07/08/2024

Why Dave Ramsey Says You Should Claim Social Security at 62

Dave Ramsey is one of the most famous financial experts around, and he hasn’t been shy about his opinions of Social Security. He’s called it a “stupid thing” and a “mathematical disaster,” suggesting people should start collecting benefits as early as 62 and put that money right into investments. While this goes against what most experts have said, Ramsey believes it’s smarter than waiting for a bigger monthly check. Let’s look at what he thinks.

Why Collect Early?

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Unlike most financial experts, Ramsey believes you should grab your Social Security benefits at 62 instead of waiting. Why? He thinks you should invest those payments into something that could grow over time. While you’ll get smaller checks if you start early, Dave’s betting that smart investments can beat the extra cash you’d get by holding off.

The Cost of Claiming Early

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Taking Social Security at 62 means a permanent 30% reduction in benefits compared to waiting until full retirement age. Such a cut seriously affects how comfortably you can live down the road, so it’s clearly not a decision to take lightly. Whatever you choose will affect your financial stability for the rest of your life.

The Usual Route

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Most financial experts will tell you to hang tight and not touch Social Security until you’re older because patience means your monthly checks get larger. Anyone who wants a bigger, guaranteed payout later on should stick to this method. After all, investing is a pretty risky way to make money.

Early Benefits

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Collecting Social Security at 62 means locking in smaller payments for life, which is the trade-off for getting money early. However, according to Ramsey, the right investments could compensate for these smaller checks. Instead of thinking just about what you get each month, Ramsey argues you should think about what that money could do if it’s working in the market.

Not Everyone Can Play the Market

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Of course, not everyone has the cash to funnel into investments. In fact, many people rely on every Social Security check to keep the lights on and the fridge stocked, so Ramsey’s advice might not fit for them. You may want to avoid doing things if you’re counting on these funds for day-to-day expenses rather than potential future gains.

Full Benefits at Full Retirement Age

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For those who can wait until they are 66 or 67, which is known as their full retirement age, they’ll get the full Social Security benefits they’ve earned. It’s the government’s way of rewarding them by ensuring they get every penny coming to them. This amount is entirely based on what they paid into the system while they were working.

The Perks of Waiting Until 70

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You’ll receive the maximum payout possible when you hold off on claiming Social Security until you’re 70. This is a significant increase that could make your golden years a bit more golden. Sometimes, waiting until 70 will give you larger benefits than claiming early or even at 66.

Big Bucks for the Patient

For some people, waiting until 70 to claim gives them a sense of pride, but for others, the profit counts. A recent study showed that being patient could mean receiving an additional $182,000 in your retirement stash. That’s a lot of extra money for those later years when you’ll probably need it most.

What’s a “Good” Mutual Fund Anyway?

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When Ramsey says to invest in a “good mutual fund,” it sounds straightforward, but the reality isn’t so clear-cut. Mutual funds are each very different, and finding one that consistently beats the market is easier said than done. There’s also the task of continually monitoring and adjusting your investments, which can be a full-time job.

Comparing Mutual Funds to the S&P 500

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While mutual funds have their perks, they haven’t always kept up with the S&P 500. This figure has had an average growth rate of about 10.7% per year over the past 30 years, which could make you think twice about where to park your retirement funds. If your goal is maximizing returns, sticking with simpler index funds that follow the market might be a safer bet.

Expertise Required

Understanding investments can be difficult, so it could be useful to speak to a financial advisor. Plus, not everyone getting Social Security is ready to invest, as figuring out the complexities of mutual funds or stock options can be scary. Many retirees would prefer financial security over the uncertainty of investments.

Ramsey’s Harsh Words for Social Security

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Ramsey has criticized Social Security as a “broken system” and a “disaster.” His criticisms stem from his belief that the system just doesn’t deliver enough money for what you’re paying for. Naturally, many people support the system, especially those who depend heavily on their Social Security checks to manage their daily living expenses.

Retirement Plans

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Even with Ramsey’s harsh words, Social Security remains an important part of most Americans’ retirement plans. It’s one of the few reliable income sources for retirees, giving them a steady stream of money to help cover the basics. These benefits help countless seniors handle everything, like grocery bills and medical expenses, without too many risks.

Diverse Economic Opinions

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Of course, opinions over the best time to claim Social Security are mixed. While Ramsey supports claiming early and investing in it, other financial experts recommend waiting for full benefits. Either way, you should choose whatever option fits your situation personally, as there’s no one-size-fits-all answer to personal finance.

The Importance of Being Money-Smart

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Understanding your finances is the best thing to do, especially when you’re considering taking advice like Ramsey’s. When you know the ins and outs of Social Security and how it fits into your overall financial picture, you’ll be able to choose the best option that fits your personal and financial circumstances. Financial literacy is now more important than ever.

Adjustments to Medicare Premiums in 2024

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You need to stay up-to-date with any changes to Social Security policies. For example, while Social Security recipients see a 3.2% cost-of-living adjustment (COLA) in 2024, there’s a catch if you’re enrolled in Medicare. The premiums for Medicare Part B, which covers doctor visits and other outpatient services, will increase from $164.90 to $174.70 per month.

Planning for the Long Haul

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You should also consider the long-term with Social Security, whether you claim early or wait. You’ll need to weigh up any benefits or drawbacks you might feel today against those that could happen in the future. Making smart choices now can set the stage for a more secure retirement, where you’re less likely to worry about outliving your savings.

Deciding What’s Best for You

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Every person’s financial situation is unique, so you must change your Social Security strategy to fit your needs and goals. While Ramsey gives one idea, you’ll need to think about each option carefully to make the best decision for your circumstances. It’s not easy, but it’s certainly important.