The Four Unique Risks in Decumulation in Railroad Retirement

Four Big Risks to Your Nest Egg in Railroad Retirement

When most railroaders think about retirement, the focus is usually on getting there. But what happens after you retire is just as important—if not more so. Once retirement begins, your savings are no longer growing from contributions; instead, they are being drawn down to support your lifestyle.

At Highball Advisors, we often break retirement planning into two phases:

• Accumulation – Your working years, when you are earning income and building assets
• Decumulation – Retirement, when you are relying on those assets to fund your life

While there are risks in both phases, the most serious threats to your nest egg typically occur during decumulation. Below are four key risks railroad retirees should understand and plan for.

Accumulation vs. Decumulation: Where the Real Risk Begins

During the accumulation phase, two primary factors drive success:

1. Cash flow – Your salary and savings rate
2. Time – How many years you have until retirement

These are important, but generally manageable. The real stress often begins after retirement, when market conditions, taxes, and life events can directly impact your income.

1. Sequence of Return Risk

Sequence risk refers to the timing of market losses, especially early in retirement.

Imagine retiring with a healthy nest egg, only to experience a major market downturn shortly afterward. If you are forced to sell investments at depressed prices to cover living expenses, those losses can permanently damage your portfolio.

How to manage sequence risk:

• Create a cash bucket with two to three years of living expenses
• Keep that money in liquid, low-risk accounts
• Allow long-term investments time to recover during market downturns

Some retirees also explore access to emergency liquidity, such as a home equity line of credit, to avoid selling investments at the wrong time.

2. Longevity Risk

Longevity risk is the possibility of outliving your money.

Railroaders with long service histories—especially those with 30 years—benefit from strong guaranteed income through Railroad Retirement. Tier I benefits are inflation-adjusted, while Tier II grows more slowly and pensions may not adjust for inflation at all.

If you retire in your early 60s and live into your 90s, inflation can quietly erode your purchasing power over decades.

How to manage longevity risk:

• Maintain a growth bucket invested for the long term
• Allow assets time to compound over a 25- to 30-year retirement
• Use growth to help offset inflation and declining purchasing power

3. Tax Risk

Tax risk is often overlooked but can significantly impact retirement income.

With rising federal debt and deficits, future tax rates are uncertain. Higher taxes on retirement accounts could reduce the income you expected to rely on.

How to manage tax risk:

• Consider Roth conversions during lower-income years in retirement
• Gradually move funds from tax-deferred accounts into tax-free Roth IRAs
• Pay taxes at more manageable rates now rather than potentially higher rates later

This strategy can provide flexibility and reduce long-term tax exposure.

4. Spiking Expenses

Unexpected expenses can derail even the best retirement plan.

Common examples include:

• Major home repairs (roof, HVAC, plumbing)
• Health-related costs
• Family caregiving responsibilities
• Divorce or other major life changes

How to manage spiking expenses:

• Maintain tax-free assets, such as Roth accounts, for large one-time needs
• Keep annual spending slightly below your maximum budget
• Build a buffer to absorb unexpected costs without disrupting your income plan

Final Thoughts

These four risks—sequence of returns, longevity, taxes, and spiking expenses—are the biggest threats to your nest egg once retirement begins. Planning for them in advance can make the difference between simply retiring and retiring well.

These are exactly the issues addressed in the Highball Advisors Railroad Retirement Whiteboarding Process, designed specifically for railroaders who are at or near retirement.

If you found this helpful, consider subscribing for future updates and sharing it with fellow railroaders who are approaching retirement.

Until next time—stay safe, stay on track, and take care.

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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.