Dave Ramsey rips the 4% rule again today.

[Koolau]

4% of $1M = $40,000. You can withdraw 4% of you portfolio per year. It doesn't matter whether you take it in dividends, capital gains, IRAs or Roths.
Actually it does, a little, because of taxes, but that is the general idea.
The guide also allows you to raise your starting 4%, by the yearly inflation rate. 1st year $40,000, inflation 3% 2nd year, then $41,200 inflation 4% 3rd year, then $42,848.


Two studies about the 4% guide.


https://kyestates.com/wp-content/uploads/2015/02/Bengen1.pdf


And I always add FireCalc. Spend some time with it. And learn what it is doing.

https://firecalc.com/

There are lots of threads on the 4% rule and withdrawal rates. Good idea to become completely familiar with them. Here's a very old one to start. https://www.early-retirement.org/forums/f28/4-rule-14135.html

 

[Andre1969]

I think most here would call that financially independent which, to me at least, is not the same as rich.

And, freedom's just another word for nothin' left to lose.

Keep in mind, that definition of "rich" was from an English teacher, and not a Math teacher, Business Management teacher, Accounting teacher, etc.

 

[Chuckanut]

Rich used to mean the top 1%. As in Tax the Rich. Now it’s being redefined as the top 5%.

 

[Koolau]

Rich used to mean the top 1%. As in Tax the Rich. Now it’s being redefined as the top 5%.

And for it to have any real effect on actual tax revenues, it likely will need to be the top 50%. IOW all those folks already paying 22 to 24%. YMMV

 

[Time2]

And for it to have any real effect on actual tax revenues, it likely will need to be the top 50%. IOW all those folks already paying 22 to 24%. YMMV

The top 50% pay 97.7% of the federal taxes, at least in 2020. So yes, either we have to pay more or the government has to spend less.



https://taxfoundation.org/data/all/federal/summary-latest-federal-income-tax-data-2023-update/

 

[LateToFIRE]

Rich used to mean the top 1%. As in Tax the Rich. Now it’s being redefined as the top 5%.

Seems to be the way it always works, starts out with talk of cranking up taxes on the 1%, but oh my gosh, look at all that (low hanging fruit) juice to be squeezed from the 5%.

 

[Koolau]

The top 50% pay 97.7% of the federal taxes, at least in 2020. So yes, either we have to pay more or the government has to spend less.

Yep, couldn't say it better.

 

[youbet]

Rich used to mean the top 1%. As in Tax the Rich. Now it’s being redefined as the top 5%.

Rich = anyone with more money than me........

 

[ychuck46]

Rich = anyone with more money than me........

Exactly the way many people looks at things nowadays. The jealousy among many Americans is palpable.

 

[Out-to-Lunch]

The top 50% pay 97.7% of the federal taxes, at least in 2020. So yes, either we have to pay more or the government has to spend less.



https://taxfoundation.org/data/all/federal/summary-latest-federal-income-tax-data-2023-update/

Thank you for the link.

That figure seemed (seems!) astounding. But then looking at you link, the top 50% also make 90% of the income, and the bottom 50% split the last 10%. In that context, the 97.7/2.3% split doesn't seem so bad.

 

[Time2]

Thank you for the link.

That figure seemed (seems!) astounding. But then looking at you link, the top 50% also make 90% of the income, and the bottom 50% split the last 10%. In that context, the 97.7/2.3% split doesn't seem so bad.

If we go a little further and split out the 40% that are not in the top 10% but are in the the top 50%. that 40% earns 40% of the income. Not sure what that means, but it just highlights the fact that the top 10% earn 50% of the income.
Also that earnings number is "Share of Total Adjusted Gross Income"

And we know the more money we have, the larger amounts we can deduct from our income, at least while we are working.
The 50/50 split point is $42,184.


I think the real question is, why are there poor people?

(rabbit hole)


Although there are some here that have their million and spend under $42k and don't think the fit the term poor.


It's funny, I don't see how people can live on $40k, we spend about $65k and people in my own social group don't understand how we can live on $65k.

 

[Gumby]

...
It's funny, I don't see how people can live on $40k, we spend about $65k and people in my own social group don't understand how we can live on $65k. ...

Does your $65k include taxes? They are our largest expense in retirement. Property taxes alone are $14.4k and income tax is about $20k.

 

[djsander]

If we go a little further and split out the 40% that are not in the top 10% but are in the the top 50%. that 40% earns 40% of the income. Not sure what that means, but it just highlights the fact that the top 10% earn 50% of the income.
Also that earnings number is "Share of Total Adjusted Gross Income"

And we know the more money we have, the larger amounts we can deduct from our income, at least while we are working.
The 50/50 split point is $42,184.


I think the real question is, why are there poor people?

(rabbit hole)


Although there are some here that have their million and spend under $42k and don't think the fit the term poor.


It's funny, I don't see how people can live on $40k, we spend about $65k and people in my own social group don't understand how we can live on $65k.

We spend in the range of 36-40k/year. We have what we need. We will probably up it a little. We don’t eat at many expensive restaurants, travels is negligible, no country club, no golfing, we do alot of free activities. Our hobbies are mostly paid for. We own everything with no debt, We could easily spend 60-70k/year, but on what?

 

[dknighd]

We spend in the range of 36-40k/year. We have what we need. We will probably up it a little. We don’t eat at many expensive restaurants, travels is negligible, no country club, no golfing, we do alot of free activities. Our hobbies are mostly paid for. We own everything with no debt, We could easily spend 60-70k/year, but on what?

