Everybody's asking what the market will do. Almost nobody knows what they spend.

Shift to Wealth | Issue 18 | The DROP Series, Part 1

The 10-Year DROP Is Here. Start With What You Spend, Not What the Market Did.

Every conversation I've heard about the new DROP option at the station runs the same direction. The market's been great. Somebody's brother-in-law is up 20% this year. Imagine that on the whole balance.

I'm six years into DROP myself, and this is my decision too. By the time the window opens I'll have roughly $725,000 in the account. And when I sat down to work through it, the first number I needed wasn't a return. It was what my household actually spends in a year.

Most guys have a guess, not a number. Everybody wants to know how much more they can make. Very few know whether they already have enough. That second question decides how you should handle this election, and it's the one nobody is asking at the kitchen table.

This is the first of four issues on the DROP decision, and it covers the split itself. It's written for Fort Lauderdale Police and Fire members. If you're at another department your DROP works differently, but the way to size what you protect and what you invest applies to anybody heading toward the door with a big balance.

What's Actually on the Table

The new contract took effect October 1. Starting November 1, anybody entering DROP chooses between the 96-month DROP and the self-directed option. If you're already in the 96-month DROP, you get a one-time, 90-day window to opt in, expected to start December 1.

If you opt in, you decide how much of your existing balance moves to self-directed. All of it, none of it, or anything in between. Every new deposit after that goes to self-directed. No choice on that part.

Opting in puts you in the 120-month self-directed DROP, but it doesn't commit you to working ten years. The pension office's own FAQ says there's no requirement to finish the full term. You can still separate at month 96, or any month you want.

What it locks is the split. Whatever you leave in the guaranteed track stays there until you separate, and whatever you move can't come back.

And there's one thing about the guaranteed track most guys haven't caught. It credits 6% simple interest for the first five years, then never less than 3% and never more than 6%, depending on how the plan's investments did. That guarantee only lasts as long as the original 96-month DROP. Stay past month 96, or separate and leave the money on deposit with the plan, and it gets the plan's actual net return. No floor. In fiscal 2022 that return was minus 10%.

Leave by month 96 and the 3% floor protects that money right up to your last day. If you might stay longer, that's money you can't move once you've made the split.

Start With What You Spend

Your pension froze the day you entered DROP. After you separate, the contract's pay steps add about 16% over fifteen years, and then the check stays flat for life. Inflation will outrun that, so your gap grows the longer you're retired.

So the first number is your gap: what you'll spend each year in retirement, minus the pension. Two things belong in that number that most guys leave out.

Health insurance until Medicare. Family coverage for a guy retiring in his early fifties can run $25,000 a year or more, and it's the biggest piece of the gap for most of us.

Taxes. Every dollar you take out of the DROP or the 457 is taxable income stacked on top of the pension. Add roughly 15% if you're married, closer to 30% if you're single, to what you need to spend to get what you actually have to withdraw.

Whether that gap holds up for forty years is a bigger question, and a flat pension changes the answer more than most guys expect. A later issue in this series takes that on. For the split, the gap does one job. It sizes the money that can't take a hit.

Safe Money Is Your First Three Years of Retirement

Back in Issue 16 I called it money with a date on it. Its job isn't to grow. It's to still be there when the bill comes, so everything else can stay invested through a bad year instead of getting sold at the bottom of one.

Size it like this. Your yearly gap, times three years. Five if your gap is big or you already know a down year will keep you up at night. Then add anything big coming right after you leave.

Say your gap, with insurance and taxes counted, is $40,000 a year. Three years is $120,000. Add $30,000 for a roof and $60,000 for a truck you know are coming, and you're at $210,000 that stays safe no matter what the market does.

Where that money sits during the DROP depends on how long you'll stay. If you're out by month 96, the guaranteed track is a good home for it. The 3% floor holds the whole way and it never sees the market. If you might stay past month 96, the better home is safe money on the self-directed side, because you can move it whenever you need to. In the core menu that's the MissionSquare PLUS stable value fund, which earned about 3.2% over the last year and about 2.5% a year over ten.

Bond funds don't count as safe money. They can drop right alongside stocks, and in 2022 they did.

