Ready for Takeoff: A Pilot's Guide to Financial Planning for the Future

Ready for Takeoff: A Pilot's Guide to Financial Planning for the Future

May 20, 2024

The aviation industry has grown since more and more passengers have taken to the skies to travel to their destinations. Jobs in the aviation industry have also been expanding and evolving, providing many with rewarding and fulfilling careers. Whether you are well into your career as a pilot or just starting, developing a financial plan is an integral part of the journey.

Importance of Financial Planning for Pilots

While financial planning is critical for everyone, pilots face certain challenges when planning for their financial future. Pilots have health and medical requirements that require them to retire at 65, even if they wish to continue to work longer. You may have to retire earlier than 65 if you have trouble with one of your medical certifications, which are required every six months after 40.1 Another challenge that pilots face is the volatility of the airline industry, which involves constant mergers, acquisitions, and sometimes bankruptcies, as well as bailouts, all of which may affect your pay and benefits.

Understanding Pilot Income

A career in the aviation industry can be a lucrative one. In 2022, commercial pilots made an average of nearly $104,000 per year. Meanwhile, the median annual wage for airline pilots, copilots, and flight engineers was more than double that amount – $211,790.2  Along with this salary comes benefits like a per diem, which covers expenses for the time they are on their trips; health insurance; paid time off; and other perks discussed in greater detail below.

Most positions offer opportunities for advancement over the course of your career. This can mean moving up in the ranks at a specific airline or making the jump from a regional airline to a major one. Generally speaking, pilots who work for major airlines will earn more than those who work for regional ones, though each working environment has its own benefits and drawbacks.

Your pilot's income comes from the rules of a collective bargaining agreement. For example, United Airlines 16,000 pilots recently ratified a new contract that adds more than $10 billion in value to their existing benefits.3 The updated agreement provides a pay increase, a retirement benefits increase, and improvements in the quality of work-life, sick leave, and vacation benefits. You might be paid an hourly rate but also have a minimum number of paid hours monthly, whether you fly that number of hours or not. The amount of money and the minimum is affected by a few factors, such as the airline, your years of experience, your total flight hours, and the type of aircraft you fly.

Pilot Benefits and Perks

Being a pilot comes with many benefits and perks not found with other jobs, such as being able to see the world. Pilots also enjoy free and discounted travel and travel-related purchases such as hotels and rental cars for themselves, family, and friends. Pilots also enjoy a more flexible schedule than most other careers, see new people in everyday interactions, and may enjoy high salaries and good health benefits depending on their employer.

Budgeting for Pilots

Pilots are known for their attention to detail and intentionality–and these traits can yield major dividends in the budgeting process. By creating a solid budget and being conscientious about your spending, you can leverage your pilot’s income to prepare for retirement.

Start by calculating your monthly expenses, including the money you wish to put away for savings. For a pilot, this may also include the costs you incur when traveling. These costs include laundry, meals, entertainment, transport, and any overnight stays. Then, you add your monthly income and per diem to figure out if there are shortfalls. If there are, you could find areas where you may cut back on expenses without reducing money put aside for savings.

Another part of your budget should include money for your emergency fund. Unexpected hits to your finances may cause irreparable damage when you are unprepared. Many financial professionals recommend putting aside at least three to six months of your income to cover expenses in case you lose your job, have a significant medical expense, or have an unexpected financial emergency.4 It is also crucial to remember that once you have taken funds out of your emergency fund, you replace them as soon as possible until the fund is full again.

Insurance Considerations for Pilots

As a pilot, you have insurance benefits under your airline’s collective bargaining agreement.5 Therefore, you might have excellent coverage and a wide range of benefits. Benefits could include health, dental, vision, life, and disability, though the coverage and deductibles may vary depending on the agreements and the contract dates. In general, coverage tends to be quite extensive compared to other careers since being a pilot requires you to be in top physical and mental health.

While company-sponsored policies usually expire once you have retired, you may be offered private policies through your employer to extend your life insurance policy or opt for long-term care coverage, which may help ease the financial burden for your loved ones should you need long-term care or pass away.

Retirement and Tax Planning for Pilots

Retirement planning has changed recently in the aviation industry as 401(k) retirement plans have now replaced most pensions. However, because the pensions available to pilots were among the most generous, pilots’ 401(k) options are expansive as well.6 The new standard for the airline industry is for the company to contribute an amount equal to 16% of the pilot's pay, regardless of whether the pilot chooses to contribute. This benefit gives you some retirement money from the airline company. Because many pilots make well into the six figures, this 16% contribution may actually exceed the 401(k) limits for other professionals.

