Where Is My Income In Railroad Retirement?

Transcript:

Now that you're either near or in railroad retirement learn where that income is going to be coming from.

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 that retirement paycheck or retirement income. Where's that money coming from? So pay close attention those individuals that are close to retirement or in retirement. This will give you a good overview of what do you want to start thinking about as far as the money coming in for retirement. So obviously as railroaders or ex-railroaders you'll be collecting your railroad retirement annuity. So you'll have your tier one, which is guaranteed source of retirement income, mirrors social security, has the same rules. Obviously there's different for railroaders if you retire with 30 years of service but it's all based on the social security rules. 35 years of your earnings, that's how they calculate it, they take that average. And it gets adjusted every year to inflation which is important. You want that source of retirement income growing as you mature out because you're going to have higher prices throughout retirement.

Then you have your tier two which acts like a pension. You've paid 4.9% of your income into that. It's a pension income and that's based on your five highest earning years in the railroad, of credible railroad service. However, it's only about a third of the inflation so you're starting to have a little inflation risk. But now we have two sources of retirement income which is fantastic.

And then some of you will have a pension which is another guaranteed source by the railroad. It can be reduced, it will be reduced once you start collecting your railroad retirement annuity but it gives the opportunity for some railroaders to leave at 55. And then it's based on years that you've worked for the railroad, not necessarily credible railroad service but just worked for the company. You could be in some capacity with that company that's not in the railroad service but yet they'll still count it towards your pension which is great. Important, no inflation so now we've got a plan for at least 30 years but we're getting no inflation there so we have low risk there.

Now fourth stream, which could really be the big, this is the real big opportunity stream that I like to call it because I have three guaranteed sources. This is the variable one. This is made up of assets like equities and stocks, mutual funds, ETFs, that type of thing. So you can create a lot of wealth in here. These are known, this is your wealth thing here. However, when you take it out you'll pay your income tax on it and then you'll need a withdrawal strategy. How much do I need to take out of there? And that's the important part to understand is how much you need to take out of your 401k to support your retirement.

So we have three guaranteed and one variable so now when we work through an example here of a railroader who has let's say tier one of $3,000 a month, tier two of $1500, pension of $2000 and through a withdrawal strategy their 401k can take out another $2000. They have the potential to take out $8,500 a month. However, so if we just graph it here it's tier one, tier two pension 401k withdrawals.

But what I want to talk to you about also is we understand our retirement income but We don't want to do $8,500 a month so we have to look at that. And that's what you really need to think about is that spending plan also. So you say, "Okay, I max out $8,500 a month. What should I really be spending?" And what I advise my clients is try to keep it right around the first three, keep it in that guaranteed. And then this way with the 401k you'll have a lot of opportunities to build wealth. Because if you don't need to touch it, markets and compounding and all those things will grow it. And it will also give you a nice buffer in case you say, you get into retirement, "Oh, I might have a big healthcare expenditure that I might need or I might have that big family vacation I always wanted to do, or that RV, that big purchase type thing." And so that's why we really don't want to touch the 401k too much. Try to build that spending plan inside of our guaranteed retirement income.

So I hope you found this helpful, give you an understanding of your retirement income streams and then build a spending plan to meet that. So that's one of the things that I'll do at Highball Advisors is if you go onto the site you'll see a free railroad retirement assessment. So if you're nearing railroad retirement and you're trying to understand, "Okay, what do I have coming in? What can I spend?" This is the type of analysis that I'll do for railroaders free of charge but really give you a lot of great information. So I hope you found this video helpful. Please subscribe to my YouTube channel. Feel free to leave any comments, I'll get back to them. In the meantime everyone, please stay safe, stay on track and take care. So long everybody. Bye.

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