Dave Ramsey rips the 4% rule again today.

[braumeister]

My brother worked as a lobbyist until he was 80 and only quit because he was going blind. He was a solo practitioner and loved what he did. For the rare few, who both find work they love and make a good living from it, that is a match made in heaven. I recall all the management books calling for people to "find your passion." For probably 90+% of us that is a prescription for a fruitless search and increased dissatisfaction. Thats one among many reasons why a lot of us optimized our work lives as best we could to achieve FIRE.

Very true. One of my neighbors still runs his own business at 87. He's at the office by 9 every morning and loves what he does. I think it's mainly the idea of having a lot of local companies who use his services, so he gets to hobnob with their execs all the time. But he's also still very active otherwise -- plays tennis 2 or 3 times a week, golf in the summer, and vacations several times a year. The guy is kind of inspirational, even though his lifestyle is utterly different from mine.

 

[jm67]

Out of curiosity has anyone redone the SWR study using market data from other international indices? I’m thinking (for example) of the Nikkei which has experienced a longer stagnant period than the US markets. The obvious downside of all hind casting methods is that the future may not look like the past, and a US economy suffering from high debt loads and stagnating productivity may not provide historical returns. Looking at other markets as “cautionary examples” could be interesting.

 

[BlueberryPie]

Another video about it

https://youtu.be/8is20zlIb38?si=NlS3BxsQ_z4RN-Ui

 

[ychuck46]

Dave does a pretty good job at taking people at of debt, and he has provided reasonable explanations on why he advocates certain methods. I think he takes the "no credit cards" too far, but maybe I'm naive about others' ability to use a credit card properly. I found that in general Dave's *investing* advice is something he needs to leave to others. Choice of funds, advocating for actively managed vs index funds, etc ... are opinions he is entitled to but should not put the weight of what he does well behind, when it's not his wheelhouse.

People need to realize that DR peddles some product because he is paid to do so, just like financial "advisors" are paid commissions to push actively managed funds with high loads. He is worth what he is by making money from such payments, his books, and other endeavors. For the vast, vast majority of savers/investors all they need is a basket of index funds or ETFs and they will be fine. Heck, having as few as two ETFs, say a Total Stock Mkt or S&P 500 version, together with a Total Bond ETF if that helps you sleep at night, would suffice for most. But stay away from load versions that people like DR push because while they might be in Their best interest, they aren't in Yours.

 

[ERD50]

Out of curiosity has anyone redone the SWR study using market data from other international indices? I’m thinking (for example) of the Nikkei which has experienced a longer stagnant period than the US markets. The obvious downside of all hind casting methods is that the future may not look like the past, and a US economy suffering from high debt loads and stagnating productivity may not provide historical returns. Looking at other markets as “cautionary examples” could be interesting.

That did make me curious. I went to portfolio analyzer, and there is only data going back to 2002 for a Nikkei ETF. If someone is looking for worst case type scenarios, I'm going to assume they are conservative, and have a 3% inflation adjusted withdraw rate. I didn't bother to look up Japan bonds, but a 100% Nikkei investment @ 3% IA WR, would have grown to ~ $1.24M, and inflation adjusted (in US inflation), would still have a $700K balance, which doesn't need to last as long now. So not so bad?

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2u1ecdNmuPPXCJbByFu1DT

-ERD50

 

[mrfeh]

That did make me curious. I went to portfolio analyzer, and there is only data going back to 2002 for a Nikkei ETF. If someone is looking for worst case type scenarios, I'm going to assume they are conservative, and have a 3% inflation adjusted withdraw rate. I didn't bother to look up Japan bonds, but a 100% Nikkei investment @ 3% IA WR, would have grown to ~ $1.24M, and inflation adjusted (in US inflation), would still have a $700K balance, which doesn't need to last as long now. So not so bad?

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2u1ecdNmuPPXCJbByFu1DT

-ERD50

The Nikkei today is still below the all-time high reached in 1989. 34 years of negative CAGR.

https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data

If you look at that chart, choose the non-log scale to see just how ugly it was.

 

[tmm99]

This Ramsey guy is quite dangerous, advocating such a high WR. I don't think many people who call in/listen to his show are particularly sophisticated financially. They could easily believe this so-called finance guru and retire way too soon.

 

[Out-to-Lunch]

Out of curiosity has anyone redone the SWR study using market data from other international indices?

Yes. I have read careful academic papers examining the SWR across countries and times. I cannot find the references at the moment. The upshot is that the US has been a bit of an outlier over the last 100-150 years. Many countries have not come close to a 4% SWR during that time. (This is kinda obvious when you consider that entire stock exchanges and even countries have disappeared over the years.)

 

[Blue Poles]

This Ramsey guy is quite dangerous, advocating such a high WR. I don't think many people who call in/listen to his show are particularly sophisticated financially. They could easily believe this so-called finance guru and retire way too soon.

No, they are not particularly sophisticated, but that's not really a criticism of Ramsey's method. Here's an interesting take on how he helps many people, despite giving less than perfect guidance:

Dave Ramsey’s Behavioral Advice Ingenuity To Help People Make Better Financial Decisions

It's an interesting read, as it mentions many of the criticisms that are often aimed at Ramsey. While I still disagree with him, I do see that perhaps he doesn't have to give perfect advice in order to help some people. His arrogant attitude, however, is still inexcusable.

