One of the nicest things about Social Security is that you get a choice as to when you file. You’re entitled to your full monthly benefit — the one that’s based on your earnings history — once you reach full retirement age, or FRA. That age is either 66, 67, or somewhere in between, depending on the year you were born.
But you can sign up for Social Security much earlier than that. If you’re willing to accept a reduced benefit, you can file beginning at age 62. And if you’re looking to boost your benefit, you can delay your filing past FRA. For each year you do, up until age 70, your benefit grows 8%.
You may end up contemplating a few different Social Security filing ages as retirement nears. But before you make your filing official, you’ll need to do one important thing.
Figure out what lifestyle your savings can buy you
Ideally, you won’t just be banking on Social Security to fund your retirement. Rather, you’ll come in with a decent-sized nest egg.
But retirement savings balances can be deceiving. Yours might look like a large number at first glance. But when you break it down further, you may not be in line for as much annual income as expected.
For years, financial experts recommended sticking to a 4% annual withdrawal rate for your retirement savings. But based on market conditions and other factors, that may be a bit aggressive, and you may want to go with a 3% withdrawal rate instead.
Now, let’s say you’re entering retirement with a $1 million nest egg. That might seem like a ton of money. But at 3% a year, you’re looking at only $30,000 of annual income. That’s not a ton of cash to live on.
That’s why it’s so important to assess your savings situation before claiming Social Security. You might realize you’re looking at less annual income than expected — in which case delaying your filing to grow your benefits could make sense. Or, it may be that you have more than enough income to enjoy during retirement — in which case you might decide to file for Social Security a little early and enjoy your post-career years a bit sooner.
Look at the big picture
Social Security could serve as a nice supplement to your savings — but it’s important to know what to expect from the latter before signing up for benefits. Take some time to run the numbers so you land in a better position to make the right call on when to file.
Of course, you may be aware from the start that you’re sorely lacking in the savings department. If that’s the case, then you’ll probably want to delay your Social Security filing as long as possible to snag a higher benefit to compensate.
Thankfully, the program gives you that flexibility. And while delaying Social Security could also mean having to delay retirement itself, the fact that the option exists is a good thing.
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