Don't let your advisor make these mistakes when it comes to railroad retirement.
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 railroad retirement, which obviously very important to you, otherwise you're not really watching this video, but it's a big, big part of your retirement, so it has to be done properly. A lot of you might have advisors that you're working with, so I thought what I'd do is put up five things that maybe you can help them out as they assist you with retirement things that you want to look at.
Number one is understand that railroad retirement as an asset. It's a very, very valuable asset, especially the more and more years that you have in railroad retirement. So if you have 30 years and you're married, I've calculated that value seven, 800, $900,000 is an intrinsic value there. Because the way I look at is if you had to go out and purchase an annuity, that's how much those are. They're very, very valuable, that railroad retirement, so big building block of your financial plan. You have good guaranteed retirement income, so that's an asset. Very, very important.
The second thing is don't forget about the survivor benefit. Huge, huge thing for railroaders, having that survivor benefit. Big part of the estate plan, the survivor benefit. Now, you have to understand the current connections and how that works in order to get that survivor benefit, but understand the current connection, that will get you to the survivor benefit and that will help protect your family. So really need to understand that.
All right. Next is beware of the earnings tests. Another important thing. So maybe some of you might be going back to work while you're collecting railroad retirement. Understand how that's going to draw down on your railroad retirement annuity, tier one, tier two. Are you working for a pre railroad retirement employer? That's that's going to hit you on your tier two side, $1 for every $2 up to 50%. So you really have to know what that earnings test is going to be on your railroad retirement. You'd hate to go into railroad retirement and say, "Oh, I'm working, but oh geez, I'm losing all this money in my railroad retirement." So, know that earnings test. Very, very important part.
Number four, pensions can reduce benefits also. What am I talking about there? I'm talking about the non-covered pensions. Maybe you work for the government, maybe your spouse worked as a teacher, that type of thing. Those are possible reductions on the tier one portion there. So very, very important to know about your government pension offset and your windfall elimination period on the pensions there.
And then finally, remember your benefits can be taxed. All right. So, very important. Tier one, up to 85% of it is taxable over a certain amount of income. So understand the taxes on your tier one portion of railroad retirement. And then remember, tier two, taxed at ordinary income, just like any other pension. So we really need to understand your taxes. As I always say, taxes and healthcare are two biggest things in railroad retirement. So really know your taxes. All right.
So these are five points. You sit down with your advisor, work through these with them, and that way that will help assist you in having a great railroad retirement. Feel free to reach out to me if you need any help with boarding for railroad retirement assessment. Share this video with other railroaders. I do appreciate that. Closing in on 5,000 subscribers, really big. I'm excited about that. Maybe by the time you're watching this, I might have 5,000. How about that? And then click on the notification bell to get the latest video. 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.