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Cover Story

Financial Literacy for Cops

Making the right moves now can provide you with a happy and prosperous future.

June 19, 2013  |  by - Also by this author

Photo by Mark W. Clark.
Photo by Mark W. Clark.
Economic storm clouds are on the horizon. Looking across the Atlantic, the New York Stock Exchange broker speculates as to the possible repercussions as he watches Greece lobby for one more stay of execution from her European brethren. Across the continent, his client glances toward China and considers what a possible collapse of that giant economy could portend for her own future. And as the Americans ruminate, Europeans and Asians stare back at us with wonder as to where we are going and what we're going to do next with our own layoffs, foreclosures, outsourcing, and downsizing.

No one wants to be the first to blink, but everyone is wincing.

Prior to the 2009 financial crisis, law enforcement was deemed to be one of the most recession- and depression-insulated professions to be found; the sight of hundreds of applicants competing for a single law enforcement opening during an economic downturn was common.

But with thinning ranks, diminishing benefits, and increasingly consolidated responsibilities, even those otherwise inclined toward a career in law enforcement might think twice before signing on the dotted line. Even those who'd argue that cops still have it good—compared to those private sector workers who have no retirement benefits—have cause to wonder how much longer the assertion will remain valid.

The concerns go beyond mass layoffs of cops in cities like Newark, N.J., and Ann Arbor, Mich. Increasingly, there are fears that even those who retain their seniority-based employment may lose more than their jobs. Municipalities like Stockton, Calif., have declared bankruptcy, casting a shadow over the stability of their public worker pensions. And if some of America's voters and politicians who have made public worker pensions a target have anything to say on the matter, such defined retirement benefit plans may soon be extinct.

Los Angeles County Employee Retirement Association Chair Les Robbins noted in March that Los Angeles voters did something that he never thought he would see in his lifetime: They created a Tier 6 to add to the police and fire pensions, which lowered benefits and increased employee contributions, while at the same time changing the basis for calculating pensionable earnings from the highest year of income to the average of the last two years of service. In essence, they rolled back pension benefits to what they'd been a decade before. The employees impacted will also pay their full 9% toward their pensions and for the first time will pay an additional two percent of their monthly gross earnings as their contribution to fund their retiree health insurance benefits. Robbins sees this as nothing less than a watershed move.

"If there was ever any doubt that other law enforcement and fire agencies would not be forced to change (lower) their benefit levels, this should create a bar-lowering that most every (other agency) will end up looking like," Robbins says.

So if ever a cop had to concern himself with providing for his family today and tomorrow, it is now. To that end, some cops have taken on second and even third jobs; others have deferred their retirement. And still they worry.

Plan for the Worst

Getting your financial house in order so you don't lose your home is something Mike Mendoza knows about.

Mendoza, a financial coach with Primerica, has for years given presentations to law enforcement personnel just beginning their careers through the Rio Hondo Police Academy in Los Angeles County.

"There's a lot of resistance to proper financial planning," laments Mendoza. "Part of it is understandable—historically, there's been a great deal of comfort with pension plans. These pension plans allowed many officers to feel they were OK and they didn't really have to worry about it: The system would take care of them. The problem is that things are changing and so are the pension plans and benefits that are being offered. There are questions about whether these pension plans will hold up."

Mendoza cites CALPERS, one of the largest in the state of California, as a microcosmic example. "It's going the way of a lot of other pension plans, which is to say it's seriously underfunded. The reason that plans such as 457 deferred comp plans exist is so that the (beneficiaries) can understand that the pension plan in itself will not be enough to sustain them, particularly under the current systems."

Do You Need That Toy?

A spendthrift mentality has played and will continue to play a considerable role in cops undermining themselves, as they revel in buying expensive new cars and trucks and other toys and status symbols. In a country where 95% of people are broke or in debt, this behavior is hardly unique to officers.

"Digging a little deeper, we find that so many go out and buy things they can't afford with money they don't have and incur debt," Mendoza notes. "A lot of it starts to become an issue of keeping up with the Joneses, or my boat is bigger than your boat, my SUV is better than your SUV."

It isn't that these items don't necessarily have some therapeutic value. After all, everyone enjoys having the latest and greatest. And perhaps cops need such distractions more than most.

