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How to Generate Income Before Your Railroad Retirement "Kicks In" Thumbnail

How to Generate Income Before Your Railroad Retirement "Kicks In"

Tier 1 Tier 2 Video Annuity Retirement Financial Planning


Learn where you can get retirement income when your railroad retirement annuity hasn't kicked in yet.

Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors and today, I get a lot of comments about this, people wanting to leave the railroad early before their annuity kicks in. But you have to build that bridge, as I like to call it, to fund your lifestyle until your annuity kicks in.

So what I did is I put together some ideas on possible retirement income streams before your annuity kicks in. I came in with six and what I encourage you is go through these and if you feel hey, there's something I left out, or you have another idea, put that in the comment section. We can share that with other railroaders also.

So let's just talk about who this video is really for. So mostly a lot of it's these maybe 30 year railroaders who say, well, I don't want to make it till 60. I might have 30 years at 55. Can I retire now? That type of thing, or 57. I even had a railroader at 50. I mean, boy, I have my 30 years, what can I do? What can I do to leave the railroad? So that's kind of who this is for, this video. So to me, everything starts with getting that financial plan in place or at least sketch it, outline it. What do I need in retirement? What can I bring to bear to fund those that budget? I mean, make a budget at minimum. In retirement what's my budget?

Then the other thing is really is start early because as I go through this, you'll notice the earlier I think about it, the more options I have. You always want to have more options because if you think about it, oh I'm thinking of retiring next month, but I haven't even thought about it. Well, now your options are limited. Things that you could have done 5, 10, 15 years ago that would've made this decision a lot easier. So start preparing about, thinking about it, that type of thing. It doesn't mean you have to retire at 55, but I'm a big fan of always having options in life. If I want to leave at 55, I'll leave at 55. No I'll stay to 60, but you always have that options.

So let's go through these six ideas that I outlined and as I said, you can put in other ideas. So first one it's very straightforward. Just keep funding a brokerage account or keep investing. Obviously markets down, but dollar cost averaging. Every month I'm just going to put additional money in and then as this money grows throughout the years, I'll draw it down and then use that money to fund my retirement.

Then also even a bank account, especially as you say, okay, well, I'm going to need this money as you get closer towards retirement. Maybe you've been in the stocks for a long time. Maybe you want to start drawing that down a little bit slower, start putting it into the bank account and know that you'll have that money. So that's very straightforward. Just save. Just save money.

All right. Second one is hey, look at 401k distribution. You can do that at 55. Check out my video rule of 55 in railroad retirement and that talks about when you separate from service, all right, you can access those 401k funds at 55 years old. So think about that. But remember you have to do that properly and I'll go through that because you have tax implications. So don't take a big chunk, that type of thing. All right. So that's the second one.

Third is a period certain annuity, not a big fan of annuities, but I thought I'd throw it in there. So basically you give an insurance company a lump sum of money and they'll guarantee you income for, you could say hey, five years, I need five years of income. Now, the further out you give them that money, the cheaper it will be. So if you say I'm retiring at 55 here's $200,000, how much income will you have? Well, you're not really going to get much. But if you say, oh here's 150,000 at 30 or 32, and I want it at 55 for five years, how much can you give me? So that's a period certain annuity, something to think about.

I mean, at the end of the day, the insurance, company's just taking the money and investing it and then charging it to do that. But guaranteeing your income, you might do better on just investing it yourself, but that's up to you.

All right. Number four is rental income. I threw that in there. That's always a good idea. Maybe get a property or two that's a consistent flow of rental income. Need to start that a little bit earlier I think to really make it worthwhile. But hey, another property or two and that might bring in 1,000, 2,000, $3,000 a month. That's a good idea and also helps build wealth.

Number four is leave, get part-time work. Now the important thing is always about the current connection. So any part-time work you want to have basically make sure it's not a W2 position. So something in self-employed work. Whatever it is, that's something to do. Very, very helpful.

Then finally you might have a pension. All right. So some companies have made management pensions that will kick in at 55. Obviously they get discounted and then they get drawn down when railroad retirement kicks in, but it helps build that bridge. So that's another great one right there. So these are my six ideas that I have. Feel free, like I said, to put in other comments into the comments section.

Remember though it all starts, first two things I said build a budget at a minimum, financial plan would be great, because you want to know how you want to draw down those assets. You want to know how you're going to get taxed on that. Then plan early. Gives you more and more flexibility here. So if you're nearing retirement and thinking about it, reach out to me, go through my boarding firm railroad retirement process. I'll help you go through this stuff. It's free. Especially if you're nearing retirement, it's good value for sure. Share this video with other railroaders. I do appreciate that. Click on the subscribe button to subscribe to the channel. I'm almost at 4,000, that's very exciting and click on notifications. Get the latest video when it drops. So 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.