Most guys know their pension number in the same way they know their truck's horsepower. They've heard it, they can repeat it, but ask them whether their pension is worth $1.5 million or $2.3 million and they have no idea. They know the formula. They know roughly what the monthly check will look like. But very few have ever sat down and figured out what that pension is actually worth as an asset.
That number changes how you think about everything else.
Your pension is not just a monthly check. It is a financial asset, the same way a rental property or an investment portfolio is a financial asset. It has a present value. And when you understand that number, retirement decisions that felt confusing start to get a lot clearer.
The Basic Math
Think about it this way. If someone offered you $100 today or $100 three years from now, you'd take it today because you could put it to work in the meantime. Your pension works the same way in reverse. To figure out what all those future monthly checks are actually worth right now, you work backwards and figure out what a lump sum today would need to be to produce that same income.
Financial planners call this the present value. It tells you what someone would have to hand you in a single lump sum today to replace every pension check you will ever receive. That number is the true measure of what you're walking into retirement with.
At a 4% rate over a 30-year retirement, here is what different monthly benefits are worth as a single asset today. Find your number and let it sink in for a second. These figures assume a normal service retirement.
| Monthly Benefit | Present Value (Flat) | Present Value (With Pay Steps) | Additional Income Over 30 Years |
|---|---|---|---|
| $7,000 | $1,466,229 | $1,610,063 | $291,967 |
| $8,000 | $1,675,690 | $1,840,072 | $333,676 |
| $9,000 | $1,885,151 | $2,070,081 | $375,386 |
| $10,000 | $2,094,612 | $2,300,090 | $417,095 |
That is the value of the asset you are walking into retirement with, guaranteed, regardless of what the market does. A lot of guys walk out the door feeling like they're starting over. They're not. They're starting with a multi-million dollar guaranteed income stream already in place.
The Pay Steps Most People Don't Know About
The Fort Lauderdale plan has something built into the current collective bargaining agreement that pushes those numbers higher. Three years after you separate from the City, you begin receiving post-retirement pay steps. Every three years for 15 years the City sends you a separate annual payment equal to 3% of your base retirement benefit, with each step compounding off the previous one. Five installments total. These are paid directly by the City, separate from your pension check.
These numbers are specific to the Fort Lauderdale CBA. Your department's contract may have its own version of post-retirement adjustments. The concept is the same — money baked into your agreement that most people never look at. Check yours.
Here is what those separate City checks look like every three years depending on where your pension lands:
| Monthly Benefit | Year 3 | Year 6 | Year 9 | Year 12 | Year 15 |
|---|---|---|---|---|---|
| $7,000 | $2,520 | $5,116 | $7,789 | $10,543 | $13,379 |
| $8,000 | $2,880 | $5,846 | $8,902 | $12,049 | $15,290 |
| $9,000 | $3,240 | $6,577 | $10,015 | $13,555 | $17,202 |
| $10,000 | $3,600 | $7,308 | $11,127 | $15,061 | $19,113 |
Most guys have no idea this is in the contract. Now you do.
Once you reach the fifth step at year 15 that payment locks in and continues for the rest of your life and your survivor's life. Over a 30-year retirement someone at $8,000 a month collects an additional $333,676 in pay step payments on top of their pension. That is money most retirees don't factor in when they're planning and it is already sitting in the contract you're working under.
One thing worth knowing: the three-year clock on that first pay step starts when you separate from the City, not when you enter the DROP. If you work an 8-year DROP and then separate, your clock starts on the day you walk out the door for the last time.
The Part Most People Don't Think About Until It's Too Late
As good as those numbers look, your pension has a ceiling and it was set the day you locked in your benefit. The Fort Lauderdale pension maxes out at 81% of your average final compensation. That means you're already starting retirement at less than full salary.
If you work an 8-year DROP your salary has likely grown since the day you locked in your pension number. Say you locked in at a base salary of $95,000 and by the time you walk out your base is $115,000. Your pension is 81% of the lower number. That is a gap of roughly $1,600 a month between what you were taking home and what the pension pays, and that does not account for overtime, details, or any of the other income you got used to having.
That gap is real and it is wider than most people assume until they are staring at their first month of retirement income.
The pension and the DROP get you close, but how you fill that gap determines how much flexibility you actually have in retirement. That is what the next two issues are about.
The DROP structure below is based on Fort Lauderdale's plan. If your department runs a different DROP program, the mechanics may vary but the math works the same way.
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What the DROP Actually Builds The Deferred Retirement Option Program lets you retire on paper while continuing to work. Your monthly pension benefit gets calculated and frozen, then deposited into a separate account in your name every month for the length of your DROP period. You keep collecting your regular paycheck the entire time. For most Fort Lauderdale firefighters working a full 8-year DROP, that account builds somewhere between $800,000 and $1,200,000 depending on your benefit level and what the fund earns in your final years.
That is real money. But it is a finite pool, not an income stream. Your pension pays you for the rest of your life. Your DROP balance is a savings account that starts shrinking the day you start pulling from it. How you position that money when you walk out the door is one of the highest-stakes financial decisions you will make, and it is the reason Issue 1 exists. If you missed it, go back and read Issue 1 before you talk to anyone about your DROP. |
This Week's Action Step
Before you do anything else, find out your estimated monthly pension benefit. Call the pension office or log into the portal. Write that number down. Then come back to the table above and find what it's worth.
That is your starting point for everything that comes next. Every decision about where to put money, what accounts to open, how to handle the DROP — all of it starts with knowing the value of the asset you already have.
What's Next
Next issue we're going into the math behind fund fees and advisor costs, and why a number that looks like almost nothing on paper can quietly erase millions from your retirement over time.
Stay sharp,
Shift to Wealth
Written by a firefighter currently in DROP, sharing what I have found useful along the way.
Shift to Wealth is an educational newsletter. Nothing here is personalized financial advice. Your plan's specifics matter — confirm everything with your pension administrator or a fiduciary advisor before making any decisions.