It’s safe to say that financial guru Dave Ramsey is no fan of Social Security, having called the program a dud and a mathematical disaster that has robbed people of money for decades. Not surprisingly, Ramsey goes against conventional wisdom about the age at which people should claim Social Security benefits.
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Let’s dig a little deeper into Ramsey’s thoughts on when you should start cashing in your Social Security check!
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Start collecting early
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 this will give you a bigger benefit 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 get it early if you’re going to invest every bit of it, Ramsey said in a 2019 podcast.
Ramsey was answering 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, depending on the year of birth.
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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’ll get the smallest possible check. Your check grows every year after age 62 if you wait to collect.
When you reach full retirement age, you receive the full benefits due based on the Social Security payroll taxes you contributed while working. The highest payout comes when you surrender at age 70, after which there is no more financial advantage to wait.
Waiting until age 70 to claim Social Security can 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 once you turn 62, you’ll get a significantly reduced benefit (by 30%) for the rest of your life vs. waiting until full retirement age.
Invest your check
But according to Ramsey, you can more than make up for those shortfalls by applying for Social Security at age 62 and then putting all your checks into a good mutual fund.
This one account will make you more than enough to cover the difference between your [age] 66 account and yours [age] Account 62, Ramsey said on the podcast before launching into a mini-rant about Social Security being a broken system and a disaster.
He didn’t say what makes a good mutual fund or offer suggestions on how to find one. There isn’t much information about tracking the average performance of mutual funds 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% in mutual funds over the previous 20 years. That was well below the performance of the S&P 500 index over the same time frame. Over the past 30 years, the S&P 500 index has returned an average annual compounded rate of 10.7% per year, The Motley Fool recently reported.
But finding a good mutual fund can be tricky for Social Security recipients who aren’t 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 means to put them into a mutual fund in the hopes that the fund will provide good. they return years down the road.
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This article originally appeared on GOBankingRates.com: Dave Ramsey says you get Social Security at 62, but only if you do it with every paycheck
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