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Discover How Railroad Retirement Age Reductins Impact Railroaders with Less than 30 Years Thumbnail

Discover How Railroad Retirement Age Reductins Impact Railroaders with Less than 30 Years

Tier 1 Tier 2 Video Retirement Financial Planning


Thinking of leaving the railroad early. Learn about the age reductions coming your way in your railroad retirement. 

Welcome everyone to another edition of the Highball Advisors Railroad retirement whiteboard. My name's John McNamara, Highball Advisors. And today, this video is specifically a great word for those railroaders who aren't going to get their 30 years right? May have started in the railroad a little late, maybe left the railroad a little bit earlier, but you could start collecting your railroad retirement at 62 if you're retired, right? But at 62, we're going to have these age reductions and how much is that going to affect what the year ultimate payout would be? So I thought I'd walked through this here. So let's just step back. Railroad retirement, tier one and tier two, right? Tier one, top 35 years of social security and railroad retirement. Top tier two, your railroad service years, that makes up your whole railroad. Retirement moves with inflation, which is nice. Okay? Now assuming, give you just some examples. 

Born in 1957, your full retirement age, right? Where there will be no age reductions in 66 and six months. But if you leave at 62, you'll have a 27.5% reduction going down to individuals 1960 or later, full retirement age is 67 for now. Hopefully social security won't move that well. That will be for the younger people. It won't be for you guys. Reduction at 62 will be 30%. Alright, so what does that all mean? I thought what I do is just kind of give you an example here. So at 67, 30%, okay, 25% at 63, a 20% reduction in your annuity at 13.3 and then 6.6 at 66. So as you can see, those first three years is 180th a month. It gets reduced and then one 240th month, so it's these last, it's not as bad these last two years. This is a little more painful. 

But let me give you an example here. So on fourth, let's say a railroader has $4,000 annuity coming at full retirement age. Say, ah, I'm done. I'm going at 62. Okay, that's $2,800. So from 4,000 down to 2,800, that's $1,200 a month. Very significant. Then we go down to 3000 a month. If they go to 63, 3200, if they said I'm pulling the pin at 64, 65, 34, 68 and then 37, 32 at 66, alright? So I thought that was very a good illustration of exactly how much is in play here. Now, to further value that, I said let's figure out what is $1,200 a month worth, right? So what's the replacement cost of $1,200 at 62? So if you went out to the insurance market to, let's say go buy an annuity, you walk up to the, you go a nice steak dinner, you get the annuity and it'll cost you around $250,000 with an annuity with an inflation rider, right? 

Because the annuity moves with the railroad, retirement moves with inflation. So you got to get that inflation rider get around $250,000 there. So it doesn't mean anything, but I want you to understand the valuation and everything. And there's railroaders that could leave at 62 or 60 depending upon what they've done previously or other income streams that they might have. So it's just important to understand these numbers. So this is the type of information I go through my boarding for railroad retirement process for those railroaders at or near retirement, thinking about leaving the railroad. Go through that process. Very, very helpful. Alright, everyone else, click on the notification bell, get the latest video. Please subscribe to the channel. I do appreciate. Until next time, everyone, please stay safe, stay on track, and take care. So long everybody. Bye.

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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.