Mitch Sullivan

Math 1030
Final Project

Police, Pensions, and Retirement

Twenty three years old and youre given a gun, cuffs, and keys to a fast car,
with all this excitement as a new police officer who needs to think about
retirement. Having been in this position, I can tell you that a twenty year
career at first can seem like forever off in the distance. You get caught up in
the rush of your new job, and issues like Roth IRAs and 401ks fall to the
wayside. Now, five years into my career Ive realized that twenty years is
going to be over before I know it, and now is the time to look into retirement.
So why has it taken me five years to begin thinking about this important
step? I can honestly say that my mathematics 1030 course opened my eyes
to the importance of saving. The course provided me with a greater
understanding of how retirement numbers are achieved through simple to
complex equations. Throughout this paper I will be using techniques relating
back to chapters throughout the course.
So before we start punching numbers, lets attempt to answer few questions
and go over some terms we will be needing. First off how much money will
somebody need to retire? This is going to vary based on ones lifestyle and
spending habits. I will use my situation as examples throughout the paper. As
a Utah State Trooper the current max salary at 20 years is $52,977 dollars

per year. I would like to retire making at least that amount per year keeping
up with inflation, and be able to draw that amount forever. Inflation is a
sustained increase in the general price level of goods and services in an
economy over a period of time. One of the most important terms we are
going to need to understand is Annual Percentage Rate (APR). APR is the
annual percentage rate of return on investments. For example an investment
of $100,000 dollars with a 4% (APR) would make $4,000 dollars yearly. We
are going to need to understand what a pension is. A pension is a regular
payment made during a person's retirement from an investment fund to
which that person or their employer has contributed during their working life.
The Utah Highway Patrol and the State of Utah provide a pension of 50% of
the employees final salary and it will also increase with inflation. Lets break
this all down into sections so we can hopefully understand all of this a little
easier.
1. Inflation
Now that we understand some of this basic information lets get back to my
situation of $52,977 dollars per year. With inflation one needs to understand
that $52,977 dollars will be worth much less in 40 years from now. Inflation
creates this difference in the value of the dollar and its tracked by the
Consumer Price Index. Inflation fluctuates yearly, and has an overall average
of 3.2% over the past 100 years. Sticking with the 3.2% rate of inflation we
need to calculate what $52,977 will be worth many years from now. Deciding
on how many years to look ahead will vary by person. I have chosen to

calculate it up to 60 years of age, at which point I would begin to draw from

my retirement accounts. In 32 years from now $52,977 with an annual
inflation rate of 3.2% would be worth $145,156.89. Remember that 3.2% is
an average and the actual rate may be different.

P = $52,977
R = 3.2% Inflation
n = 32 Years
Total Amount = $145,156.89
2. Pension
After 20 years of service, most police officers are what you would call burnt
out at which point they are ready to retire and enter a new line of
employment. The good thing about this is, they will be able to begin drawing
from their pension. This is a good time for individuals due to them being able
to work less and continue to make the same amount or more money as
before. Remember from above my pension will be 50% of my final pay and
will increase as Troopers salaries increase. We will stick with the inflation rate
of 3.2%. Lets find out what type of money I would need to make each year
with my new job to keep up with my previous income. We need to find out
what the max salary for a State Trooper could possibly be in 15 years from

now. To do this we use the same equation as we used above. In 15 years the
salary of a topped out Trooper could possibly be $84,973.36.

P = $52,977
R = 3.2% Inflation
n = 15 Years
Total Amount = $84,973.36
Now that we have a number to work with, we can assume that at the age of
43 when I reach my twentieth year in law enforcement I would be making a
salary of $84,973.36. My first year of drawing my pension would provide me
with $42,486.68 which is 50% of $84,973.36. This means I would need to find
a new job that paid at least $42,486.68 per year to continue my same style
of living. The table below will give you a better understanding of these
numbers over a greater period.
Year into Pension
Amount 50%

