What's the One Thing All Retirees Should Do Before Claiming Social Security Benefits in 2025?

If there's one thing all retirees should do before claiming Social Security, it's to evaluate their claiming strategy. "Claiming strategy" refers to determining when it's the right time to begin receiving benefits. Once you've moved through the steps of evaluating your strategy, you should have a clearer sense of the direction you want to take.

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Know the importance of full retirement age (FRA)

Your FRA is the age at which you are eligible to receive full Social Security benefits. The age varies, depending on the year you were born, but for most people, it's between 66 and 67.

Let's say your FRA is 67, but you're in poor health and decide to claim benefits at age 62 (or you may just be sick of your job). Since you didn't make it to FRA, your monthly payment will be 30% lower than if you'd waited until 67. The closer you get to FRA, the less of your monthly payment you'll lose.

That said, if you evaluate your financial needs and find that you'll do just fine receiving the reduced amount, you can smile at the knowledge that you'll bank five more years' worth of payments than you would have if you'd waited.

Evaluate your financial needs

While you may have a friend who couldn't get by on less than $10,000 a month, you may be comfortable with a lower amount. It all boils down to your financial obligations and retirement goals.

Creating a post-retirement budget can be tricky. You must account for all expenses you know you'll have, such as groceries, healthcare, utilities, transportation, and possibly housing. Then, you need to include the costs you expect to incur, such as home repairs, pet care, HOA dues, and property taxes. Additionally, you'll want to include funds for activities you enjoy, such as hobbies and travel.

In other words, you may not get your post-retirement just right, but you'll have an idea of what you're aiming for.

The nice thing about math (even if you hate math) is that it's black and white. By comparing your expected expenses with the money you'll receive from Social Security and other sources, you can tell if there's a gap between the two or if you'll have plenty of money coming in.

Review your other income sources

If you have other income sources, like a pension, annuity, rental income, or royalties, make sure to include them in your total income. If you don't have as many income sources as you would like, it's not too late to consider diversifying your revenue streams by investing in real estate, a real estate investment trust, annuities, or dividend-paying stocks.

Now is a great time to develop a withdrawal strategy. For example, suppose you plan to collect Social Security and make regular withdrawals from a retirement account. In that case, a retirement advisor can help you develop a strategy that optimizes tax efficiency and income flow.

Think about your health and life expectancy

Consider your current health and examine your family's history of longevity. If health concerns lead you to believe you have a shorter life expectancy, it may make sense to claim Social Security benefits early. However, if most of the folks in your family lived into their 90s and you're fit as a fiddle, delaying benefits until FRA (or later) could maximize the overall amount of Social Security you collect through the years.

Decide how you'll use spousal benefits

If you're married and one spouse has earned considerably less than the other through the years, the lower-earning spouse may benefit from claiming Social Security based on a higher-earning spouse's work record.

Let's say you're the higher-earning spouse, and your partner claims benefits based on your work record. That means they can receive up to 50% of your full retirement age benefit. However, if you claim Social Security before FRA, their benefit will be permanently reduced along with yours.

Here's why that's important: If you're counting on both of your incomes in retirement, you may decide that working until FRA is your best move since the decision will impact both of your benefits.

Note: If you decide to max out benefits by working until age 70, your spouse will still receive up to 50% of the benefit you would have received at FRA.

Keep taxes in mind

As you strategize, remember that you may have to pay federal taxes on your Social Security benefits, depending on your adjusted gross income (AGI). Depending on the state in which you live, you may also have to pay state taxes.

The way states calculate taxes in retirement varies dramatically by state. Your best move is to look into how your state taxes benefits (if they do).

While you have a lot to plan for and look forward to, there's one reason your claiming strategy is so important. That's because it's permanent. It's not as though you can claim at 62 and then, at age 64, tell the Social Security Administration (SSA) that you've made a mistake. There is no one-size-fits-all rule for determining the right time to claim benefits. What's important is figuring out the right time for you.

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