Although nearly everyone shares the common goal of retiring comfortably, the way to achieve that goal is slightly different for airline pilots. Joe La Ferla, one of La Ferla Group’s Managing Principals, was an airline pilot himself. We understand the unique nuances of planning retirement for pilots, and would like to share some.
Retirement for Pilots
Airline pilots must retire at age 65, so if they want to continue working to supplement their income throughout retirement, they must find another job. Pilots may consider working as flight trainers or contract pilots.
Alternatively, they may look to sources of passive income, such as investments in stocks or real estate.
Airline-Sponsored Retirement Plans
Airline pilots may have both 401(k)s and pensions to manage, depending on the airline they work for. It is critical to understand the following about employer-sponsored retirement plans for pilots:
- Tax implications
- Growth potential
Since pilots can only contribute to airline-sponsored retirement funds until the age of 65, it is crucial to utilize an asset allocation model that will allow them to achieve a nest egg that will last them through their retirement.
Many people are surprised to find out that airline pilots are not salaried, but hourly wage employees. However, this doesn’t necessarily mean they get paid for 12 hours just because they’re at work for 12 hours.
Most pilots are paid for “time in flight.” In other words, from the time the plane’s brake is released at the starting airport until the time the brake is set at the arrival airport.
This model of compensation can make pilots’ income vary a bit, so planning retirement for pilots requires a bit of foresight and projection.
Airlines occasionally offer their pilots profit sharing, a form of compensation in which the company gives employees a direct share of profits. However, the amount of money a pilot receives via profit sharing depends on a number of factors, such as:
- Their annual income
- Their current year 401(k) contributions
- The financial success of their airline
Since profit sharing payments are contingent on these factors, it’s not always a safe assumption to believe that a pilot’s annual profit sharing check will increase year after year. It can decrease, so it may be wise to plan on investing it rather than using it as a form of income.
Roth IRA Limits
Pilots can anticipate earning a relatively high salary, especially as they gain seniority and their wages increase. For this reason, there’s a strong possibility that they will have to contribute less than the maximum to their Roth IRA, or not even contribute at all.
Roth IRA income limits for the year 2018 are:
- $137,000 for single filers
- $203,000 for joint filers
There are also limits to the amount of money that can be contributed, for anyone who qualifies:
- $6,000 for people aged under 50
- $7,000 for people aged 50 and over
Retirement for pilots requires a few turbulent factors that must be navigated smoothly. However, with the right planning and advice, it’s possible to glide right into retirement.