Dave Ramsey once warned that Social Security in America is a ‘mathematical disaster’ — but still urges seniors to start taking benefits at this 1 specific age. Here’s what it is and why

However, financial podcast host Dave Ramsey is part of the small minority that doesn’t like the program. In a 2019 episode of The Ramsey Show he called the program a “broken, screwed up, mathematical disaster,” while complaining that he had been “robbed” by paying into the system.

Despite his disdain for the social safety net, he believes seniors should start taking benefits at a specific age to come out ahead. Here’s why.

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.

Market risk

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.