Greetings, everyone, and welcome to the latest installment of the Highball Advisors Railroad Retirement whiteboard. I'm John McNamara from Highball Advisors, and today's focus is on early retirement among railroaders and the reductions they can anticipate in their railroad retirement annuity due to early departure. For those fortunate enough to have completed 30 years of service, there are no reductions if they commence their annuity at 60. However, this discussion is tailored to those with less than 30 years of service who plan to retire at age 62.
Let's delve into these reductions, emphasizing the significance of meticulous planning. When you retire with fewer than 30 years of service at 62, the maximum reduction you'll face is 30%. This reduction is applied on a month-by-month basis. The initial 36 months incur a reduction of 1/108th per month, while the subsequent months add a reduction of 1/240th per month. It's imperative to note that this formula applies to both tier one and tier two of your employee annuity.
Now, let's shift our focus to the spouse's annuity. A spouse can commence their railroad retirement spousal annuity at age 62, but only if the employee has initiated their own annuity. Here, the maximum reduction for the spouse's annuity is 35%. The reduction formula mirrors that of the employee annuity, with the first 36 months incurring a reduction of 1/140th per month, followed by 1/240th per month for each additional month.
It's crucial to grasp the magnitude of these reductions, particularly for those who won't benefit from having 30 years of service with no reductions. Let's illustrate this with an example: Imagine someone retires at 62. At their full retirement age, their tier one is $2,000, and tier two is $1,200, resulting in a monthly employee annuity of $3,200. At 62, they'll receive $1,400 (a 30% reduction) for tier one and $840 (another 30% reduction) for tier two, totaling $2,240.
Now, considering the spousal portion, at full retirement age, the spouse would receive $1,000 (50% of tier one) and $540 (45% of tier two), summing up to $1,540. At 62, there's a 35% reduction, resulting in $650 for tier one and $351 for tier two, totaling $901. Altogether, this amounts to $3,141 per month at full retirement age and $2,141 at 62.
In this example, early retirement at 62 incurs a reduction of approximately $1,000 monthly. However, individual circumstances may vary, depending on additional income sources, the presence of a higher-earning spouse, investments, and other factors. It's essential to perform these calculations to make an informed decision about retiring at 62.
In conclusion, while early retirement at 62 might be a viable option for some, it's crucial to conduct a comprehensive financial assessment to determine its feasibility. Please reach out to me if you're approaching retirement or currently in retirement. I can guide you through these age reductions and the railroad retirement planning process. You can also access more valuable information on our YouTube channel. Don't forget to hit the notification bell for updates and subscribe to our channel to support us. Until next time, stay safe, stay on track, and take care. Farewell, everyone!
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.