Salary with 3.2% Inflation

1st

Age 43
$42,486.68

$84,973.36

2nd Age 44
$43,846.25

$87,692.51

3rd

Age 45
$45,249.33

$90,498.67

4th

Age 46
$46,697.31

$93,394.62

5th

Age 47
$48,191.62

$96,383.25

Pension

6th

Age 48
$49,733.75

$99,467.51

7th

Age 49
$51,325.24

$102,650.47

8th

Age 50
$52,967.64

$105,935.29

18th Age 60
$72,578.44

$146,156.89

We can now see at the age of 60, which is when I have decided to begin
withdrawing from my retirement accounts, I would need and overall income
of $146,156.89 dollars per year. My pension would cover half of this leaving
me on the hook for the remainder $72,578.44 per year.
As you can see things are moving along smoothly, and we now know that
$72,578.44 is the magic number we need to figure out how to get each year.
When looking to get this number we want to build a retirement fund that will
be large enough to draw $72,578.44 from interest only. This is where the
term APR will come into play.
3. Annual Percentage Rate (APR)
Many retirement accounts rely on the stock market for their rates, and as
many of us have seen the stock market can fluctuate greatly. Many online
retirement calculators will place your APR at 7% to 8% which I personally find
high. To me a realistic number would be around 5%, so this will be the
percentage I will use. We now need to find out what number gaining a 5%
APR would allow us to withdraw $72,578.44 yearly without touching the

principle balance. Below is the equation to find out the principle balance
needed.
Principle Balance =

$72,578.44 =
.05

$1,451,568.80

We can see that $1,451,568.80 dollars in an account with a 5% APR would

allow a yearly withdraw of $72,578.44 without touching the principle account
balance. This is great, but if you are like me Im sure you dont have that
type of money lying around to throw into an account. Most likely we are
going to need to make monthly payments into some sort of retirement
account over many years. For my situation, I get paid 26 times a year and
would be depositing into the account each pay check. Lets jump into our
next equation and see how much money Im going to need to start saving
each check to reach my goal.

A = $1,451,568.80
APR = .05 or 5%
n = 26 amount of deposits per year
Y = 32 years which is the amount of time I have to save
PMT = $707.52

The payment I would need to deposit into an account earning 5% APR each
check is $707.52 to reach my goal of $1,451,568.80. Let me be honest for a
moment and admit that there is no way I would be able to survive if I were to
deposit that amount of money each check. Some options to look into or
depositing a smaller amount each check up until retiring from law
enforcement. At that point one could obtain a new career and use the money
from the pension to catch up. Lets look at another example and see if the
numbers would work.
Assume I can place $400 dollars per check into a retirement account at a 5%
APR for the next 15 years until I retire from law enforcement. That $400
dollars would turn into $232,018.96 and would continue to earn a 5% APR for
the next 17 years when I would reach the age of 60. Over those 17 years
that $232,018.96 would turn into $531,791.70. At this point I would need to
save an additional $919,777.10 over the next 17 years to reach my goal of
$1,451,568.80. A payment of $2,869.60 would be needed over the next 17 to
meet my goal. This would work out due to my pension easily being able to
cover this amount while I continue to enjoy my new line of work.

Possible retirement outcome break down

-

Payments into retirement account as a police officer over the next 15

years.
$400 per check at 5% APR =
$232,018.96

Value at the age of 60 =

-

$531,791.70
Payments required after leaving law enforcement until the age of 60 to
reach goal. $2,869.60 per month at 5% APR over 17 years =
$919,777.10

Total amount of payments =

$741,398.40

Total amount of interest =

$710,170.40

Total of payments/interest =
$1,451,568.80

Payout from retirement account yearly at 5% APR=

$72,578.44

Payout from pension yearly =

$72,578.44

You can see from the above example that saving for retirement isnt as easy
as throwing money into your local bank and hoping for the best. To be honest
these numbers will probably end up being high and in reality less money will
be needed to retire comfortable. Just remember there are many options and
routes available to reach your goals, these include stocks, bonds, and cash
investments. The most important thing about planning for retirement is to
start planning now. The sooner one can begin to invest the easier it will be
over time.