3 Signs You're Not Ready to File for Social Security

If you’ve been working and paying into Social Security for many years, you may be eager to sign up for benefits and starting collecting those monthly checks. And once you turn 62, you’re allowed to claim Social Security at any time.

It’s important to choose the right filing age, since it will have an impact on the amount of money Social Security pays you each month. But if any of these signs apply to you, it means you’re not ready to sign up for Social Security just yet.

1. You have no idea what monthly benefit you’re in line for

Although your retirement benefits from Social Security will partly depend on your filing age, they’re also based on your earnings history. Claiming benefits at full retirement age will mean getting your complete Social Security check each month without a reduction, whereas signing up earlier will mean accepting smaller monthly checks for life.

There’s also the option to delay your Social Security claim past full retirement age. For each year you wait, until your 70th birthday, your benefits rise 8%.

But it’s hard to make a smart decision on Social Security when you don’t even know what monthly benefit you’re in line for. So before you file, create an account on the Social Security Administration’s website and get an estimate of your benefits by checking your most recent earnings statement.

And while you’re at it, make sure your earnings record is accurate. If it isn’t, you could end up with less Social Security income each month than you’re really entitled to.

2. You don’t know what your annual retirement expenses amount to

There’s a good chance Social Security will play an important role in your retirement finances. But you can’t make an informed decision on claiming benefits without knowing how much money you’ll need to cover your living expenses once you’re no longer working.

Think about what your monthly costs will amount to as a retiree with regard to essentials like housing, transportation, food, utilities, and healthcare. Then, think about how you’ll spend your days and what it will cost to keep busy. Only once you’ve run these numbers can you decide whether it pays to claim Social Security early, on time, or late.

3. You haven’t calculated the amount of yearly income your nest egg will provide

Hopefully, Social Security won’t be the only income source you have access to in retirement. But if you expect to live off Social Security and your savings, you’ll need to see how much annual income your nest egg will provide.

Let’s imagine you’ve saved $900,000. That’s a lot of money. But you’ll need to figure out a withdrawal rate you’re comfortable with and then see how much annual income it results in.

If you use the popular 4% rule, a $900,000 nest egg amounts to about $36,000 in annual income. If you think you’ll need $60,000 a year to live comfortably after calculating your expenses, it means you’ll need another $24,000.

If you can get $2,000 a month, or $24,000 per year, from Social Security by claiming benefits at full retirement age, you’re all set. But in this example, filing for benefits early would be a poor choice. And filing after full retirement age could give you a nice cushion in case your living costs end up coming in higher than expected. So it’s important to have all of the information first.

You may be eager to start getting money from Social Security. But before you sign up for benefits, make sure you understand your income needs and have a sense of what the program will pay you at various ages.