If you speak with elders when you are young and anxious, they will tell you that time may seem to move slowly for a while, but it passes very rapidly when you get older. This is certainly true, and before you know it, you may start to recognize the fact that your retirement years are just over the horizon.
Unfortunately, many people do not come to this realization until it is too late to accumulate the resources that they need to retire in comfort. Retirement planning is very important, and it is something that you should think about as soon as you start to embark on your career path.
Many people are exposed to retirement planning when they start working and they are offered the opportunity to participate in a 401(k) plan. This is an important piece of the retirement planning puzzle, and a lot of companies will match your contributions up to a certain amount.
You should certainly take advantage of this benefit, because there are not many times in your life when someone offers you free money.
If you are going to be qualified to receive a pension benefit, you certainly have a major advantage. You would have a ready source of income to supplement your Social Security payout, and you may actually be able to retire before you are eligible to collect Social Security.
Unfortunately, pensions are not as common as they once were, but those that are fortunate enough to receive one get handsomely rewarded for their years of service.
The FICA or self-employment taxes that you pay throughout your working career go toward eligibility for government retirement benefits. You earn retirement credits along the way, and full-time workers and most part-time workers will earn the maximum four credits each year.
Once you have a total of 40 credits, you will qualify for Social Security and Medicare. The amount of your Social Security benefit will be based on your 35 highest earning years. You can register your account on the SSA website to see what you can expect to receive based on your work history.
You can start to receive a benefit when you are as young as 62 years of age, but it would be a reduced benefit. Depending on your birth year, you would receive between 25 percent and 30 percent less than you would have received if you retired at your full retirement age.
The age at which you become eligible for a full benefit depends on your year of birth. It would be either 66, 67, or somewhere in between under currently existing laws.
If you take a reduced benefit before you reach your full retirement age, you are penalized if you earn more than a certain amount of money on the job. At the present time, you can $18,240 without being penalized. Your benefit would be reduced by one dollar for every two dollars that you earn above this figure.
On the other hand, if you wait until you become eligible for your full Social Security benefit, you can earn any amount of money on your own, and there would be no penalty. You would receive your full Social Security payout each month.
You can go to the other extreme when it comes to applying for Social Security. If you delay the submission of your application beyond the full eligibility age, you will accumulate delayed retirement credits until you reach the age of 70. Once you to start receive a benefit, it would be increased by eight percent for each year that you delayed.
This increase is part of the equation, but there is another facet to consider. Let’s say that you are eligible at 67, and you do not submit your application until three years later when you are 70 years of age.
The benefit would be increased by 24 percent, but you would probably make more money during the last three years than you did at the beginning of your career. Since your benefit amount is calculated based on your 35 highest earning years, this can add to the increase in your benefit.
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Retirement planning is a must for all responsible adults, and it naturally blends into the process of estate planning. If you would like to put a solid plan in place that facilitates a comfortable retirement as you craft a meaningful legacy, we are here to help.
We would be glad to sit down with you, gain an understanding of your objectives, and help you put a plan in place if you decide to proceed. To schedule a consultation, call us at 802-879-7133 in Vermont or 518-389-6020 in Albany, New York. You can alternately send us an appointment request through the contact form on this website.