Does early retirement appeal to you? Are you counting on your Social Security benefits as all or part of your retirement income? Then understanding the effect that early retirement has on your benefits is essential.

Regardless of what year you were born, you can retire at age 62 and receive Social Security benefits. But your full retirement age is determined by your year of birth and taking retirement before your full retirement age will reduce your benefits for every month between 62 and full retirement.

For instance, if you were born in 1944, your normal, or full retirement age is 66. If you retire this year at 62, you will retire 48 months early. You would suffer a 25% reduction in your monthly benefit. If your monthly benefit would have been $1000 at age 66, it will be reduced to $750 due to collecting your benefits before your full retirement age. In planning for early retirement, these reductions need to be calculated and considered carefully.

To figure the reduction that would be applied to you, see the chart at the Retirement Planner at the Social Security Administration’s website.

On August 18th, President Bush signed into law The Pension Protection Act of 2006. This bi-partisan bill brings sweeping reform to America’s pension laws in an attempt to ensure millions of Americans a more secure retirement. With more Americans reaching retirement age and the millions of Baby Boomers approaching retirement age, this legislation is aimed at relieving the foreseeable strain on publicly funded programs such as Social Security.

The Pension Protection Act contains measures that will strengthen the federal pension insurance system in several ways. The new legislation:

* Requires additional premiums from companies that under-fund their pension plans;
* Extends the requirement that companies that terminate their pensions provide extra funding for the pension insurance system;
* Requires companies to measure the obligations of their pension plans more accurately;
* Closes loopholes that allow under-funded plans to skip pension payments;
* Raises caps on the amount that employers can put into their pension plans;
* Prevents companies with under-funded pension plans from promising extra benefits to their workers without paying for those promises up front.

The new Pension Protection Act also gives some new benefits to workers, and makes it easier for them to build their nest egg for retirement. Some points of the legislation regarding 401K plans and IRAs are these:

* Previously, companies were prevented from automatically enrolling employees in contribution plans, this legislation removes those barriers. Studies show more employees participate in 401K plans when they are enrolled automatically than will if they have to sign up;
* Gives workers more information about the performance of their accounts;
* Provides greater access to professional advice about investing for retirement;
* Gives workers greater control over how their accounts are invested;
* Makes permanent the higher contribution limits for IRAs and 401(k)s that were passed in 2001.

There are three basic types of reverse mortgages:

1. Single-purpose reverse mortgages offered by state and local government agencies or nonprofit organizations. These usually have low costs but are only available for the purpose specified, such as home repairs and improvements or property taxes. Low income applicants usually qualify for this type of loan.

2. Home Equity Conversion Mortgages, or HECMs which are federally insured through HUD, the department of Housing and Urban development. Meeting with a government-approved housing counseling agency is required before you apply for this type of loan.

3. Private loans through other lenders who offer proprietary reverse mortgages.

Remember, you must be at least 62 years of age and live in your own home to qualify for most reverse mortgages. Proceeds are tax-free but the interest is not deductible from your income tax until the loan is paid off.

The most important step to take before considering a reverse mortgage is to consult a financial counselor.

As stated before, income is not generally a consideration in a reverse mortgage, the loan is against the equity of your house. As you take loan advances, your equity decreases. However, most reverse mortgages contain a nonrecourse clause that prevents the lender from collecting any more than the value of your home as repayment for the loan.

If you have any current debt on your property, it must be paid off first before taking a reverse mortgage. The reverse mortgage will not be due and payable as long as you or other co-owners live in the home, until you sell your home or permanently move from the home.

You are still the owner of your home under a reverse mortgage, so you are responsible for all taxes, insurance and maintenance. Failing to meet these obligations can cause the loan to become due and payable. Certain other circumstances can cause default on the loan and cause it to become immediately due such as renting out all or part of your home, taking out another loan on your home, declaring bankruptcy or having your house condemned as unsafe.

Lenders do usually charge fees for origination of the loan and closing costs. There may also be servicing fees. Interest rates on the loan may be fixed or variable. Understand all the fees associated with your loan.

Next: The three types of reverse mortgages