Is Dave Ramsey Right About Claiming Social Security at 62? The Key Scenarios Where It Pays Off Big

Finance guru Dave Ramsey has a contrary take on several common financial issues. For one thing, he says your credit score doesn’t matter, despite the fact that almost everyone else in the finance world recognizes that earning good credit is essential to borrowing affordably and to opening up other doors for you.  

Ramsey also has an unconventional opinion on Social Security. The vast majority of experts suggest delaying your Social Security claim for as long as possible, and there is plenty of evidence pointing to the fact that delaying benefits really is the smartest move — including studies that show the majority of retirees will end up with more lifetime benefits if they wait until 70 to begin receiving payments. 

Dave Ramsey, on the other hand, wants you to do something very different. He suggests claiming at 62, which is the earliest age you’re allowed to start benefits.  Here’s why Ramsey thinks this is a good idea, along with some details about the circumstances when he believes claiming at 62 will pay off big.

Ramsey says you should claim Social Security at 62 in this one key scenario

It may come as a surprise to Ramsey fans that Dave suggests starting Social Security at 62 because Ramsey’s general philosophy is that you should sacrifice in the short term so you can set yourself up for long-term financial success. In fact, his tagline is Live like no one else — so later you can live and give like no one else.

Claiming Social Security at 62 seems like it’s contrary to that mindset since starting benefits at 62 shrinks the monthly income you get, while delaying benefits until 70 significantly increases your checks. In fact, if your full retirement age (the age when you get your standard benefit) is 67 (which it is for anyone born in 1960 or later), a claim at 62 could shrink your standard payment by 30% while delaying until 70 would increase it by 24%. 

So, why would Ramsey want you to start checks so early instead of sacrificing and waiting until later? It’s simple. Ramsey believes that you should claim Social Security at the age of 62 to start getting your money, and you should then invest every dollar of your benefits so you can grow your wealth. 

“It usually makes sense to take it early if you’re going to … invest every bit of it,” Ramsey told a caller in a 2019 podcast in response to a question about what age it makes sense to claim benefits. 

Is Ramsey’s advice about claiming Social Security at 62 good advice?

Ramsey’s suggestion to claim Social Security at 62 and invest the money is based on the premise that you’re going to earn a better return on your funds by claiming Social Security and investing in the stock market. It’s not a surprise that he’s suggesting this, as he’s not a very big fan of Social Security in the first place, having referred to Social Security as a “mathematical disaster” that has robbed him of funds he could have made better use of elsewhere.

It’s also possible that he’s right; however, a lot depends on the ROI your investments can earn.

If you have a standard benefit of $1,900 (which is pretty close to the average benefit) and you claim benefits at 62, you’ll get $1,330 per month versus $2,356 if you delay your benefits claim until 70. Your benefit would be $1,o26 higher per month or $12,312 higher per year if you wait until 70. However, if you receive benefits for eight extra years from age 62 to 70, you’d bring in a minimum of $127,680 in Social Security money that you would have passed up had you waited to claim benefits (not accounting for any cost-of-living adjustments that are built into the benefits program).

Assuming you invested $1,330 every month and earned a 7% annual ROI for eight years, you’d end up with $163,746.45 invested at the end of that period by the time you turned 70.

So, if you follow the 4% rule for retirement withdrawals and start making withdrawals at 70 of that extra money, having an  $163,746.45 invested would give you an additional $5,107.2 in annual income. That’s less than the $12,312 in extra income you’d get by waiting until the age of 70 to claim Social Security, but you’d also have that $163,746.45 balance in your account sitting there, available to pass on to the next generation if you didn’t spend it all. 

Ultimately, only you can decide if you’d be able to consistently invest, and if you think the returns you can earn are worth giving up the chance to increase your Social Security checks, which are guaranteed for life and protected against inflation. You take on a lot more risk with the investing approach given that you could hit a bad couple of years in the market, so following Ramsey’s advice is a bit of a gamble — but it could pay off if you’re a smart investor.

A financial advisor can help you to decide whether you’re better off with an early claim and investing, or with a delayed claim. It’s worth getting that advice given how high the stakes are when it comes to your financial security as a retiree. 

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