VIDEO: Basics of Tier 1 Railroad Retirement Annuity

Transcription:

My name is John McNamara with Highball Advisors, and today we're going to talk about the basics of the tier one on railroad retirement annuity. Alright so when you think about tier one, think about social security it's very similar Social Security couple little nuances that I'll talk about a little bit later on. But that's, that's really how you want to think about retirement is made up of tier one and tier two I discussed tier two in a previous video, check that out please on my YouTube channel, but let's talk about tier one today. So tier one is a collection of payroll taxes employee employer pay 6.2% of your earnings, up to a maximum of $132,900 goes to fund tier one. Also, there's a 1.45% on your payroll that funds Medicare, and there's no maximum of that, that can go as high as as much income you are, in fact, over $200,000 there's a .9% Medicare surcharge on your payroll. So that's how the money is collected actually collected by Social Security, then they make a transfer payment to the railroad Retirement Board and they distribute your annuity to tier 1 and tier 2. So let's calculate how how is that calculated to one. So, try not to get too into the weeds on it, because it's really not that important but I just want I just touched the high points on it so you get a better understanding. So, they take the average index monthly earnings of your top 35 years, and they come up with what they call the aim number, and but you say well how do you get, you know, I’m 40, how many know what my top 35 years are I haven't, you know, worked 35 years. Well they have an estimate they take it up to the age 60, you know they extrapolate What do you be what you'd be earning. So, to get your tier one monthly number where you would be receiving retirement beforehand, there's three components to it. 90% of the first $926 of aim plus 32% of aim over $926 up to 5583. These are the 2019 numbers that they're using so if you're watching this video post 2019 these numbers can change, and then they also add 15% of the earnings over $5,583 so I haven't confused you enough on the calculation. Let's just work through an example real quick so let's say somebody averaged $7,000. Average index monthly earnings and it's important to remember to receive tier one tier two you gotta have at least five years of credible railroad service post 1995 or 10 years pre 1995 to qualify for a Railroad Retirement. So that's very important. Otherwise you have social security, and for those who have done some time in the railroad industry and sometimes Social Security, if you've done the credible railroad service, you'll receive your social security through the tier one, and the Railroad Retirement portal make the payments not social security. You can't double dip, you can't collect both you won't get a check from Social Security and you'll get one or the other, or if somehow you managed to get both, they’ll go fix that and you'll get your rightful amount that's calculated through here. So, let's say somebody's average index monthly earnings was $7,000 over 35 years, so their monthly payment would be 90%, right, of the first $926 is $833 plus 33% of aim over 926 between 926 and 5583 is $1,490, then plus the 15% of earnings over $5,583 is $212. This participant would have a monthly tier one benefit to them of $2,535, that's just tier one remember separate than tier two. Okay, then that's that full retirement age so those over 19, born after 1960 that will be 67 years old, those born, 1955 and below that 65 years, and those between 55 and 60, they stretch it out a month so calculate. So, that is that for retirement age. That's different than you know early retirement, and I'll do another video on early retirement, or even maximizing with delayed retirement credits, how you can even increase this number even more. So, that's how tier one is calculated that just gives you a foundation. I hope that's helpful to understand where your benefits are coming from so you take this tier one. Watch the tier two video and you'll have a very good understanding of your tier one and tier two benefits. I hope this beneficial to you, please subscribe to my YouTube channel if you get a chance. In the meantime, stay safe, stay on track and take care.

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Disclaimer: This video 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.