Claiming Social Security checks is a major life milestone.
It's one you need to make absolutely sure you're ready for, because it can impact your financial situation throughout your entire retirement.
If you think 2021 may be your year to start benefits, be sure to ask yourself a couple vital questions. The answers will help you make a choice about whether to move forward with filing a claim or whether you're better off waiting until 2022 or beyond.
1. Will you be working or retiring?
First things first: Do you plan to claim your benefits because you're retiring, or are you hoping to supplement your income from your job? This matters for a few reasons.
If you're planning on retiring, you'll need to make sure you have another source of income besides Social Security. That's because your benefits alone won't provide enough to live on, and they aren't meant to. They're supposed to be one of several income sources, along with pension benefits and savings. If you don't have other funds, that could be a huge problem.
On the other hand, you're not planning on retiring, you may be limited in how much you can earn from working without affecting your Social Security checks.
This isn't a problem if you've reached full retirement age (FRA) by the time you claim benefits. FRA is between 66 and 2 months and age 67. But it becomes a big issue if you're claiming benefits before FRA and hoping to keep your job.
That's because, if you won't hit FRA all year, you can only earn up to $18,960 in 2021 before benefits are reduced by $1 for each $2 in extra earnings. If you'll be reaching FRA during the year, you can earn more --- $50,520, after which your benefits will be reduced by $1 for each $3 earned over the limit.
Although you eventually get back forfeited funds, that happens slowly over time. And you won't start getting the money back until after you've reached FRA. In the meantime, you may have far less income than expected.
Since you don't want to struggle to make ends meet on a benefit that's too low, or find yourself temporarily forfeiting benefits due to earning too much, think careful about your work plans for 2021 before you claim Social Security.
2. Do you have a plan for how you'll spend retirement?
Retirement is a major lifestyle change. And your plans during your later years will affect how far your Social Security benefits will stretch. That's why your future goals should be considered carefully before you file for benefits.
Some key issues to think about include:
- Will you relocate? If so, do you know whether your new state taxes Social Security benefits?
- Will you be traveling often? This can affect the amount of income you'll need, which will in turn determine how far your Social Security benefits stretch and how much additional money your savings needs to provide.
- Will your spouse be retiring too? You should coordinate with them and decide whether you'll both claim Social Security this year or whether one of you will wait to earn larger retirement checks.
Since Social Security benefits are such an important source of retirement funds, it's essential to consider the big-picture role your benefits will play in your life after you leave the workforce.
Unless you know how you'll be spending your time, how much money you'll need, and how much of it Social Security will provide, then you aren't ready to claim your benefits yet.
Once you get the answers to these questions, only then can you decide if 2021 is really your year to start Social Security or if doing so would be a decision you'd end up regretting.