Do I really need a Dac?

If you put in a CD and music comes out, then you don't "need" a DAC.

The proper question would be "will an external DAC improve the quality of sound that I hear from my system?".

And the answer should be "maybe" or "probably", but the only way to know for sure would be to A/B one in your system and see what your ears tell you.

There are lots of exceptionally good sub-$500 DAC's from Schiit, Music Hall, Cambridge Audio and many others on the market right now, so I'd suggest giving one a shot.

Do you dislike the sound you're hearing from the Sony?

Actually Rja the Sony sounds really good. I thought a Dac might improve the sound a little, especially when it is such an old CD player. Thanks for all the great responses.

when considering dacs in the $500 range, don't forget emotiva.

I suspect you will be absolutely shocked how much improvement you will get from a $500 DAC.