If you worked all of your life and paid into Social Security, then you may be eager to start collecting benefits once your retirement kicks off. But it's important to land on the right Social Security filing age, as that, coupled with your personal wage history, will help determine how much money you'll end up getting from the program each month.
With that in mind, here are a few signs that you're ready to claim your benefits.
1. You know your full retirement age
Full retirement age, or FRA, is when you're entitled to your complete monthly Social Security benefit, based on your personal wage history. It's important to know this age because you're allowed to claim Social Security both before and after it. However, those moves will have financial implications.
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Filing for Social Security prior to FRA (you can sign up beginning at age 62) will result in a reduced monthly benefit for life. On the flip side, delaying your filing past FRA will result in a higher monthly benefit for life (and that incentive lasts until age 70). Once you know your FRA, you can figure out a filing age that makes sense for you.
2. You've figured out a retirement budget
Your expenses might look different in retirement, compared to the latter part of your working years. It may be that you'll be moving to a less expensive part of the country and unloading certain costs, like commuting. But it may also mean that you're taking on new expenses, such as hobbies or a country club membership, now that you won't be working.
It's very important to set up a retirement budget prior to claiming Social Security. Once you know what your expenses will look like, you can figure out what sort of monthly benefit you'll need to keep up with them.
3. You know how much annual income your savings will provide
Many people retire with a nice-sized nest egg. But one mistake they make is that they fail to run the numbers to see how much annual income their savings will provide. This information is important because it might influence your Social Security filing decision.
To see how much annual income you'll be able to get out of your savings, you'll need to land on the right withdrawal rate for you. You can base that decision on factors like your asset mix and life expectancy.
If you have $1 million in retirement savings and land on a 3% withdrawal rate, it means your nest egg will provide $30,000 worth of annual income. From there, you can look at your budget and see how much of a gap your Social Security benefits will need to fill. If filing early won't give you a high enough benefit to cover your costs in full, then you'll know to wait until FRA or perhaps beyond to sign up.
You may be excited to claim Social Security, and rightfully so. And if these signs apply to you, it means you're in a good place to make a sound decision.
