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Two Person Crew in Railroad Retirement

Tier 2 Retirement Financial Planning

As the engineer eases the throttle forward the train lurches and proceeds down the track to it’s assigned destinations. The engineer is confident in completing his orders for the day and starts upon his route. It is with the assistance of a qualified conductor that gives the engineer the confidence in achieving his assigned tasks for the day. While the main task of a engineer is to operate the train effectively and safely , the conductor’s responsibility is:

  • Ensure compliance with all train orders, signals, and railroad rules and regulations for safety, operations, and the Federal Railroad Administration (FRA)
  • Review instructions from dispatchers and yardmasters, and discuss with locomotive engineer and train crew
  • Inspect all equipment on cars prior to departures
  • Receive and transmit information by radio and telephone
  • Read and understand bulletins, work orders, and switch lists
  • Assist and instruct train crews to couple and uncouple cars, operate switches, and make minor repairs to railcars, including replacing heavy couplings or air brake hoses
  • Work with customers to ensure accurate movement and placement of cars
  • Maintain awareness of surrounding area and suspicious activity to ensure rail safety
  • Operate locomotive equipment through the use of remote control device.

Clearly the conductor is a vital part of the train crew that helps the engineer accomplish his objectives for the railroad. When it comes to planning for your railroad retirement does it make sense to have a two person crew for all those issues that come up and can be handled by your "financial conductor". Thereby leaving you, the engineer, to focus on enjoying your life and driving the train.

Let’s look at some of the most important responsibilities that you want your financial conductor to handle:

Encourage Consistent and Increased Savings

The average railroader saves just 8 percent of pay in a 401(k) plan. That isn’t nearly enough. One’s savings rate is far more important than his or her rate of return in determining how bright the future is likely to be. However, we are far more likely to obsess over squeaking out a bit more performance out of our investments or tweaking our asset allocation to increase or expected return rather than thinking about ways to save more. It really all starts with saving more. You can’t invest what you don’t have.

Encourage Consistent Investments

Out of our general fear, even if and when we invest, we often don’t stay invested. But volatility is the price we pay for the higher expected returns provided by equities.

As the chart demonstrates that if railroaders have the wherewithal to keep their composure during difficult markets, they will almost surely be rewarded for it. As David Rosenberg stated ”Corrections are part and parcel of the investment process, they come and go, and it is imperative to take a deep breath and realize that what is most important for building wealth is not ‘timing’ the market but rather ‘time in’ the market.” It pays to stay invested.

Financial Planning

Good comprehensive financial planning is imperative for good financial health. Yet railroaders often mistake investment management with financial planning.  Financial planning is much broader, involving far more than the managing of investments. It involves budgeting, goals, appropriate insurance, comprehensive planning for lifestyle, retirement and legacy, Railroad Retirement planning, broad and granular risk management, asset location and withdrawal planning, tax efficiency, tax planning and more. It also involves crisis prevention and management. Great investment management can be undone in a hurry by poor financial planning.

Manage Expectations and Behavior

We are all prone to behavioral and cognitive biases that impede our progress and inhibit our success.  We are prone to chasing after the next new thing, idea, strategy or shiny object. Sometimes we take advice from individuals who pretend to be knowledgeable about issues but in reality know very little. A good advisor can mitigate these tendencies. Doing so is vital, not the least of all because we tend to disbelieve that we are susceptible to them. As the great Benjamin Graham sagely warned, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.” Good advice increases the likelihood of success tremendously.

Asset Allocation

The total return of any portfolio has three components, which may be positive or negative: (a) returns from overall market movement; (b) incremental returns due to asset allocation; and (c) returns due to market timing, security selection, and fees.Moreover, good asset allocation is crucial to matching one’s portfolio with one’s goals, needs, situations and risk parameters, all of which are subject to change. The exercise of allocating funds among various investment vehicles and asset classes is at the heart of investment management. Asset classes exhibit different market dynamics, and different interaction effects. Thus the allocation of money among asset classes and among investment vehicles within asset classes will have an enormous effect on the performance of an investment portfolio. A good advisor is vital to good asset allocation. In particular a advisor who fully understands the Railroad Retirement Annuity and how it affects their overall asset allocation. 

Managing Costs and Fees

The leading factor in the success or failure of any investment is fees. In fact, the relationship between fees and performance is an inverse one. Every railroader needs to count costs and a good advisor can do the necessary research to do that as effectively as possible. Railroaders should look for a fee-only advisor who is committed to transparency in their pricing.

A smart railroader looks for what can offer the highest likelihood of meeting his or her needs, goals and desires. But finding and implementing the best ideas for doing so is deceptively easy conceptually but monumentally difficult to put into practice. Accordingly, good financial advice is both invaluable and rare. It requires far more than selecting investments. It requires substantial expertise particularly around Railroad Retirement issues and the ability to manage emotions and expectations. If you believe you might be ready for a two person crew to help you in preparing for retirement then reach out to me at Highball Advisors.


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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.