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Check Out How Railroad Retirement Crushes Social Security

Tier 1 Tier 2 Retirement

Highlights:
•An Employee and Spouse Railroad Retirement Annuity at Full Retirement Age(FRA) is 100% greater than a similar couple on Social Security.
•A widow(er) of a Railroad employee will receive a benefit 30% larger than a widow(er) on Social Security.
•The overwhelming advantage of working 30 years and collecting FRA benefits at 60 is a benefit well in excess of $250,000 versus a Social Security recipient who’s FRA is 67.



Over the years I have come into contact with people who love their careers with the railroad and others who shall we say have less then kind things to say. But the one thing you rarely hear bad words about is the benefits afforded to railroad workers through the Railroad Retirement Act.  This is the Act that provides for the retirement payments of railroad workers in retirement.  Almost all workers outside of the railroad industry are funneled into the Social Security system.  Let’s have quick look at how these two retirement systems compare against each other.



Railroad Retirement 
Social Security
Avg Age Annuity Paid to Career Employee
$3,415/month
$1,370/month
Paid to Spouse
$1,010/month
$695/month
Age Annuities Awards at FRA for Employee
$4,030/month
$1,370/month
for Employee and Spouse
$5,560/month
$2,780/month
Disabled Workers Award
$2,920/month
$1,295/month
Definition of Full Retirement Age
60 with 30 years of service OR 62 or greater with 30 years of service OR 67
67
Reduced Retirement Benefits Age
62 with less than 30 years of service
62
Spousal Benefits Age for AnnuityEmployee is 60 with 30 years of service and spouse is 60 or spouse is 62
62
*based on 2017 data


When it comes to Railroad Retirement Survivor benefits the differences are just as stark.


Railroad Retirement
Social Security
Survivor Benefits for Widow(er)
$1,650/month
$1,270/month
for Widowed Mothers and Fathers
$1,880/month
$955/month
for Children
$1,080/month
$840/month
Lump-sum Death Benefit
$255
$255


Clearly the benefits of the Railroad Retirement Annuity is from all measures significantly better then the benefits from the Social Security system. However with these larger benefits come with costs to the employee. The Railroad Retirement Annuity is made up of two tiers that are funded by two separate payroll taxes paid by the employee and employers. Below is the costs associated to the employee.


Railroad Retirement
Social Security
Payroll Taxes for Tier 1
7.65% ($132,900 max)
7.65% (132,900 max)
for Tier 2
4.9% (98,700 max)
N/A
Max Payroll Tax on $132,900
$15,003
$10,167


Hopefully you have a better understanding of the hard earned benefits you have through the Railroad Retirement Act. While the benefits are excellent compared to those receiving Social Security, you still need to have a financial plan in place to make that transition easier. Schedule your free consultation with Highball Advisors and we’ll help you put a plan in place.

Photo credit to Hugo Yamanura

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.