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Will Early Retirement Result in Lower Benefits?
(Posted August 20, 2002)
Question 188: I left the railroad industry at age 55, 5 years before I would first qualify for an annuity. I was told my benefits would be reduced as a result. I understand the reduction for age; is this another reduction for early retirement?
Answer: If a rail worker leaves the RR industry several years before his or her first eligibility for an annuity, the benefit can be much lower for a couple of reasons.
If the worker completely retires from the work force, there would be several years of "zero" earnings credited to his or her account. This would reduce the worker's "average monthly earnings" used to calculate the Tier 1 benefit.
The same effect, but not quite as drastic, would happen when the worker's earnings in employment covered by the Social Security system are significantly less than they were in the railroad industry.
The term "reduction" is not a legal one like a "reduction for early retirement," but merely reflects the effect of lower earnings or no earnings at all (in the extreme case), on the benefit formulas used to compute benefits.
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