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Things to Consider When Leaving the Railroad Thumbnail

Things to Consider When Leaving the Railroad

Tier 1 Tier 2 Video Annuity Spouse Annuity Survivor Benefits Retirement Financial Planning


Thinking of leaving the railroad for another job? You should really watch this video.

Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors, and today's Whiteboard is about those railroaders that are thinking of leaving the railroad for another job or career, that type of thing. Not the retirees. So this is more of those job changers, right. I've been with the railroad X number of years, I'm thinking of leaving to go take another position, right.

So, I thought I'd do a video on things you want to be thinking about. Not so much what you do after you have left the railroad. But, hey, I'm making this decision. What should I be thinking about, John? So I put down a few things. Now, what I did is I broke it down to apples to apples and apples to oranges. So you'll see what I mean, what I'm talking about.

So if you're just moving to a position that's in the same industry, a social security position's the way I look at it, right. From one job to another and it's all paid into social security, 401Ks, all that types of same thing. So what you want to think about is the important things. Work environment. Hey, can I advance in the job? These are all the things that you want to be thinking about. Benefits. Is it a better healthcare plan? What's the 401K plan? Are they matching more? Those type of things.

Time off, right, especially railroaders, that's a big thing. So vacation days, am I increasing my vacation days, personal days? I mean, obviously salary's important. I didn't feel like I needed to write that down. And then even lifestyle, right. Does this help improve my lifestyle? And does it really help you achieve your long term goals, right? What are you thinking about? Maybe retirement planning, maybe retiring early. So does that apple-apple comparison when you move from one job to another.

Now, as a railroader, here's the additional items that you need to consider. As I put it in my column, apples to oranges column, right. So it's about years of service, which is important, right? Because we're talking about that tier two portion of your railroad retirement, right. Very, very beneficial. And also remember, it gives you 30 years of service, becomes your full retirement age, right. So you can start collecting railroad retirement at 60, versus a social security worker who's full retirement age, born after 1960, would be 67 years old.

So the first thing you want to do, depending about how many years of service you have, am I vested, right? So if you have five years of service in the railroad, you're vested. You're now eligible for railroad retirement benefits. So if you're less than five, it's a no brainer. Go back to apples to apples, because the railroad part's not really. But really after five years, you're vested now, the clock starts ticking and the decisions get tougher and tougher, right.

So how many years to 30, right? How many till 30 years? So that's important, right? Oh, day 10, 12, 13, okay, fine. But now when you start getting towards that 25, close to 30, whoa, right? So now we're thinking, well, 30 years, that's a big number because now I can retire at 60. So then that triggers the question is, how much is seven years of your life worth? Basically, that's the way I break it down. Say full retirement at 60, or 67 where I got to do another seven years. So that's a really big thing to consider. You'll have to answer that one yourself, but that's a big benefit.

And then, I guess to layer on top of that is what does retirement look like for you? So that seven years, going back to that, a lot more active at 60 than at 67. Unfortunately, that's just the way life works. So, hey, what are your goals? What are you trying to accomplish? What's important to you as you get older into retirement? Being able to leave the railroad with your 30 years.

I mean, you can even leave the railroad at 30 years if you're 55 or something like that. And knowing that you're going to have this guaranteed retirement income at 60 versus 67. So if you wanted to retire at 55 over here before, in this case, your social security kicked in at 67, you got to build a bridge for 12 years versus a railroader who has 30 years but only have to do five. So that's important. You got to think about that.

And then the cost of leaving the railroad, right? The tier two stops, okay? You can't get that annuity any bigger. Plus it freezes. So let's say if you left the railroad at 45 and you're going to work another 22 years, this number is going to freeze. It doesn't adjust with inflation until you turn it on. So that number, 22 years later, is going to be from your 15 years of service 22 years ago. So that's a big cost there.

And then the survivor annuity, right? I always talk about that. You're going to lose your current connection. The survivor annuity, big benefit for the spouse if something unfortunate happens to you. So you have to plan for that, right. How am I going to adjust on the estate plan? Maybe make it up with life insurance, right?

So the point I'm saying here is it's apples to oranges if you're a railroader, and you really need to understand what the true cost of moving out from the railroad to a non railroad position. So I hope you found this helpful. Feel free to add anything else in the description column if there's any other things that I didn't mention, love to add that. But keep the conversation going.

If you're nearing retirement or close to retirement, feel free to reach out to me. Go through the boarding for railroad retirement process. Really good stuff there to help you answer a lot of these questions, that's for sure. Please subscribe to my YouTube channel. Click on the notification bell. Let's share the video with other railroaders, especially those thinking of leaving the railroad. 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.