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Railroad Retirement vs. Social Security

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Railroad Retirement vs. Social Security
Posted by kolechovski on Thursday, October 23, 2008 9:04 AM

How do they compare overall?  And if social security bites the dust (as seems ever increasingly possible as the economy dies), what's the chance of Railroad Retirement still being around?

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Posted by CSSHEGEWISCH on Thursday, October 23, 2008 10:10 AM

Railroad Retirement is the pension plan for railroaders and predates Social Security by a few years.  It absorbed private pension plans that had been established by some of the larger railroads and provided pensions for all railroaders.  Because it covers all railroads, portability was a key part and allowed those who changed jobs from railroad to railroad to still be vested in a pension plan.

Social Security dates from 1935.  It IS NOT and was never intended to be a sole means of support for retirees.  It is meant to be one part of a retirement package consisting of Social Security, a pension from your employer and your personal savings.  Since private pensions have mostly been replaced by IRA's and 401(k) plans, retirement income has become increasingly dependent on the vagaries of the stock market.

Paul The commute to work may be part of the daily grind, but I get two train rides a day out of it.
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Posted by oltmannd on Thursday, October 23, 2008 10:27 AM

RR retirement has two tiers.  The first is exactly like Social Security in terms of taxes and benefits - with the exception.  If you work for a RR for 30 years and the last job you worked was for a RR, you can collect full retirement at age 60

The second Tier taxes the employees an additional 4.5% and the employer roughly 15%  (it varies depending on the state of the account that funds the benefits) and provides some additional retirement benefits (somewhat less than Tier I benefits) if the last job you worked was with a RR. 

Quit the RR and go work for somebody else and your RR retirement benefits convert to Social Security.

The railroad retirement account is separate from Social Securty and is not likely to have the same trouble some are prediciton for Social Security.

-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/

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Posted by diningcar on Thursday, October 23, 2008 10:33 AM

Somewhat missleading with regard to IRA's and 401K's. Investing in stock is one option available. But there are several others including money market funds and CD's.

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Posted by wjstix on Thursday, October 23, 2008 10:57 AM

 Yes basically Tier I is the same as Social Security, it generally isn't taxable income unless you receive a large amount or have a high overall income. Tier II is like normal pension income like you might receive from a private company employer, and is taxable on your 1040.

Also there's the "cheaper to keep her" provision - if you're married and a railroader, if you get divorced when your ex-wife reaches retirement age she can file to get a tier I benefits equivalent to (IIRC) up to 1/2 of your benefits, regardless how briefly you were married or how long ago you were divorced.

US Railroad Retirement Board

Stix
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Posted by jeaton on Thursday, October 23, 2008 11:00 AM

At this stage of the game, I consider it very unlikely that the call to abolish or change Social Security will be heard from any more than the most ideologically bound individuals.  The general plan of SS privitization was to let people have their SS payments be put in an investment of their choice, such as stocks, bonds or bank demand deposits (CD's, savings, etc.).  Given the recent "declines" in the market, I doubt that the our government reps are going to find much support from the voting public for putting retirement funds at risk of major loss.

The most likely scenerio for the future of SSI is that the growth of benefits will be something less than the rate of inflation or the payments in as a percentage of income will increase or both.

Railroad Retirement consists of two parts.  Tier I payments in and benefits are identical to Social Security.  Tier II payments in and benefits are made in addition to Tier I.  Both the railroads and employees pay in amounts over and above the Tier I level.  The Tier II amounts are invested in various kinds of relatively safe investments and benefits reflect the return on those investments.  Teir I is subject to the same cost of living increases as SSI, for 2009 5.8%.  The increase for Tier II will be 1.9%.

This is approximate, but I believe that in total Railroad Retirement benefit for an individual at the maximum will be about $1,000 a month more that SSI.

 

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

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Posted by GraniteRailroader on Thursday, October 23, 2008 11:41 AM

 In addition to what the others have said, part of the reason that Railroad Retirement will continue to remain beneficial throughout the next hundred (or more) years is that back when there were tens of thousands of railroad employees paying into their retirements and pension, the life expectancy for a railroader was age 65. 

Many "career" or "family" railroaders contributed to the system for so long but drew so little that there was such a surplus of funds that it allowed the system to sustain itself with fewer new additions. 

 

(Previous) 1:1 Scale railroader - N Scale Modeler

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Posted by BaltACD on Thursday, October 23, 2008 4:09 PM

GraniteRailroader

 In addition to what the others have said, part of the reason that Railroad Retirement will continue to remain beneficial throughout the next hundred (or more) years is that back when there were tens of thousands of railroad employees paying into their retirements and pension, the life expectancy for a railroader was age 65. 

Many "career" or "family" railroaders contributed to the system for so long but drew so little that there was such a surplus of funds that it allowed the system to sustain itself with fewer new additions. 

