Wait till 70’s Age & get More Social Security says Dave Ramsey: Social Security is one of the most cherished government programs in America, with 87% of Americans agreeing it should remain a top priority, according to a National Institute on Retirement Security survey. However, opinions on the best age to start taking benefits vary widely, especially among financial experts.
Wait till 70’s Age & get More Social Security says Dave Ramsey
One such expert, Dave Ramsey, has sparked debate with his controversial approach. Ramsey advocates taking Social Security benefits as early as possible, at age 62, to maximize returns by investing them. But is this the right move for everyone? Let’s explore Ramsey’s reasoning, the risks involved, and what you should consider when deciding.
Dave Ramsey’s Approach to Social Security
Dave Ramsey has been outspoken about his disdain for the Social Security system, calling it a “broken, screwed up, mathematical disaster.” Despite this, he recommends a specific strategy for accessing benefits, and his reasoning revolves around a few key points:
- Uncertainty of Life Expectancy
Ramsey argues that no one knows how long they’ll live, which makes waiting to claim benefits until age 70 risky. If someone dies before reaching that age, they effectively lose out on the contributions they’ve made. - Mismanagement of the Social Security Fund
Ramsey highlights the potential insolvency of the Social Security fund, as the Congressional Budget Office (CBO) projects the Old-Age and Survivors Insurance (OASI) trust fund could be depleted by 2033. He uses this as justification for taking benefits early. - Investing Benefits for Higher Returns
Ramsey believes you can outperform Social Security’s payouts by claiming benefits at age 62 and investing them in an index fund. He argues that the returns from stock market investments could exceed the delayed retirement credit increase offered by waiting.
The Risks of Ramsey’s Strategy
While Ramsey’s approach appeals to those with an aggressive investment mindset, it comes with significant risks.
1. Market Volatility
Investing Social Security benefits in the stock market is not a guaranteed strategy. Broad market indexes like the S&P 500 have experienced major crashes in the past. Retirees in their 60s might not have the time to recover from such downturns, potentially reducing their retirement income.
2. Guaranteed Growth for Delayed Benefits
According to the Social Security Administration, delaying your benefits beyond full retirement age results in a guaranteed increase of approximately 8% annually until age 70. Unlike the stock market, this growth is risk-free and not subject to volatility.
3. Fixed Returns of Social Security
The Social Security fund is invested in low-risk U.S. Treasury bonds, offering stable but modest returns. While these returns are not high, they provide guaranteed payments that don’t fluctuate with market conditions.
What About the Fund’s Insolvency?
The projected depletion of the Social Security trust fund by 2033 has raised concerns, but it’s important to note that Congress has tools to address this issue. Potential solutions include raising taxes, adjusting the retirement age, or making other legislative reforms.
In 1983, when the program was on the brink of collapse, reforms by President Ronald Reagan and Congress successfully saved it. Experts, such as Princeton University Professor R. Douglas Arnold, expect similar actions in the 2030s to avert insolvency.
Factors to Consider Before Claiming Social Security Benefits
Choosing the right time to take Social Security benefits depends on personal circumstances, including:
- Life Expectancy: Those with health concerns or shorter expected lifespans may benefit from claiming earlier, while those likely to live into their 80s or beyond may benefit from delaying.
- Financial Needs: If you need income to cover essential expenses at 62, early benefits may be necessary.
- Risk Tolerance: Investing benefits in the stock market can lead to higher returns but carries a significant risk of loss.
- Other Retirement Savings: If you have substantial retirement savings, delaying Social Security might make more sense to maximize guaranteed payments.
Dave Ramsey’s strategy of claiming Social Security benefits early and investing them may work for some, but it’s not without risks. While the stock market has the potential for higher returns, it also carries volatility that could jeopardize retirement income. Meanwhile, delaying benefits provides guaranteed growth that ensures greater financial security later in life.
Ultimately, the decision of when to take Social Security should be based on your personal circumstances, health, financial needs, and risk tolerance. Consulting a financial advisor can help you make an informed choice that aligns with your retirement goals.
FAQ’s
What age can you start taking Social Security benefits?
You can start claiming Social Security benefits as early as age 62, but full benefits are only available once you reach your full retirement age, typically between 66 and 67, depending on your birth year.
Why does Dave Ramsey recommend taking Social Security early?
Dave Ramsey suggests taking benefits early to invest them in the stock market for potentially higher returns and to avoid losing benefits if you pass away before age 70.
What are the risks of taking Social Security benefits early?
Taking benefits early reduces your monthly payout and relies on market performance if invested. Poor market conditions could lead to reduced retirement income.
What are the benefits of delaying Social Security?
Delaying benefits beyond your full retirement age increases your monthly payout by approximately 8% annually until age 70, providing guaranteed growth.
Will the Social Security fund run out of money?
The Social Security trust fund is projected to be depleted by 2033, but Congress can enact reforms to ensure its sustainability, as it has done in the past.
