If you're a railroader with Tier 2 retirement benefits, you need to watch this video on the valuable benefits that you will be receiving. My name is John McNamara from Highball Advisors.
Welcome, everyone, to the Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors, and today we're really going to talk about the big issue, the real big benefit of working in the railroad, the Tier 2 benefits, unlike any other benefits for non-railroaders. Right? Only you guys collect this. I use guys generically. So I want to walk through this. These are the big, the big, big picture of the Tier 2 benefits. Right?
So let's walk over here. Guaranteed retirement income. All right. That is fantastic. So what do I mean by that? Over your railroad career, you've been paying a part of your paycheck up to the cap every year into the Tier 2, which gets invested, and then at the end when you retire, you get the railroad retirement annuity and you get Tier 2 portion of it. Right? You have Tier 1, which is Social Security basically, and then this unique railroader Tier 2.
So what does that mean, guaranteed retirement income, and what does that provide to you? One of the most important things is retirees ask, "I don't want to run out of money in retirement." That's a big concern for retirees. And with Tier 2, it really helps you from not having that concern. So let's just go through this little quick example.
So if you're just like a non-railroader who's collecting Social Security, you're living somewhere in retirement. You want to spend $5,000 a month in retirement. That's a good living. If you were on Social Security, you might be bringing in $3,000 a month, right? However, you have to take your investments, your additional money, to get another $2,000 a month to pay for that $5,000 a month. However, as a railroader, with that Tier 2, you're getting another stream of guaranteed retirement income of, in this case, let's say another $2,000. So now, in retirement, between your Tier 1 and your Tier 2, you have covered your monthly retirement expense. All right, so that's the power of guaranteed retirement income. That's guaranteed, so there's no risks there. All right.
Now, what else is the value of it? What's the Tier 2 worth? I always look at things replacement value. You're sitting on a valuable asset. So let's just take a railroader who's 60 and 30, retiring at 60 years old, had 30 years of service. We'll say they're married, and their Tier 2 benefit in this case combined will be 2430 a month, and adjust for inflation every year, but 2430 a month.
If I have to go out to a insurance company or a broker of some kind who's going to try sell me an annuity after a nice fine steak dinner, I've got to hand over to them $635,000 to replicate that $2,430. Holy mackerel. That is value right there. So, imagine that, another $635,000. I always say when you're working with an advisor, if they ever mention an annuity to you, say "Thank you, I've already got one. It's called Tier 2," so please take that to heart.
Now, the third benefit is the opportunity. Right? Opportunity costs. So now we know we've got all our retirement expenses covered here in this scenario. We know we have the $635,000 for some people, depending. So what does that give us? What's that opportunity that Tier 2 is offering us? And to me, this is me, on a glide path, your retirement glide path. The blue line represents a traditional non-railroader. They'll start out early in the career very high into the equity markets because with stocks and equities, higher risk but higher return over time... Everything's over time in life... versus bonds where it's lower return, lower risk. So a typical non-railroader, their glide path when they get towards retirement will probably be about 50% bonds and 50% equities, and they'll continue down that glide path. And the important part is why do they do that? Because they've got to cover this expense here. They need the money to get into bonds, they can't have that risk, to get the annuity, to get the guaranteed income. The non-railroader, he's got to fill this here.
But you guys already fill that, so it gives you an opportunity and your opportunity here is in your glide path. And it's up to each railroader, your risk tolerance, how comfortable you are, but you can extend your time in the equity markets longer, thereby you're taking on more risks, but once again, more return. Over time, we know that equities will traditionally outperform bonds. It's not guaranteed. Nothing's guaranteed in life. But over time, if you can stay in the equity markets longer, your chance of building a bigger nest egg. So that's the opportunity that Tier 2 brings you, guaranteed retirement income, tremendous asset here with the replacement value and then the opportunity. I'm a big fan of Tier 2.
Please, I hope you found this helpful. Share this with your colleagues, the ones who are collecting Tier 2 or going to be as they're building up. It's a very valuable asset. Please, if you want to reach out to me, I have a great boarding for railroad retirement process, help a lot of railroaders get ready to understand all these numbers for railroad retirement. So you can schedule that meeting with me. I appreciate that. As always, everyone, please subscribe to my YouTube channel down in the lower right of your screen. As always, everyone, please stay safe, stay on track and take care. So long, everybody. Bye.
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.