Making the right decision about when to claim your Social Security benefits is one of the most crucial financial choices you’ll make before retirement. While you can start collecting benefits at age 62, most people will benefit more from waiting until they reach their full retirement age or even beyond. Waiting a little longer means your monthly check will be higher for the rest of your life.
If you’re five years away from claiming Social Security, now is the time to get ready. Here are four important steps you can take to ensure you’re well-prepared for the financial shift that comes with retirement.
1. Set Up Your Social Security Account
The first thing you need to do is set up your Social Security account. This online account is your go-to resource for understanding how much you’ll be entitled to receive in benefits. Your benefits are based on your work history, which is reflected in your Social Security earnings record. The higher your lifetime earnings, the higher your monthly benefit will be.
It’s essential to create your account early. Don’t wait until the last minute to figure this out. Setting up your account allows you to see your earnings history, track your estimated benefits, and make sure everything is in order. Having an account also gives you easy access to important updates and information from the Social Security Administration (SSA).
Steve Chen, the founder and CEO of Boldin, a financial planning platform, emphasizes the importance of starting early. He says, “Those who are five or more years away from retirement have the advantage of time. This gives them the opportunity to create a well-thought-out plan, make adjustments to their savings or spending habits, and prepare for various scenarios.”
If you want to make the most of this time, start now. The sooner you set up your account, the easier it will be to track your progress and plan your retirement.
2. Calculate Your Expected Retirement Expenses
Understanding how much money you’ll need for retirement is just as important as knowing when to start claiming Social Security. Many people focus on how much they’ve saved but forget to consider how much they will actually need to cover their expenses once they retire. This is a critical step, as it will help you decide how much to save and when to claim Social Security.
Steve Chen recommends calculating your expected retirement expenses. “Most near-retirees spend too much time worrying about how much they have saved without really thinking about how much they will need to spend. This leads to planning mistakes,” he says. By calculating your retirement expenses now, you can get a clear picture of what your financial future will look like.
To do this, list all your possible retirement costs, such as housing, healthcare, transportation, and leisure activities. Don’t forget to include things like inflation, unexpected medical expenses, or changes in lifestyle. Once you have an estimate of your retirement expenses, you can work backward to determine how much income you’ll need. This will help you figure out whether Social Security alone will be enough to cover your costs or if you’ll need additional savings.
The earlier you start planning for these expenses, the more time you’ll have to adjust your spending or increase your savings. If your expenses are higher than expected, you can take action to close the gap before you retire.
3. Review Your Earnings Record and Estimated Benefits
The next step is to check your earnings history and estimated Social Security benefits. This can be done through your “my Social Security” account on the SSA website. By reviewing your earnings record, you can ensure that everything is accurate and up to date. Any errors in your earnings record can impact the amount of your benefits, so it’s important to catch them early.
The SSA will calculate your benefits based on your 35 highest-earning years. If you find that your earnings record is incorrect or missing information, contact the SSA to get it corrected. The more accurate your earnings record is, the more reliable your estimated benefits will be.
On the SSA website, you can also see a rough estimate of your monthly Social Security payment based on your current earnings and when you plan to start claiming benefits. This is a valuable tool, as it gives you an idea of what to expect when you retire. If your estimate doesn’t align with your expectations, now is the time to make sure everything is on track.
Keep in mind that your benefits are calculated based on your highest-earning 35 years. If you’ve had some years with low earnings or gaps in your work history, these years will be factored into your benefit calculation. If you’re still working, consider working a few extra years to replace lower-earning years with higher ones. This can help increase your future benefits.
4. Maximize Your Retirement Savings
Social Security is not designed to cover all your retirement expenses. It will replace only a portion of your pre-retirement income, so you’ll need additional savings to live comfortably. Now is the perfect time to focus on maximizing your retirement savings to fill in the gaps.
For 2024, the IRS allows employees who participate in 401(k), 403(b), and most 457 plans to contribute up to $23,000, with an additional $7,500 in catch-up contributions if you’re 50 or older. For individual retirement accounts (IRAs), the contribution limit is $7,000, with an additional $1,000 for those 50 or older.
If you haven’t already been contributing the maximum amount, now is the time to start. The more you contribute to your retirement accounts, the more you’ll have to rely on them during retirement. It’s also important to diversify your investments to reduce risk and increase growth potential.
By taking full advantage of retirement savings options, you’ll be in a better position to cover your retirement expenses and supplement your Social Security benefits. This extra cushion will give you peace of mind and allow you to enjoy retirement without worrying about money.
Conclusion
Preparing for Social Security benefits five years in advance is one of the best things you can do to ensure a smooth transition into retirement. By setting up your Social Security account, calculating your retirement expenses, reviewing your earnings record, and maximizing your retirement savings, you’ll be well-prepared for the financial changes ahead. Start these steps now, and you’ll have the time and flexibility to make the necessary adjustments to secure your financial future.
Disclaimer: This article has been meticulously fact-checked by our team to ensure accuracy and uphold transparency. We strive to deliver trustworthy and dependable content to our readers.
Jon King is an experienced journalist with 3 years of experience in the field. With a strong background in investigative reporting, Jon is known for his in-depth coverage of crime news, finance news, local news, and USA news. Currently working with Mikeandjonpodcast, Jon brings his sharp investigative skills, where he provides timely updates and analysis on a wide range of topics. His commitment to delivering accurate and impactful news has earned him a reputation for providing insightful and comprehensive stories that resonate with his audience.
