Dave Ramsey’s Social Security Advice Could Hurt Retirees Even More in 6 Years

One of the toughest financial decisions you might have to make in your lifetime is figuring out when to claim Social Security. That’s because your filing age, coupled with your earnings history, will dictate what monthly benefits you end up getting.

The earliest age to claim Social Security is 62. But if you were born in 1960 or later, you can’t collect your monthly benefits without a reduction until age 67, which is full retirement age (FRA).

You’d think someone as financially cautious as Dave Ramsey would recommend claiming Social Security at 67 — or later. You can actually delay your claim until age 70 for larger monthly checks.

Instead, Ramsey is a fan of claiming Social Security at 62. But as dangerous as that advice is today, it could hurt retirees even more six years down the line.

Why Ramsey suggests claiming Social Security at 62

Ramsey is well aware that claiming Social Security at 62 means reducing benefits for life. But he also knows that waiting beyond 62 carries risk.

As he puts it, Social Security dies with you. If you wait to take benefits and don’t end up living very long after the fact, you risk losing out on lifetime Social Security income, despite getting larger monthly checks.

Ramsey’s logic is that if you start getting Social Security as early as possible and pass away sooner than expected, you’ll generally get a larger lifetime benefit. Plus, if you don’t need the money right away, you can invest your benefits and grow them into even more money, creating a win-win situation.

Why Ramsey’s filing strategy could backfire in six years

The flaw in Ramsey’s logic is that many people who claim Social Security need the money to cover essentials. It’s pretty fair to say that the typical Social Security recipient won’t be in a position to invest their benefits, or at least not in full.

Furthermore, while some seniors may pass away prematurely, there are also those who might live a lot longer than planned. For people in that boat, slashed Social Security benefits could be a huge problem, especially in the absence of savings.

But here’s why Ramsey’s advice becomes even more precarious six years from now. At that point, Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund is expected to run out of money, according to a recent projection from the Congressional Budget Office. From there, Social Security may have to cut benefits to the tune of 23%.

Meanwhile, claiming benefits at 62 with an FRA of 67 results in about a 30% reduction. If you slash your monthly checks with an early claim and Social Security then reduces benefits broadly, your net paycheck could be miserably small.

Of course, Social Security cuts aren’t a given. Policymakers have options for preventing them, and doing so is very necessary to stave off a massive poverty crisis among the elderly.

However, we can’t rule out the possibility of Social Security cuts. And if you pile those cuts on top of a reduced monthly benefit, you could end up struggling financially for the rest of your retirement.

For this reason, be very careful if you’re inclined to follow Ramsey’s Social Security advice. It may be well intentioned, but it could end up sorely backfiring on a lot of people.