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5 Signs You're Ready for Your First Social Security Check

By Robin Hartill, CFP® - Mar 12, 2021 at 7:33AM

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Is 2021 your year to cash in?

The perks of getting older include wisdom, senior discounts, and Social Security checks for the rest of your life. But deciding when to take Social Security is a big deal.

Claim too early? You may be in for a cash-strapped retirement. Claim too late? You risk leaving money you paid into the system on the table.

There's no magic formula for determining the perfect age to take Social Security, but here are five signs you're ready for those monthly checks to start rolling in.

A playful senior woman shows peace signs while blowing bubble gum in a park.

Image source: Getty Images.

1. Your benefits and investments could replace 80% of your income

Financial planners typically recommend replacing around 80% of your pre-retirement income. But for the average recipient, Social Security benefits will only replace about 40%.

Use the 4% rule to estimate how much you can afford to withdraw from your investments each year. If your investment withdrawals and your benefits could generate at least 80% of your pre-retirement income, it's a good sign that you're ready to start your benefits. Otherwise, it's a good idea to hold off on Social Security so that both your benefits and your investments can grow.

2. You own solid dividend stocks

Social Security cost-of-living adjustments (COLAs) are a poor weapon against inflation for seniors. The 2021 COLA was just 1.3%. For the average recipient, that translated to just $20 extra per month. 

If you own solid dividend stocks with a history of increasing their payouts, it's a good sign that you're prepared to start your benefits. Steady dividend hikes are a much better defense against inflation than Social Security COLAs.

3. You've reached FRA or you're no longer working

Working while collecting Social Security early can seriously reduce your benefit. In 2021, if you're taking benefits before your full retirement age, or FRA, Social Security will reduce your benefit by:

  • $1 for every $2 you earn above $18,960 until the year you reach FRA. 
  • $1 for every $3 you earn above $50,520 the year you reach FRA until the month you qualify for your full benefit.

If you're still working, starting benefits once you've reached FRA may make sense because your benefits won't be reduced. Of course, holding out longer to earn delayed retirement credits could pay off. You'll boost your retirement benefits by 8% for every year you're able to delay until 70.

On the flip side, taking Social Security may be a good option if you're no longer working, even if you haven't reached FRA. Your monthly benefits will be lower if you're claiming early, but at least your benefits won't be temporarily reduced even more because you're working.

4. You're eligible for Medicare

Your Medicare eligibility has nothing to do with whether you're taking Social Security. But if you retire early and start Social Security before you can enroll in Medicare -- which is at age 65 for most people -- you'll probably have to pay for private health insurance. That will take a huge bite out of an already reduced Social Security check.

If you're already eligible for Medicare, it's a good sign that you're ready for Social Security. Bonus points if you have a health savings account. You can use that money to pay for your out-of-pocket medical expenses, including most Medicare premiums. That's a big deal because these costs typically increase at a much faster rate than Social Security COLAs.

5. Taking benefits would help you avoid debt

Let's face it: Holding out for the maximum Social Security benefit is a luxury a lot of people can't afford. Layoffs, medical problems, and caregiving duties push many people out of the workforce earlier than they planned.

The less debt you have, the easier your retirement will be. So if you're forced to choose between starting your benefits early versus charging expenses to a credit card, taking Social Security now deserves serious consideration. 

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