When it comes to personal finance, Dave Ramsey is one of the most popular voices in the U.S. He’s known for giving advice on how to handle money, and one of his most discussed topics is Social Security. Social Security is a government program that provides income to retirees, but when should you start receiving it? Should you take it at age 62 or wait until you’re older? Ramsey has strong opinions on this issue, and today, we’ll explore his thoughts and explain the pros and cons of taking Social Security early.
What is Social Security?
Social Security is a government program designed to provide financial support to people who are retired, disabled, or survivors of workers who have passed away. Most workers pay into Social Security during their working years through taxes taken out of their paychecks. Once you reach a certain age, you can start collecting these benefits. The age at which you start collecting your Social Security can affect how much you receive each month.
The Case for Collecting Social Security Early
Many financial experts recommend waiting until your full retirement age (which is either 66 or 67, depending on your birth year) to start collecting Social Security. This is because the longer you wait, the larger your monthly payments will be. But Dave Ramsey has a different take. He believes that, for some people, starting to collect Social Security benefits as early as age 62 could actually be a smart choice.
In a 2019 podcast, Ramsey said, “It usually makes sense to take it early if you’re going to invest every bit of it.” Essentially, he suggests that if you take your benefits early and invest them in a good investment, you might end up with more money in the long run. His advice is based on the idea that the money you would otherwise wait to receive could grow if invested properly.
Social Security Benefits Overview
Here’s a breakdown of how Social Security benefits work, depending on when you start collecting them:
| Age to Start Collecting | Monthly Benefit (Approx.) | Percentage Reduction/Increase | Comments |
|---|---|---|---|
| Age 62 | Lowest | -30% | Smallest monthly check. |
| Age 66/67 | Full Benefits | 0% | Standard monthly payment. |
| Age 70 | Highest | +32% | Maximum monthly payment. |
If you start taking your benefits at age 62, your monthly check will be around 30% smaller than if you wait until your full retirement age. However, if you wait until age 70, you can get up to 32% more in monthly benefits.
How Social Security Benefits Work
Social Security is designed to give you a larger check if you wait longer to claim it. At age 62, you start getting the smallest monthly amount possible. As you get older and approach your full retirement age (either 66 or 67), your monthly benefit increases. The longer you wait, the bigger the check you’ll get, with the highest amount being at age 70.
For example, if you wait until age 70 to claim your benefits, you could receive about $182,000 more over the course of your life, compared to starting at 62.
Dave Ramsey’s Investment Strategy
One of the key pieces of advice from Ramsey is that if you choose to take Social Security at 62, you should invest your checks wisely. He recommends putting the money into a “good mutual fund,” which is a type of investment fund that pools money from many people to invest in a variety of stocks, bonds, and other assets.
Ramsey doesn’t go into detail about which mutual funds are “good,” but he suggests that investing could make up for the smaller Social Security checks you’ll receive at age 62. Over time, your investments could grow and make up for the money you’re missing out on by starting early.
However, it’s important to note that the returns from mutual funds can vary. For example, a blog post from 2020 showed that the average return on mutual funds was about 4.67% over 20 years, which is lower than the S&P 500 index (a popular stock market index) during the same period.
Challenges for Many People
While Ramsey’s advice might sound good, it doesn’t work for everyone. Many people depend on Social Security as their main source of income during retirement, especially if they haven’t been able to save enough money in other ways. If you’re in a situation where you need Social Security to cover your monthly expenses, it may not be possible to invest your checks.
Also, investing in mutual funds comes with risks, and not everyone has the knowledge or resources to make good investment choices. For some, the guaranteed income from Social Security is more important than trying to grow their money with investments.
Conclusion: Should You Take Social Security at 62?
In conclusion, Dave Ramsey’s advice about taking Social Security at age 62 can be a smart choice, but only for certain people. If you’re in a financial position to invest your benefits wisely, you might be able to make more money in the long run than if you wait. However, if you rely on Social Security for basic expenses, taking it early might not be the best option. It’s important to think about your own financial situation before deciding when to start collecting your benefits. For some, waiting for the full benefit at age 66 or 67 might be the better option.
FAQ’S
1. What is the best age to start collecting Social Security?
The best age to start collecting Social Security depends on your financial situation. Most experts recommend waiting until you are 66 or 67 (your full retirement age) to get the full benefit. However, if you need the income earlier, you can start collecting at age 62, though your monthly check will be smaller.
2. How much will my Social Security check be reduced if I start at age 62?
If you start taking Social Security at age 62, your monthly benefit will be about 30% smaller than if you wait until your full retirement age (66 or 67). The longer you wait, the higher your monthly check will be.
3. Can I invest my Social Security checks?
Yes, you can invest your Social Security checks. Financial expert Dave Ramsey recommends investing them in a “good mutual fund” if you start taking benefits early at age 62. However, it’s important to understand that investing comes with risks, and not everyone may have the knowledge or resources to invest successfully.