Many financial experts recommend delaying Social Security benefits until age 70 to maximize lifetime income. In contrast, finance expert Dave Ramsey advocates for claiming benefits as early as age 62. However, his reasoning has come under scrutiny, with compelling research suggesting that his position may be flawed.
Research indicates that approximately 90% of current workers will receive more lifetime Social Security income by waiting until age 70 to claim benefits. This is critical information for those approaching retirement, as claiming early can result in significant long-term financial disadvantages.
Debunking Ramsey’s Advice
On the Ramsey Solutions blog, Ramsey offers two main reasons for claiming Social Security at 62. The first reason he cites is the potential for early death, suggesting that individuals should claim benefits while they can. He states, “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.”
However, this rationale overlooks crucial aspects of Social Security. The program was designed with early filing penalties and delayed retirement credits to ensure that individuals could claim at any age while receiving comparable benefits. Given that life expectancies have increased, many individuals will find that delaying benefits until age 70 results in higher overall income.
Additionally, claiming benefits early can negatively impact a surviving spouse. If the higher earner claims early and passes away, the survivor benefits are reduced. This can leave a spouse in a challenging financial situation, especially if they rely on those benefits for their livelihood.
Another significant flaw in Ramsey’s argument is the suggestion that individuals should claim early and invest their benefits. This advice poses multiple risks. First, those who claim benefits at 62 may face restrictions on income if they choose to continue working. Consequently, relying on Social Security benefits to invest can create financial strain.
Moreover, investing during retirement typically involves some degree of risk. While the potential for high returns exists, market fluctuations can lead to losses, especially if individuals need to liquidate investments to cover living expenses. Delaying Social Security claims, on the other hand, guarantees a larger monthly benefit as each month of delay adds to the eventual payout.
Choosing the Right Strategy for Retirement
The decision of when to claim Social Security is pivotal for financial stability in retirement. Delaying benefits until age 70 not only increases monthly payments but also provides financial security for surviving spouses.
Given the insights from research and the potential pitfalls of early claims, individuals are encouraged to carefully consider their options. For those uncertain about their retirement strategy, resources such as SmartAsset can connect them with pre-screened financial advisors. These professionals can help evaluate personal financial situations and guide individuals towards making informed decisions.
Navigating retirement planning can be daunting, but informed choices about Social Security can lead to significantly better outcomes. Taking the time to understand the implications of claiming early versus delaying can ultimately enhance financial security for individuals and their families.
