If you and your significant other are preparing to claim your railroad retirement, you need to watch this video.
Welcome everyone to another edition of the Highball Advisors Railroad Retirement whiteboard. My name's John McNamara of Highball Advisors, and today we're going to talk about claiming your Railroad Retirement specifically as a couple. A lot of different strategies, a lot of different moving parts here. So what I did is outline the seven biggest mistakes that couples make when they're looking to claim their Railroad Retirement. So I'll just walk through them here.
So the first one is confusing spousal benefits with survivor benefits. Two distinct different things. Spousal has to do with claiming it while you're alive, both of you are alive. A chance to collect off the employee's annuity, that's the spousal benefit. And then, survivor is the benefit that comes to the surviving spouse after the employee has passed away. That's the survivor annuity. So sometimes that gets a little confusing. So understanding both of those is very, very important and how they actually work together. I have a lot of different videos on that, but that's interesting.
So number two, assuming a non-working spouse is ineligible for spousal benefits. So maybe there might be a spouse that stayed home and never worked, or doesn't have those 10 years, or somebody who doesn't have those 10 years of service, not railroad service, but just social security credits. You're still eligible to collect spousal benefits. You might not be able to collect on your own because you don't have enough years, but you're still eligible on the spousal benefits. So really need to understand that. Very, very important.
All right, number three, misunderstanding how claiming decisions affect spousal benefits. That's also very important. Determining when you want to retire because you have to remember a spousal benefit is going to be 50% of your tier one, and 45% of your tier two, assuming there's no other reductions, that type of thing. But let's just keep it at that. So if you claim early, that's going to have, a rollover, a spillover effect into the spousal benefit also. So you need to understand when you're going to claim your Railroad Retirement, and when the spouse is going to claim it. All those things factor in there on the claiming strategies.
Number four, failure to optimize survivor benefits. Really, really important piece. So, I guess, this would specifically relate more to maybe a dual income couple, who wants to claim? Maybe the non-railroader might claim social security later because that might be a higher benefit than the tier one as a survivor benefit. So that's something to think about. So just trying to understand what that survivor benefit is. Just really understand if, is that the right amount? If something unfortunate happens, is that the right amount in a survivor annuity? So trying to maximize that is really, really important.
Failure to consider income replacement ratios... Or rates, I should say. So, you're living this way now. Maybe you have one income coming in, maybe two incomes coming in. Now, I'm starting to collect my Railroad Retirement. What does that look like? Am I replacing enough of the income that we currently live on? So a lot of people say in retirement, "I won't spend as on much certain things," but is that still the right amount? Especially early in retirement, you're doing a lot more things. You're probably not really spending much less than when you're working because you might be traveling more, might be doing those things because you're a little more active, especially railroaders, if you can retire at 60, you're even more active than most individuals who retire at 67 as their full retirement age. So you might actually be spending a little bit more. So understand those income replacement rates. Very, very important.
Number six, not making claiming decisions as a couple. Well, that's just basic communication there. You got to talk about it. Don't come home and say, "Oh, by the way, I retired." Have to understand how all the pieces of the puzzle work together. Teamwork makes the dream work, as they say. So get all that together. Talk about it. So that's very important.
And the last thing here I just threw in is thinking Railroad Retirement will disappear. So, you say, "Well, bird in the hand I worth two in the bush. Railroad Retirement's going broke." No, it's not going broke, it's not going anywhere. So just make financial sound decisions when you decide on when to retire. Don't think about Railroad Retirement's going away. That's not the right way to make decisions when you want to start your annuity.
So these are my seven big claiming mistakes. Feel free to reach out to me. Put in the Suggestions if there's other mistakes that you see. And if you're at or near retirement, reach out to me. Go through my Boarding for Railroad Retirement process, can help you out. Help avoid some of these mistakes, that's for sure. Subscribe to my channel. I appreciate that, it's growing really well. Click on the notification bell to get the latest video. And then, until next time, everyone, please stay safe, stay on track, and take care. So long everybody. Bye.
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.