Good financial advisors help clients on how best to save, invest, and grow their money. They can help you tackle specific goals, such as making sure you have enough money in retirement or help you reduce your taxes. Some specialize in retirement or estate planning, while some work with certain niches of people, such as doctors, widows, divorcees, etc. Others might have investable asset requirements such as $1m in investable assets before they will work with a individual. However as railroaders, you have unique set of challenges and opportunities that require a certain skills from your financial advisor. Let me outline five characteristics railroaders should look for in a financial advisor to assist them with their railroad retirement. This isn't by any means a definitive list but a good starting point for when you are ready to reach out and get the financial advice you deserve.
Understand Railroad Retirement Benefits
People come to the railroading industry for all sorts of different reasons. Maybe they always love railroading or a family member has been in railroading or even they just needed a job, but I one thing all railroaders share is their Railroad Retirement Benefits from the Railroad Retirement Board. These hard earned benefits are a valuable tool in helping railroaders and their families achieve a successful financial future. Not only in retirement with their Railroad Retirement Annuity, but also if something unfortunately happens to the railroader. They will have access to a disability and survivor benefits. While the Railroad Retirement Board tries their best to assist railroaders, a railroader needs their advisor also to understand these benefits. By understanding your Railroad Retirement benefits, your advisor can make smart and knowledgeable recommendations to help you achieve your financial goals.
How to Couple 401ks, Railroad Retirement, and Pensions
Nothing frustrates me more than when I talk with railroaders and I’ll ask what they are doing to plan for their retirement. They usually retort I am retiring in fill in the blank number of years. That is when usually I go “and?” The conversation usually ends right there. There aren’t many industries that give individuals tremendous opportunities to fund a substantial retirement. However railroading is one industry that affords you such a luxury. Understanding how to position 401ks and other investments with your Tier 2 and possibly pension benefits has the potential to create a retirement nest egg for railroaders and their families that few are able to attain in other careers. For example, it is imperative for your financial advisor to understand how your Tier 2 payouts in retirement create a knock on effect with your retirement portfolio. This is just one example of the many opportunities railroaders have with Railroad Retirement benefits.
The Changing of the Railroading Industry
The industry has gone through so much change particularly in the Class 1 railroads over the last few years. The industry has been consumed by the switch to the Precision Scheduling Railroading (PSR) principles. While it’s fair to say the jury is still out on the overall impact on the industry going forward. It obviously has had a massive impact on the workforce. It has created angst and concern among railroaders. It is my view that a good financial advisor should be on top of the railroading industry trends. You never know exactly where the industry is going but having a prepared client financially in case something unfortunate does happen helps relieve some of a railroaders stress and anxiety.
How about an Annuity?
If you are in the presence of a financial advisor and he or she recommends you purchase an annuity, then you should get up and thank him or her for their time and head to the door. It should set off alarm bells that the advisor is unfamiliar with the workings of Railroad Retirement. Assuming you are an established railroader there is basically no reason to ever purchase an annuity for retirement income. I’ll assume the advisor has your best intentions in mind even though they are one of the most highly commissioned financial products in the industry but you have been funding an annuity with 4.9% of your annual income. It is called Tier 2. Remember annuities are never purchased but sold, you need to question the motives of your advisor if they keep pitching you annuities for your retirement.
What is the Advice Worth?
Railroaders typically want to avoid commission-based advisors. Advisors who work on commission may have less than altruistic incentives to push certain life insurances or mutual funds if they’re getting a cut of that revenue. You should look for a Fee-only Fiduciary. It means the advisor has pledged to work to act in their client’s best interest at all times. They receive their compensation only from the client for their guidance. In addition, advisors who aren’t fiduciaries are often held to a lesser standard, the suitability standard. That means that anything they sell you merely has to be suitable for you, not necessarily in your best interest. This point in my view is critical, and should be a deal breaker if a prospective advisor is not a fiduciary at all times. There are even some advisors that toggle back forth between suitability and fiduciary with their clients to my amazement.
There are a lot of very good advisors out there doing tremendous work every day helping clients live a prosperous life. Hopefully this article will help you find a firm or individual to help you achieve your hard earned retirement goals. At Highball Advisors, I strive to provide all my clients with all the answers to their railroad retirement questions. And when I don’t have an answer for them I’ll go out and find it for them. It’s what fee-only advisors should be doing for their clients. If you are thinking about getting some help with your retirement dreams then let’s sit down together and see if we are a good fit to work together. And if we aren’t a good fit then I can always point you to someone who can help you.
Photo by Norfolk Southern Corp
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.from Highball Advisors, and all rights are reserved.