My wife has an expensive hobby. She likes to knit. Only the best hand died yarns. I justify it because she is supporting artisans.



What struck me is "Our hobbies are mostly paid for." Hobbies should be paid for in advance

 

[Time2]

Does your $65k include taxes? They are our largest expense in retirement. Property taxes alone are 14.4k and income tax is about $20k.

Well, this truly depends on the year. We have been retired 5 years and our spending plus tax would average out to about $65k, however, I have had 4 years of Roths and did pay some additional tax because of those.



Then last year, I made a major screwup and withdrew money at the beginning of the year (which I don't normally do) and then again at the end of the year. I had about $61k of taxes to pay. And IRMAA soon.

My property taxes are about $1,800.

 

[djsander]

My wife has an expensive hobby. She likes to knit. Only the best hand died yarns. I justify it because she is supporting artisans.



What struck me is "Our hobbies are mostly paid for." Hobbies should be paid for in advance

Mostly paid for as my wife does cross stitch, quilting, water color painting and beaded jewelry. She has a good stock of supplies, but occasionally buys some fabric, cross stitch thread etc. Not spending more than a few hundred per year. My hobby is photography and in no need of anything new. I will probably have to shell out $70 or so to get a new camera battery. That’s what I mean by mostly paid for. We once in a while buy something, but it isn’t expensive and everything is paid for.

 

[W2R]

It's funny, I don't see how people can live on $40k, we spend about $65k and people in my own social group don't understand how we can live on $65k.

Here you go:

Year: Total Spent (includes income tax, prop. tax, medical, etc)
2018: $35,505
2019: $48,157
2020: $43,065
2021: $39,825
2022: $41,715

Average: $41,653

Don't know how people live on $40K, but here's how to live on $41.653K:

1.) I meditate on what I absolutely truly want or need until I figure it out correctly. Then I buy all of it. No "keeping up with the Joneses". No deprivation.

2.) My house and car are paid off and I have no outstanding loans at all. My credit card is paid off in full each month.

3.) I am one of the lucky few who already traveled enough earlier in life, and who honestly have zero desire to travel any more now that I am retired. Well, maybe a quarter mile from my house to Lake Ponchartrain to watch the seagulls play, but no further than that.

As for what "people in my own social group" think of my spending, well, it helps that I am an extreme introvert. My social group consists mostly of just Frank, and we spend about the same amount. He thinks my spending is great and encourages me to not ramp it up unnecessarily.

I think that's great because I want extra left over in case I need it in a few decades, to cope with any unexpected expenses of old age.

We spend in the range of 36-40k/year. We have what we need. We will probably up it a little. We don’t eat at many expensive restaurants, travels is negligible, no country club, no golfing, we do alot of free activities. Our hobbies are mostly paid for. We own everything with no debt, We could easily spend 60-70k/year, but on what?

+1

 

[Koolau]

It seems we can't stay away from these thread drifts toward "What is rich." "Who are the 1 percenters?" "Who can live on the least?" "Who pays the most in taxes?" (In my case - "The gummint has decided that YOU are rich.")

I think we must instinctively come back to these topics as they are somewhat controlling in our thinking. I for one have never worried about thread-drift. I learn as much in a good tread-drift as I do in a thread, but YMMV.

 

[2HOTinPHX]

Wowowowowow....Dave really goes off on the 4% rule today. 1 hour 14 minutes into the show a caller in his 30 calls in and mentions planning for the future and mentions the 4% rule...Dave blasts it and calls those who quote it as morons living in their mom's basement.
He easily gets 12% a year and subtracts 4 % for inflation leaving you with 8%... [emoji44]
Million dollar should give you 80K a year to live off of....Per angry Dave.

 

[Gumby]

I have often wondered why, if Dave is so smart, he is still working.

 

[JBTX]

Wowowowowow....Dave really goes off on the 4% rule today. 1 hour 14 minutes into the show a caller in his 30 calls in and mentions planning for the future and mentions the 4% rule...Dave blasts it and calls those who quote it as morons living in their mom's basement.
He easily gets 12% a year and subtracts 4 % for inflation leaving you with 8%... [emoji44]
Million dollar should give you 80K a year to live off of....Per angry Dave.

God he is insufferable. I really hope he isn’t as stupid as what he is saying. Just assuming you get 12% year after year.

 

[2HOTinPHX]

God he is insufferable. I really hope he isn’t as stupid as what he is saying. Just assuming you get 12% year after year.

He said easily 12%....and he has also said it's not that hard to beat the market averages...who wants to be just average?
Just talk to one of his Smartvestor Pros... LOL

 

[2HOTinPHX]

I have often wondered why, if Dave is so smart, he is still working.

Good point...perhaps he doesn't practice what he preaches?

 

[CRLLS]

I have often wondered why, if Dave is so smart, he is still working.

Me too. Why work if you don't have to. I get it if someone wants to share their knowledge. If that were the case they shouldne't be takinga salary

He said easily 12%....and he has also said it's not that hard to beat the market averages...who wants to be just average?
Just talk to one of his Smartvestor Pros... LOL

Easily 12%? He must have a 100/0 AA and is really good at picking the right stocks. That, or he is really, really, really good at picking stocks and has a lower equity AA. I am perfectly happy getting "close-to-market" returns adjusting for my AA.

 

[LateToFIRE]

Easily 12%? He must have a 100/0 AA and is really good at picking the right stocks. That, or he is really, really, really good at picking stocks and has a lower equity AA. I am perfectly happy getting "close-to-market" returns adjusting for my AA.

Um, me thinks perhaps the 12% is the commission he is getting from all the callers utilizing his investment services.