Dave Ramsey Says Retirees Shouldn’t Count on Social Security - But Here’s the Part People Miss

Dave Ramsey's advice is straightforward: Don't plan to live on Social Security. Invest 15% of your income over your career, build a substantial nest egg, and treat your monthly benefit as extra money.

That may be useful advice at 30. It lands differently when you're 62 with limited savings and retirement right around the corner. Millions of Americans can't rewind the clock and recover decades of missed compounding. Their goal now is to avoid money mistakes and make the income they have stretch further. These steps could help.

Ramsey's advice works best when you have time

Ramsey Solutions recommends investing 15% of your gross income for retirement after paying off nonmortgage debt and establishing an emergency fund. It also describes Social Security as an added bonus rather than a complete retirement plan.

The principle makes sense: Social Security was never intended to replace an entire paycheck. But advice built around long-term wealth accumulation offers only part of the answer for someone who is already approaching retirement.

Many retirees can't treat Social Security as a bonus

Social Security is hardly spare spending money for the typical recipient. Census Bureau research found that a substantial share of adults 65 and older receive at least half of their family income from the program. Some depend on it for nearly all their income.

Telling those retirees that they shouldn't rely on Social Security doesn't solve the problem. A more useful approach starts with the benefits, savings, housing, and earning ability they have today.

Find out what Social Security may actually pay

Log in to your my Social Security account and review your estimated payments at different claiming ages. While you're there, check your earnings record. Missing or incorrect wages could reduce your benefit.

Anyone who is married, divorced, or widowed should also check spousal and survivor benefits. For instance, some divorced spouses may qualify based on an ex-spouse's record if the marriage lasted at least 10 years. Don't assume your own retirement benefit is automatically the best option.

Think carefully before claiming at 62

Often, you can begin retirement benefits at 62. However, doing so may permanently reduce the monthly amount. For someone born in 1960 or later, claiming at 62 could mean receiving about 30% less than at the full retirement age of 67.

That said, waiting isn't realistic for everyone. Health problems, job loss, or an empty bank account may force an earlier claim. Still, compare the numbers before filing. Even delaying for several months could improve your monthly benefit.

Build your budget backward from your income

Don't start with your old salary or lifestyle when building your retirement budget. Instead, begin with the income that will reliably arrive each month, which might include Social Security, pensions, annuities, and conservative withdrawals from savings.

After that, list all your fixed expenses, like housing, utilities, food, insurance, taxes, transportation, and medical care. This approach may reveal a shortfall early enough to address it, rather than discovering it after the credit cards start filling the gap.

Focusing on the expenses that can move the needle

Skipping an occasional restaurant meal won't fix a budget that is short by $800 every month. Housing and transportation are usually better places to look for meaningful savings.

Downsizing, moving to a less expensive area, becoming a one-car household, or renting out part of a home could make a much larger difference. These choices aren't easy, but one major reduction may do more than years of clipping coupons and worrying over every grocery receipt.

Consider working a little longer if you can

Continuing to work can help in several ways. It delays withdrawals from savings, provides current income, and could allow you to postpone Social Security.

Benefits are calculated using your 35 highest-earning years. Additional work may replace a zero or low-earning year and raise your payments. If you claim before full retirement age and continue working, though, the Social Security earnings test may temporarily withhold some benefits. Check the current rules before making plans.

Look for benefits that reduce monthly bills

Retirees with limited income may qualify for programs beyond Social Security. Medicare Savings Programs can help with certain Medicare costs, while Extra Help can lower eligible Part D prescription expenses.

Other possibilities include SNAP, utility assistance through LIHEAP, Medicaid, property tax relief, and local transportation or meal programs. Eligibility varies, so don't rule yourself out based on income alone. BenefitsCheckUp and your local State Health Insurance Assistance Program can help identify programs worth applying for.

Protect whatever savings you do have

A modest nest egg still matters. It can cover a home repair, dental bill, or other expenses that Social Security cannot absorb. Avoid treating a small account as useless and cashing it out for optional spending.

If you're still employed, continue contributing wherever you can, especially when an employer match is available. Saving 15% may be out of reach, but the choice isn't 15% or nothing. Smaller contributions can still strengthen your finances.

Bottom line

Ramsey's advice makes sense for people who still have decades to invest, but it doesn't solve the problem facing retirees who already depend on Social Security. If that's your situation, focus on what you can change now: your claiming strategy, major expenses, available benefits, and any income you're still able to earn.

If you haven't retired yet, try living on your expected income for three months and save the difference. That test run could expose budget problems while you still have time to adjust your retirement plan.

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