Is My Pension Going to Reduce My Railroad Retirement?

Transcript:

Learn how your pension will affect your 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 pensions, right? There's lots of different types of pensions going on, and some pensions are going to affect your Railroad Retirement payouts and others aren't. So I thought I'd just give a nice primer and you can start learning some of the buzzwords about pensions and how they're going to affect your Railroad Retirement. I'll try to stay high level. I won't get too in depth, but this will be a good way to start.

So basically there's two types of pensions. All right? There's covered pensions and non-covered pensions. So what does that mean? So let's just go through it, right? So covered pensions, that basically means you're paying into social security or the Railroad Retirement Board, right? And we're just talking about the tier one portion if it's Railroad Retirement, or social security. That payroll tax, you're paying into that. Every paycheck, it's coming out, it's coming out. So that makes it a covered pension. All right?

And then, when you collect your Railroad Retirement, the Railroad Retirement Board go, "Oh, you have a pension. Covered or non-covered?" They'll say, "Well, you paid into social security, then it's covered." So there's no reductions in that pension. Okay? So these pensions are mostly at private companies. Private companies will always pay into the social security or Railroad Retirement Board if you have a pension. But also public, it could be some states, like you could be a teacher and paid social security, in which case that's a covered pension. So there will be no reduction. All right. So that's covered.

So now if you go to the other side, you have non-covered. So it's basically the opposite. They didn't take any money out of the social security, so now that's non-covered. They got to get that money back. All right. So when you go collect that Railroad Retirement, now you're subject to some Railroad Retirement Board deductions on the tier one, not tier two, tier one. All right. So for the Railroader who's got a pension that's non-covered, maybe worked for the state or something like that, you're going to fall under the windfall elimination provision. All right. And there's going to be reduction in that. I won't get too far into that. And then the spouses have the government pension offset. All right. So that's all going to reduce their tier one portion of their Railroad Retirement. So like I said, it's 100%. I can't think of a private company that doesn't do non-covered.

So it's normally Federal state or any local agency will have a non-covered pension. So this is the railroader and the spouse. Those are going to be the reductions that you have to work on. But I just wanted to introduce that term to you, covered and non-covered. It's big part of it. And I know some of you Railroaders might have Railroad pension and you say, "Well, my pension gets reduced when I start collecting Railroad Retirement." That's inside the company. They're doing something else. That does not relate to the covered and non-covered pension issues. All right?

So listen, if you're confused about it and you're approaching retirement, reach out to me. We'll go through the boarding for Railroad Retirement process. We'll understand what our reductions are going to be. Really big part of the plan, understanding what that guaranteed retirement income is. You hate to say, "Oh yeah, I'm going to retire with this nice pension." Oops. Reduction comes because you never paid into social security. So want to avoid that, got to understand all those risks. All right? So reach out to me for that boarding for Railroad Retirement assessment. Click on this video, give it a thumbs up, like it. Subscribe to the channel. Click on the notification bell, get the latest video, share the video, all the great stuff. Until next time, everyone, please stay safe. Stay on track and take care. So long everybody. Bye.

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