How does early retirement effect benefits? Early retirement affects benefits in adverse ways. Be sure to investigate all options and opportunities if you are thinking about retiring early. Having lower benefits and increased expenses could force you to take on a job after you officially retire.
Retirement plans are established based on a set age for retirement. For example, the Federal Government established that 65 was the standard retirement age for most people born before 1960. Anyone who retired before the age of 65 receives much lower monthly benefits.
There is a two-fold reason for the lower monthly benefits. First, for each year you retire before the standard age, you will not be contributing to your retirement fund. This means you are not putting any more income into the fund. Thus, there is not the same amount to draw your benefits from as if you had continued working.
Secondly, there is the fact that a person will be drawing benefits for an additional two years. With less funds in the retirement account to start with, and withdrawing from those funds for a longer period of time, benefits are decreased over the life of the retirement.
Before you consider accepting an early retirement package, be sure to check things out thoroughly. Other benefits that may be affected is an increase in healthcare insurance premiums. Again, these premiums are increased to ensure that funds will be available for the additional two years you will be entitled to them.
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