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The Risk and Reward of Not Starting Your Railroad Retirement Thumbnail

The Risk and Reward of Not Starting Your Railroad Retirement

Tier 2 Video Annuity Retirement Financial Planning


Hi everyone, and welcome to another edition of the Highball Advisors Railroad Retirement Mailbag. I'm John McNamara of Highball Advisors, and today's question comes from a KM claim. The question reads:

"I want to retire at 62 with 25 years of service, but I don’t plan to draw my retirement benefits until I’m 67. What are the pros and cons of doing it this way, and is there anything I should be aware of?"

Great question—let’s break it down.

Pros:

  • No age reduction on your annuity: Since you're waiting until 67 to begin collecting, you'll receive your full annuity benefit.

  • Early retirement: You’ll stop working at 62, which means five extra years of retirement to enjoy.

Cons:

  • Tier II freezes at 62: Once you leave service, your Tier II benefit stops growing. That could mean a smaller overall benefit compared to staying longer.

  • Drawing from your savings: From age 62 to 67, you’ll be relying on your personal savings to cover expenses, which could deplete your nest egg faster—especially if market conditions aren’t favorable.

  • Current connection risk: If you take another job during those years, depending on the type of employment, you could jeopardize your current connection with the railroad, which is critical for certain RRB benefits.

My Recommendation:

Create a comprehensive financial plan. Map out your income and expenses for those five years to ensure your savings can bridge the gap. It’s important to consider sequence of returns risk—that is, the risk of withdrawing money during a down market, which can significantly impact your long-term financial stability.

For a deeper dive, check out my video, “Six Steps for a Railroader’s Plan for Early Railroad Retirement.” It covers many of these topics in detail and will help you make informed decisions.

Alright, railroaders—that's it for today’s mailbag. I hope you found this helpful. Feel free to send in your questions, and I’ll be happy to answer them in a future video.

Until next time—stay safe, stay on track, and take care. So long, everybody!

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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.