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Dave Ramsey advises claiming Social Security at 62 and investing the money.
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Claiming at 62 instead of 70 cuts benefits by 43% ($1,400 versus $2,480 on a $2,000 standard benefit).
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Early filing penalties reduce benefits 30% if FRA is 67. Delaying until 70 increases benefits 24%.
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Dave Ramsey has been very clear on when you should claim Social Security. Both on podcasts and on the Ramsey Solutions blog, the financial expert has expressed a consistent preference for the claiming age that he believes is the right one.
Unfortunately, the data does not back up his recommendations. In fact, it shows that Ramsey is very wrong about the best age to start your Social Security checks. Following Ramsey’s advice on this issue could turn out to be a costly mistake, so it’s worth looking at what the research actually shows compared to what Ramsey suggested.
Ramsey advised his readers and listeners to claim Social Security at 62. There were a few different justifications for this decision:
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He suggested that you should claim early and, if you don’t need to use the money immediately, invest it because the returns you earn from investing could give you more money than you’d get if you waited to claim benefits and the government increased your check because of the delay.
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He said you should claim benefits early because they stop when you die, so you’re better off grabbing them while you can.
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He believes that, based on most people’s life expectancy, they’re likely to end up with more money if they start receiving checks at 62 instead of delaying
Since 62 is the earliest age when you can start your payments, Ramsey is advising you to make a decision that would result in the maximum possible early filing penalties. These penalties reduce benefits for each month you claim them before your full retirement age. He is also suggesting you should give up the delayed retirement credits that you can earn when you delay your Social Security benefits claim beyond your FRA.
Early filing penalties reduce benefits for every month you claim ahead of FRA, resulting in a 30% reduction from your standard benefit if you claim at 62 and your full retirement age is 67 (which is the case if you were born in 1960 or beyond). This is a substantial hit. On the other hand, delayed retirement credits increase benefits for each month of waiting, so a delay until 70 would increase your standard benefit by 24%. To understand the impact, look at the numbers. If you were on track for a $2,000 standard benefit, following Ramsey’s advice would mean collecting just $1,400 per month instead of the $2,480 you could have collected by delaying until 70.
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Ramsey argues that claiming early makes sense because you could die before you break even for missed benefits. You need to live long enough (and get your added benefit long enough) to make up for the income Social Security could have paid you if you hadn’t delayed. However, all evidence suggests that you’re still better off waiting. Specifically:
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A United Income study in 2019 revealed that just 6.5% of retirees get more lifetime income from Social Security by claiming before 64. By contrast, 57% generated more benefits over their lifetime by waiting. Retirees who chose not to delay left an average $111,000 on the table.
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The National Bureau of Economic Research said 90% of younger workers are better off with a delayed claim, and optimizing your claim by waiting until 70 could result in increased lifetime wealth of $182,370 per household
So, you could follow this data — or you could follow Dave’s advice and hope that you can work enough and invest enough to earn more than you’re missing out on with a suboptimal claim. Considering investing a lot when you’re so close to retirement is always a risk, it seems pretty clear that if you can wait until 70, you’re going to have far better odds of maxing out your retirement funds than if you listen to Ramsey.
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