Do You Have the Right Railroad Retirement Date?

Transcript:

Have you really chosen the right month to leave the railroad? Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara, Highball Advisors. And today we're going to talk about choosing the right date for leaving the railroad, right? The right retirement date. And maybe some people don't really actually have the right date. So I'm going to walk through this and see if this might turn a light on in your head.

So what am I talking about here? I'm talking about deemed service months, right? So I always talk about 60 and 30 and that's kind of the jargon, being 60 years old and 30 years of service. but what really it is, it's 360 months, they call service months. That makes up your 30 years. So they're called deemed service months. So you have 360 of those, and then you have your 30 years, full retirement age. So the service months are used to calculate your tier two benefit part of your annuity. And every year they set the maximum amount of tier two that you can get taxed based off your salary.

So it's 4.9% of your income, all right, up to a maximum of 106,200 for this year, 2021. And what does that really comes down to is $8,850 of income a month is what can be taxed at the 4.9%. 4.9% is your tier two tax. So without getting too confusing let's work through an example and I'll show you what I'm talking about choosing that right month.

So I had an example. So let's say you had a career railroader who's going to retire at the end of the year. We'll say that. And at the end of the year, we'll have the 30 years. So right now they're at 29 years at the beginning of the year. So now it's the year. So let's say the railroader, 30 year railroader, or soon to be 30 year railroader has a W2 income of $125,000. Also has a bonus from the railroad of, we'll say, $25,000. And maybe some equity, maybe some RSUs, and they cash those in for about $35,000. So their annual income is around $185,000, for this railroader between the payroll bonus and options. However he can leave in June. Here's what I'm talking about.

So let's say this railroader will have, at the end of June, will have 354 months and still need six more months to get to that 360. But here's what I'm talking about. So, if you leave at the end of the June, half of 125,000 is 62,500, the bonus was in the beginning part of the year. So you're paying tax on that. And then you cashed out those options in February, the RSUs. That's income. Remember those RSU videos I did. Those are all you got to all pay railroad retirement on all these sources of income. So not only W2, you got pay on your bonus and you got to pay on your equity option. So by the end of June, you have 122,500. And you say, wow, okay, I've paid that already into the year. Remember the tier two maximum is 106,200. You've already met the tier two maximum for the year, at the end of June. So now you've got a whole year's worth of service credit months.

So you can technically leave in June. You've paid out the other six months. So you have six service months. Now what's important there is now you can leave at the end of June, but you cannot collect your railroad retirement yet. You have to let those six months of those service months that you got credited for run through. So you'll still be able to collect your railroad retirement in the beginning of the year, but there'll be no need to work those final six months. That's important. You don't need to work those final six months because you've already paid into them and you're getting deemed. So a lot of people, what they'll do a lot of railroaders will say, I'm retiring on this day. It's my 360 months or 30 years. And they might be leaving months on the table there. So you want to look at that and say, okay, yeah, I'm going to leave at this date, but see if you have those deemed service months, because maybe your tier two shouldn't be based on in this case 360 months, maybe 362 months, or 363 months.

Delay that railroad retirement if you have those themes service months for an extra three, four months. Okay. And then that way your tier two goes up. So the important part remember about this is you can't start your annuity until your last deemed months ends. So you have to have that little bridge there for those few months to cover that. But this is a great way, if you want to leave the railroad a little bit earlier and still get those service months, it's a good way to do at the end of your career.

So I hope you found this video helpful. Reach out to me. Go through my boarding for railroad retirement process. This is the type of stuff that I'm looking at when we're getting you ready for retirement. If you want to leave, we can get you out maybe a little bit earlier here sometimes. You got to do the math on all this stuff. So reach out to me for that boarding for railroad timing process, schedule that meeting. That'd be great. Share this video with other railroaders, particularly those nearing retirement. They might be able to leave a little bit earlier. And also subscribe to the YouTube channel, as always love that. Click on the notification bell and get the latest videos. That's great. And until next time, everyone, please stay safe stay on track and take care so long everybody.

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