Dave Ramsey is a financial expert who has undoubtedly given some good advice. For example, he regularly urges people not to spend on things they can’t afford, and especially not to buy expensive cars or to rely on credit for big expenses.
He’s also given some very questionable advice, though. And one of the things that I believe Ramsey is wrong about is the age when you should claim Social Security.
Ramsey has advised claiming the money at 62 and then investing it, instead of waiting to claim until you reach a later age. The problem is, this is not a strategy that is going to work for most people, and it could set you up for less money as a retiree.
You shouldn’t listen to Dave Ramsey about when to claim Social Security
When Ramsey was asked a question about when to claim Social Security, he replied, “it usually makes sense to take it early if you’re going to … invest every bit of it.” This occurred in a podcast in 2019, and Ramsey explained that he would recommend this approach because he believes that investing the money could help you end up with more wealth in the long run than if you simply waited to claim Social Security benefits and let the benefit grow that way.
There are, unfortunately, lots of problems with this advice. Here are a few of them:
- It ignores human nature: Most people are not going to invest every dollar of their Social Security if they take it at 62. For one thing, a lot of people couldn’t afford to retire and do that since they’d need their Social Security. Most people also aren’t that disciplined. If you are not investing every dollar of extra income you have available to you now, there’s no reason to think you’d be more likely to do that with retirement checks.
- It’s impractical: If you claim Social Security at 62 and stop working, you’ll probably need the money to pay your bills. If you claim Social Security at 62 and keep working, you may end up exceeding the work limits and forfeit the benefits anyway.
- It’s risky: When you delay a Social Security claim, your benefit grows for each month that you wait since you avoid early filing penalties, and you can earn delayed retirement credits that increase checks. This is a sure thing. There is absolutely no doubt that if you wait until 70 to claim Social Security, you are going to increase your standard benefit substantially compared to if you claimed early. In fact, if your standard benefit at a full retirement age of 67 would have been $2,000, and you claim it at 62, you’d get just $1,400, but if you claim it at 70, it would grow to $2,480. Unfortunately, if you invest, there’s no guarantee you won’t time the market poorly and end up losing money over that eight-year period between 62 and 70.
You should not listen to Dave Ramsey’s advice on Social Security for all of these reasons. Doing so could be a huge mistake.
When should you claim Social Security?
Deciding exactly when to claim Social Security is a personal decision and a complicated one. You need to think about factors like your health, your spouse’s claiming plans, and your other financial assets, such as how much money you have invested in a 401(k) or whether you have an annuity that can provide other guaranteed income.
Talking with a financial planner can be helpful in making this choice. Your financial planner might help you determine that 62 is the right age to claim — but if it is the right age, it almost assuredly won’t be because your advisor thinks that you should invest all the funds, as the risks of doing so are simply too great.
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