Is there a ‘right’ age to take benefits?
The earliest age a taxpayer can tap into their Social Security benefits is 62. However, full benefits can only be accessed once you hit your full retirement age. This system has sparked passionate debate amongst financial experts and tax consultants about the right age to commence benefits.
While delaying your benefit until you reach 70 can maximize your payout, Ramsey Solutions says it makes more sense to take your retirement benefits sooner rather than later.
Ramsey has several reasons for his strategy.
Firstly, he argues that the only way to know the perfect age to start taking Social Security is if you know the day you will die. If you’re likely to live a long life that stretches into your 80s, waiting until you are 70 might be a good idea to maximize benefits. However, if you die before the age of 70, you have effectively lost all your contributions into the pot.
Secondly, he argues that the Social Security fund is mismanaged. Indeed, the Congressional Budget Office (CBO) projects that the Old-Age and Survivors Insurance (OASI) trust fund will be exhausted by the end of fiscal year 2033. Benefits are expected to be cut 25% after this, unless the government can enact reforms to bolster funding.
Finally, Ramsey argues that a person can outperform the Social Security system by taking benefits as early as possible, at the age of 62, and investing the payments in an index fund.
“You can get a better rate of return than they will pay you by waiting,” Ramsey said on the show.
However, Ramsey’s strategy overlooks a key element: risk.
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According to the Social Security Administration, your benefit amount increases each month you delay the start of your payments after you’ve hit your full retirement age until age 70. In other words, you are guaranteed to receive more if you wait longer.
On the other hand, Ramsey’s strategy of taking benefits early and investing it in the market works well if the stock market performs well. If the market declines during this period, you could be reducing your retirement income and potential savings.
Broad market indexes, like the S&P 500 for instance, have experienced several stock market crashes over the years. Younger investors can ride these markets out but an investor in their early- or mid-60s might not have that luxury.
By comparison, the Social Security fund is invested in U.S. treasury bonds and certificates of indebtedness. At the end of 2024, the average interest rate on these funds was 2.494%, according to the SSA. That’s not a high return but it is fixed, which limits risk and volatility.
As for the fund’s insolvency, U.S. Congress has several tools at its disposal to avoid it, including raising taxes and the retirement age for younger workers. Reforms implemented by former President Ronald Reagan and congressional leaders salvaged the program in 1983 when it was just three months away from running out.
Princeton University Professor R. Douglas Arnold, author of “Fixing Social Security: The Politics of Reform in a Polarized Age,” is said to expect a similar last-minute deal in the 2030s.
With this in mind, picking the right age to start taking Social Security benefits ultimately depends on your personal circumstances, investment timeline and risk tolerance.
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