Railroaders are always asking me, "Can I collect railroad retirement benefits and social security?" Well, in this video, I'm going to show you how you can do it.
Welcome, everyone, to the Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors, and today this is a topic that gets a lot of search queries on Google, people wanting to know, especially railroaders, "How can I collect railroad retirement benefits and social security?" So I'm going to walk you through it, and then we'll go through the basics and then we're going to talk about a strategy to do both.
Now, it's important to remember, okay? This is really for those railroaders that have enough vesting time to collect Tier 2, but yet a majority of their careers aren't spent in the railroad. So figure individuals that have done five to 10 years in the railroads, you really want to pay attention to this video, there's some great opportunities here. So let's just go with the basics, we'll start with the basics and work our way towards the strategy.
So railroad retirement is made up of Tier 1, which compiles your railroad retirement years of service and social security for over 35 years, highest 35 years. Okay, then you have your Tier 2, which is almost a pension, you want to think about it, and here's the formula for it, years, you need five years of service, right? That's why I say that five years is very important to get vested, that way you'll always have your Tier 2 benefits, right? So that's railroad retirement.
Now, social security on the other hand, basically it has no Tier 2 benefits and it's your 35 highest years. That's how they come up with your social security number, they take the average of the 35 highest years. So here's the important thing to remember, kind of the takeaway thing, social security affects your railroad retirement benefits, right?
Railroad retirement and social security, that mixture gives you your Tier 1, however, Railroad Retirement Board, or their service, does not affect your social security. So your years in railroad, working for the railroad, will not affect if you say, "I'm just getting social security," right? So it's just 35 years of your social security employment, not railroad retirement.
So let's go through an example, and this hopefully will help explain it. Numbers aren't exact, but we'll just use these, okay? Let's say a railroader retires, gets Tier 1 of $1,000 a month, okay? And Tier 2 of $500 a month. And let's say they've worked for the railroad for five or 10 years, we'll say 10 years. 10 years, this is their payout that they're going to receive, and they're going to get it at 62 years old, let's say. This is what they're going to do.
However, well, they only done 10 years in the railroad, so they must have been doing something else for the other, possibly, 30 other years outside of the railroad. So what they can do is they can talk to the Social Security Administration and say, "Oh, okay. Well, what would be my social security benefit if I wait till a full retirement age of 67? What would I receive from social security?"
Social security board would say, "Well, you would get $1,500. And you would never lose your Tier 2, you would get $500." So now what you want to do is collect early railroad retirement at this payout, and then at 67, at full retirement age, you can flip over and get your social security payment, in this example, for $1,500.
Now, remember, what's great about social security is the longer you wait on it, it grows from full retirement age at 8% a year. So if you can take it out to 68, 69, 70 (70 is the max), you're growing this retirement income stream there. So what you want to do to implement this strategy is take early railroad retirement, okay? Get that paid, let the social security part grow, all right? And then take social security at full retirement age or later.
And once again, just to remind you, if you're a railroader with over 20, 25, 30 years or more, this strategy isn't going to be for you, you're going to be on railroad retirement. But for those who have just did a short stint, long enough to vest, you've got to vest into railroad retirement, which is five years after '95, this is a strategy you want to look at and play with. Because it can help you decide on when and where you want to retire when it comes up.
So, reach out to me if you have any questions about this, and I hope you found this video helpful. Post any comments and I'll get back to you. Check out my Boarding for Railroad Retirement process on my homepage, www.highballadvisors.com. And 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.