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VIDEO: How to Couple Your 401k with Your Railroad Retirement Annuity

Video Annuity Retirement


Welcome everyone to the Railroad Retirement whiteboard My name is John McNamara with highball advisors, and in this episode we're going to talk about coupling your 401k with your railroad retirement annuity. When you put those two together, it creates a very powerful retirement income story. So, let's get started. And we'll just go high level real quick, to kind of build the basis of this story that I want to talk about. So, the average couple on Social Security brings in a monthly income of $2,780. Okay, not a lot of money, depending upon how you want to live your retirement you know retirement comes and you got health care costs, long term care, just not a lot of money. So, a lot of people will invest in their 401k in order to supplement this income. Railroaders have been investing in this annuity. Their average of a couple is 5560, twice as much as social security. That's a great place to start retirement, having this come in, right. So, you could, you know great place to start is, how much do I need in retirement. You know 6, 7, 8 thousand dollars a month $5,000 a month. 10,000, this is your starting block. So this is great. You have this right. also railroaders will invest into a 401k part of it. 401k right. You put money in every month railroad matches it, you have a big nest egg at the end. Right. So, when you're putting that money into the 401k. Right. You need to understand, a couple things right. I need the money to grow is the most important thing right. You just don't get the money and you know put it under the mattress or put in the bank and, you know, you get your half a percent right to 401k is there to grow the money so that you have money at retirement. Right. So, how do you grow the money, right, you have to understand the basics of your risk tolerance, what do you, what are you comfortable in risk right I talk about risk tolerance. It's, it's like how much pain can I take, but yet I still need to grow the money right so you know if the market goes down 1- 2% yeah I can deal with that, because I know my money is going to grow, but as the market goes down 30% I can't take it out right so it's it's all risk tolerance right so you have to understand so that's important when it comes to investing. And then also understand what goes into the 401k right so I need the money to grow what grows, right, stocks grow grows the money bonds grow real estate grows, so just in this example so if you take 10 years right. The s&p 500 stocks. Their average return was 8.1% a year. That's very good. So, an average. The bond index funds, the bonds. They grew at 4.6% over this 10 year period right so this is a little, you know, just a little quick diversified portfolio of stocks and bonds right. So that's your return so you got it now you understand your risk tolerance. And now your understanding what do you got to put in there to grow the money, right. So if you just take a typical 401k portfolio let's say you put 60% stocks and 40% bonds and let's say you're just a moderate investor and your score out a risk score of let's say 50. And when I say risk score. When I use high ball visors is tremendous software platform called riskalyze and creates the risk number between zero and 100 right so somebody who's like a one or two totally risk averse, you know, total panic, I can't take a risk, you know, just give me my money, right, or you have the 99 guys you know that's insane Snapchat and Twitter and anything else that comes along, I don't care i'm just gonna keep risking my money. Right. So those two ends of the spectrum so if you just taken an average moderate person you put them in a portfolio 60% 40% riskalyze, when I work through that portfolio will come out to like a 47. Right. So when you think about these risk numbers, they kind of look like stop signs almost, so it's like, what are you comfortable driving on a windy road right at, that's kind of the way I like to look at those at risk numbers. So if you're on a windy road, do you want to go 90 miles an hour on the windy road yeah you'll get there quick, but you know what you're probably gonna run off the road also. So, you know, hold on to the steering wheel if you're going to set 90, because it's going to be a wild ride. Right, or you can advance that, you know, five, five miles an hour and I guess you'll get there maybe not you might run a gas by the time you get there, but it's very slow right it's just slow that's what it is. So let's just take, let's just take a normal individual say invest said, 50 drives 50 miles an hour I can handle a couple of tight turns, whatever, you know market goes up market goes down but I'll be all right so it's 6040 guy, his risk profile is would be let's say 47 on this portfolio right but now here's the trick. Right. Or here's what do you want to start thinking about is the annuity. Right. You also have an annuity coming in. So what's the risk profile on this railroad retirement annuity is one. It's one. So you've got this risk here, and you've already said that you're a 50 right you're moderate, you've got a portfolio that's around 50 so you're good there. But now you got to factor in this railroad retirement annuity of one. So what that does is that creates a retirement portfolio, a lot lower risk, 23, because you know this is all about achieving retirement right you already have this backstop of 5560 right coming in. So you're 6040 portfolio 47 with the one is going down to 23. So the point what I'm trying to way I'm trying to say this is that this gives you a tremendous opportunity. If you want to increase your risk appetite. Now I'm not saying everybody should increase the risk appetite, but I'm just saying is you have a backstop here. So, we all know that we that stocks will perform better over the long run right past performance have say past performance is no guarantee of future returns, we all understand that, but historically stocks have outperformed. So if I want to say myself Hey, I might want to take a little more risk with my portfolio. I can do that, right, because I have this powerful Railroad Retirement annuity, that I've been funding for all my years. So, what you need to understand is what you want to do in your retirement. I listen, I just, you know, I'm going to live on $6,000 a year I need $40. Right, so I'm just putting in CDs, that's fine. But what I'm saying. Also, is that you have an opportunity now also to think about increasing your overall net worth. Because of this railroad retirement annuity, you can look at increasing your risk profile a little bit, because you have that backstop. So, what you can do if you want to understand what your personal risk number is, you know, come to my website upper right hand corner I have a little icon or button there that says Get your risk number, you know, check it out, see what your risk number is see what you are it's five minute questionnaire. It's very helpful just to understand you already know the annuity is one. We can even put in your portfolio and see what, how, how your 401k actually grades and all that. To help you understand how all this works together. Once again, just talking about trying to maximize your railroad retirement income. If you have this and you already know what your budget is you're going to be in great shape so I'm just talking about trying to maximize your railroad retirement income. If you have any questions feel free to reach out to me love to chat to you about it. In the meantime, be safe, stay on track. Take care so long.

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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.