It’s safe to say that financial guru Dave Ramsey is no fan of Social Security, having called the program a “stupid thing” and “mathematical disaster” that “robbed” him of his money for decades. It should be no surprise, then, that Ramsey goes against conventional wisdom when it comes to the age you should claim Social Security benefits.
Ramsey says it’s fine to collect benefits as early as age 62 — something most financial experts advise against — if you take your checks and invest them. He claims that doing so will give you a greater return than you would get by waiting until a later age to apply for Social Security, which means you get a bigger monthly check.
“It usually makes sense to take it early if you’re going to … invest every bit of it,” Ramsey said in a 2019 podcast that aired on YouTube.
Ramsey was responding to a question from a listener about whether it made more sense to collect Social Security at 62 or wait until full retirement age, which is either 66 or 67 years old, depending on your birth year.
The way Social Security is set up, the longer you wait to collect retirement benefits, the higher your monthly payment. Claiming benefits at age 62 means you will get the smallest possible check. Your check rises each year past age 62 you wait to collect.
When you hit full retirement age you get the full benefits due based on the Social Security payroll taxes you contributed while working. The highest payment comes when you file at age 70, after which there is no more financial advantage to waiting.
Waiting until you are 70 years old to claim Social Security could boost your finances by more than $182,000, according to a recent study conducted by David Altig of the Federal Reserve Bank of Atlanta, Laurence Kotlikoff of Boston University and Victor Yifan Ye, a research scientist at Opendoor Technologies.
On the other hand, if you decide to collect as soon as you turn 62, you’ll receive a significantly reduced (by 30%) benefit for the rest of your life vs. waiting until full retirement age.
But according to Ramsey, you can more than make up for those shortfalls by applying for Social Security at 62 and then putting all of your checks into a “good mutual fund.”
“That one account will make you more than enough to cover up the difference between your [age] 66 account and your [age] 62 account,” Ramsey said on the podcast before going into a mini-rant about Social Security being a “broken system” and a “disaster.”
He didn’t say what constitutes a “good mutual fund” or offer suggestions on how to find one. There’s not a lot of info tracking average mutual fund performances over time, mainly because there are so many different types of funds, and their performances are all over the map
A 2020 blog on the Credit Donkey site reported that investors earned an average of 4.67% on mutual funds during the previous 20 years. That was well below the S&P 500 index performance over the same time frame. Over the past 30 years, the S&P 500 index has delivered a compound average annual growth rate of 10.7% per year, The Motley Fool recently reported.
But finding a “good” mutual fund might be tricky for Social Security recipients who are not financial experts and can’t afford to hire one.
Another thing Ramsey didn’t address was the fact that many Social Security recipients depend on their checks to help pay the bills, and they don’t have the financial wherewithal to put them into a mutual fund in the hope that the fund will provide a good return years down the road.
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