Railroad Retirement Board: What It Is, How It Works
The Railroad Retirement Board (RRB) is a government agency that provides retirement, disability and unemployment benefits for railroad workers. RRB benefits typically replace Social Security for qualifying workers. Compared to people with Social Security, most people with RRB benefits pay higher taxes but receive larger retirement benefits.
How Railroad Retirement Board benefits work
RRB benefits include retirement, unemployment and disability and are an alternative to Social Security benefits for workers in the railroad industry.
Like Social Security, RRB benefits are funded with payroll taxes from employees and employers. The National Railroad Retirement Investment Trust invests these funds in a diversified portfolio, and the funds pay for the RRB benefits.
The typical railroad retirement benefit is a monthly check with two main components:
Tier I benefits, which can include benefits that resemble Social Security, a private pension or a combination of both.
Tier II benefits, which are similar to a private pension.
These two tiers are calculated separately and combined for a retiree’s monthly payment.
Are Railroad Retirement Board benefits higher than Social Security benefits?
Most people with RRB benefits receive larger retirement benefits but pay higher payroll taxes.
For example, monthly benefits for RRB’s 2022 fiscal year averaged $1,434.19 more for retired rail employees and $2,244.19 more for career railroad employees than the 2022 average monthly Social Security retirement benefit.
The RRB’s higher benefits are tied to higher payroll tax contributions.
2023 Railroad Retirement Board Tax and Contribution Rates
2024 Railroad Retirement Board Tax and Contribution Rates
Someone who retires from the RRB may pay up to $18,076.50 a year in RRB taxes, whereas someone retiring from a Social Security-covered job may only contribute up to $9,932.40.
Although employers may contribute a maximum of $9,932.40 per year to an employee’s Social Security record, employers in the railroad industry may contribute up to $27,908.10 per employee to the RRB.
These tax rates allow an employee covered by the RRB to contribute $26,119.80 more per year than a nonrailroad employee might contribute to Social Security.
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Calculate your Social Security benefitsWho is eligible for RRB benefits?
RRB benefits are available to workers who spent a large part of their careers working for a railroad company.
Your years of service determine when you become eligible for retirement benefits. The table below shows the requirements depending on your years of service.
Just like with Social Security, your RRB benefit is reduced if you retire before your full retirement age.
However, railroad workers with 30 years or more of service might be able to retire at 60 without a reduction — an option not available to those in the Social Security program..
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How much Social Security will I get at 65?People who receive RRB retirement benefits can’t work in a job that is covered by the RRB, but they can work for a company that doesn’t participate in the RRB program.
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When can I retire?Like Social Security, RRB retirees get annual cost-of-living adjustments, or COLAs. The formula is the same as for Social Security’s COLA.
Some of your RRB benefits may be taxable. What you owe depends on your total retirement income and the tax deductions and credits you take.
If you receive RRB benefits and Social Security benefits, you may need to report both on your federal income tax return. You’ll receive a Form 1099 (Form 1042S for nonresident aliens) from the SSA and RRB showing the amounts you received from each. You’ll add this information to your Form 1040 to determine if you need to pay taxes on the benefits.
How does the RRB calculate retirement benefits?
For the Tier I portion of RRB retirement benefits:
The calculation includes any employment outside the RRB system, and it uses the same benefit formula as the Social Security Administration — that is, benefits are largely based on an index of a worker’s highest 35 years of earnings. But, as mentioned, the age and work requirements for RRB are different from Social Security.» MORE:
5 steps to retirement planningThe formula uses a retiree’s average monthly earnings, applies bend points to calculate how much of the average monthly earnings is included in the benefits and determines the total monthly benefit by the number of years of service the person has on their RRB record.
For the Tier II portion of RRB retirement benefits:
The math is different here than what the Social Security Administration uses. The basic steps in the RRB formula are:Find the average of your highest 60 months of earnings, up to a maximum.
Multiply the monthly average by 0.007.
Multiply the result by the number of years worked at an RRB-covered job.