Golden Years: Police, Firefighters Investing Pensions in Precious Metals

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For many retiring police, firefighters, and public safety personnel, they’ve spent their careers protecting the public, and not micromanaging their finances. 

Suddenly, as retirement approaches, these professionals are forced to shift their attention to the complicated world of retirement financing. It can be overwhelming at first, but public safety personnel often get retirement benefits that other professions do not. In the past years, more police, firefighters, and other public safety personnel have reinforced their retirement with gold.

What is a Deferred Retirement Option Plan (DROP)?

Arizona allows police officers to retire with pensions (62.5% of their final average salary) after 25 years of service. Pension amounts increase or decrease as service years exceed or fall short of 25, respectively.

Some police officers, firefighters, and other public safety personnel qualify for DROP, or the Deferred Retirement Option Plan. Qualification into DROP depends on your Retirement Benefit and Membership Tier. DROP provides the opportunity to receive a one-time lump-sum payment upon retirement, in addition to your monthly retirement payment.

Investing the DROP lump sum in gold

This lump sum could be used for paying off a mortgage, investing in “safe” trades on the stock market, or to travel the world. Precious metals, particularly gold and silver, are also excellent investments for retired police and firefighters because of the stability, versatility, and potential profits that come with them.

Any financial advisor will recommend diversifying your retirement portfolio. Putting your nest egg into the stock market comes with quite a bit of risk, especially as the bull market shifts to a bear market and economic bubbles burst. If the mounting national debt and deficit is any indication, the coming years may be a wild ride for those investing their retirements entirely in stocks and depreciating dollars. 

Gold as an Inflation Hedge

The values of gold and silver tend to correlate negatively with monetary policy set by the global central banks and Congress. The 30-year price of gold has been fairly consistent, with some large-scale peaks and very few valleys.

Hedge investments offset losses in other types of assets. In the turbulent market since the dot-com bubble recession and skyrocketing national debt, investors have bought gold as a form of wealth insurance, so they don’t lose big in a stock market crash, or the continued inflation of the U.S. dollar. 

As an example, if you bought an ounce of gold in the year 2000 for $272.65, it would be worth $1,360 in 2018. Even adjusting for inflation, $1,360 in today’s money is worth $921.15 in dollars from the year 2000. Any way you slice it, gold prices ramped up, despite massive governmental debt, recessions, and stock market disasters.

The stock market is incredibly volatile and has been known to crash. As the bull market turns to a bear market, wise retirees are looking to precious metals as a hedge against inflation. 

If a police officer got a lump sum pension of $300,000 in the year 2000, it would have the purchasing power of $200,247 in 2018, losing about a third of its value to inflation. If that lump sum had been invested in 1,100 ounces of gold in 2000, it would have the purchasing power of about $1.5 million in 2018. In 18 years, the police officer would have nearly quintupled his pension, despite the chaotic economy.

Keeping all of your assets in cash and stocks puts you at the mercy of the market, while the gold price tends to have an inverse relationship with the value of the dollar.

Profit Potential of Precious Metals

Precious metals are not get-rich-quick schemes. Those looking to make an immediate profit should probably look elsewhere.  That does not mean great windfalls are out of the question.

Silver sold at about $5 per ounce in 2004 and has followed a virtually identical route, as it relates to price fluctuation. The Federal Reserve announced in late 2005 that it would stop publishing the M3 monetary aggregate, the most comprehensive report pertaining to actual dollars in circulation. Three rounds of quantitative easing (money printing) followed. Meanwhile, the Gramm-Leach-Bliley Act of 1999 repealed 66-year-old legislation contained in the Glass-Steagall Act that mandated all commercial and investment banks be separate institutions.

The results of the aforementioned monetary policy and legislative moves are well-known. The U.S. economy went into its worst recession since the 1930s. Millions of Americans lost their homes, savings, and pensions; while gas prices reached historic highs. Those who invested in silver prior in 2004 and prior, however, were sitting prettier than ever.

Those $5 ounces of silver purchased in 2004 peaked at $48.58 in 2011, an astounding 872% increase, without even factoring inflation. The value of the dollar and other world currencies plummeted, while precious metals reached unprecedented heights. These types of gains are not the norm, but the potential is always there, due to very fluid monetary policies at the Fed and U.S. Treasury.

There are no guarantees in currency, but history can teach us powerful lessons on long-term value.

Aesthetically Pleasing

Police officers are proud of their badges and wear them with honor. Decorated public safety personnel earn various medals throughout their careers and proudly display them. Precious metals seem to be a natural investment for both.

Gold and silver coins have both market and intrinsic value, and American Eagles and Canadian Maple Leafs are popular coins among both investors and collectors. Coins, however, have higher premiums on them, versus gold and silver bars because of collectibility. Ultimately, bars and coins are worth their weight in the respective metal, with intrinsic value being in the eye of the beholder.

Retired police officers and firefighters served our country with bravery and dignity. Our heroes deserve to live their Golden Years comfortably. RME consultants are highly knowledgeable and experienced in gold and silver investing, whether your choice is bullion or IRAs. 

Contact us today and we’ll walk you through the buying process.