If retirement is on the horizon, you may be thinking about filing for Social Security. However, the decision to apply for benefits is a significant one. After all, the monthly benefit you lock in is the amount you can expect to receive for the rest of your life (excluding annual cost-of-living adjustments, of course), so getting it right is critical.
Based on various factors, you may believe you are ready to file for Social Security. But first, cross these important items off your list.
1. Determine your monthly benefit eligibility.
You may believe you are eligible for a certain monthly benefit, but this figure may be lower than expected. That is why you should review your most recent earnings statement to see what benefit you may be entitled to. This information is available on the internet. To gain access, simply register for an account at SSA.gov.
Assume you were expecting $2,000 per month from Social Security. However, when you look at your most recent earnings statement, you see that you’re only due $1,800. That may persuade you to postpone your filing for a few months in order to increase your monthly benefit.
2. Examine your retirement savings
Ideally, Social Security will only account for a portion of your total retirement income, with savings to supplement your monthly benefits. Before you file your claim, you should determine how much purchasing power your savings are likely to provide.
Assume you’ve amassed a $500,000 IRA or 401(k) plan balance. That is a significant sum of money. But keep in mind that you’ll need that money for several decades.
If you withdraw 4% of your savings each year, as financial experts have long advised, you will have $20,000 in annual income. If you were expecting more, this may come as a rude awakening; however, delaying your Social Security filing in order to receive a higher benefit may help compensate.
3. Confirm that your spouse is on board.
If you’re married and approaching retirement, you’ll have to consider more than just your own financial needs. You must also consider what is best for your spouse.
Assume your spouse has never worked and is much younger than you. When you die, your spouse will be entitled to survivors benefits equal to the amount you receive from Social Security each month. If you claim your own benefits early, you will leave your spouse with less income, but if you file later, your spouse will have more.
Or it’s possible that your spouse earned enough money that they’re entitled to a decent benefit of their own. In that case, you should consider coordinating your filings so that at least one of you increases your benefit by delaying your claim. In any case, the point is to have those conversations so that everyone is on the same page.
Do not rush into anything.
The decision to enroll in Social Security is not one to be taken lightly. Make sure you complete these essential tasks before applying for benefits. If you don’t, you might come to regret your decision.