A Three-Legged Retirement Stool

August 31, 2017

Articles on retirement security usually start out by explaining that retirement income relies on three sources: Social Security, a pension, and personal savings. You could say they create a sturdy three-legged stool for your retirement. However, you probably have already figured out that this may not be the case for you as an employee of the City of Los Angeles. Your stool for a sturdy retirement could have just one leg or as many as three or four legs.

“Start now to build a secure and stable retirement”

1. Pension Leg
As a vested member of the Los Angeles Fire and Police Pensions (LAFPP), your pension from the City will be the foundation of your retirement income. It will provide you with a lifetime income stream and help with your post-retirement health care expenses.

Most private sector workers only have a 401(k) for their retirement plan, which places a much heavier savings burden on the employee. Your pension is a powerful resource for your retirement security. However, it will only replace a certain percentage of your income.

2. Deferred Comp Leg
While LAFPP takes care of your pension, you are totally in charge of your Deferred Compensation Plan (DCP) account. You choose whether to save with pre-tax and/or after-tax dollars (each has unique tax-advantaged benefits). You decide how much to save and how to invest. The earlier you start and the more consistently you save, the stronger this leg grows over time. Your DCP account provides a crucial supplemental stream of income to help close the gap between your working income and post-retirement income.

3. Personal Savings Leg
“Personal savings” is the general term used for the third leg, and it can take many forms. You might be saving money at your bank or credit union. Although your City employment is not covered by Social Security, you may be eligible for benefits from prior employment or that of a spouse. Some may receive a separate pension from military service or another job. As a sworn employee, a Deferred Retirement Option Plan (DROP) account can also be a very strong leg (and can be rolled into your DCP account at retirement).

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