Social Security benefits are a crucial component of retirement planning for many Americans. As retirement approaches, deciding when to claim these benefits becomes one of the most significant financial decisions. While Dave Ramsey and other advisors suggest claiming Social Security early to maximize lifetime income, IPS Strategic Capital offers a different perspective, advocating for claiming benefits later to maximize financial benefits. So, does IPS have insight that others may overlook? Let’s break down the pros and cons to help you make the best decision for your situation.

Why Wait?

Larger Monthly Payouts The Social Security Administration (SSA) increases benefits by approximately 8% for every year you delay claiming after full retirement age.

Waiting could increase your monthly payout by over $1,000, a significant boost that can help cover rising healthcare costs later in life.

Enhanced Survivor Benefits

Delaying Social Security can also provide larger survivor benefits for your spouse. If you pass away, your spouse may be entitled to receive your full benefit, assuming it is higher than their own. This added protection can be vital in situations where one spouse was the primary earner, ensuring ongoing financial support for the surviving spouse.

Potentially Lower Taxes

Social Security benefits are taxed as ordinary income. If you start claiming while still working, your total income could push you into a higher tax bracket. For example, based on current averages:

Protection Against Outliving Your Income

As life expectancy increases, delaying Social Security becomes even more appealing. One of the greatest retirement concerns is outliving your income. Ben Storey, Director of Retirement Research & Insights at Bank of America, points out that waiting to claim benefits helps hedge against longevity risk, providing a more secure income in your later years.

Dave Ramsey’s Approach: Claim Early and Invest

In contrast, Dave Ramsey and most financial advisors advocate for claiming Social Security as early as age 62, under one condition: you must invest the payments.

Ramsey argues that by investing the checks in a “good mutual fund,” you could achieve greater returns than by waiting for a larger payout later on.

In a 2019 podcast, Ramsey explained, “It usually makes sense to take it early if you’re going to invest every bit of it.” He believes the compounded growth from a well-chosen mutual fund could surpass the benefits of delaying Social Security. However, Ramsey’s advice comes with significant caveats.

First, he doesn’t specify what constitutes a “good mutual fund” or provide guidance on how to select one. Mutual fund performance can vary widely, and it’s challenging to predict consistent returns.

Second, this approach assumes that you have the financial flexibility to invest the Social Security checks rather than relying on them for essential living expenses. For many Americans, that isn’t an option. Furthermore, those without investment experience will have to pay management fees up to 2.5% annually and decrease their realized Social Security benefit.

Weighing the Options: Which Approach Is Right for You?

When deciding whether to claim Social Security early or delay, consider your personal financial situation, health, life expectancy, and retirement goals. Ramsey’s strategy could lead to higher returns, but it also comes with more risk. Success depends on choosing the right investments, navigating market fluctuations, and having the financial flexibility to invest the payments rather than spend them.

On the other hand, the IPS approach of delaying Social Security provides several clear advantages: larger monthly payments, enhanced survivor benefits, potentially lower taxes, and protection against the risks of longevity and inflation. These benefits offer a stable, predictable income stream, which is particularly valuable for those seeking financial security in retirement.

Ultimately, the decision comes down to your unique circumstances. At IPS Strategic Capital, we understand that navigating financial decisions can be complex and daunting. With over 35 years of experience, we’re here to help you evaluate your options and develop a strategy that aligns with your retirement goals. Carefully consider the pros and cons and consult with a trusted financial advisor.

If you have questions, or would like a second opinion on your financial situation, give us a call to speak with a real financial expert (not an AI robo-advisor) and start securing your financial future today.