 

My Grandfather was one who 'beat the system' .  Paid into Railroad Retirement from it's inception in 1935 until his retirement in 1957 (22 years).  Collected retirement benefits from 1957 until his death in 1989 (33 years).  Unfortunately, my father is one that 'funded' Railroad Retirement, paying in for 37 years and passing on 2 months after his 65th birthday.

Some win, some don't.

Never too old to have a happy childhood!

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Posted by Bob-Fryml on Thursday, October 23, 2008 4:13 PM

PLEASE READ THE FOLLOWING VERY CAREFULLY.

Presently approximately 200,000 contributors to Railroad Retirement support approximately 700,000 beneficiaries.  The ratio is 1-to-3.5.

Within the Social Security Administration (SSA) system approximately 3.2 contributors are presently supporting each beneficiary.  The ratio here is 3.2-to-1 - the inverse, if you will, of the Railroad Retirement ratio quoted above.  To make matters worse, Social Security's ratio has been trending downwards for the last few decades, which is to say that fewer contributors are supporting each beneficiary!

Supposedly the SSA "surplus" of revenues vs. payouts diminishes to zero somewhere around 2014, and then a few years after that when SSA calls in from Uncle Sam all of those I.O.U.s that Congress wrote - "Special Bonds" that pay a micro-miniscule rate of interest - SSA immediately will have to drop every beneficiary's payout 25% in order to stay reasonably solvent.

Looking at the two systems, they have completely lopsided contributor-to-payout ratios.  For each railroader who makes 360-months of qualifying contributions to the Railroad Retirement system, a few years ago the U.S. Railroad Retirement Board (RRB) lowered the minimum retirement age from 62 to 60, yet the SSA has raised their's from 65 to 67, and may have to raise it again to 68 to keep the larger system solvent.  And let's not forget that somewhere around 12% of those Railroad Retirement contributors are Amtrak employees, people who work for a financial basket case that lives from year-to-year at the whim of Congress.  Oh yeah, in this era of $500,000,000,000 federal deficits, Amtrak's billion dollar annual subsidy has a real secure future.

I cannot, for the life of me, understand how the RRB can sustain its generous payouts and its full-benefit-at-60 retirement provision without a massive subsidy from SSA.  Eventually something with Railroad Retirement is bound to give.

What do you think?   

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Posted by diningcar on Thursday, October 23, 2008 5:00 PM

bob-f

It is a little more complex than you paint. First, the RR's pay into the fund in addition to payments by employee's.

Second, the RR Retirement board has the ability to adjust the withholding to fit the retirement requirements. 

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Posted by MP173 on Thursday, October 23, 2008 5:13 PM

Is it safe to assume that with the RR retirement Tier 1 and 2 system there is no union type pensions for the brotherhood members?  That would contrast with Teamsters which have had a little problem with running their pension over the years.

What about staff members (management, clerical, etc)...are they also covered by the plan? 

ed

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Posted by Randy Stahl on Thursday, October 23, 2008 5:14 PM

Why the heck am I paying into Tier 3 ???

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Posted by jeaton on Thursday, October 23, 2008 5:30 PM

MP173

Is it safe to assume that with the RR retirement Tier 1 and 2 system there is no union type pensions for the brotherhood members?  That would contrast with Teamsters which have had a little problem with running their pension over the years.

What about staff members (management, clerical, etc)...are they also covered by the plan? 

ed

You are correct that the railroad unions do not sponsor spension plans.  All RR employees are in Railroad Retirement.

 

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

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Posted by jeaton on Thursday, October 23, 2008 5:32 PM

Randy Stahl

Why the heck am I paying into Tier 3 ???

You're special?

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

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Posted by mackb4 on Monday, October 27, 2008 3:44 AM

  People who don't work for the railroad can't imagine how r.r. retirement  could last, here is why it will.

 We as railroaders normally ,as mentioned,don't live as long as most workers once we retire.

 My Great Granddad wasn't alive when r.r. retirement was started.My Granddad never retired even at age 69 with 53 years of service.My Dad retired Oct of 2002.He passed away March of this year (2008).My mothers Dad never got to retire he passed at 57,and her Granddad was retired about 10 years before he died.

 Now my Uncle in Va. has been retired since 1982.He's been one of three railroaders in my family,which there was several around 10 including myself since the 1880's,that have drawn retirement.

 At age 60 with 30 years of service,we are considered taking a early retirement,with around a 24% cut in pay.We do pick it back up at age 62.Our spouces also pick up around 46% of what are net is when they turn 60.  

 So with all this considered, even with fewer folks paying into retirement as say 20 years ago,it will be here for quiet a while.

 There's a lot in the fund.But the goverment would love to grab it.

And those tiers keep getting harder and harder to pay out of.We can do that each year for a couple of months.Thats not having to pay into it because of how much we make in a year vs. the tier rate.

 Now just imagine if s.s. would have been privatized.It would be broke in no time.Or checks would be cut down !

 Now something the r.r.'s have started for us a few years back are 401k's.But mine has taken a hit lately.Shock

Collin "The Eastern Kentucky & Ohio R.R."

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