Most people in the United States are familiar with the Social Security system and all the benefits it offers.
However, some people have never even heard of the Railroad Retirement System (RRS).
This article breaks down important RRS guidelines that can help you or your dependents access the many benefits of the program.
It also compares Railroad Retirement vs Social Security to help you see the key differences between both benefit programs.
Railroad Retirement System: What Is It?
The RRS or Railroad Retirement Program is a special national benefit administered by the Railroad Retirement Board (RRB).
The program is designed to provide retirement income for U.S. railroad workers and eligible family members. The plan offers monthly benefits, which are paid to both retirees and disable railroad employees and their dependents.
The RRS also grants benefits to survivors of deceased railroad workers, as well as offers income protection to workers who are retired because of sickness or a disability.
In general, the retirement and disability benefits are usually higher for Railroad Retirement vs Social Security. This pension plan gives railroad workers an edge when it comes to planning for increased financial security in retirement.
How the Railroad Retirement Program Works
The RRS is funded by retirement taxes paid by railroad workers.
Typically, railroad workers don’t contribute to Social Security. Instead, they pay higher taxes, which are used to pay for basic pension benefits.
The RRS cooperates with the Social Security Administration (SSA) to determine workers’ benefits. Excess funds are invested and the returns are used to pay for additional pension benefits.
Benefits of the Railroad Retirement System
Railroad Retirement benefits are available in two tiers.
The first tier (Tier I) works just like Social Security, while the second tier (Tier II) functions like a private defined benefit pension.
Here is a more detailed look at the benefits available in both tiers.
Tier I Benefits
Tier 1 portion of the RRS system covers basic retirement payments. These include retirement, spousal, disability, and survivor benefits.
The retirement benefits are determined using the same methods applicable to Social Security pension benefits.
Similar to Social Security, eligible railroad workers are only entitled to receive railroad retirement benefits when they reach age 62. Taking your retirement benefits earlier than stipulated will mean that your benefits will be permanently reduced.
However, there is one difference when comparing Railroad Retirement vs Social Security in terms of receiving full retirement benefits at age 60. Unlike Social Security, you can get your full retirement benefits at this age provided you have worked for 30 years in an RRB-covered service.
Like Social Security, the RRS offers a disability annuity following occupational disability or total disability. In other words, railroad workers are eligible for this benefit on the condition that their disability prevents them from performing substantial gainful activity for 12 months, at least.
Other eligibility requirements for the full amount of RRS disability benefit include:
Being a railroad worker for at least 10 years.
Workers with only 5 years of railroad employment must have earned 20 Social Security work credits (or more) from the previous 10 years.
Railroad workers can also qualify for occupational disability benefit, which is not available with Social Security. Employees who can’t perform their normal railroad duties due to a disability, but can still do some other type of work, can be eligible for this benefit.
However, the worker must:
Be between the age of 60 and full retirement age with 10 years of RRB-covered service and a current connection to the industry.
Have 20 years (or more) of RRB-covered service and have a current connection to the railroad industry.
Spouses of eligible railroad workers can also get spousal benefits, which is about half of the spouse’s payment.
Spouses who qualify for this benefit must:
Have conceived a child or been married to the employee for at least 12 months.
The employer must not be working in any RRB-covered employment.
Certain dependents of a deceased railroad worker, including widows, widowers, and children under the age of 18 can also receive income under the Railroad Retirement System.
For survivors to be eligible for this benefit, the deceased employee must:
Put in 10 years or more of RRB-covered service (or at least 5 years of RRB-covered service for those employed after 1995).
Have had a current connection to the railroad industry at the time of death or retirement.
In case these requirements are not met, the credits earned by the deceased under RRB-covered work will be transferred to Social Security. Survivors can then get Social Security survivor benefits.
Tier II Benefits
The second tier of the RRS works similarly to private pension plans. We will not get into the complexities involved in determining qualifying employee’s Tier II benefits.
The important thing to know is that the benefits are awarded based on the service tenure. In a nutshell, the average monthly income is computed using the worker’s 60 month highest earnings.
Retirees who meet the service and age requirements for Tier I can benefit from Tier II benefits. Also, retirees who maintain a current connection to the railroad industry are eligible for this plan. To claim Tier II benefits, you must have worked for a minimum of 12 months in the last 30 months before filing a claim.
Survivors and current spouses of workers can also get Tier II benefits. Former spouses can also qualify for Tier II benefits, but this is only possible if the spouses’ property settlement agreement covers such entitlement.
Pros and Cons of Railroad Retirement System
Here are some of the pros and cons of the RRS you need to be aware of:
Retirement payment grows yearly: The RRS recognizes and applies the cost-of-living adjustments. This means railroad employees are likely to get higher payments each year as retirement payments are adjusted.
Benefits can be transferred to Social Security: Railroad employees can have their RRS benefits, taxes, and credits transferred to Social Security. This applies if they worked in other fields that pay into the Social Security System.
Benefits can be passed on to others: Children, spouses, divorced spouses, and parents of railroad employees can receive the retirement benefits of deceased workers. However, family members are only eligible for this benefit if the worker is an employee of the railroad industry at the time of death or retirement.
