There are a number of tough decisions you might face as retirement gets near. You may, for example, be torn over whether to stay in your current city versus move to a cheaper one where you might have to start over again socially. You may also have a hard time deciding what type of Medicare coverage to put in place, since you can typically choose between different Advantage and Part D drug plans.
Another hard decision you’ll need to make in the context of retirement is when to claim Social Security. So before you arrive at an answer, ask yourself these important questions.
1. What’s my full retirement age?
Even if you have a decent amount of savings for retirement, you’ll probably rely on Social Security to some degree. So you may want to avoid a scenario where you lock yourself into a reduced benefit.
To that end, before filing for Social Security, make sure you know what your full retirement age (FRA) looks like. That’s the age when you’re eligible for your complete monthly Social Security benefit based on your personal earnings history.
If you were born in 1960 or later, FRA is 67. You can consult this guide put together by the Social Security Administration to see what your specific FRA looks like.
2. How much annual income will my savings give me?
You may be approaching retirement with a decent amount of money in your IRA or 401(k). But rather than get caught up in a large number on paper or on a screen, figure out how much annual income your nest egg will give you. That should help you figure out how much money you’ll need out of Social Security — and when to claim benefits accordingly.
Say you have $800,000 saved for retirement. If you follow the 4% rule to manage your nest egg, that amounts to about $32,000 in annual income, or $2,667 a month.
If you think you’ll need $4,700 a month and can get a little more than $2,000 out of Social Security by waiting until FRA to claim benefits, then you may want to avoid filing early, since that will reduce the amount of money you get each month.
3. How will a smaller or larger benefit affect my retirement plans?
The earliest age to claim Social Security is 62. And while there’s no official latest age, there’s no reason to delay your claim past age 70.
Filing for benefits before FRA will result in a reduction in your Social Security payments, while delaying your claim beyond FRA will give your benefits a lifelong boost. It’s important to think about the impact of a larger or smaller benefit on your retirement before you make your decision.
It may be that you’ll be able to cover your basic expenses just fine if you sign up for Social Security at 62 and accept a reduced benefit for life. But that could also mean that you won’t be able to travel or do some of the other things you’ve always dreamed of. So all told, it’s important to be honest with yourself about what you want your retirement to look like before committing to a Social Security filing age.
The image featured for this article is © GetUpStudio / Getty Images
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