5 Strategies to Plan Your Spending in Railroad Retirement

Transcript:

How do you plan to spend your nest egg in railroad retirement?

Welcome everyone, to another addition of the Highball Advisors Railroad Retirement whiteboard. My name's John McNamara, Highball Advisors, and today we're going to talk about spending down your nest egg in railroad retirement. All right. How are you going to de-accumulate all the money that you've saved for retirement? How are you going to spend that down because you're obviously not working anymore, you'll have your annuity coming in, but the additional money, so how are you going to figure that out?

So here's five different ways to talk about de-accumulation of your nest egg. One way you could do it is just set a number and then adjust it for inflation. Say, "Hey, I'm going to spend $50,000 a year and I'm going to adjust to inflation every year," and then that's the sip way to do it. Is that accurate? I don't know, but you could just do it that way if you just want a baseline to start with. Obviously this year we're going to have some major adjustments, that retirement number might be an extra 7 or 8% this year.

Another way to do it is a retirement spending smile. This is an interesting way to think about it. Think if you retire at 60, let's just say, or 65, you still have a lot of pep in your step and as you're going down, as you're aging, you're not doing as much in retirement. Your spending would gradually go down, however, as you near the end of your retirement, your healthcare casts are going to go up and it's going to create that smile of retirement spending smile is the way they look at. It's kind of like that and that's kind of the way you want plan for that. You're spending a lot in the beginning, you're slowing down every year, gradually, and then at the end, you're going up. That's another way to look at it.

Another way is spending stages. This is kind of similar to the smile. It's basically the way they'd say it kind of moves in tranches, kind of a Go-go, like I say, you're spending a lot up there and then you're slowing down, and then finally it's just no-go. You're just not doing anything. It's kind of like an escalator down way to look at that. That's another way to look at it. That's kind of interesting because that doesn't really factor in the healthcare as much, but that's one way to look at it.

Another way is guardrails, guardrail strategy. This really factors in on a market performance. Basically what you're doing is you're setting a withdrawal rate, how much you want to take out, and then you adjust your spending amount, every year will increase with inflation because inflation changes so it's really taking off of here. But however, what's good about this strategy is if the markets increase, your spending will increase and the markets decrease, your spending will decrease. It creates that guardrail there. What this does also is believe it or not, I mean, if you just have a flat number every year, you might be at your end of your plan and say, "Well, gee, whiz. I have too much money now." I know that's hard to believe, but you might say, "I have too much money. I wish I spent more." This is more of a dynamic approach to spending where, "Hey, if things are going great, I'll spend a little more or money, throttle up, and then if it's not, I'll throttle it down a little bit." That's guardrail.

The next one's similar to that is floor and ceiling and that's going to be a constant percent of your invested assets. Let's just say you've heard the 4% rule, it's just going to be 4% every year and what I'm going to do based on market performance, I can just throttle that up a little bit also is have a ceiling of I can increase that 4% number by maybe 20% if the market's good that year and then 20% down on the lower ... If the market's bad. That's kind of another dynamic approach, the guardrails and the floor and ceiling.

Those are five good ways to look at it. I think it's important that you guys start to understand some different strategies on de-accumulation, very, very important. It's just not going to be a flat line. It's just not going to be, "Hey, I need $5000 a month for the rest of my life." It's really not like that. I hope you found this helpful. Reach out to me, go through the boarding for railroad retirement process. This is kind of stuff that I go through in my process to help those railroaders nearer retirement to kind of understand, "Hey, John, I've done a great job saving and all those type of things, but how do I make sure that I spend it properly because that's important too?" Also subscribe by YouTube channel, click on the notification bell to get the latest video, and until next time, everyone, please stay safe, stay on track, and take care. So long, everybody. Bye.

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