Excess Social Security payment refund:Railroad workers who paid taxes to RRS and Social Security may be eligible for a refund of excess payments. The Social Security tax refund is a lump sum payment made only once.
Higher taxes: The taxes paid by employers and employees covered by the Railroad Retirement Act, are higher for Railroad Retirement vs Social Security. While this can be considered a disadvantage, it ultimately leads to higher retirement benefits, particularly for workers who have put in 30 or more years of service.
Reduced Tier I benefits for some recipients: RRS regulations reduce the Tier I benefits for retirees who receive retirement payments from nonprofit organizations, certain foreign governments, and other US government jobs.
Prohibition of full dual benefits: Railroad workers who are eligible for dual benefit payments cannot receive the full benefits from both RRS and Social Security. Instead, the retirement payments for the RRS are reduced by the amount that the retired worker may be eligible for through Social Security.
How to Qualify for Railroad Retirement
First, you need to be a railroad worker to be potentially eligible for railroad retirement benefits.
However, not every railroad employee automatically qualifies for the RRS social insurance benefits.
The Railroad Retirement Board stipulates the following eligibility conditions for receiving the aged retirement benefits:
You must have been working as a railroad employee for at least 10 years in covered service to qualify for retirement benefits. The duration is 5 years for those who joined the industry after 1995.
To receive the full retirement benefits, you must have worked for 30 years and attain the full retirement age of 65 to 67 years, depending on your year of birth.
You can receive early retirement benefits at age 62 (or when you reach age 60 if you have put in qualifying railroad service for 30 years).
Railroad workers with less than 30 years of service who retire between age 62 and the full retirement age will have the same benefit reductions that apply to early retirement for the Social Security System.
Railroad workers with 30 years of service can receive an unreduced retirement benefit when they clock age 60.
But what happens if you don’t qualify for a Railroad pension? That’s where Social Security comes in. Your earnings from the railroad industry will be counted toward your Social Security credits.
For more specific information relating to your situation, it is best to use the U.S Railroad Field Office Locator to get in touch with your local Railroad Retirement Board field office.
How Does Railroad Retirement Compare to Social Security?
While Social Security and the RRS share some common elements, there are key differences between the programs in terms of benefit structure and funding.
In addition to Tier I benefits, which are comparably the same as Social Security, railroad workers enjoy additional Tier II benefits. This is the major difference when comparing Railroad Retirement vs Social Security.
In arriving at these additional benefits, complex formulas are used to determine the amount to be paid. Also, increases in the cost of living are factored in and the total amount is adjusted accordingly.
Another difference is that non-railroad workers eligible for Social Security typically pay lower retirement taxes compared to railroad workers covered by the Railroad Retirement Act. This results in higher retirement benefits for railroad workers
Unlike Social Security, qualified railroad workers can also get sickness and unemployment benefits. This means that a part of their wages is protected in the event of sickness or loss of job. For female employees, the sickness benefit covers health conditions associated with pregnancy, childbirth, and miscarriage.
Can You Receive Social Security and Railroad Retirement Benefits at the Same Time?
Yes, you can apply and receive both benefits if you work in the railroad industry and also qualify for social security.
However, you should keep in mind that the Railroad Retirement System consists of two tiers, with Tier I having almost the same structure as social security.
Here’s how that works: when you apply for both benefits, your social security earnings are calculated but not paid to you directly. Instead, the Social Security Administration (SSA) will certify your social security benefits to the Railroad Retirement Board (RRB).
Next, the RRB will determine your combined benefit before making payments by offsetting your social security benefits against your Tier I railroad benefits. If the social security benefit amount is not higher than the Tier I benefit, you will end up receiving the same total amount.
Also, if you are filing for social security benefits, you may simply be trading tax-free income for taxable income. This is especially the case if you live in a state where social security benefits are taxed without taxing railroad retirement benefits.
Is the Railroad Retirement Program Worth It?
Calculating benefits for workers or their dependents can be very exacting for Railroad Retirement compared to Social Security.
This is particularly true for individuals who have worked and accrued benefits in both the railroad industry and in non-railroad employment.
Fortunately, the benefits provided by the program are generous. This helps retirees and their families to enjoy typically higher income during retirement.
In comparing Railroad Retirement vs Social Security, it is important to understand that retirement benefits are higher for railroad workers because they pay higher retirement taxes than most employees who pay into Social Security.
Both retired and disabled railroad employees and their dependents can enjoy the benefits program. Plus, survivors of deceased workers are eligible for benefits, too.
While railroad workers can qualify for both RRS and Social Security, government rules prevent employees from drawing full dual benefits.
John E Chambers is an experienced financial advice expert. Born in Chicago, he has a master's in Industrial Finance, but he has spent decades offering investment advice to businesses and individuals alike. He is the founder of RetireeWorkforce.com and wants the website to be valuable for retirement advice. In addition, he writes articles that help users jump-start their retirement plans and choose the best investment options. If not pondering over stock market statistics or reading some magazines, you can find John spending time with his family. As an early retiree, John also offers unique insights into what post-retirement life is like.