If you work for a railroad, you are most likely paying Railroad Retirement taxes as your contribution to your pension. Your employer also contributes. There are two parts to Railroad Retirement contributions, which together constitute your benefit amount. These two parts are called Tier I and Tier II. Tier II is the railroad portion of your benefits, and Tier I is the Social Security portion. Benefit calculation is complex but an approximation is possible.
Step 1
Determine the year you plan to retire, for example 2011, and find your creditable Tier I earnings for 2009 on your Railroad Retirement earnings statement. Find 2009 on the index factor table and note the average annual wage for that year.
Step 2
Determine what your first creditable year of service is on your RR statement. Find that year on the index table. Divide the 2009 average annual wage by the average annual wage for your first year of service -- for example 1981. The result is the indexing factor for that year. Calculate the indexing factor for each creditable year of service, using the table.
Step 3
Take the indexing factors you calculated in Step 2 and multiply each by the actual earnings for the corresponding year taken from your earnings statement. The result is your indexed earnings. Check the Railroad Retirement maximum taxable earnings table and only index the earnings up to the taxable amount. For example, if your earnings totaled $116,000 in 2009, and the maximum earnings are $106,000, you would calculate the indexed earnings on only the $106,000.
Step 4
Compute the Average Indexed Monthly Earnings, or AIME, by first determining the number of computational years to use. If you started in 1991 or later, that number is 35. Take the highest 35 years of indexed earnings and total them. Divide this number by 420 -- 35 years in months. Round the result down to the lowest dollar amount. This is your AIME.
Step 5
Calculate the Primary Insurance Amount, or PIA using a formula that applies "bend points" to your AIME. Using the bend point table, locate 2009, the year which you must index. Using your AIME, Calculate 90 percent of your AIME up to the lower "bend "point," which is $744 for 2009. Take 32 percent of the amount between $744 and the next "bend point," $4,483. Take 15 percent of any amount over the higher "bend point." Add these results together and you have your gross Tier I benefit amount. Apply the cost of living adjustment, which in 2009 is calculated by multiplying the PIA by one percent.