To be comprehensively prepared for the future, you should carefully consider the different stages of life that you will pass through as you get older. Your retirement plan will certainly address the active years that you have always looked forward to, and then there are the twilight years that will follow. You should plan ahead proactively as you take steps to prepare for the eventualities of aging.
Social Security
The Social Security program is very important for a significant percentage of senior citizens. When you are creating your retirement plan, you should understand what to expect from this program.
While you are working you pay FICA or self-employment taxes. When you pay these taxes, you are accumulating retirement credits. Once you have at least 40 credits, you will qualify for Social Security benefits.
Four credits can be accrued in a calendar year. In 2015, you get one credit for every $1220 that you earn, so as you can see, the requirements are modest.
Early Benefit
You can begin to draw a Social Security benefit when you are as young as 62 years of age. This would be an early benefit. If you take your benefit early, it is reduced. The reduced benefit would be 30 to 35 percent less than the benefit that you would receive if you wait until you reach the age of full eligibility. The exact amount of the reduction would depend upon your year of birth.
Plus, there is a limit on how much you can earn while you are collecting an early Social Security benefit. In 2015, you can earn up to $15,720 without suffering any penalties. Your benefit would be reduced by one dollar for every two dollars that you earn in excess of this $15,720 annual limit.
As you can see, there is a rather hefty price to pay if you decide to take your benefit early. It can be enticing, but if you wait until you reach the age of full eligibility, you can earn unlimited income without suffering any penalties. And of course, you would receive a considerably higher monthly direct deposit.
Delayed Retirement
To provide a complete picture, we should point out the fact that you can go in the other direction. You can earn delayed retirement credits if you do not submit your application for Social Security when you reach the age of full eligibility.
This would increase the amount of your payout when you do start to draw a benefit. Your benefit would increase by around eight percent for every year that you delay beyond your full eligibility age, but this maxes out at the age of 70.
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