If You Haven't Done This Calculation, You're Not Ready to Claim Social Security

Retirement is a period of life that requires a lot of big decisions. Where will you live? How will you keep your portfolio invested? When will you start tapping your IRA or 401(k)?

Another big decision you'll need to make is figuring out when to claim Social Security. You're entitled to your benefits without a reduction at full retirement age, which is 67 if you were born in 1960 or later. While you can sign up for Social Security as early as age 62, for each month you file ahead of full retirement age, your benefits are permanently reduced.

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You can also boost your benefits by 8% a year if you delay your claim past full retirement age. That incentive holds until you turn 70, at which point waiting no longer pays off.

You may have an idea as to when you'd like to claim Social Security based on the rules above. But until you do one specific calculation, it's best to hold off on filing for benefits.

Know what your spending needs look like

Your spending needs in retirement may look a lot different than your spending needs while you're working. Come retirement, you may have a paid-off home, and you may be able to shift from a two-car household to a one-car one due to no longer having a job to go to.

On the other hand, other expenses of yours might rise. You may be planning to spend more on travel and hobbies in the absence of having to report to a job.

That's why it's important to do a personal income calculation to see your estimated annual expenses before claiming Social Security. Once you see how much money you'll need yearly to cover your expenses, you should have an easier time knowing whether to claim Social Security at full retirement age, early, or on time.

Of course, you'll also need to evaluate your non-Social Security income streams to arrive at that decision. Let's say you expect to need $100,000 a year to do all the things you want to do in retirement, and you anticipate getting $70,000 a year out of your savings.

If your full retirement age benefit is $2,500 a month, which amounts to $30,000 a year, you don't necessarily need to delay Social Security if filing later doesn't work for you. But in this case, an early claim could leave you short of your income goal. So it's important to have your annual budget mapped out before you make your claim official.

Don't rush into things

Social Security may be your only guaranteed income source in retirement. Even if you come in with savings, that money could run out at some point.

That's why it's so important to file for benefits carefully. A big part of that means taking your time to consider your different options.

It's also not a bad idea to talk through your choices with a financial advisor. They may be able to help guide you toward a decision that ultimately works out best.

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