Maybe you’ve heard what money mentor Dave Ramsey has to say about when you should retire. He recommends claiming Social Security at 62 for most people, because they can get more for their money than if they wait.
His premise, based on historic stock market returns, is just one approach to your retirement plan. We’ll run the numbers to show you if early benefits provide higher returns and the hidden catches to know about.
What Ramsey is really suggesting
Ramsey’s retirement rule works like this. A retiree takes Social Security as soon as eligible (at age 62), even if they don’t need the money. They invest the checks instead of spending them.
Those extra years of Social Security benefit payments can potentially compound in the market, depending on investment returns. (Ramsey himself frequently quotes “better than 8%” as a market return to plan for.)
For someone who doesn’t need the benefit payments, this gives you additional years to supercharge your nest egg. It assumes you would get more earnings power from the smaller Social Security checks by getting them on the front end, as well as their healthy compounding returns.
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How Social Security rewards waiting
But Social Security’s mechanism pays more for patience. Taking benefits at 62 (the earliest eligibility age) gets you the smallest check and cuts your benefit by around 25-30% vs. waiting until full retirement age (FRA).
That same $1,400 check you get starting at age 62 would have been around $2,000 if you waited until FRA.
If you wait beyond FRA, delayed retirement credits increase your benefit by 8% per year, up to age 70. For someone with an FRA of 67, a $2,000 FRA benefit would rise to about $2,480 at age 70.
This higher benefit is not tied to stock market performance, and Social Security benefits may receive annual cost-of-living adjustments.
The break-even age to consider
Despite what Ramsey claims that market investments can offer, there’s a mathematical formula to consider. The break-even age is the age at which total lifetime benefits from waiting surpass total benefits from claiming early.
While this is somewhat of a calculated guess, AARP data suggests the break-even age for someone who claims benefits at 62 versus claiming at 70 is around 80-82. So, if you don’t live to that break-even age, claiming earlier would generally provide more in total lifetime benefits.
If you live past break-even age, the delayed-but-larger benefits increase your guaranteed income. But you can’t get payments after you die, so a shorter lifespan cancels out those larger payments. Cumulative lifetime dollars matter more than the monthly check amount.
Investing checks isn’t always a free win
Experts challenging Ramsey’s plan have their reasons, including how delayed retirement credits compare to stock market investing. Currently, there’s an 8% per year increase from waiting, which is a guaranteed return, for life, and with partial inflation protection thanks to the Cost of Living Adjustment (COLA).
Stock market returns may average 8% across a long period of history, but they fluctuate. Some years show much lower returns, which can harm a senior’s portfolio at a time when they depend on it most.
Survivor benefits matter, too
Another consideration is how not waiting affects your spouse. If you’re the higher earner, delaying benefits boosts the survivor benefit your spouse gets if you die first. The larger amount may be what’s needed for the widow or widower to stay financially comfortable into old age, when costs for healthcare or long-term care increase substantially.
Using Ramsey’s approach, the monthly benefits for the lower-earning, surviving spouse would be significantly diminished.
When claiming early still makes sense
One of the reasons some experts dispute Ramsey’s claim is that it doesn’t work for everyone. But this also means it can work for some people. Early claiming may be appropriate for those who need urgent income and can’t bridge the gap in other ways. Those with a shorter life expectancy because of poor health or family history may consider it.
It may also work if you don’t have a spouse or dependents to leave behind after you pass. In all of these situations, personal context determines the play. Your experience matters more than any single expert’s rule.
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Don’t forget the earnings test
Finally, there’s one hidden gotcha that can derail all of these plans if you’re not careful. It’s the Social Security earnings test, and it applies to those under FRA.
Social Security can withhold benefits if you claim before the FRA and continue to work. The thresholds are as follows:
- Those under the FRA all year can earn $24,480. Social Security withholds $1 for every $2 you earn above that amount.
- In the year you reach FRA, the limit jumps to $65,160. Social Security withholds $1 for every $3 you earn above that amount (until the month you hit FRA).
These withheld benefits are not permanently lost: at FRA, Social Security recalculates your monthly benefit to account for the months benefits were withheld. They are not repaid as a lump sum. But if you planned to invest the full benefit amount as part of Ramsey’s advice, this can disrupt that plan.
Bottom line
Ramsey’s “claim at 62 and invest” strategy assumes market returns can reliably beat a guaranteed, inflation‑adjusted 8% per year increase—and that you won’t need the income in the meantime.
The best way to know if Ramsey’s advice fits your retirement goals is to plug your own numbers into the Social Security website for more accurate estimates. Claiming early can still be reasonable for those in poor health or with urgent cash needs, but it’s not a one‑size‑fits‑all rule.
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Author Details
Josh Koebert
Josh Koebert has spent more than 16 years digging into the data behind how Americans earn, save, and retire. As a Senior Data Journalist at FinanceBuzz, his work covers both ends of that challenge: the job market and real estate pressures that shape how much people can save, and the Social Security policies, 401(k) strategies, and retirement income gaps that determine what they’ll actually have when they get there.
