Dave Ramsey rips the 4% rule again today.

[jazz4cash]

Back in the 80's, I used to listen to New York Radio WABC at lunch time -- Bill Bresnan did a call-in show, dispensing this same kind of advice. To this day I am thankful that I listened to this guy.

The name Bill Bresnan rings a bell. Did he fill in for Bob Brinker occaisionally? Brinker was ‘my guy’.

 

[FiveDriver]

The name Bill Bresnan rings a bell. Did he fill in for Bob Brinker occaisionally? Brinker was ‘my guy’.

I believe Bob Brinker did a weekend show, and Bresnan did a weekday lunch hour show. At that young age, I was fascinated by the call-ins....people with immeasurable net worth !! How do I get to that point ??

Turns out to be relatively simple, really --
No Credit Card Debt,
Create an Emergency Fund,
Get your Mortgage Under Control,
Take Advantage of Your 401K Match.

That, and the compounding effect over time.

 

[PatrickA5]

I'm pretty sure that I read Dave and Susie's books back in the 80's. There was a lot of sound advice given in those books. I don't recall anything about an 8% SWR, but that is also nothing that would have concerned me at the time. The vast majority of Dave's followers don't care about SWRs and probably aren't interested in his investment philosophy either.

Having said that, I now can't stand listening to Dave. I doubt that anybody will ever convince him that he is wrong about anything. And, he certainly will never publicly admit to being wrong.

And, if you're an employee of Dave's you'd better walk the line.

 

[mikes425]

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

Massively overinflated ego and smug sanctimonious a- hole clearly…

 

[mikes425]

... I doubt that anybody will ever convince him that he is wrong about anything. And, he certainly will never publicly admit to being wrong.

And, if you're an employee of Dave's you'd better walk the line.

Exactly Ignore him. He's a self-serving opportunistic grifter IMO.

 

[2HOTinPHX]

So I have watched a few YouTube rebuttals on the way Dave handled the call and his ripping of the 4% and those who quote it. In the comments of one someone mentioned the original caller posted a video of the call....so funny it was one of people who had posted a video on why Dave was wrong about this issue the last time Dave ranted about it. He genuinely hoped to get Dave to see the error in his thinking. The call did not go as expected.
https://youtu.be/F4X1l2HfA2c?si=YOgoEC26lr_rwH14

https://youtu.be/F4X1l2HfA2c?si=YOgoEC26lr_rwH14

 

[JoeWras]

Can you summarize? Really don't want to sit down and watch more useless videos.

 

[FREE866]

Can you summarize? Really don't want to sit down and watch more useless videos.

That was good.

 

[RetiredAt55.5]

Not a D.R. follower, but it sounds like he's suggesting you should put 100% of your retirement money in the S&P 500. No cash/bonds/small or mid cap stocks, foreign markets, etc.

And, you should leave it invested that way forever.

I'm inferring that since he's justifying the 12% based on how THAT index performed historically.

That makes his advice even more questionable and dangerous.

 

[JoeWras]

Yeah, that's what it sounds like.

Ask the 1968 retiree. Or heck, the 1972 retiree.

My post history here shows I support DR in general, but this whole "EASILY 12%" thing has me questioning his mental health. I will no longer suggest people listen to him for anything, even debt advice because I don't know how far he's gone off the rails.

Has he fallen into the recency bias so prevalent in this world? SORR Dave?

He's my age. Maybe he didn't have a father like mine who had me charting the S&P during the 70s. Dad had me doing math homework and finance advice at the same time. All I remember about those graphs were they sucked.

 

[dknighd]

Let's face it. Dave Ramsey is it in for money.


edit: I'm assuming he is not in debt. And has enough.

 

[Walt34]

Let's face it. Dave Ramsey is it in for money.

Maybe. But I think at his stage of the game (which he's won) he's in it for the ego.

If it was me, I'd be moving back to my private island in a warm climate for the winter about now.

 

[FLJim]

8%?

Ramsey claims that an 8% annual withdrawal rate is just fine, because the stock market has appreciated an AVERAGE of 8% annually for the last 50 or 75 years. That's a pretty basic assumption except that it's not 8% EVERY year. What happens if there are 5 or 8 years of negative, neutral, or 2% gains just when you start withdrawing? That's the problem that most of the folks on this thread were questioning.

 

[JoeWras]

Let's face it. Dave Ramsey is it in for money.


edit: I'm assuming he is not in debt. And has enough.

Yeah, but if he is doing it for the money, people like me who used to recommend him or his videos won't anymore. That's a hit.

I'm done with him.

 

[JoeWras]

Ramsey claims that an 8% annual withdrawal rate is just fine, because the stock market has appreciated an AVERAGE of 8% annually for the last 50 or 75 years. That's a pretty basic assumption except that it's not 8% EVERY year. What happens if there are 5 or 8 years of negative, neutral, or 2% gains just when you start withdrawing? That's the problem that most of the folks on this thread were questioning.

That is called SORR, which is a very, very basic concept every retiree who manages their own nest egg should understand.

Apparently Dave doesn't.

 

[dknighd]

he's in it for the ego.

Likely true.

 

[brett]

Averages and celebrity FA advice is all meaningless to me.

Far too many variables in our lifestyle and financial advice to bother.

