It is often said that you make your own luck, and this certainly applies to retirement planning. People that have the ability to put their working years behind them and enjoy travel, leisure activities, and quality time with their families are typically not “lucky.” They are the individuals that had the foresight to plan ahead with a comfortable retirement in mind.
In a perfect world, it would be great to start thinking about retirement when you are first embarking on a career path. Some people do this, but to be fair, it is unrealistic for many. This being stated, as the years start to pass, you should certainly think about your senior years.
Unless you are in a position that provides a pension, your de facto retirement plan will probably exist in the form of the 401(k) that you get through your place of employment. If they offer an employer match, you should certainly take full advantage of it, because this is nothing more or less than free money in your pocket.
Of course, there are government programs that are in place to provide additional assistance. It is important to understand what to expect so that you do not have unrealistic expectations.
Everyone should understand how the Social Security system works, and you can register your account on their website to get some insight into what you can expect to receive. This being stated, we will provide an overview here.
When you work and pay taxes, you earn retirement credits that will lead to eligibility for Social Security and Medicare. You can earn a maximum of four credits per year, and once you get 40 credits, you will qualify when you are old enough.
At the time of this writing in 2019, you get one credit for every $1360 you earn. As a result, even a part-time worker that makes less than $6000 this year would get the maximum four credits.
The amount of your Social Security benefit is based on your 35 top earning years. We should point out the fact that there is a maximum amount of income that can be taxed for Social Security purposes. In 2019, the limit is $132,900. If you contributed the maximum for all 35 years, you would receive the maximum benefit.
This year, the top benefit is $2788 per month if you retire at the age of full eligibility. The average monthly Social Security payout for an individual is $1,461.
People that were born between 1943 and 1954 become eligible for a full benefit at the age of 66. The age subsequently goes up by two months per year, so it would be 66 years and two months for someone born in 1955, and so on. This rather convoluted arrangement ends in 1960. People that were born in 1960 or after become eligible for a full benefit at the age of 67.
The reason why we are using the term “full benefit” is because it is possible to apply for Social Security early and receive a reduced benefit. When you are as young as 62, you can go this route. An early benefit can sound enticing, but the reduction would be between 25% and 30% depending on the year of your birth.
You can go in the other direction and choose to delay the submission of your application for Social Security beyond your full retirement age. If you do this, you would earn delayed retirement credits that would increase your benefit by 8% for every year that you wait.
However, there is no further accrual once you celebrate your 70th birthday, so there is no reason to delay beyond that age.
After trying to understand all the above, you will find the Medicare eligibility parameters to be a breath of fresh air. Regardless of when you were born, once you reach the age of 65, you qualify if you have earned the required retirement credits.
It will certainly provide a sound health insurance underpinning, but there are premiums, deductibles, and co-payments that you must pay out-of-pocket when you have this coverage. Plus, it will not pay for long-term care, and this is a complicated subject that you should discuss with an elder law lawyer from our firm if you have concerns.
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