If you’re a current or future railroad retiree, it’s important to understand Comparing Benefits: Railroad Retirement vs. Social Security. Key differences between Railroad Retirement and Social Security.
These two systems may seem similar at first glance, but they provide different levels of benefits, have varying eligibility requirements, and involve different payroll tax rates.
In this article, we’ll explore the comparison between these two systems and why railroad workers, especially those with long careers, often receive higher benefits.
Overview of Railroad Retirement and Social Security
Railroad Retirement
The Railroad Retirement system, governed by the Railroad Retirement Act (RRA), provides two tiers of benefits. Tier I is similar to Social Security and covers all workers, including non-railroad employment. Tier II, however, acts like a private pension and is based solely on railroad employment.
This unique feature means that railroad workers with long service often see significantly higher monthly benefits than those receiving Social Security. For instance, the average annuity paid by the Railroad Retirement Board (RRB) at the end of fiscal year 2023 for career rail employees was $4,310 a month, while for all retired rail employees, the average was $3,450 a month.
In comparison, the average Social Security retirement benefit at that time was $1,810 a month. These higher benefits are possible because both employees and employers in the railroad industry pay additional retirement taxes under the RRA.
Social Security
Social Security is the more commonly known federal retirement system. It provides benefits based on an individual’s lifetime earnings from employment covered under Social Security. Workers qualify for Social Security retirement benefits after earning 40 work credits, which equates to about 10 years of work.
Social Security benefits are calculated using your average indexed monthly earnings over your 35 highest-earning years. This determines how much you’ll receive upon retirement. While the system is simpler in terms of structure, the benefits are generally lower compared to Railroad Retirement for long-term railroad employees.
Comparing Benefits: Railroad Retirement vs. Social Security
Monthly Benefits
The starkest difference between the two systems lies in the monthly benefits they pay. Railroad Retirement benefits, particularly for career railroad employees, tend to be much higher than Social Security benefits.
For example, in fiscal year 2023:
The average monthly age annuity for career railroad employees was $4,775, whereas Social Security awarded retirees at full retirement age around $2,535 per month.
When spouse annuities are added, the total monthly benefit for a railroad retiree and their spouse averaged $6,645 under Railroad Retirement, compared to $3,805 under Social Security.
This disparity is largely due to the additional Tier II benefits that railroad retirees receive, which Social Security does not provide. And this is for the Railroad service retiree only.
I’ve spoken with railroad retirees who were pleasantly surprised by the difference in benefits. One tenured retiree, after spending over 30 years on the railroad, found that his Railroad Retirement benefits paid him/wife more then he was making at the top of the seniority roster.
Disability Benefits
Railroad Retirement also offers more favorable disability benefits compared to Social Security. Workers who become disabled and have a long railroad career can often receive benefits more quickly and at higher rates than under Social Security.
In fiscal year 2023, the average monthly disability annuity awarded to railroad workers was $3,810, while Social Security Disability Insurance (SSDI) paid an average of $1,665.
One notable difference is that the Railroad Retirement Act provides an occupational disability annuity, allowing workers to receive benefits if they are disabled from their regular railroad occupation, even if they could still perform other jobs. Social Security only provides disability benefits if a worker is unable to perform any substantial gainful activity.
This level of disability coverage is available to railroaders age 60 and 10 years of service, or any age with 20 years of service.
Spousal and Survivor Benefits
Spousal and survivor benefits under Railroad Retirement also tend to be more generous compared to Social Security. For example, the average spousal benefit under Railroad Retirement was $1,235 per month in 2023, while Social Security spousal benefits averaged $865 per month.
Survivor benefits follow a similar trend. In 2023, aged and disabled widow(er)s of railroad workers received an average of $2,090 per month, compared to $1,640 under Social Security. Benefits awarded to widowed mothers and fathers were also higher: Railroad Retirement paid an average of $2,245, while Social Security paid $1,215.
Early Retirement Options
One of the most significant advantages of Railroad Retirement is the ability to retire earlier with full benefits if you have a long career.
Railroad Retirement Early Retirement
Railroad employees with 30 or more years of service can begin receiving full retirement benefits as early as age 60. This is a major benefit for long-term railroad workers, as they can retire earlier without seeing a reduction in their annuity.
For workers with less than 30 years of service, retirement benefits can begin at age 62, but early retirement reductions will apply. However, no reductions are applied if you have 30 or more years of service and retire at age 60 or older.
Social Security Early Retirement
Under Social Security, the earliest you can begin receiving retirement benefits is age 62, but those benefits will be reduced for every month you collect before reaching full retirement age. For individuals born after 1960, full retirement age is 67.
Unlike Railroad Retirement, Social Security does not offer the option to retire at age 60 with full benefits, regardless of how many years you’ve worked.
Payroll Taxes: A Key Difference
One reason Railroad Retirement benefits are higher than Social Security is the additional payroll taxes that railroad workers and their employers pay. Railroad employees and employers contribute to the system at a higher rate than those under Social Security, which helps fund the more generous benefits.
Railroad Retirement Payroll Taxes
Railroad employees and employers both pay Tier I taxes at the same rate as Social Security: 7.65% (6.20% for retirement and 1.45% for Medicare). In addition, they also pay Tier II taxes, which fund the extra benefits provided by Railroad Retirement.
In 2024, the Tier II tax rate for railroad workers is 4.9% on earnings up to $125,100, while employers pay 13.1% on the same earnings.
For an employee earning $168,600 in 2024, the maximum Railroad Retirement taxes will total $19,027.80, compared to $12,897.90 for Social Security. Employers, on the other hand, will pay significantly more: $29,286 for Railroad Retirement versus $12,897.90 for Social Security.
Conclusion
Railroad Retirement offers substantial benefits compared to Social Security, especially for those with long careers in the railroad industry. With higher monthly payments, better spousal and survivor benefits, and the option for early retirement, railroad employees can look forward to a more financially secure retirement.
While these benefits come at the cost of higher payroll taxes, the additional contributions ultimately pay off in retirement. Coupling this with savings in workplace retirement plans like 401Ks and you are a class 1 air test away, from highball!
If you’ve spent much of your career working on the railroad, it’s important to understand how much more you could receive in retirement in your later working years then continuing to work (sometimes at less income). For many, the difference can be life-changing in their golden years.
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