Yahoo Finance ‘It sucks beyond belief': Dave Ramsey once called Social Security an ‘epic failure’ — here’s what he says you should be doing with your benefits
Dave Ramsey has a unique slant on the question of when to take Social Security payments — one that sets him apart from his fellow personal finance gurus.
To him, it isn’t a matter of “Now or later?” or even “What do you plan to do with the money?” Rather, he thinks you should ask, “How do you plan to put it to work?”
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Ramsey has famously said that “the current Social Security system sucks beyond belief.” Later in the same rant, he called the system an “epic failure.”
Ramsey shared his views on an episode of his show with Tracy, a 61-year-old married man from Billings, Montana. Tracy said that he was still working, but eyeballing those future payments — though with no shortage of sharp tongue in cheek.
“When is the best time to take advantage of that fantastic program?” he asked, with enough sarcasm to crack up the usually unflappable host.
Here’s what the Social Security skeptic had to say on the subject.
The Social Security investment angle
Ramsey riffed on a possibility relevant to Tracy’s situation: Why not take the payouts at the earliest possible point (age 62) and put it in the market?
“It usually makes sense to take it early if you’re gonna do what you’re gonna do, which is invest every bit of it,” he said.
As Ramsey mentioned, the federal government has resources available to help beneficiaries determine ideal Social Security timing. One helpful page allows you to determine how much money you'd receive at age 62 as opposed to your full retirement age. If you're born in 1960 or later, for example, a full-retirement benefit of $1,000, taken at age 67, would be worth only $700 at 62.
Anyone opting for the age-62 route would thus have five years to make up the $300 difference. To get there, you’d need to earn 7.4% in annual compound interest on the $700.
Now here's the good news: Annual stock market returns have been reliably higher: 9.81% for the S&P 500 dating to 1928, according to the non-profit Official Data Foundation. That $700, fully invested as Ramsey suggests, would turn into roughly $1,120.
Retirement with a side of fries
Ramsey takes issue with how many Americans rely on Social Security as a principal or sole source of income during their golden years.
The benefits “were never intended to be the only source of income for Americans in retirement,” states a post on his website. “It was always meant to supplement your retirement income — like how a side of french fries is meant to ‘supplement’ your cheeseburger.”
The article points to government findings that show one in four retirees live in households that receive at least 90% of family income from Social Security.
The surest way to avoid this pitfall is to do the math, as another post on Ramsey’s website puts it. “About half (48%) of workers have actually tried to figure out how much money they’ll need to save by the time they retire. That’s not good enough!”
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Dealing with taxes
Ramsey acknowledged in his conversation with Tracy that other factors must be considered, taxation among them. Anyone who collects Social Security while still working will be taxed on either 50% of their benefit (if earning less than $34,000 individually, $44,000 jointly) or 85% (if above those thresholds).
One factor unique about Tracy’s situation revolves around where he sits on Ramsey’s “7 Baby Steps.” He told the host that he’s on Step 7: “Build Wealth and Give.” This can be where charitable donations come in.
Per IRS guidelines, you can deduct itemized charitable contributions on 501(c)(3) public charities, generally up to 60% of adjusted gross income. So investing Social Security early on can prove advantageous on both ends of Step 7, though it always makes sense to run the numbers first.
Dealing with death
Ramsey made one humorous comment that, while perhaps morbid, also points to a truism where Social Security is concerned: “The trick to knowing when to take Social Security is to know when you’re going to die, and once you get that figured out, then you can calculate it precisely.”
Yet for any uncertainty around the financial call, Ramsey noted that putting the money in a mutual fund (which will often have comparable returns to stocks) should result in a retiree winding up ahead. What's more, "when you die, that money that's in your mutual fund account is part of your estate," he said.
And what does your estate get when you die with just Social Security in place?
Ramsey shouted the answer: "NOTHING!"
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
