Too many people still don't understand what DROP really is. What is its true purpose? The DROP's primary purpose is to provide a lifetime of supplemental income during your retirement years. As a DROP balance grows, it may eventually be able to pay for other wants and needs. But the first and most important priority is to provide retirement income. DROP offers one of those rare opportunities to secure your financial future. Imagine being able to maintain your entire current income, even after you stop working! That is exactly what DROP is capable of providing, if given a chance.
Why do so many people fail to experience DROP's true potential? They underestimate their retirement income needs. They also underestimate how much money it will take to replace their income. This lack of information results in unfortunate situations time and time again. An Officer leaves the Department and quickly spends most of the DROP money on big-ticket items (such as real estate). He assumes his expenses will be minimal, once he's paid off all of his debt. With low expenses, the pension check is expected to cover most of the bills. Unfortunately, as soon as the City phase down checks stop, reality sets in. Before long, he's looking for another job to help make ends meet (if he is young enough). The pension check by itself is not quite enough for many people. The other common scenario follows a slightly different pattern. Wanting to keep the DROP balance intact, the “retiree” instead takes on a big mortgage to buy the new house, and the new travel trailer is purchased on credit as well. He (or she) reasons that if cash flow becomes a problem down the road, he'll just pay everything off with DROP money. With everything paid off, he can easily live on the pension check. Sure enough, shortly after phase down the monthly bills dwarf available income. So, the DROP account is drained to pay everything off. Now he's down to a pension check and little or no savings. He won't need a CPA to figure out he's coming up a little short each month. Hello job market.
Because of the size of the DROP balances, people sometimes have a false sense of security, and in extreme cases, visions of grandeur. Retirees sometimes see the DROP as an unexpected windfall, and treat it as such. Consider the plight of the typical lottery winner. We've all heard the stories. A few short years after being blessed with riches, they are often broke, and they wish the whole thing had never happened. One thing is very clear. People desperately need financial information and advice. Do someone a favor this week, and explain to that person why they should consider preserving their DROP rather than spend it. It's difficult for most people to understand these things, if no one has ever taken the time to explain it.