And don't overload it. Some safe money options limit how much you can move back out each year. Size it right and the limit rarely matters. Park half your balance there and change your mind later, and it does.

Why Your Timeline Changes Everything

Picture two guys taking the same option.

The first enters DROP in November at 47 with ten years ahead of him. He doesn't need safe money yet. His deposits can ride stocks for the first seven years, and if the market drops early, he keeps buying low for years before he needs a dime. Around three years out, he starts pointing his monthly deposits at safe money instead. At $8,100 a month, a $210,000 target takes about 26 months, so it's done before he walks out the door and he never sells a stock to do it.

The second is me. About three and a half years left and a big balance already built. I'm already inside that window. My safe money has to be set aside at conversion or filled with every deposit starting in December.

The members with the most urgency to decide have the least room to be wrong.

And on this job your last day may not be your choice. A bad back or an injury can move it up years. If you can't be sure of your date, build the safe money earlier than the math says.

The DROP also isn't your only account. Your 175 money rides the pension fund until you separate, so it drops when the fund drops, but it's steadier than stocks, and for a guy hired around 1999 it can be close to $280,000. That gives your DROP room to lean harder into stocks than it would on its own. The next issue in this series puts the DROP, 175 and 457 in one picture.

Everything Else Is Long-Term Money

Whatever's left after the safe money won't get spent for years after you walk out. And once you separate, the split stops binding you and you can set this money up however you want. So the split only governs what it does for the next few years.

Do you want that long-term money riding stocks for the last stretch, or sitting in the guaranteed track? For most guys, riding stocks means a low-cost S&P 500 index fund. An upcoming issue covers why simple beats sophisticated.

Cost is on your side. While you're working, the plan pays the administrative fees on self-directed accounts, and you only pay each fund's expense ratio. The Fidelity 500 Index in the core menu costs 0.01% a year, about $10 on $100,000. There's also a Schwab brokerage window with more choices and higher costs, but for most guys the core menu has what they need.

Here's the number everybody at the station is looking at. Straight off our own MissionSquare menu, the Fidelity 500 Index has returned:

As reported in the MissionSquare investment options report, as of August 31, 2026. Past performance does not guarantee future results.

Those are real numbers and they've been great. They're also well above the S&P's long-run average of about 10% a year. Nobody knows whether the next few years look like the last ten, so the table below runs it both ways.

DROP balance at month 120, rounded. About $725,000 at conversion. New deposits of $8,100 a month go into an S&P 500 index fund in every row, so the table shows only the split. The S&P returns 15.4% a year in the first column, its actual ten-year pace, then 7% steady and 0% flat. In the bad-finish case it's up 7% for two years, then down 18% and 10%. In the early-crash case it drops 20% in the first six months after conversion, then returns 7%. The pension fund returns 10%, 6%, and 0%; in the bad finish, 5% for two years then minus 10% and minus 7%; in the early crash, down about 13% then 6%. Guaranteed money is credited at the fund's return inside the 3% to 6% range through month 96, then at the full return in years nine and ten. Safe money is modeled at 2.4%, a little under the stable value fund's ten-year return. These are scenarios, not forecasts.

Start with the last row, because it's built from my own sizing rule. Against putting everything in the S&P, it gives up $120,000 if the last decade repeats and comes out ahead in every bad case. Against leaving it all guaranteed, it's $135,000 ahead if the last decade repeats and about even in a steady market, a flat one, or a bad finish.

If the next three and a half years run at the last three years' pace, 21% a year, everything in the S&P finishes around $1.9 million, about $400,000 ahead of leaving it guaranteed. My structure lands around $1.72 million. That $180,000 behind the all-in guy is the real price of the safe money in a hot market, and I'm not going to pretend it isn't. But roughly 70% of my balance is still in stocks, so it catches most of the ride. The one thing it refuses to do is bet my first three years of retirement on the ride continuing.

Then look at the last column. If the crash hits right after I opt in, leaving it guaranteed wins by $135,000. The 3% floor still has about a year and a half to protect that money, and it does exactly what it's supposed to.

