Dave Ramsey’s Risky Plan For Social Security Is Unrealistic for Most Retirees. Here’s Why

Dave Ramsey says you can take Social Security at 62 if you invest all of it. But most people can’t do this, and many who can probably shouldn’t. You get to choose when to claim your Social Security benefits, but the consensus among most financial professionals is that delaying your claim for as long as possible is the best move. Although you can start getting benefits at 62, the amount you get goes up every month you delay until 70. For most people, waiting gives you the best chance at maximizing the lifetime income these benefits offer. There’s one financial guru who has some different advice, though. Dave Ramsey has suggested that taking Social Security at 62 (the earliest age available) is actually a good move in some situations. The problem is, most people can’t really follow Ramsey’s advice — and those who can perhaps shouldn’t, as it could put them at unnecessary risk of financial loss.

Here’s when Ramsey said you can claim Social Security at 62

Ramsey commented on the issue of when to claim Social Security in response to a question he received on a podcast in 2019. The question focused on whether to start retirement benefits at 62 or wait until full retirement age. In response, Ramsey said that “it usually makes sense to take it early if you’re going to … invest every bit of it.” Specifically, he advised claiming your benefits and then putting all of the money into a good mutual fund. He said doing so will more than make up for the extra money that would have been included in your Social Security checks if you’d waited longer to claim them.

Here are the big problems with Ramsey’s advice

While Ramsey’s advice, in theory, might seem smart, there are a few really big problems with it. For one thing, most people who are considering taking Social Security at 62 are doing so because they need the money to cover the bills if they want to retire. They can’t just make their early claim and invest the funds. The other, bigger issue, though, is that an increase in your Social Security benefits due to delay is a sure thing. If you claim at 67 or 70 instead of 62, it is guaranteed that your monthly checks will be larger than if you filed earlier. In fact, you will definitely get more money in each check if you delay claiming even a month beyond the time you become eligible for Social Security. So, if it turns out you need to start your payments at 64 or 65 or 66 instead of waiting as long as you’d hoped, you’d still have a higher benefit as a result of having waited. And any future Social Security raises will be be based on the higher benefit you earned due to delay, so your choice will continue to pay off over time. Making money by investing your Social Security, on the other hand, is not a 100% sure thing. In fact, a lot could go wrong. You may not actually follow through with investing every dollar, even if you have good intentions. Even if you do invest it all, returns from the stock market might not be as high as they’ve been in the past. As a general rule, you shouldn’t really be investing money you’re going to need to live off within the next couple of years in the stock market. There’s too great a chance you could buy into the market when stock prices are up, then find yourself facing a prolonged downturn that leaves you forced to choose between locking in losses or holding off on withdrawing funds until a market recovery that could take years to happen. If you take Social Security at 62 with the goal of investing and you end up needing more money at 64 because of a health issue or other pressing financial needs, you’ll have permanently shrunk your Social Security benefit. And, if the market was at its peak when you started investing your Social Security benefits and it’s since tanked and not recovered, you could have lost money on your investments. Those losses would become permanent if you had to sell your stocks to help cover living expenses. The bottom line is, Social Security is a guaranteed lifetime benefit. And retirees can’t afford to take unnecessary risks with retirement money they’re going to need in a few years’ time. So, rather than gambling on claiming Social Security, investing, and hoping everything goes right, it makes a whole lot more sense for most people to get the guaranteed income boost that comes with a later Social Security claim.