Retirement planning is crucial, and understanding how your benefits compare to other systems can help you make informed decisions. This article compares Railroad Retirement and Social Security benefits, highlighting key differences in monthly payments, eligibility ages, and payroll taxes.
Key Differences in Retirement Benefits
Railroad Retirement benefits often exceed Social Security benefits, especially for employees with 30+ years of service. This disparity stems from higher retirement taxes paid by both employers and employees under the Railroad Retirement Act (RRA).
As of fiscal year 2023, the average monthly annuity for career rail employees was $4,310, compared to $3,450 for all retired rail employees. The average Social Security retirement benefit was significantly lower at $1,810. Spouse benefits also differed, averaging $1,235 under Railroad Retirement and $865 under Social Security.
Furthermore, the RRA offers supplemental annuities (between $23 and $43 monthly) for employees with pre-October 1981 service and 25+ years in the rail industry.
Recent Retirees and Benefit Amounts
Recent retirees generally receive higher benefits due to higher average earnings. In 2023, career railroad retirees received an average of nearly $4,775 per month, while Social Security beneficiaries received around $2,535. Including spouse benefits, a railroad family could receive $6,645, compared to $3,805 under Social Security. With supplemental annuities, this figure rises to approximately $6,655 for current career rail retirees.
Disability Benefits Comparison
The RRA also offers more generous disability benefits. Disabled railroad workers retiring directly from the industry received an average of $3,810 monthly in 2023, compared to $1,665 under Social Security. Notably, the RRA provides occupational disability annuities for those unable to perform their regular railroad job, even if they can perform other work. Eligibility for this benefit begins at age 60 with 10 years of service or at any age with 20 years.
Early Retirement Options
Railroad employees can retire earlier than those under Social Security. With 30+ years of service, they can retire at 60 with full benefits. Those with less service can retire at 62, but with reduced benefits until full retirement age (67 for those born in 1960 or later). Under Social Security, retirement begins at 62, regardless of service length, with reduced benefits before full retirement age. Spouse benefits under Railroad Retirement also begin at age 60 if the employee has 30+ years of service and retires at 60.
Benefit Differences for Spouses and Children
A spouse of a railroad employee with 30+ years of service can receive benefits at 60 if the employee retires at 60. Under Social Security, both spouses must be at least 62. While both systems offer benefits to spouses caring for a qualifying child, Social Security provides children’s benefits in more situations (disability, retirement, or death of the employee) than Railroad Retirement (only upon death of the employee).
Social Security’s Unique Benefits and the RRA Guaranty
Social Security offers some benefits not available under Railroad Retirement, such as children’s benefits when an employee is disabled or retired. However, the RRA includes a minimum guaranty ensuring railroad families receive no less than they would under Social Security. This provision ensures families receive comparable benefits even if Social Security offers a benefit type not included in the RRA.
Survivor Benefits
Survivor benefits are generally higher under Railroad Retirement. In 2023, aged and disabled widow(er)s received an average of $2,090 monthly, compared to $1,640 under Social Security. New awards to this group averaged $2,725 under Railroad Retirement and $1,575 under Social Security. Similar differences exist for widowed mothers/fathers and children’s benefits.
Lump-Sum Death Benefits
Both systems offer a $255 lump-sum death benefit. However, if a railroad employee had 10 years of creditable service before 1975, the average lump-sum benefit was $1,040 in 2023. Eligibility for the $255 benefit under Railroad Retirement for employees with less than 10 years of service (but at least 5 years after 1995) also requires insured status under Social Security. Payment rules also differ.
Payroll Tax Comparison: Railroad Retirement vs. Social Security
Railroad Retirement uses a two-tiered tax system. Tier I mirrors Social Security taxes: 7.65% (6.2% for retirement up to $160,200 in 2023 and 1.45% for Medicare on all earnings). An additional 0.9% Medicare tax applies to earnings above $200,000. Tier II taxes fund benefits exceeding Social Security levels, with rates of 4.9% for employees and 13.1% for employers on earnings up to $125,100 in 2024.
Comparing Total Tax Burdens
An employee earning $168,600 in 2024 would pay a maximum of $19,027.80 in Railroad Retirement taxes, compared to $12,897.90 under Social Security. Employers would pay $29,286 versus $12,897.90. Earnings above $168,600 incur additional Medicare taxes for both employees and employers. Understanding these differences is critical for accurate retirement planning.