Due to the high salaries of pilots and high contributions to their 401(k) on behalf of their airline, you need to consider tax planning to avoid losing a significant portion of your money to taxes before you have time to enjoy it. This tax planning may include contributing money to a Roth IRA and working on other strategies with a financial professional. And because there have been murmurs in Congress about raising pilots’ retirement age from 65 to 67, it’s important to discuss the implications of any retirement age increase with your financial professional as well.7 

Investment Strategies for Pilots

Working with a knowledgeable financial professional is one way to find appropriate investing strategies. You should also try to gain knowledge and understanding of the market to make informed investment decisions.

It’s also critical to keep an eye on the economic cycle. Airlines and construction are two industries that are especially vulnerable to economic turbulence, and pilots can find themselves in a shaky employment situation while suffering market losses. This just means hoping for the best and being prepared for the worst as you control lifestyle creep, be diligent about excess spending, and build up your cash reserves.

One strategy you may want to consider is the technical analysis approach, which involves identifying trends and patterns and basing your investment decisions on that data. Or you may prefer a fundamental analysis strategy where you evaluate the company's overall financial health before investing in it. Both options have pros and cons, and a financial professional could help you navigate which strategies align with your financial goals.

Debt Management

Another essential part of financial planning is managing your debt. Student loan debt and flight training costs may amount to a significant debt that may have you struggling at the beginning of your career. When saving for your future financial goals, finding ways to manage and pay down this debt quickly to avoid accruing too much interest is helpful.

If you have a lot of loans and debt, you should first investigate possible loan forgiveness programs to see if you qualify. Another option is to consider a consolidation loan, combining the loans into one loan with a lower interest rate and one payment that allows you to pay the debt down quicker and with less interest. Once you have done that, work extra money into your budget to pay more on the principal balance so that the debt may go down even quicker.

Transition Planning for Career Changes

Another consideration for pilots is possibly transitioning to another career before retirement. Suppose you have a problem with medical certification but still have years of work ahead of you. In that case, it is important to know areas where you may make a smooth transition to a different career path that could help you continue to grow your savings and prepare for your retirement.

Some pilots transition into different aviation fields, such as management, business aviation, safety, or flight instruction. Others may leave the airline industry to utilize their management and leadership skills in the corporate world.

How Future Trends and Innovations May Affect Pilot Careers

Technological advancements change daily living and how many employees, including pilots, perform their daily job functions. In the last few decades, automation drastically changed the aviation industry, which used to require a pilot, navigator, engineer, first officer, and second officer to be the staff needed to operate a plane.

Now, a plane requires only two people for operation: a pilot and a co-pilot. But even with the advances in automation, airlines are finding it tough to fill these seats. During the pandemic, record numbers of pilots opted to retire, and airlines continue to struggle to hire and train enough new pilots to replace them.8 According to the Bureau of Labor Statistics, there will be about 16,800 new openings for airline and commercial pilots each year over the next decade.9

Conclusion

Being a pilot can be a rewarding career with an attractive salary and many benefits, which may set you up for a fulfilling retirement if you plan correctly. By taking the proper steps, such as managing and paying down debt, making sure you have appropriate insurance coverage, investing your money well, having retirement savings, sticking to a budget, and always keeping your financial future at the front of your mind, you may set yourself up for a pleasant retirement.3

 

Not sure where to get started or looking for guidance along the way? A financial professional may help you create a financial strategy as you work toward your financial goals.

 

 

Footnotes

1 For Pilots, Retirement Planning Is No Place to Wing It
https://www.kiplinger.com/retirement/600988/for-pilots-retirement-planning-is-no-place-to-wing-it

2 Commercial Airline Pilot Salary, https://atpflightschool.com/become-a-pilot/airline-career/commercial-pilot-salary.html

3 United Airline Pilots Approve New Contracthttps://www.alpa.org/news-and-events/news-room/2023-09-29-united-airlines-pilots-approve-new-contract

4 Do You Really Need to Save Three to Six Months Worth of Expenses?

https://www.experian.com/blogs/ask-experian/do-you-really-need-to-save-three-to-six-months-worth-of-expenses/

5 Air Line Pilots Association, https://www.alpa.org/

6 American Airlines Reaches Deal with Pilots, https://www.pionline.com/defined-contribution/american-airlines-reaches-deal-pilots-includes-401k-contribution-hikes

7 Captain Sully and FAA Warn Congress Not to Raise Pilot Retirement Age, https://www.businessinsider.com/captain-sully-and-faa-warn-congress-not-to-raise-pilot-retirement-age-2024-2#

8 After COVID 19, Aviation Faces a Pilot Shortage https://www.oliverwyman.com/our-expertise/insights/2021/mar/after-covid-19-aviation-faces-a-pilot-shortage.html

9 Airline and Commercial Pilots, Bureau of Labor Statistics https://www.bls.gov/ooh/transportation-and-material-moving/airline-and-commercial-pilots.htm

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by WriterAccess.

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