Should I retire from the railroad to get the cost of living adjustment?
Welcome everyone to another dish of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara with Highball Advisors and today we're going to talk about this is really for those railroaders that are thinking of retiring. They're hearing about these big costs of living adjustments in the railroad retirement, and what should they do? Should they retire now to collect that big adjustment or wait, ride it out? Well, I just want to kind of dispel a couple myths and go over this cost of living adjustment and how it affects you when you want to make your retirement timing decisions. All right?
So 2022 is a big inflation year, right? So 2023 won't be as big, but for the annuitants that are already collecting, your tier one went up by 8.7%, so it's going to be 8.7% larger in 2023, and tier two was 2.8%, right? It's about a third of that number. All right, so that's for the annuitants and acceptance. So if you're a railroader, you're saying, "Geez, I better retire because I want to collect that 8.7%. That's really big stuff there." Right? So that's not the way it works. All right? So if you're 60 and 30, and let's say you're still working, your tier one automatically gets that COLA increase, that 8.7%, all right? So you're going to get that even if you don't retire. When you turn on your annuitant, it's already going to be 8.7% larger.
Now your tier two doesn't get that COLA increase amount, right? Because you're still accumulating it, right? You'll get another additional year of service assuming you're working, right? That's the point. If you're working, your tier two grows by the years of service. That's how it grows. There's no COLA impact on a growing tier two. It's all based off of years of service, all right? Now we'll move down to the people who are less than 30 years of service, all right? So now you have to be 62 and above. This is where it's going to kick in. So obviously, 62 is flat, right? Then at age 63, if you're still working at 63, you're still going to get the tier one COLA increase, right? The 8.7%. That's still going to be going on, right?
So how do we know that, because it's based off your primary insurance amount at age 62, right? They calculate a primary insurance amount. So whatever that amount is, it's going to go up by 8.7%. Now the important part to remember about railroad retirement, there's two parts, tier one and tier two. So now as we go to tier two, if you're working, right? That's going to grow because it's another year of service. But however, let's say if you were out of the railroad at 50 and you got another position or whatever, your tier two gets frozen when you leave the railroad. There's never any inflation adjustments on it until it is claimed, right? Until you turn on that annuity. So it is going to get frozen and there's no COLA there.
So that's something to think about there on the tier two portion of railroad retirement, and that will maybe affect your decisions, right? Unlike social security people where you always know you're going to get that COLA, the tier two portion, if you've left the railroad, it won't be that much. So that's why you look at some railroaders that will come to me, "Hey John, I worked I left in 2005." Well, the tier two is frozen from 2005, and as you know, I mean that's 17, almost 18 years, right? We're on the 18th year of no inflation kick-ins, so to speak, for that tier two. So it's not going to be ... That tier two portion is not going to be as much. So that's something to think about when you're timing your railroad retirement.
So if you're at or near retirement and you're thinking about hey, should I be leaving the railroad? What does the COLA look like? That type of thing, how does that work into play? Reach out to me, we'll go through the boarding for railroad retirement process. A lot of great stuff there in there, all right? But the bottom line is don't worry, if you're 62 or above or 60 and above, if you have your 30 years, you're going to get that tier one COLA increase even if you stay and continue to work for the railroad.
So I hope you found this video helpful. Reach out to me if you need help, as I said before. Subscribe to my YouTube channel, click on the notification bell to get the latest video, and until next time, everyone, please stay safe, stay on track, and take care. So long, everybody. Bye.
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