Let me show you why your Tier Two and your railroad retirement just became more valuable. Welcome everyone, to the Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors. Today it's kind of a current events type day. We're going to learn about some news information that I got about some big insurance companies and how this is going to affect your Tier Two Railroad Retirement Annuity in a roundabout way. What I'm really trying to demonstrate to you is the value of the Tier Two retirement annuity.
I got a piece of news last weekend that Transamerica, big insurance company, you've probably seen the pyramid building in San Francisco, they're getting out of the annuity business. Okay? That goes along with Prudential getting out of the annuity business. Right? That's two big players getting out of the annuity business. Let's just take a step back, and I'll explain to you what's going on and how this is going to affect your Tier Two retirement annuity. Right?
What is an annuity? It's guaranteed income. You get a lump sum or you make payments to an insurance company, and then they'll distribute the money, usually in retirement. Every month you give them a certain amount of money, and every month they give you a guaranteed amount of money. Well, Tier Two is similar to an annuity. You give them 4.9% of your paycheck, up to the maximum, and the railroad kicks in 13.1%. You give it to the Railroad Retirement Board and they, in return, give you guaranteed income in retirement, so they're both similar in that way. All right?
However, here's what's going on. What's very interesting in the industry is as these two big players move out, and I expect more to move out, it's because of these low interest rates. They can't guarantee a return. They can't return the money. You're looking at 10-year rates below 1%. Maybe they go to zero. And so, what do these insurance companies do? How they invest their money? They buy a lot of this fixed income and you can't get a return, so they just throw up their hands and say, "We're out of this business. We're not going there."
What does that do? Less providers. This reminds me a little bit of what's going on in long-term care insurance, also. Less providers. Insurance companies getting out of that. That leads to more expensive annuities. The value of these annuities are going to go up, because the interest rates are low and there's less providers, less competition. Prices are going to go up, so those non-railroaders who are going to be interested in buying annuities, not going to be loving it.
Therefore, I've come up with that your Tier Two has become much more valuable, because you're getting that guaranteed retirement income without having to pay those high premiums. It's the best deal ever. It's such a great deal that when railroads come to me and they say, "Oh, should I get an annuity?" and I go off, because you already have a great annuity. If those annuity people come towards you talking about annuities, please step away from them and just let them know you have Tier Two. All right?
Hopefully, that's a little good news for you. Stick it out in the railroad. Keep that multiplier effect going in the Tier Two. Build up that annuity. I hope you found this helpful. Reach out to me if you want to see how your Tier Two fits into your retirement planning. You can always schedule a free boarding for railroad retirement assessment. Subscribe to my YouTube channel. Channel is growing. I'd like to keep producing these videos. You can click on the bell, get notifications on when new videos come out. That's good stuff. In the meantime, everyone, please stay safe, stay on track and take care. So long everybody. Bye.
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.