RAILROAD RETIREMENT AND SOCIAL SECURITY: How are they the same? How are they different? Is it possible to have both?
By Jenn King
When we look back in the history of Railroad Retirement, we know that Railroad Retirement was started before Social Security even began. However, in time it became more integrated. In 1951, a financial interchange was established between the two. In 1965, a provision was created to coordinate the tax rates and allow Medicare to expand and cover those in the Railroad Retirement system. In 1974, the Railroad Retirement Act split the Railroad Retirement benefit into Tier I and Tier 2, with Tier 1 is designed to be equivalent to the benefits offered by Social Security.
So, how are Railroad Tier 1 Benefits similar to Social Security?
Just like Social Security, a railroad worker is not entitled to take retirement benefits until the age of 62. If benefits are accepted at this age, it is considered early retirement, and there is a permanent reduction of benefits.
Similar to Social Security’s Full Retirement Age (FRA), the Normal railroad retirement age is between 65 and 67, depending on the worker's birthdate.
How are Tier 1 Benefits different from Social Security Benefits?
Tier 1 has a GREAT benefit available to those Railroaders with at least 30 years in a Railroad Retirement Board approved company – you can get your FULL retirement benefits AT AGE 60! No reduction!
How you qualify for benefits is different. While Social Security retirement beneficiaries need 40 credits earned by paying payroll taxes on a specified amount of wages, railroad workers qualify for their benefits by working for a specified period: 120 months as of 2013 or 60 months or five years of railroad work after 1995.
You may be one of the many people who have worked both in AND out of the Railroads. How does that work?
Let’s say you worked outside of the Railroad System long enough to earn your 40 credits needed to qualify for your Social Security benefits. Then you started to work for the Railroads and worked there for 20 years. You might wonder how your Social Security benefits and Railroad Retirement benefits work together. Can you “double dip” and collect BOTH Social Security and Railroad Retirement?
The short answer is NO. When you file for social security benefits, the Railroad Board must reduce your Tier 1 component by the amount of Social Security benefits you would receive. Why? Tier 1 benefits approximate what Social Security would have paid if you were covered by Social Security. Therefore, if you had actual SS benefits paid on the basis of non-railroad retirement, Tier 1 would be reduced to prevent a duplication of benefits.
What if your Social Security benefit is higher than your Tier 1 benefit? You can accrue additional Social Security benefits by delaying your filing until age 70 while drawing your Railroad benefits. If you look at your Social Security statement and realize your benefit at age 70 is still lower than Tier 1 benefit, there is no point to ever file for Social Security.
What if you didn’t work in the Railroads for more than 5 years? You wouldn’t qualify for Railroad Retirement benefits, so what happens to those benefits? Those benefits would transfer into the Social Security system.
As you make your career in Railroad, the more you can learn about the nuances of your Railroad Benefits and how they integrate into your life, the more successful your overall financial planning will be. Continue to follow our monthly blogs about your Railroad Retirement Benefits!
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