If You’re Not Following Dave Ramsey’s Social Security Advice, You’re Making a Big Mistake

There are some tough financial decisions you might have to make in the context of retirement. These include when to start tapping your savings, how to invest your savings, and what withdrawal rate to use to ensure that your money doesn’t run out.

You’ll also need to choose the right healthcare coverage in retirement, as the wrong Medicare plan could lead to higher costs. Finally, you’ll need to decide where to settle down, how much to spend on large expenses like housing, and what splurges you can afford.

But there’s perhaps no bigger financial decision related to retirement than when to sign up for Social Security.

You’re allowed to claim benefits as early as age 62. However, if you want to collect your complete monthly benefit each month without a reduction, then you’ll need to wait until full retirement age (FRA) to file.

There’s also the option to delay your Social Security claim past FRA for boosted monthly checks. For each year you hold off, your monthly benefits get an 8% increase.

Many financial experts will tell you that filing for Social Security at 62 is a bad idea, since it means reducing a guaranteed income stream for life. Financial guru Dave Ramsey, however, disagrees. And if you don’t listen to his advice, you may end up regretting it.

How Dave Ramsey says to approach Social Security

Dave Ramsey hates to see people in debt because he feels it’s bad for their finances. It therefore stands to reason that Ramsey would not give anyone bad financial advice intentionally.

With that in mind, Ramsey is a huge proponent of claiming Social Security at 62, despite the fact that doing so causes a permanent reduction in benefits. The reason Ramsey feels this way is that, to put it bluntly, when you run out, Social Security runs out.

In other words, once you claim Social Security, you can collect a monthly benefit for as long as you live. But nobody knows how long they’ll live.

If you start receiving monthly benefits at 62, you may end up getting less lifetime income from Social Security if you end up living a long life. However, you might also end up getting much more total income if you end up living a short life.

There’s some nuance in Ramsey’s advice

Ramsey doesn’t just think older Americans should claim Social Security at 62 and then rush to spend the money. Ideally, he thinks it’s best to take benefits at 62 and invest them so they can grow into a larger sum.

The reality, of course, is that many people don’t or won’t do that. And if you’re filing for Social Security at 62 in conjunction with retiring, you might need your benefits to cover essential living costs.

Therefore, if you’re going to sign up for Social Security at 62, it’s best to assume that you’re reducing your benefits — not that you’re setting yourself up to turn your benefits into more money by investing them. And also, remember that waiting to collect Social Security is a great way to boost your benefits automatically, whereas investing carries a lot of risk.

This doesn’t mean Ramsey’s advice isn’t good, though. There’s something to be said for getting your money as soon you’re able to in case you don’t end up living as long as expected.

One thing you should definitely do before claiming Social Security, though, is assess your various retirement income streams and see how much money you absolutely need those benefits to provide.

If you know you’ll need a $5,000 monthly income and your savings will give you $4,000, it means you need a minimum of $1,000 a month from Social Security, assuming you have no other income sources. If filing at 62 gives you at least $1,000 a month in Social Security, it means that option is at least on the table. From there, you’ll need to decide if you’re willing to accept reduced monthly payments for life.