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VIDEO: Why Railroaders Want to Pay More Taxes Thumbnail

VIDEO: Why Railroaders Want to Pay More Taxes

Tier 2 Video Annuity Retirement


If you're a railroader, you want to pay more taxes. You need to watch this video to understand why.

Welcome everyone to the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors and today we're going to talk about a fun subject, why railroaders want to pay more in taxes. Yeah, that's right, I said it. More in taxes. Okay. What am I talking about? I'm talking about, and I keep talking about the value of Tier 2, right? The return on your investment or your taxes into Tier 2 is tremendous. I'm going to demonstrate this or illustrate it to you so that you will have a much better working knowledge of the Tier 2 system. Right. Tier 2, once again, we'll highlight it. It's a guaranteed retirement income stream. All right. The rate of return, I will demonstrate to you the rates of return that you're going to talk about on paying into that system.

It's a forced savings. You're mandated to pay into that because you're working for the railroad and it's only five years of your highest earning years is what sets your payout. That's unbelievable. Just five years. Tier 1, Social Security is 35 years. This is only five years. Tremendous. Then, finally the railroad kicks in so much more. They kick in 13.1% versus your 4.9%. You know we're going to get a good deal here. Let me work through an example here, because I'm big on examples. I'm going to illustrate to you how great of a deal this is. All right. I'm going to take a railroader and just nice clean numbers, I know everybody's situation is different, but for the sake of this argument, let's just work a nice clean example. We'll get somebody who started in 1990, they're 30 years old.

Maybe they had a job before and now they're getting into the railroad at 30 years old and they're retiring this year. So, they're 60 years old. 30 years and 60 years old. Okay. What have they done? They've paid 4.9% of their salary up to the annual max every year. In 1990, when they started, the maximum amount was 38,100. As you could see, throughout the years, it's now 30 years later, it's up to 102,300. It had all these increases every year. In fact, there was a few years this rate actually went down to, I think, a 3.91 at one time. I think there's a couple of 4.4s, but for the most part in this exercise, let's use 4.9%. We'll make our numbers a lot easier. Okay. We'll just assume also this guy, this guy or gal who's come into the railroad is maxed out every year.

Not everybody maxes out every year, obviously. You come in. Nobody's starting the railroad today, "Oh, I'd like to work for the railroad. I need $102,000 a year" Nobody's maxing out. But we'll say in this example, the person has maxed out. You only need five years to max out, as I said, but this person's maxed out for 30 years, because I'm just really trying to demonstrate the value here. They're retiring. What can they get from their Tier 2 payment? They get 1677 a month if they're single, from their 30 years, retiring at 60. With a spouse, they'll get a 2431 a month. Okay. That's great. Now what have they done over those 30 years? At 4.9%, they've paid $96,885 into the Railroad Retirement Board Tier 2 system.

This is the total amount that they've paid over the 30 years. All right. Now, if they're single, this is my big thing. To replicate 1677 a month. I need to replace that. I need to put a value on that. The only way you can do that is through an immediate annuity. So, in order to get 1677 a month, you need $383,000, you need to hand over to the insurance company, to give you that immediate annuity to create that retirement income stream of 1677. Right away you can say, "Well, I've only paid $96,000 in and I already have an asset, which is what this is, of $383,000. Now, if you're married and you're getting with the spouse, you're getting 2431 a month, you need $636,000 to hand over to the insurance company to replicate that, and you've paid in $96,000.

But you say, "Hey John, you know what, maybe I would have invested that money." If you took that money, if you maxed it out every year, that 4.9%, as a single person, you would've had a guaranteed return of 8.5%. Or with a spouse, a guaranteed return of 11%. I don't know where you're going to get 8.5% risk-free every year or with a spouse, 11% a year, for 30 years, risk-free. It's just tremendous. It's tremendous. Now, and also remember who comes into the railroad and maxes out for all 30 years? Like I said, you come in now, you're not going to max out in the beginning. You're not getting $102,000 when you're starting for the railroad. In this case, I had somebody just max out and they still did 8.5% And 11%.

That is the value of Tier 2. I guess the way, with the railroad paying the 13%, that's why you're saying yourself while this seems like a Ponzi scheme, but as long as they keep contributing into it, it will be fine. It's a tremendous system. I had a previous video where it said the system is good to 2075. Capitalize on this. It's a great deal. Tier 2, I keep talking about it. Look at these rates of returns. You want to pay more taxes at the end of this. I hope you found this helpful. Share it with your friends and colleagues on the value of the Tier 2 annuity. Tremendous. Reach out to me. I have a free railroad retirement assessment for anybody who wants to understand how Tier 2 fits into their retirement plans. Sign up for that. That's a very good deal. Please subscribe to my YouTube channel. It's growing. Like to keep it growing. In the meantime, everyone, please stay safe, stay on track and take care. So long everybody. 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.from Highball Advisors, and all rights are reserved.