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Talk about a stampede: The first wave of Baby Boomers begins turning age 65 in 2011, which means they’ll soon be tapping Social Security retirement benefits, if they haven’t already. If you’re a Boomer and haven’t yet investigated how this program works, this may be a good time to learn the ropes.
When you work and pay Social Security taxes, you earn up to four “credits” per year based on net income. In 2011, it takes $1,120 in income to earn one credit. You must accumulate at least 40 credits over your lifetime to qualify for a benefit; however, those who haven’t earned sufficient credits sometimes qualify based on their spouse’s work record.
Retirement benefits are calculated based on earnings during 40 years of work. The five lowest-earning years are dropped and each year not worked counts as zero. “Full retirement age” increases gradually from 65 for those born before 1938 to 67 if born after 1959.
If eligible, you may begin drawing benefits at 62; however, doing so may reduce your benefit by up to 30 percent. The percentage reduction gradually lessens as you approach full retirement age. Alternatively, if you postpone participating until after reaching full retirement age, your benefit increases by 7 to 8 percent per year, up to age 70.
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