Now that 2025 is winding down, you may be looking forward to starting off 2026. Perhaps you have big plans for the new year, like shifting into part-time work or even contemplating a full-fledged retirement. And one thing you may be thinking of doing once the new year begins is signing up for Social Security.
If you'll be 62 or older in 2026, your Social Security benefits will be available to you. But before you claim Social Security, there's an important move you need to make.
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Figure out what income your savings will provide first
Before you file for Social Security, it's important to assess your IRA or 401(k) and figure out how much monthly income your savings will give you. Without that information, you can't make an informed decision on Social Security.
As a quicker refresher, the monthly Social Security benefit you get in retirement hinges on your lifetime wages. But your filing age also helps determine how much money the program pays you every month.
You can claim Social Security starting at age 62. But you won't get your monthly benefits without a reduction unless you wait until full retirement age, which is 67 for people born in or after 1960. You can also delay Social Security past full retirement age for boosted benefits until age 70.
Now, let's say you think you'll need $5,000 a month to cover your retirement expenses. And let's say you're entitled to $2,000 a month in Social Security at full retirement age.
But what if full retirement age doesn't arrive for a few more years? You may be able to afford a reduced Social Security benefit. But until you see how much money your savings will give you on a monthly basis, it'll be hard to know.
It starts with your withdrawal rate
You can't just look at your IRA or 401(k) balance to know how much monthly income to anticipate. Rather, you need to figure out a withdrawal strategy that will work for you.
Many financial experts continue to recommend the 4% rule. It has you withdrawing 4% of your savings your first year in retirement and adjusting future withdrawals for inflation.
You do not have to use the 4% rule if you feel it won't work for you. But you can at least use it as a starting point. And we'll use it here to illustrate the importance of figuring out what income to expect from savings before claiming Social Security.
Let's say you have a $900,000 IRA. At 4%, you're looking at about $36,000 in annual retirement income, or $3,000 per month.
Now, let's say you need $5,000 a month to cover your expenses and you can get $2,000 a month from Social Security if you wait until full retirement age. If you're turning 65 in 2026 and plan to take benefits then, you won't get $2,000 a month in Social Security. Instead, you'll get more like $1,733 due to filing early.
That could, in turn, leave you with a roughly $267 monthly shortfall based on the amount of money you need to pay your bills in retirement. And while the occasional monthly shortfall is something you may be able to overcome, you don't want to set yourself up for failure from the start by slashing your Social Security benefits when you can't afford to.
For this reason, before you claim your benefits, do an assessment of your savings -- whether you're aiming to file for Social Security in 2026 or at another point in the future. It could prevent you from making a huge mistake. Or, to flip it more positively, it could help you approach your retirement finances with more confidence.
