Dave Ramsey’s Social Security Advice Falls Apart for the Average $2,000 a Month Retiree

Once you turn 62, you’ll have an important financial to decision to make in the context of retirement planning — claim Social Security right away or wait for the promise of larger monthly checks.

You’re eligible for your retirement benefits from Social Security without a reduction once you reach full retirement age (FRA). FRA is 67 for anyone born in 1960 or later. By contrast, if you claim Social Security at 62, you’ll be looking at a roughly 30% reduction in your monthly checks — for life.

A lot of financial experts will tell you that it pays to wait on Social Security until FRA or even beyond. For each year you hold off on taking benefits past FRA, until age 70, those monthly checks get a permanent 8% boost.

But financial guru Dave Ramsey thinks claiming Social Security at 62 is a smart move. His advice, however, comes with a caveat. And it also may not hold up well for the average retiree.

Why Ramsey thinks claiming Social Security at 62 is smart

Ramsey’s thought process with Social Security is simple. Those monthly checks are only yours to collect for as long as you’re alive. So the sooner you start collecting those retirement paychecks, the more lifetime income you might get if you happen to pass away sooner than expected.

But there’s another component to Ramsey’s advice. He also thinks you should claim Social Security at 62 but invest the money. Doing so, he argues, could boost your benefits enough to more than make up for the reduction that comes with filing early.

And he may be right.

Imagine you’re eligible for $2,000 a month at age 67 and you live until 77. If you collect that $2,000 a month for 10 years, you’ll end up with $240,000, not accounting for cost-of-living adjustments.

But let’s say you start getting Social Security at 62. At that point, you’re looking at $1,400 a month, because your $2,000 monthly benefit will be reduced. But if you invest that money in stocks every year through age 77, you have a 15-year window to grow those benefits.

If we assume an average yearly 8% return, with your benefits being invested monthly as you get them, you could end up with $456,000 over the course of 15 years. That 8% return is a reasonable one to assume given the stock market’s average.

Why Ramsey’s advice still doesn’t work

Technically, the math behind Ramsey’s advice is valid. In practicality, his guidance is wrong for the typical American for a couple of reasons.

First, many Americans don’t invest. A recent report by Janus Henderson found that 48% of Americans don’t hold any investments such as stocks, bonds, or real estate.

Also, many people who claim Social Security need those benefits to live on. So the likelihood of them being invested rather than spent is pretty low.

Of course, Ramsey’s advice might work for some people. And as you can see, the investing math is pretty favorable.

But for the typical Social Security recipient who doesn’t invest and needs that money, Ramsey’s advice is actually a bit dangerous, as it could lead to smaller paychecks for life. You may want to consider filing at a later age, especially if you expect Social Security to become your main source of retirement income.