Railroad Retirement Board is an agency of the government that offers retirement, unemployment and disability benefits to railroad employees. RRB is usually used by railroad workers instead of social security. RRB beneficiaries pay more taxes than people who receive Social Security but get larger benefits.
How Railroad Retirement Board Benefits Work
Railroad Retirement Board (RRB) benefits — including retirement, unemployment and disabilities — can be used as an alternative.
Benefits of Social Security
Workers in the railway industry
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RRBs, like Social Security benefits, are funded by
payroll taxes
Employees and employers. These funds are invested in a diverse portfolio by the National Railroad Retirement Investment Trust, which then pays the RRB Benefits.
. The model used here is very similar to the pension fund, but it is not Social Security. Social Security can legally only invest in
U.S. Treasury Bonds
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A typical retirement check from a railroad is composed of two components: Tier I benefits and Tier II benefit. Tier I benefits resemble Social Security; Tier II benefits resemble a private pension.
Are Railroad Retirement Board Benefits higher than Social Security Benefits?
Most people who receive RRB retirement benefits get larger benefits than those with Social Security but have to pay more in payroll taxes.
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The average Railroad Retirement Board monthly benefit in 2022 for retired railroad employees will be $3,210 (4,020 dollars for career rail employees). In December 2022, the average monthly Social Security benefit for retired railroad employees was approximately $1 776.
The 2023 RRB rates of payroll taxes that include Medicare tax are
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What are the RRB Benefits?
Railroad Retirement Board (RRB) benefits are available to people who have worked on or with trains, including conductors and engineers, as well as those in administrative positions, like sales, customer service and office work.
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Each month that you receive compensation, including vacation or sick pay, earns you service months or credits.
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You are eligible to receive retirement benefits if you have worked for a railroad company for at least five years (or ten if your employment began before 1995).
What is the Retirement Age for Railroad Retirement Board Benefits?
How many service credit you have, and your age will determine when you retire.
. A railroad worker who has served at least 5 years after 1995 is entitled to receive an RRB pension at the age of 62. This is comparable with the maximum retirement age for a worker.
Retirement benefits under Social Security
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Like Social Security benefits, you will receive a reduced RRB benefit if your retirement is before the full retirement age. This is currently 67 years old for people born after 1960. If you were born prior to 1960, the full retirement age will be sooner.
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Rail workers with 30 or more years’ service are eligible to retire without any reduction at age 60. This option is not open to Social Security recipients.
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Workers who have worked at a railroad for 25 years or more, and whose employment began before 1981, are eligible to receive a Supplemental Annuity Amount. This is $23 per monthly plus $4 each year (upto 30 years). You must have worked at a railway for 12 out of 30 months prior to retirement in order to receive the Supplemental Annuity Amount.
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Employees who qualified for benefits prior to 1975 are also eligible for additional annuities.
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RRB retirees receive annual COLAs, just like Social Security. COLA formulae are the same for Social Security COLAs.
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RRB benefits can be taxed. The amount you are liable for depends on the total income you receive from retirement and any tax credits and deductions you have taken.
What is the RRB’s method of calculating retirement benefits?
In order to calculate the Tier 1 portion of RRB benefits, the calculation takes into account any work outside of the RRB program. It uses the exact same formula as the Social Security Administration, i.e., the benefits are heavily based on the index of the worker’s 35 highest years of earning. As mentioned above, RRB’s age requirements and employment criteria are different than those of Social Security.
Tier II of RRB Retirement Benefits:
Social Security Administration math differs from the Math used here
. RRB is a formula that has three basic steps:
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Calculate the maximum of 60 of your best months’ earnings.
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Multiply monthly average by 0.07
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Multiply by the number years you worked in a job covered under the RRB.
According to the RRB for example, multiplying $4,616 (average monthly salary) by 0.007 will result in $32.312. If the individual has served 40 years, the Tier II benefit is $1,292.48.
Calculate your Social Security Retirement Benefits
The actual amount of your benefit could be higher or lower than the estimate you get from this calculator, because it doesn’t take into consideration what you actually earn.
This calculator assumes that you will earn a certain amount every year up until the time you start receiving Social Security Benefits. This calculator may underestimate or overestimate your benefits if you have had multiple years of uncovered employment, or if your income has changed dramatically from one year to the next.
Why is the RRB necessary?
In the 1800s, retirement from railroads meant that you had to rely on the private pension provided by the railroad. In the 1930s this system was in trouble. A railroad worker, for example, could be penalized heavily if they switched jobs. They would lose retirement credits that were earned with a former employer. Congress addressed this problem when, in the 1930s it established the RRB, which combined the various privately-run retirement programs into a single government-run system.
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RRB and Social Security were both developed, but RRB came into existence first. Both programs share many similarities but have been separate programs. The two-tiered program was created in 1974 after a major overhaul. It accounts for workers covered by Social Security and railroad employees.