That's the honest trade. The guaranteed track protects you early and exposes you late. Safe money on the self-directed side protects you the whole way but earns less. For the long-term money, an early crash is a loss on paper with years to come back before I spend a dollar of it. For the safe money it would be a disaster, which is why the safe money is never in stocks in the first place.

The Case for Going All In

The guaranteed track is weaker than it looks. It's simple interest, so the interest never earns interest. Compared to the same deposits compounding at 6%, the formula costs me about $80,000 over eight years. That's a low bar for stocks to clear, and your investment horizon doesn't end the day you separate. It ends the day you spend the money.

All true, for the long-term money. None of it applies to the first three years of retirement. A guy who goes all in has no safe money. If the market drops 35% the year he walks out, he's selling stocks at the bottom to pay his bills, and that's the damage that never comes back. Going all in can work, but only if you'd actually sit still while six figures disappear on paper, and only if the money you need first is somewhere else.

The pushback I hear most is that safe money is money sitting on the sidelines, and that going all in gets you out the door faster. It might, if the market cooperates the year you're ready. If it doesn't, you either stay longer or leave selling at the bottom. I'd call safe money your first three years of paychecks, already set aside, so the market doesn't get a vote on when you can leave. And you don't need it until you're about three years out. Until then, all of it can stay in stocks.

How Long to Stay

Because opting in doesn't commit you, how long you stay is a separate decision, and you don't have to make it in December.

Two more years count twice. On my account, staying from month 96 to month 120 adds about $194,000 in deposits and puts my DROP somewhere between about $935,000 and $1.39 million at separation, against $896,000 to $934,000 if I leave at month 96. The low end is two bad years after the guarantee drops off, and it's why your safe money shouldn't be sitting in the guaranteed track in years nine and ten. Somebody at the firehouse will always have a bigger number at month 120. The number that counts is the one you have at 85. Staying is also one fewer year of gap to cover before Medicare, the most expensive stretch of the whole retirement. The one cost on the money side: the post-retirement pay steps don't start counting until you separate, so staying two more years pushes each of them back two years.

The monthly check stays the same either way. What you're really weighing is two more years on the job against those numbers. If you're done, being done is a complete answer.

Don't Undo It at the Finish Line

One warning now, because it's easy to miss. Self-directed money has 60 days after you separate to be moved. Do nothing and it gets cashed out automatically, with taxes withheld. The short version is the city's 457 for anything you'll spend before 59½, not an IRA. The last issue in this series covers the details.

What To Do Before December 1

Pull twelve months of bank and credit card statements and add up what your household actually spent. Not a guess. Subtract your pension. Add health insurance until Medicare, then taxes: about 15% if you're married, closer to 30% if you're single. That's your gap.

Multiply it by three and add anything big coming the year you leave. That's your safe money. If you're sure you're out by month 96, the guaranteed track can hold it. If you might stay longer, it belongs in stable value on the self-directed side.

Everything else is long-term money. How much of it goes into stocks comes down to one question: would you sit still through a bad year? When you opt in, pick your funds for every dollar. If you don't, the money lands in a default MissionSquare chooses for you.

I haven't made my split yet. The window isn't open. But the market isn't the first thing I'm looking at anymore. I want to know what we spend and how much of that the pension covers.

Everybody wants to know how much more they can make. I'd rather know I already have enough, and then protect it.

Talk soon.

Got a question about your own split, or something from the meeting you want covered? Just hit reply. And if somebody at the station is about to make this call, forward this to him.

Written by a firefighter currently in DROP, sharing what I've found useful along the way. This is education, not financial advice. The DROP figures are my own account, rounded and modeled from the plan's crediting formula. The $40,000 gap and $280,000 175 balance are illustrations, and the fiscal 2022 return is approximate. Market scenarios are not predictions, and past performance does not guarantee future results. Plan details come from the IAFF Local 765 agreement effective October 1, 2026, the pension office's September 22 presentation and Self-Directed DROP FAQ, the draft Board administrative rule dated August 24, 2026, and the MissionSquare investment options report as of August 31, 2026. Post-retirement pay steps are paid by the City under the agreement in effect when you separate. Stable value funds are not FDIC insured. The split can't be undone, so before you make it, talk to a fiduciary who understands public safety retirement and can see your whole picture.