2. “Use it or lose it” accounts
If you participate in a flexible spending account (FSA), you need to spend this before you leave. This account does not transfer and will be forfeited upon your exit. Any money left over will be returned to your employer.
[Next: Read and weigh in: When should a firefighter retire?]
3. Health, life and disability insurance
We’ll break this category into two parts, both critical issues to address before your departure.
Health insurance: Your new employer or department may have a waiting period before you are eligible for benefits. If so, you'll need to inquire about COBRA (Consolidated Omnibus Reconciliation Act). You'll have 60 days to enroll, and COBRA coverage will last for 18 months (maybe more). Your cost will be significantly higher than what you were used to. Be sure to factor this into your household budget.
There are some alternatives to COBRA coverage to consider. If your spouse has an employer-provided plan, you can join that plan. Even if they are not currently covered, your job change is a qualifying life event. Or, you could choose a plan through the HealthCare.gov Marketplace.
Keep in mind, COBRA is an expensive short-term solution. You should plan ahead and shop the market to secure the best coverage for you and your family. With any decision, there are pros and cons, and this one is no different.
Life and disability insurance: Find out if your new employer will offer these benefits. If not, you need to make arrangements to purchase policies. If your employer does offer them, does it make sense to buy a private policy anyways? Employer-provided insurance policies are attractive because they can be cheap, but they often do not provide enough coverage. They also, typically, go away when you leave the job.
Discussing life insurance can feel morbid, but it's not about you. It is about taking care of your family in the event something terrible were to happen. I suggest shopping the market and finding a non-employer provided life insurance policy to supplement whatever they do provide (if not adequate). I recommend a level term policy approximately 10x your salary (rule of thumb).
4. Investment plans
If you contribute to a 401(k), 401(a), 457(b), etc., then you need to check on a few things.
First, check your vesting schedule. If you've only been with your department for a few years, all of the money may not be yours. Your contributions are always yours. Depending upon the vesting schedule, your employer's contributions might return to them. If your vesting period is right around the corner, consider pushing back your departure date.
Second, figure out what you are going to do with your current accounts. You have a few options:
- Roll the amounts over to an IRA: This would involve opening a new account through companies like TD Ameritrade or Charles Schwab. You accomplish this via a direct rollover. You will have a vast array of investments, which for many, can be overwhelming.
- Roll the amounts over to your new employer's retirement plan: If your new plan allows, you can roll your money over into that plan and utilize the investments they offer.
- Keep your investments where they are: This is typically not advisable unless you will be losing the advantages of an account, such as the 457(b).
For most, it makes sense to roll your money over into your new retirement plan. This will simplify your financial life. If you are currently investing in a 457(b) and your new employer does not provide this account, you should probably keep the money in the 457(b). The 457(b) is one of the most advantageous accounts there is, and if you roll your dough over into a 401(k) or IRA, you lose those benefits.
5. Bridge the gap
If you are taking time between jobs, be sure to save some extra money so you don't feel the need to use credit cards to make ends meet. Create a monthly household budget so you are aware of how much you spend. If you don't have the awareness, then you can't adequately plan. Once you understand your household expenses, save the amount necessary to bridge the gap between jobs.
Looking ahead and planning for the future
Changing jobs can be exciting but can also cause a lot of stress. Plan accordingly and begin thinking about these issues months in advance.
If you know your current job isn't cutting the mustard, go ahead and look into your vesting schedule and your employer-provided insurance policies. Then, when the time comes, you won't be scrambling to figure it all out.
For whatever reason, the fire service views anyone who leaves before retirement age as a quitter. I think that stigma needs to be broken. So what if you didn't want to spend 30 years doing the job. You did it for a few, you served your community, and now you are moving on. Maybe you are going to a new department, or perhaps you aren't. Either way, thank you for your service!
Editor’s Note: Do you have any advice for fellow firefighters thinking about hanging up the helmet? Share you thoughts in the comments below.