Many individuals nearing retirement age face crucial decisions regarding their Social Security benefits, particularly about when to begin claiming them. Financial expert Dave Ramsey recently advocated for claiming benefits at age 62, presenting two key reasons for his stance. However, research indicates that these reasons may not hold up under scrutiny.
According to various studies, approximately 90% of current workers will receive more lifetime Social Security income if they wait until age 70 to claim their benefits. The implications of claiming early extend beyond simple financial calculations; they can significantly affect survivor benefits for spouses, particularly if the higher earner passes away first. This article delves into Ramsey’s arguments and highlights the potential pitfalls of his advice.
Ramsey’s First Argument: Claim Early to Enjoy Benefits
Ramsey’s primary reason for advocating early claims is based on the notion that individuals should “grab the money while you are still alive.” He states that retirement payments cease upon death, suggesting that it is wiser to claim benefits sooner rather than later.
This reasoning fails to account for the complexities of Social Security benefits. When the program was established, it included penalties for early claims and credits for delayed retirement, designed to ensure equitable benefits at any age. Current data show that life expectancies have changed, and waiting until age 70 can lead to significantly higher lifetime benefits. Those who claim early may miss out on substantial amounts, potentially amounting to hundreds of thousands of dollars in additional income.
Furthermore, claiming early could jeopardize the financial security of a surviving spouse. If the higher earner claims benefits early and passes away, the survivor benefits available to the spouse would be reduced. Maximizing the benefits for widows or widowers is essential for their long-term financial well-being, making this aspect of Ramsey’s argument particularly problematic.
Ramsey’s Second Argument: Invest Early Benefits
The second point Ramsey makes is that individuals can claim benefits early and invest the funds for potential growth. This suggestion poses several issues. For one, individuals need to cover their living expenses during retirement. If they claim benefits before reaching their full retirement age, there are restrictions on how much they can earn while receiving Social Security.
The idea of living off investments while drawing Social Security checks may seem appealing, but it is fraught with challenges. If retirees are forced to tap into their investments to meet daily expenses, they may end up diminishing their investment returns.
Moreover, Ramsey encourages a high-risk investment strategy, which may not be advisable for those in retirement. Many financial experts recommend shifting portfolios toward safer investments as individuals age. The risk of market downturns could leave retirees in a precarious position if they must liquidate investments during a market decline to cover living costs.
In contrast, delaying Social Security claims guarantees an increase in monthly benefits for each month one waits until age 70. This strategy offers a reliable and secure financial outcome, contrasting sharply with the uncertainty of investment returns.
Given these considerations, Ramsey’s advice to claim Social Security benefits at age 62 appears misguided. Individuals approaching retirement should carefully evaluate their options and consider delaying their claims to ensure a more secure financial future.
For those unsure about their retirement plans, platforms like SmartAsset provide tools to connect individuals with vetted financial advisors. Seeking professional guidance can help clarify whether one is on track for retirement and how to maximize benefits effectively.
In conclusion, while the allure of claiming Social Security benefits early may seem appealing, the long-term financial ramifications warrant a more cautious approach. Taking the time to understand the implications of claiming strategies can lead to more favorable outcomes for retirees.
