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VIDEO: The Effects of Working in Railroad Retirement

Tier 1 Tier 2 Annuity Spouse Annuity Retirement


John McNamara:
Welcome everyone to the Railroad Retirement Whiteboard. My name is John McNamara with Highball Advisors. In this episode, we're going to talk about working in retirement, the effects and the reductions that you can expect in your railroad retirement annuity, right? So think of it this way. You've retired from the railroad, you're receiving benefits from the railroad retirement board. Now, you want to go back to work, maybe in the railroad, maybe out of the railroad, but there's going to be implications on that railroad retirement annuity. Let's walk through this, and hopefully you'll have a better understanding at the end of this. Let's assume you've retired from the railroad and you want to go back into the railroad industry. Maybe they're looking for, they need some help, you want to go work for a short line or something, but you're going back into the railroad workforce, right?

You already have a railroad retirement annuity. Let's say you have a spousal annuity. So what will happen there is your annuity will stop, all right? Because now the annuity is going to reactivate and can grow again because you're going to be paying into the railroad retirement. All benefits will stop from the railroad retirement annuity, and it will start accumulating again, growing as you contribute into it. That's pretty straight forward, right? It just stops reentering the railroad workforce again. Now let's look at a non railroad job, right? If you're tired from the railroad thinking, maybe I'll go work at Home Depot, maybe I'll go into the plumbing business or something with my brother-in-law, whatever the example is, right? At full retirement age, so you hit full retirement age, railroad retirement annuity has two tiers, tier one and tier two, right?

Tier one looks like social security. Tier two is like a pension income. So at full retirement, there is no reduction in your tier one benefits for working for a non-railroad workforce, okay? However, in tier two you can have a reduction. Up to 50% of your tier two benefits can be reduced, so they deduct $1 for every $2 of earnings, right? That's significant, right? So let's say if you have a $12,000 a year in tier two benefits and you work, you have the possibility of that being reduced up to $6,000 depending upon what type of job you take in the non-railroad workforce. But let's look at somebody who's maybe early retired, right? I use 67 as full retirement age. That's basically anybody in 1960 above is going to be 67 currently, but let's say you want to early retirement between 62 and 66. There, up to $17,640 in your non-railroad workforce job, there's no reduction.

But once you go over that, they reduce your benefits $1 for every $2 earned is the reduction in your tier one of your railroad retirement annuity. Remember also, your tier two is still being reduced also, so this is always in play, the tier two. All right? However, in that one year before you go into full retirement age, they moved the limit up from $17,000 up to $46,000, which is significant. They also move out the deduction levels of $1 for every $3 earned. That's basically the effects that will have on your railroad retirement annuity, and what you guys should be thinking about is the impact of, okay, well I'm going to get a job in retirement. Think about the effects that it will have on your budgeting and your retirement plans, because you will receive a reduction most likely, well definitely on your tier two in your railroad retirement and annuity.

I hope you found this helpful. Some things to think about before you make those decision. Good planning goes a long way. Please check out my videos on YouTube, they're Highball Advisors. You can Google that or railroad retirement in YouTube, my videos will come up. Subscribe to that. Appreciate that. You can always reach out to me and leave a comment or a link about the videos and I'll try to answer that. or you can schedule a free consultation with me on my website, highballadvisors.com, and we can have a chat about some of these situations. But in the meantime, stay safe, stay on track and take care. So long. Bye.

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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.