"A lot of these extra things are necessary to get away from the negativity and the stress of the job," concedes Mendoza. "The question is whether the financial costs are effectively offsetting the benefits by adding stressors to the family unit. We can't forget the importance of the fundamentals of finance. The things that are important are the very basics: saving money for emergencies, making sure that you're adequately insured in case something is to happen, and not assuming that if anything happens the department will take care of it. That's not the case."

Job Instability

Saving for a rainy day has always been part of a sound financial program. But what happens when the very agency that cuts short your employment is doing the rain dance?

Former Inkster (Mich.) Police Department police officer Dan Schewe found himself in such straits when he was laid off and then was asked to pay $2,000 to keep the German shepherd who'd been his partner since the dog was a puppy.

"I couldn't see myself just saying, 'Well, I'm laid-off. Here's my gun, badge, and you can take the dog, too.' I'm sorry, he's mine," Dan told a local ABC affiliate.  "I told myself, 'If they come to get him, they're taking me, too.' "

Schewe and his former employers eventually reached a compromise, one where he was allowed to keep the dog Xander in exchange for the comp time he had accumulated on the force.

Chintzy on the part of the agency? Perhaps, but predictable, too.

"In our current situation the government is going to look everywhere to take money," Mendoza says. "If there is an opportunity for them to seize or take control of this money, it's going to change everything we know for the future of retirement for police officers. There is even a potential threat for those people who are already retired. Pensions should be sacred ground, and this should never happen, but it does and it will.

"There are many cities that came through this state profitable that were not running deficits and the government took the money from them and reallocated it into the system. Some pension plans—such as Los Angeles County's LACERA—have exhibited foresight in changing their plans through the years. This has found new employees deprived of many of the same benefits of the predecessors, but with an understanding that both groups would ultimately be better served. But external changes are coming so quickly that even those already retired are in jeopardy. Because when these external changes come, they're going to come across the board."

With such "robbing Peter to pay Paul" practices taking place throughout the country, active and retired cops feeling the resulting pinch may become disillusioned with the agencies they've come to associate themselves with and tempted toward desperate acts. While some cops can give up some of the weekend warrior toys, there are those who feel compelled for various reasons—for everything from an insatiable trophy wife, to their kids' college educations—to become criminally creative. Others working long hours or multiple jobs may spread themselves too thin, becoming vulnerable to assaults and traffic accidents.

In such times, it makes sense for law enforcement officers to make the most of the money they have now. And that means getting out of and keeping out of debt.

"Emergency funds are critical," Mendoza asserts. "Being out of debt is a huge consideration because debt can be a financial cancer. Just because we make money doesn't mean that it's OK to incur a great deal of debt. Fundamental finance is critical."

Financial guru and talk show host Dave Ramsey's advice should resonate with those cops acting on Mendoza's recommendations. "People who are getting out of debt don't care what others think. You know you're on the right track when your broke friends are making fun of you. Getting out of debt can require drastic lifestyle changes, which means you'll never succeed if you aren't mentally prepared and confident in your decision to find financial peace."

As a contingency for those times when emergency funds may not be readily available, consider retaining a credit card with a 0% interest for six months plan with an eye toward paying off as much of that balance within that time frame as possible.

Your Finances and Stress

The National Institute of Justice lists personal financial problems as a risk factor for fatigue and stress in cops, and the National Institute of Mental Health cites financial problems as a potential catalyst for the onset of depression. So it stands to reason that it is in the best interests of all cops to take a closer look at their own financial well-being.

It's easy to envision some of the ways that police officers cope with the traumatic incidents they face on the job, with gambling and drinking high on the list of law enforcement vices. What some might not expect is that one such coping mechanism is the propensity to spend money.

In an article written for the Fraternal Order of Police, Janis Leslie Evans explains, "From their perspective, spending lots of money, no matter how recklessly, ensures a well-lived life of quality, regardless of how short. It may even bring back a renewed sensation of life after coming so close to death. The spending not only becomes a way to comfort or de-stress, but a way to fill a void or heal an emotional or psychological wound."

Whether reckless spending is seen by cops as a lesser of evils in dealing with trauma or more simply a matter of keeping up with the Joneses, it's important to understand that it isn't just cops who are tightening their financial Sam Brownes in today's economy. Now is the time to stop the financial bleeding and arm yourself with a sound financial plan.

Investments

Since most police officers do not pay into the Social Security system, they must rely on the alternative retirement savings plans provided by their agencies. In recent years, the integrity of some of these plans has come into question, leading many officers to seek more lucrative financial investments.

