Here at firehouse finances, we will be providing financial education for firefighters. This will allow firefighters to increase their wealth and help shave a few years off their working careers, so they can have more time with their families. The 457b retirement plan is a great vehicle for firefighters to use to accomplish those goals. The 457b retirement plan is a defined contribution plan available to public safety personnel. It is similar to a corporate persons 401K, except better. The 457b is pre-tax investment vehicle. This means we will defer paying taxes on the money that we invest and the earnings that accumulate over a career. This pre-tax vehicle also benefits us by lowering our taxable income. When we retire, we can start withdrawing from our 457b at ANY AGE, as long as we have had a separation of employment. This is one of the main advantages of the 457b compared to the 401k. In the 401k you have to wait to age 59 1/2 to start withdrawing money penalty free. So, this means if you retire at age 50, you can start withdrawing out of your 457b penalty free. Now remember, our earnings and contributions were put in without being taxed. So, when we go to withdraw, we will have to pay taxes on the distributions.
The max contribution in 2023 is $22,500 and if you are over 50 you have a catch up of $7500.00, which brings your total max contribution to $30,000 if you are over 50. Using a compound calculator, I can show you how a 25-year-old new firefighter can retire a multi-millionaire at age 55.
| Year 1 | Year 10 | Year 20 | Year 30 | |
| FF1 age 25 | $22,500 | Age 35 $ 394,451 | Age 45 $1,417,556 | Age 55 $4,071,227 |
| FF2 age 35 | $22,500 | Age 45 $ 394,451 | Age55 $1,417,556 | Age 57 $1,767,218 |
| FF3 age 40 | $22,500 | Age 50 $394,451 | Age 60 $ 1,417,556 |
This chart shows the powerful effect of compound interest. The 10% return rate is indicative of the S and P 500 index averaging a total return of 10.7 % over the last 30 years. As you can see, the 25-year-old firefighter will have over 4 million in their 457 account. This firefighter is also a PEPRA employee whose retirement is based on them working to age 57. They also just retired 2 years earlier. Also, as you can see FF2 and FF3 both are able to retire with over a million dollars in their 457 accounts by the end of their working careers. The main takeaway is to show how important it is to take advantage of our 457-b deferred compensation plan, and to also be consistent and do not interrupt the contributions that we put in. If we do that, becoming wealthy and retiring early is firefighter proof!!