Welcome everyone to the Highball Advisors Railroad Retirement whiteboard. My name is John McNamara and in this video we're gonna talk about the impact of early retirement. So understanding what happens when you take early retirement on your railroad retirement annuity. Alright, so I put the word early in quotations because as a planner and most planners they'll tell ya it's really reduced benefits right? Early is kind of a salesy type term, but when you retire before full retirement age,you're taking a reduced benefit retirement. Also, as we know, as railroaders, if you're 60 and 30, some people call that early retirement because you're 60 years old, but you have 30 years of service. That's still full retirement age, so that's not early retirement. I'm talking about individuals in the railroad industry who have less than 30 years of service, or are eligible to retire starting at the age of 62 from their full retirement age. I use mostly the full retirement age of 67, you can have a little bit less if you're born before 1960, but for the examples that I'll use, I'll just assume everybody's born 1960 and above, and I can adjust it for people earlier in that. So I put up the railroader Tier One, Tier Two, early retirement, if you go at 62, you'll get a 30% reduction in Tier One Tier Two benefits on your railroad retirement annuity, and the spousal benefits of her early retirement would be 35%. So they actually ding the spouse a little bit more on early retirement than the railroader herself.
So the way it works is, the further out, the more they're gonna take, right? So those first years from 62 to 65, once again,assuming 67 full retirement age, every month that you take as far as early retirement, they'll reduce your full retirement benefit by 1/180, right, and Tier One and Tier Two. And then for the spouse is 1/144 for 62 to 65. And as you get close to full retirement age, they don't hurt 'ya as much. They take 1/240 for each month for actually for railroaders and spouse. So that's the penalties and let's just work through an example on that, to kind of illustrate what I'm talking about. So let's say a railroader is looking to retire, 67 full retirement. Tier One would be $2,000 a month. The Tier Two is $1,000 a month. These are just you know, just made up numbers, and the spouse would get $1,000, which is half of the Tier One, and we get 45% of the Tier Two. So we get $450. So this household income at full retirement age would have a monthly benefit of $4,450, right,but, you know, they say I want to take early retirement. I reduce benefit retirement, so they want to go out at 62. So we have the drop here,right, the 30% drop, so $1400, right? We're dropping this $700 and then over here, we have the reduced retirement again on the spouse which is 35%, $650, $315. So we now go down to $3,065 from the $4450, which is a significant amount of money there. So, you know, why is this important I guess at the end of day, you know, at the end of day,it's just some numbers on the whiteboard. But you have to, what you guys need to understand is you have to understand what you want to spend in retirement? What's your plans for retirement? And this number here is gonna be the foundation or the bedrock of your retirement, right? So depending upon what you want to do in retirement, this is the number you want to build on. So it's very important that before you decide early retirement or any retirement age, right, understand what your post retirement expenses are gonna be. And, you know, what do you want to do in retirement. Do you want to travel? But you also have to think if somebody does early retirement 62 right, Medicare doesn't kick in until 65. What's that coverage look like between 62 and 65? It can get very expensive out there and this number might not be sufficient for what you're looking to do in retirement. So understand all those expenses, right? Also long term care, expenses in retirement, you know, medical healthcare. So that's why very important to understand these numbers and then understand what your retirement goals are. All right, well that's it. I just wanted you to start thinking about the term early retirement, and understanding the cost and impact on that. I think it's very important. Please subscribe to my YouTube channel. I've been putting up some videos, we're starting to get some good growth in the channel. I'll continue to put up some more videos. Reach out to me if you need any help on this, you know, we do a lot of planning around understanding what the proper numbers should be for you. We have a program for that. That's just kind of a one off program we do, where we'll just come up with the right number that fits your retirement goals. So reach out to me, we can book an appointment and get you that number for 'ya. That'll help 'ya out. In the meantime, stay safe, stay on track and take care. So long everybody, bye.
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