Deciding when to claim Social Security benefits is one of the most significant financial decisions retirees face. While waiting until full retirement age or even 70 can result in higher monthly payments, financial expert Dave Ramsey believes there are specific cases where taking Social Security at 62 is the right choice. However, it’s not a decision to take lightly.
Ramsey emphasizes that early Social Security benefits only work if you follow certain rules to maximize the impact of your decision. Let’s explore the three key rules Ramsey recommends for anyone considering claiming Social Security at 62.
1. Use the Money to Cover Essential Expenses
The first rule is to ensure your Social Security checks go toward essential living expenses. Ramsey highlights the importance of using this income wisely, particularly for retirees who depend on Social Security as a primary source of income.
If you’re still working part-time or have other sources of income, Social Security should supplement your necessities like housing, utilities, and healthcare. Spending it on discretionary expenses like travel or entertainment can jeopardize your long-term financial stability.
Ramsey advises budgeting carefully to ensure that your benefits align with your overall financial plan. A solid budget can help you track expenses, minimize waste, and stretch your Social Security dollars further.
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2. Avoid Claiming Benefits If You’re Still Earning a High Income
One of the biggest pitfalls of claiming Social Security at 62 is the risk of reducing your benefits due to the Social Security earnings test. Ramsey cautions against taking benefits early if you’re still earning a substantial income.
In 2024, if you’re under full retirement age and earn more than $21,240 annually, Social Security will deduct $1 from your benefits for every $2 you earn above the limit. This could significantly diminish the value of your early benefits, making it less advantageous to claim at 62.
Instead, Ramsey recommends waiting until your income decreases or you retire fully. Delaying your benefits until full retirement age eliminates the earnings test and allows you to receive your full monthly payment.
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3. Ensure You’re Debt-Free Before Claiming
Ramsey is a vocal advocate of living debt-free, especially in retirement. His third key rule for claiming Social Security at 62 is to ensure you’ve eliminated any high-interest debt, such as credit cards, personal loans, or outstanding medical bills.
Early Social Security benefits often come with reduced monthly payments, which can make it harder to meet debt obligations. By eliminating debt before retiring, you’ll have more flexibility to use your Social Security income for daily living expenses or savings rather than servicing debt.
Ramsey also stresses the importance of having an emergency fund. This safety net can prevent retirees from falling back into debt if unexpected expenses arise, such as car repairs or medical emergencies.
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4. Other Considerations Before Claiming Social Security at 62
While Ramsey’s main rules provide a solid foundation, there are additional factors to consider before making your decision:
- Health and Longevity: If you have health concerns or a family history of shorter life expectancy, taking benefits at 62 may make sense to maximize the time you can use them.
- Spousal Benefits: Married couples should coordinate claiming strategies to optimize the total household benefit.
- Inflation Protection: Social Security includes annual cost-of-living adjustments (COLAs), but these may not fully keep up with rising expenses.
A comprehensive retirement plan can help address these considerations and ensure you make the best decision for your unique situation.
Why Timing Matters
Claiming Social Security at 62 reduces monthly payments compared to waiting until full retirement age or 70. For example, a full retirement benefit of $2,000 per month at age 67 would receive only $1,400 per month if they claim at 62—a 30% reduction.
However, if you plan to retire early or need immediate income, claiming at 62 can be a viable option. The key is understanding the trade-offs and deciding to align with your lifestyle and financial goals.
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Set Yourself Up for Success
Dave Ramsey’s advice to claim Social Security at 62 comes with clear conditions: use the money for essential expenses, avoid penalties from the earnings test, and ensure you’re debt-free. By following these three rules, you can make a wise, informed decision that supports your retirement goals.
Claiming Social Security is just one piece of the puzzle. A well-rounded retirement strategy should include diversified investments, emergency savings, and a clear plan for managing expenses. Whether you claim benefits early or wait, careful planning and professional guidance can help you maximize your Social Security income.
