Your railroad retirement check is built from two distinct tiers with different rules. Here's how they differ.
What is Tier 1?
Tier 1 is the foundation of a railroad retirement annuity and works much like Social Security. It's calculated using your combined railroad and non-railroad covered earnings, and it provides a benefit roughly equivalent to what Social Security would pay for the same work history. Because it mirrors Social Security, Tier 1 receives the same full cost-of-living adjustment—2.8% for 2026, per the Railroad Retirement Board. Tier 1 also coordinates with any Social Security benefits you've earned so you aren't paid twice for identical earnings. For most railroaders, Tier 1 is the larger of the two tiers and the part most comparable to a typical retiree's Social Security check.
What is Tier 2?
Tier 2 is the additional, pension-style layer that sets railroad retirement apart from Social Security. It's based solely on your railroad service and earnings, not on outside work, and it's funded by separate, higher railroad payroll taxes. This is the benefit that typically makes a career railroader's total annuity larger than Social Security alone. Tier 2 follows a different cost-of-living formula—its COLA equals 32.5% of the CPI rise, which produced a 0.9% increase for 2026, per RRB.gov. Tier 2 is also treated differently for taxes and in divorce, so understanding which tier drives your check helps with planning.
Why the difference matters for Medicare
Knowing your Tier 1 and Tier 2 breakdown helps you anticipate income, taxes, and how much room you have for Medicare premiums and a Medigap plan. Because Part B premiums are usually deducted from your annuity, a clear picture of your total benefit lets you budget for supplemental coverage. Original Medicare's gaps don't shrink just because you have a solid railroad annuity. To protect both tiers of the benefit you earned from large medical bills, call 1-800-MEDIGAP (1-800-633-4427) for free, licensed help comparing Medigap options.