Financial guru Dave Ramsey has often advocated for taking Social Security as soon as possible.<\/p>\n
\u201cSocial Security dies when you die,\u201d he once told a caller on The Ramsey Show (1). \u201cIt’s a negative rate of return. The money you put into Social Security you will never get all of it out\u2026 so you might as well get all you can get as fast as you can get.\u201d<\/p>\n
By taking benefits early, Ramsey argues, you can maximize lifetime payouts and potentially invest the money to earn a higher rate of return than the program provides.<\/p>\n
For anyone born after 1960, that means taking a roughly 30% cut to monthly benefits if they start collecting at the earliest eligibility age of 62 (2). However, some studies suggest that this could be the wrong move for many people.<\/p>\n
Here\u2019s why the math doesn\u2019t necessarily agree with Ramsey\u2019s argument.<\/p>\n
The Social Security system is designed to reward delayed claims. Every additional month you wait after turning 62 increases your monthly payment slightly (2). By age 67, which is the full retirement age (FRA) for people born in 1960 or later, you can claim 100% of your scheduled benefit.<\/p>\n
Delaying further also increases benefits through delayed retirement credits (3). For people born in 1943 or later, benefits rise by about 8% per year for each year you delay after FRA. That means waiting until age 70 can increase monthly benefits by about 24% compared with claiming at 67.<\/p>\n
The dilemma for most retirees is whether the additional monthly payout offsets the months or years of foregone payments. Fortunately, researchers have analyzed the numbers to make this choice a little easier.<\/p>\n
A 2023 study published by the National Bureau of Economic Research suggests that waiting until FRA (67 for most people) is usually the best option (4).<\/p>\n
\u201cWe find that virtually all American workers aged 45 to 62 should wait beyond age 65 to collect,\u201d the report revealed. In fact, the research suggests that most people should wait beyond FRA to collect delayed retirement credits. \u201cMore than 90% should wait till age 70.\u201d<\/p>\n
The study also suggests that taking benefits early has a tangible cost for many households. For anyone between the ages of 45 and 62, the median loss in the present value of household lifetime discretionary spending is $182,370. That\u2019s a sizable amount of money that could make or break many retirement plans.<\/p>\n
Story Continues <\/p>\n
It\u2019s also worth noting that this is a median loss, which means many households could lose more than this sum.<\/p>\n
Could some of this potential loss be offset by investing the benefits, as Ramsey recommends? That depends on your expected investment returns.<\/p>\n
Read More: 5 essential money moves to make once you\u2019ve saved $50,000<\/a><\/p>\n Read More: Young millionaires are ditching stocks. Why older Americans should take note<\/a><\/p>\n \u201cIf you don\u2019t need that Social Security money, you can always invest it in good growth stock mutual funds and just let it grow,\u201d according to Ramsey Solutions (5).<\/p>\n On paper, that may seem like a savvy approach. After all, a low-cost index fund that tracks the stock market has delivered strong returns historically.<\/p>\n The Vanguard S&P 500 ETF (VOO), for instance, has delivered about 14.7% annualized return since its inception in 2010 (6). That\u2019s significantly higher than the roughly 8% annual increase in benefits from Social Security\u2019s delayed retirement credits.<\/p>\n However, this isn\u2019t a fair comparison. Index funds and equity mutual funds involve market risk, whereas Social Security benefit increases are predetermined by law.<\/p>\n The stock market is volatile, and past returns don\u2019t guarantee future performance. Just because it has delivered healthy double-digit returns in recent years doesn\u2019t mean it will deliver the same return in the five-year period between age 62 and FRA.<\/p>\n By comparison, the Social Security Administration\u2019s delayed credits are effectively guaranteed under current law, which arguably makes the roughly 8% annual increase more attractive on a risk-adjusted basis.<\/p>\n Bottom line: the timing of your claim is critically important. You may prefer to take benefits early for personal or financial reasons, but research generally finds that delaying benefits increases lifetime value for many retirees.<\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n YouTube (1<\/a>); Social Security Administration (SSA) (2<\/a>), (3<\/a>); National Bureau of Economic Research (NBER) (4<\/a>); Ramsey Solutions (5<\/a>); Vanguard (6<\/a>)<\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"Financial guru Dave Ramsey has often advocated for taking Social Security as soon as possible. \u201cSocial Security dies…\n","protected":false},"author":2,"featured_media":360112,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[72,1890,176,61,60,3916,174,175,60687,1615],"class_list":["post-360111","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-dave-ramsey","tag-finance","tag-ie","tag-ireland","tag-jeff-bezos","tag-personal-finance","tag-personalfinance","tag-ramsey-solutions","tag-social-security"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/360111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=360111"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/360111\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/360112"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=360111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=360111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=360111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}