Have You Sharpened Your Hatchet for Early Railroad Retirement?Video Retirement Financial Planning
Learn the right way to prepare for early railroad retirement.
Welcome everyone to another edition of the Highball Advisors, Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors. And today's video is geared towards those railroaders that want to leave before their railroad retirement kicks in. I'll give you an example. They might have 30 years at 55, in which case their railroad retirement doesn't kick in until 60, or maybe somebody's 57, their railroad retirement doesn't kick in until 62, because they have less than 30 years. So those are what we're talking about. The guaranteed retirement income hasn't kicked in, but I want to retire, what can I do?
So the way you could retire is we're talking about withdrawing from your portfolio, your nest egg. Creating that retirement income paycheck, so to speak, to cover your expenses, especially your essential expenses. We want to retire before railroad retirement kicks in and what's going to happen with that portfolio, is it's going to require a higher distribution rate from the portfolio, because the guarantee hasn't kicked in yet, the guaranteed retirement income.
But I need money from somewhere, so I've got to take more out of to the nest egg. So that higher rate of withdrawal is going to happen. So you hear the term all the time, the 4% rule, "I'll just take out 4% of my portfolio. And that will get me through retirement." Well, it's different if your income, your guaranteed retirement income, is going to change. And what this does is this creates, what I said in the title here, is a hatchet effect.
So let me show you what's going on here. So let's say next year, 2022, or maybe you're watching this video in 2022, you want to retire. Well, in this example, will say somebody's 55. Their guaranteed retirement income's not kicking in until 2027. So we have this here we've got to take out. If this person wants to have like $85,000 a year, they say, "I need $85,000 a year to live on." And let's say they can get $20,000, maybe their spouse is working part-time, or maybe you might be you working part-time, or maybe you have rental income. You have a little bit of income.
But however, your railroad retirement hasn't kicked in and it won't kick in for another five years. So you need to get more money out of your portfolio. So you increase your withdrawal rate. And then your railroad retirement kicks in and moves all your guaranteed retirement income up higher to creating this hatchet effect. See that hatchet here. So you have to understand how you're going to fund that. What strategies are you going to use to get through those five years?
So this guaranteed income is your tier one, tier two, maybe you have a pension, you're guaranteed, your spousal tier one, tier two, maybe rental income, et cetera. So what I'm trying to draw your attention to throughout this whole thing, is you've got to plan for those initial years before railroad retirement. What is your portfolio withdrawal strategy? How much do you have to take before the railroad retirement kicks in?
So that's that hatchet that you've got to plan for. So some of the things I want you to think about is that initial withdrawal rates. And then going forward, what's your withdrawal rates going after that? How much of that do I have to withdraw down from the portfolio. And remember, like I always say with railroaders, you have a lot of great guaranteed retirement income. You just need to get there to it. So drawing down that nest egg.
So I hope you found this helpful. Reach out to me, if you want to discuss this. I have a boarding for railroad retirement process where I'll go through this with those individuals who are near retirement, who want to plan for this. This is very, very important. Not only accumulating assets, but how do you de-accumulate your assets, Just as important.
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