Retirement Pay

Retirement pay is what many seniors rely on to get them through their retired years. Economic uncertainty, longer lifespans and increasing costs of living make retiring more of a burden than something to look forward to, and people are working decades longer than they once had to in order to prepare for retirement. It is never too early to start saving, and the most effective way to start is by calculating your expected retirement expenses and assets. Retirement pay is a major factor in your later-life planning.

Retirement pay can refer to any cash flow you receive after you stop working. Deferred income like military retired pay and benefits like pensions and Social Security are all forms of retirement pay. When factoring these in to your retirement budget, it is important to consider taxation and limitations on collecting this income. You will also want to keep in mind the effect extra income will have on your ability to receive services reserved for low fixed-income seniors.

Military Retired Pay

Seniors who honorably served in the United States military for 20 years qualify for retired benefits. The previous system was easy to understand: after 20 years of honorable service, servicemen received 50 percent of their base pay upon retirement and an additional 2.5 percent for each year served beyond the first 20. But Congress recently made changes to this system that current and former servicemen and women should be aware of.

Members of the Air Force and Army who serve 20 years active duty are automatically classified as retired and receive their benefits immediately. Members of the Navy and Marine Corps are not classified as retired until they serve 30 years, the final 10 of which are served as Reserve. During those last 10 years, they receive a benefit called retainer pay. The annual cost of living allowance is now disbursed on January 1 instead of October 1.

Another factor to consider is that members of the military retire at a younger average age than civilians. While receiving retirement pay, retired members can be called back to active duty. Recent draw-downs make this unlikely, but being called back to work can drastically alter your senior retirement plans. The older you get and longer you have been out of service, the more remote that possibility becomes.

Servicemen and women who served fewer than 20 years due to disability may be eligible for retired benefits. Based on the military disability evaluation system, if the disability is rated at 30 percent or higher and other conditions are satisfied, he or she will be retired, either temporarily or permanently. Those with disabilities rated at 20 percent or lower may receive monthly disability benefits, but not retired benefits.

Retired military can receive military retired pay and Social Security simultaneously, and the military cash flow does not have an effect on SS benefits. People receiving a government pension for a non-Social Security-taxed job may receive reduced Social Security benefits. There are always exceptions to the reduced benefits provisions, so speak with a Social Security Administration counselor to clarify your specific benefits.

Other Forms of Cash Flow

Civilians can also receive retirement pay to offset their costs in the retired years. The most common of these is Social Security. Social Security is a federally-funded social insurance program. Benefits are dependent on the worker's lifetime earnings, which are taxed over the working years. When you choose to start drawing benefits also affects how much you can receive, so talk to a financial advisor to determine your course of action to retirement planning. Age 62 is the earliest a retiree can draw reduced benefits, and full benefits depend on the year of birth.

Social Security benefits are increasing, but the state of the institution is uncertain. Lawmakers and economists insist that generations now will always receive benefits, so retiring seniors need not worry. It is important to note that Social Security benefits may be taxable based on total income and marital status. Is Social Security is your sole source of income, you will not be taxed, but retirees receiving other income or retirement pay much file an income tax return.

Some employers provide their employees with pensions, an arrangement to receive compensation when you are no longer working. These plans often require the employee and the employer to pay into the pension account over the course of the working years, and it is a tax-deferred system that benefits both parties. The government and labor unions may also contribute to the pension fund.

Unlike Social Security, a pension is usually made available immediately upon retiring, regardless of age. Retirement pay requires careful planning to make it last throughout the retired years. Speak with a financial adviser to ensure that your retirement pay allows you to maintain a comfortable standard of living.

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