Most financial consultants advise their clients to diversify their investment portfolios. In other words, don't place your entire nest egg in one basket. Monitor your retirement savings within your agency's pension plan and choose investment options that best match your risk tolerance and number of years until retirement. The higher your risk tolerance and the further you are from retirement, the more volatility you can withstand in your investments, such as stocks. If you are close to retirement or are averse to risk, you will want to seek more stable investments, such as municipal bonds.

In addition to your pension plan, some alternative investment ideas include:

  • Individual Retirement Plans
  • Stocks
  • Bonds
  • Mutual Funds
  • Precious Metals
  • Insurance Annuities
  • Real Estate
  • Certificates of Deposit
  • Collectibles

Investing time and energy into planning for your financial future will lead to greater peace of mind and allow you to more fully enjoy your career and your life. It may even lead to a newfound hobby. Always consult with a licensed financial adviser before you embark on any new investment strategy. Ask friends, family, and coworkers for referrals, and talk to a few before you choose one.

Traditional Investments

Investing in stocks, bonds, real estate, and precious metals can all provide handsome returns. But do your research. Stocks and metals rise and fall; bond funds and stock funds can have high maintenance fees, and even real estate can have hidden costs such as homeowners' association fees and upkeep.

Some people believe in investing in markets when they are down. Berkshire Hathaway stock fund billionaire Warren Buffett is famous for saying, "Be fearful when others are greedy and greedy when others are fearful."

Consider how this concept plays out in the current precious metals market. Precious metals have historically been sound investments. Until its precipitous spring fall, gold had been one of the hottest investments of the past five years. Many investors see the latest drop as a propitious chance to invest in gold. Others say not so fast.

Either way, gold is a controversial investment. Some people believe it is the only thing that you should trust. Others say it is nothing more than "pretty." Investment manager Kenneth J. Gerbino argues for the value of gold: "If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 to $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it, and then calling it one billion dollars?" The truth is that gold, like all other forms of exchange, is only worth what people will pay for it and some people think it's worth an awful lot.

Finding financial peace is a multipronged obligation, comprised of staying out of debt, maximizing profitable opportunities, and saving for a rainy day. While there is no shortage of financial primers available in books and digital downloads, the one-on-one mentoring of a certified financial adviser can prove invaluable. And unlike stockbrokers, reputable advisers aren't angling to sell you anything other than their expertise. Never sell the value of a competent tax accountant short, either. Successfully exploiting justified write-offs or failing to do so can mean a swing of thousands of dollars for a household.

If ever there were an era where the Chicken Littles of the financial world and rainy day savings were destined to meet, it is now. And the periodic bump in the stock market notwithstanding, no one is expecting any economic adviser to announce, "Our long economic nightmare is over."

Treasures in the Trash

Collectibles such as certain antique toys and vintage comic books that are in excellent condition can be very valuable and can appreciate rapidly. Even a collectible market that has taken serious hits such as sports cards still has its blue chips in pre-1986 rookie cards.

But remember collectibles can be difficult to sell and rarely bring back the full "collector" value. Just because someone is selling an item for $500 on EBay does not mean it actually sold for that much. For an education on the real market for collectibles, watch the History Channel's "Pawn Stars." Even coins rarely sell for full "collector" value and auction houses take significant cuts of the auction value.

Still, there is treasure out there in the trash. Cops obligated to work weekends may find solace in checking out the occasional yard sale or flea market on their down time. Educating yourself about the values of items frequently encountered at such venues that are normally beyond your usual sphere of interests can avail you money-making opportunities on quick turnarounds.

Yard sale treasures include vintage toys, folk art, vinyl records—many of which can be readily sold at much higher prices on EBay or other auction sites and on Craigslist.

Just be careful. Everything from lawn mowers to computers can be found on such sites, and so can opportunists and criminals. Make sure that you have a means of identifying who you are dealing with before agreeing to meet with them. Transactions should be made in public venues whenever possible. If you're buying something on EBay, be sure to check out the seller's reviews, but remember, they can write those reviews themselves.

Tags: Off-Duty Life, Personal Finance, Retired Officers, Retirement Benefits, Investing


Comments (1)

Displaying 1 - 1 of 1

Ima Leprechaun @ 7/31/2013 7:55 AM

I'm screwed.

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