I do not think that this business of retirement financial planning is as complicated or challenging as some people make it out to be. Especially for some one with a little common sense, a general understanding of how the economy works and a basic aptitude for math.

It has become an industry in itself.

 

[JoeWras]

Averages and celebrity FA advice is all meaningless to me.

Far too many variables in our lifestyle and financial advice to bother.

I do not think that this business of retirement financial planning is as complicated or challenging as some people make it out to be. Especially for some one with a little common sense, a general understanding of how the economy works and a basic aptitude for math.

It has become an industry in itself.

Absolutely.

A friend of mine was an FA for a while. He got out to do something else because the FA wages were lumpy*. He keeps asking me if I have an FA helping me. Answer: no. He's baffled, and "worried about me." Yet he just retired at 66 and I've been retired over 5 years and I'm 60.

'nuff said.

* - in an inebriated brag, he started telling me about commissions on annuities and life insurance. Oh yeah, I get it, dude.

 

[Major Tom]

That is called SORR, which is a very, very basic concept every retiree who manages their own nest egg should understand.

+1 - and I think we should point out that SORR stands for Sequence of Returns Risk, for the benefit of those who may be new to this concept.

I was lucky to retire around the time the market indices were only a little past the bottom caused by the 2008/2009 downturn. For over 10 years, I experienced an absolutely wonderful sequence of returns. It was very welcome, as my figures were somewhat marginal in the beginning. Had I retired at the peak of the market, I might have been singing a different song by now.

 

[JoeWras]

+1 - and I think we should point out that SORR stands for Sequence of Returns Risk, for the benefit of those who may be new to this concept.

Yep, I learned it here. You are right, time to spell it out for the new people.

Learned more here than I ever could with some insurance salesman disguised as a FA or radio host acting like a lunatic to get ratings and clicks.

As a 2018 retiree, I've had my ups and downs on the SORR train. So far, it is OK. (Not 12%, Dave.) But there could be some rough years ahead now that bond yields are popping.

 

[ncbill]

Ramsey claims that an 8% annual withdrawal rate is just fine, because the stock market has appreciated an AVERAGE of 8% annually for the last 50 or 75 years. That's a pretty basic assumption except that it's not 8% EVERY year. What happens if there are 5 or 8 years of negative, neutral, or 2% gains just when you start withdrawing? That's the problem that most of the folks on this thread were questioning.

Ramsey is using an arithmetic mean, but as ERN notes, that's not the way CAGR works:

"With a standard deviation of S&P 500 annual returns of between 16% and 20%, we’d expect the portfolio’s true compounded annual growth rate (CAGR) to be between 1.25 and 2.00 percentage points below the arithmetic mean."

How Crazy is Dave Ramsey’s 8% Withdrawal Rate Recommendation?/

 

[JoeWras]

Ramsey is using an arithmetic mean, but as ERN notes, that's not the way CAGR works:

"With a standard deviation of S&P 500 annual returns of between 16% and 20%, we’d expect the portfolio’s true compounded annual growth rate (CAGR) to be between 1.25 and 2.00 percentage points below the arithmetic mean."

How Crazy is Dave Ramsey’s 8% Withdrawal Rate Recommendation?/

Nice article.

Look, none of us know the future, but I like how ERN points out the current CAPE ratio as a risk to being on an SORR peak. Ramsey, meanwhile, tells us we are living in mom's basement.

I'll leave you with a quote from the blog post which had me ROFLing.

Similarly, most of us in the FIRE community have graduated from Dave Ramsey. Or even better, many of us, myself included, never even required his services. We should all safely ignore his 8% withdrawal rate advice now. But I feel sorry for the Ramsey listeners. I hope they are smart enough to get a second opinion elsewhere before implementing his crazy, unhinged advice. But, for the love of God, please stay away from Suze Orman!

 

[mikes425]

When someone is making 1% off of other people's money, and you multiply that exponentially in his case - to reflect his empire of 'financial advisors' which yields him phenomenal guaranteed income annually, (because he makes money whether his 'faithful' clients do or not) how can he relate realistically to someone who doesn't have the luxury to risk being 100% in equities to capture upwards of 10-12% returns per year? That's what I'd happily ask Dave Ramsay face to face. Guarantee you this - that's a question that would never get on the air.

 

[Andre1969]

When Ramsey talks about the stock market averaging 8% or whatever, I'm also wondering if he is talking the cumulative average (I think that's the right term?) Or if he simply takes the percent rise/fall each year, and takes the average of that?

It wouldn't shock me, if he did the latter, which is even more dangerous. To use the simplest of examples, in 2008, my invested assets lost about 40%. In 2009, I gained about 40%. BUT those two definitely did not cancel each other out! To really be made whole again, I would've needed a ~67% gain in 2009.

 

[JoeWras]

When Ramsey talks about the stock market averaging 8% or whatever, I'm also wondering if he is talking the cumulative average (I think that's the right term?) Or if he simply takes the percent rise/fall each year, and takes the average of that?

It wouldn't shock me, if he did the latter, which is even more dangerous. To use the simplest of examples, in 2008, my invested assets lost about 40%. In 2009, I gained about 40%. BUT those two definitely did not cancel each other out! To really be made whole again, I would've needed a ~67% gain in 2009.

That's what ncbill is talking about mentioning CAGR.

As for Ramsey, who knows? All he says is that he can EASILY get 12%. The reasoning is not given. But it is easy!