Financial expert Dave Ramsey advocates claiming Social Security benefits at the age of 62, but many financial analysts argue that this advice could be detrimental in the long term. Research indicates that approximately 90% of current workers would receive more lifetime Social Security income by delaying their claims until age 70. This article explores Ramsey’s two main arguments for early claiming and why they may not hold up against current financial insights.
Understanding Ramsey’s Arguments
On his blog, Ramsey lists two reasons for advocating early Social Security claims. The first is the notion that individuals should take their benefits early in case they face an untimely death. He asserts, “In most cases, it actually makes more sense to take your retirement benefits sooner instead of waiting later. Why? Because your retirement payments die when you die… so you might as well take the money and make the most of it while you can.”
While this advice might resonate with some, it overlooks a crucial aspect of Social Security. The program was designed to ensure equitable benefits through a combination of early filing penalties and delayed retirement credits. Many individuals, contrary to Ramsey’s claim, will likely see enhanced lifetime benefits if they wait until 70 years old to claim, even if their life expectancy is shorter than average.
Moreover, claiming early can significantly reduce survivor benefits for a spouse. If the higher earner dies first, their spouse may receive diminished benefits if the decision was made to claim early. This can leave a surviving spouse in a precarious financial situation, particularly if they relied on the higher earner’s income during retirement.
Investing Early Benefits: A Risky Proposition
Ramsey’s second argument suggests that individuals should claim benefits early to invest that money. He implies that investing could yield better returns. However, this perspective is fraught with complications. Individuals need funds for living expenses, and claiming Social Security benefits while under full retirement age limits how much they can earn from work. This creates a scenario where retirees might have to dip into their investments to cover everyday costs while simultaneously investing their Social Security income.
Furthermore, investing during retirement is inherently risky. Many financial advisors recommend transitioning away from high-risk investments as one approaches retirement, making Ramsey’s advice even more precarious. The possibility of market downturns could force individuals to sell investments at a loss, particularly if they need immediate income. This raises the question: why forgo guaranteed increased benefits for uncertain investment returns?
Delaying Social Security claims until age 70 not only guarantees a higher monthly benefit, but also ensures that retirees have a more secure financial foundation. For each month an individual delays their claim, their benefits increase, providing a reliable source of income during retirement.
In conclusion, while Dave Ramsey offers advice that appeals to some, the overwhelming consensus among financial experts is to reconsider the timing of Social Security claims. By waiting until age 70, individuals can maximize their benefits and secure a better financial future for themselves and their spouses. Retirement planning requires careful consideration, and individuals are encouraged to seek professional financial advice to navigate this complex decision.