When someone first applies for Social Security Disability Insurance (SSDI) a question on the application will ask if the applicant has ever worked for the railroad. Considering most of the questions on the application, this may seem like a strange one, but it is an important question.
The Railroad Retirement Act provides benefits to retired and disabled workers of the railroad, and their dependents, based on their length of employment in the railroad industry. The benefits paid are similar in structure to how SSDI works, but there are considerable differences, including payment amounts, eligibility age and taxation amounts.
One main difference is the monthly benefit amount paid. According to 2010 fiscal year numbers, the average monthly payment by the Railroad Retirement Board (RRB) was $2,185 per month compared to $1,170 per month for Social Security. Spouse’s benefits averaged $815 per month for railroad workers and $560 under Social Security.
Another major difference from Social Security is the age in which railroad workers are eligible for benefits. Railroad workers are eligible for FULL benefits at age 60 with 30 or more years of service. Social Security recipients are able to start receiving benefits at age 62, but pay a penalty by receiving payments prior to their full retirement age no matter how many years they worked. Social Security recipients who decide to collect early payments receive about 80 percent of what their full retirement amount would be and will never reach that full retirement amount no matter what age they become.
In addition to receiving railroad retirement benefits, railroad workers are also eligible for Social Security benefits for their children if the railroad worker is disabled or retired. The Railroad Retirement Act only provides payments to children of deceased railroad workers.
It may sound like the railroad benefit system is better than Social Security because payments tend to be more and the age of full eligibility is less than that for Social Security recipients, but railroad workers are paying more in taxes for their benefits.
Social Security recipients pay the Tier I payroll tax rate of 5.65 percent. Railroad workers pay the same rate, but also have to pay the Tier II payroll tax rate of 3.9 percent for earnings up to $79,200 for a combined payroll tax rate of 9.55 percent.
For more information about how railroad retirement benefits compare to Social Security benefits visit http://www.rrb.gov/opa/qa/pub_1103.asp.
