60 is Greater Than 62 in Railroad RetirementTier 1 Tier 2 Financial Planning
Learn how to make an extra $3 million in railroad retirement.
Welcome everyone to another edition of the Highball Advisors railroad retirement whiteboard. My name is John McNamara of Highball Advisors. And while maybe the $3 million might be a little bit of an exaggeration, but let me just walk through this on just the age of retirement and the years of service and how important it really is when you calculate railroad retirement. So I've had a few railroaders come out to me and say, Hey John, what's the difference between 60 and 62. So what I'm going to do here is I'll just highlight a few things, but then I'll walk work through an example.
And this will just give you some ideas to get you thinking. And I was actually a little shocked by that, by the end of it, this whole thing myself. So here we go, right? So 60 and 30, you know, I always call it the golden ticket, right? You got the early retirement, which means your full retirement age, you know, seven years early, earlier, assuming you were born at 1960 above, right? So it's 60 years old. If you have 30 years of service, you can start collecting your railroad retirement annuity. Right? Very, very valuable. Now I'm comparing it against somebody who's 62 and let's say has 25 years of service, right? They have early retirement. I don't see it as early retirement. I see as a reduced benefit retirement, right? It's not really early retirement. And at 62 it gets reduced by 30%. All right. Very, very severe penalty there. 30% on the on taking it out at 62, even though you have 25 years, it's not 30. So that's a, that's a reduction.
So let's go through an example here and I'm going to work our way through this and let's see how this goes. So we have two couples here, John and Jill date of birth. He born in 62 and Bob and Betty, the, they were both born 1960, you know, just ease of use here. Right. They both make $125,000. Right. And they're going to retire. Bob and Betty are going to retire at 62 years old. Right. So in 2022, they're going to retire. And John and Jill were born in 1962 and they're going to retire in 2022. And they're both on the same salary. So let's do the math on the payouts here. Right? So for John and Jill you know, there's 60 and 30, John's 60 and 30. So his tier one is going to be $ 41,716.00 And Jill's a tier one spousal tier one is a half of that. So 20,000, right? And then on the tier two calculate out, cause he had some good years, just needs five good years to max out that tier two payment. It's 20,122. And Jill is 45% of that. The spousal tier two. So you come up here, he's 61,838 and she's 29,913. So their annual amount that they would getting railroad retirement is $91,751. Right? Fantastic. Sixty years old adjusted for inflation every year for the most part. It's a good gig. Right? So now let's go to Bob and Betty and they've done very well too here. Right? Same thing, tier one. However, we're getting our reductions in here. 29,201 a half of that for Betty 14,006 Oh one tier two reduction again, right. 11,738 5,255, 45%. Here's 40,000, 19,822. 60,822. Very, very good number. Right? However, it's not the 60 and 30 guy. So the difference here is $30,929. So let me get this straight. I can work two last years. All right. And make an additional $30,000 in retirement. That's awesome. I work less and I get paid a 50% more than this amount, six 60,822.
Now, if you have a little fun with it, here went a little crazy, you know, I'm a big fan of compounding interest, right? So if you compound this extra $30,929 , because the railroad retirement annuity gets paid monthly. So if you compound that monthly at say 7%, you're just growing in the market. Some percent is good number, right? For 30 years, there's your additional 3 million, $394,900 at the end of at the end of there at the end of John and Jill's life. Right? So if they, you know, if they just bank that difference and just let it grow compounded at 7%, there's your extra to pass on to your heirs. So hopefully this will give you some things to think about illustrate some things, the, you know, how great those 30 years are, that type of thing. Feel free to reach out to me. If you have any questions about this, how all this stuff works, how it really, how it all couples together into getting that retirement plan together, right? What does that retirement look like? Sign up for that boarding for railroad retirement assessment, right? That assessment, right? Coupling with all those other things, to see how your retirement looks please subscribe to this YouTube channel it's growing. Great. I appreciate it. You know, click on the bell, get your notifications, that type of thing. When I put up new videos as always everyone, please stay safe, stay on track and take care so long everybody; Bye.
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