 

[youbet]

. His arrogant attitude, however, is still inexcusable.

His "arrogant attitude" is part of his public persona and has helped him be worth $100MM. When he rubs you the wrong way, he's being successful.

 

[youbet]

Someone was asking about WR's for our international comrades:

Wade Pfau is a leading researcher on international withdrawal rates. He used historical returns from 1900 – 2015 to calculate a SWR of:

3.45% for a Developed World portfolio (50:50 world equities / world bonds)
3.36% for a UK portfolio (50:50 UK equities / UK bonds)

https://monevator.com/what-is-a-sustainable-withdrawal-rate-for-a-world-portfolio/

 

[JoeWras]

DR is sometimes a mystery.

I know a lot of people who were badly in debt and didn't know what to do. They did the "Financial Peace University" thing and got back on their feet. He was very helpful and changed lives.

With spending, DR is very, very conservative, maybe to a fault. He is conservative on debt, including mortgages. He encourages paying off mortgages (at least in normal times) not just for finance, but for peace of mind. This is something I agree with.

THEN, here he goes off into the weeds on the investment growth side. Pulling $80k per year with $1M portfolio is FAR from peace of mind.

Looking at his daughter's reactions here, I half wonder if she's thinking what I was thinking: maybe he is showing signs of dementia.

 

[jazz4cash]

No, they are not particularly sophisticated, but that's not really a criticism of Ramsey's method. Here's an interesting take on how he helps many people, despite giving less than perfect guidance:

Dave Ramsey’s Behavioral Advice Ingenuity To Help People Make Better Financial Decisions

It's an interesting read, as it mentions many of the criticisms that are often aimed at Ramsey. While I still disagree with him, I do see that perhaps he doesn't have to give perfect advice in order to help some people. His arrogant attitude, however, is still inexcusable.

I am surprised you did not mention this article is Kitces’ work. It’s the only thing I have read from Kitces that I would call garbage. For example…
“ while most advisors would agree that Dave Ramsey’s 12% return assumption for stock market investors is an alarmingly high return assumption, the reality is that using a high return assumption helps clarify the power of compound interest and the magnitude of potential wealth”

I do think DR’s advice on getting out of debt is valuable for certain folks. Generally speaking DR generalizes way too much e.g. never ever use credit cards. This bit from Kitces is an absurd effort to rationalize statements that are just wrong. If you read youtube comments it seems that many followers ignore the 8% WR. I suspect his audience may be more sophisticated than it appears.

 

[Surewhitey]

He's the first stair of the staircase and I'm better for finding him in the early 2000s. DW hated his character, but she can't deny it made us better for listening early on as there weren't podcasts (I think) back then.

I hope people get progressive on broadening their knowledge. He probably stays very narrow on message to be consistent for the earliest times of most people who tell others about him. As they grow, they'll find better podcasts and information as they grow NW and personally.

Then they'll find this place & call it a day.

 

[LateToFIRE]

Good article and rebuttal, more constructive than snarky. I do think the SWR academics can be too cautious or rigid in their assumptions in an effort to simplify their advice for a wide audience. Fact is that most people in the U.S. do not retire with enough savings (according to conventional SWR's). What plugs the hole? Why don't most of them end up on the streets?

Couple things: (1) Spending declines as they age; (2) They adjust their spending to their means, (3) Social security / Disability / Medicare/Medicaid, (4) a tax & entitlement system that heavily favors lower-income/wealth retirees, (5) They join generational households as a safety valve (i.e. move into the adult kids basement), and (6) Longevity is just not all that long relative to when most stop working.

P.S. Know I have made some provocative statements not necessarily backed up with hard factual data. These are just my observations/opinions.

No, they are not particularly sophisticated, but that's not really a criticism of Ramsey's method. Here's an interesting take on how he helps many people, despite giving less than perfect guidance:

Dave Ramsey’s Behavioral Advice Ingenuity To Help People Make Better Financial Decisions

It's an interesting read, as it mentions many of the criticisms that are often aimed at Ramsey. While I still disagree with him, I do see that perhaps he doesn't have to give perfect advice in order to help some people. His arrogant attitude, however, is still inexcusable.

The Kitces article gets at what I was trying to say. While I too think 8% is not a "safe" WD rate, I think 4% is far too conservative for most retirees. By most, I mean people not on this board - people who will naturally work as long as they are physically able to do so, people who will be willing to take on more risk because they don't really have much choice, people who will be partly dependent on their adult children and extended families at some point, people who will pay very little in taxes (little by way of deferred-tax funds, little by way of savings, lower end of SS income, therefore SS/entitlements will go much further), etc.

Fact is that lots of people, probably the majority of future retirees will be willing to accept considerably more risk than the non-DR experts would advise just because. And also because 4% is an unreasonably conservative, difficult to attain goal for many. The article notes that Ramsey’s 8% is somewhat in alignment with Finke, Pfau, and Williams’ (2012) conclusion that "5-7% initial withdrawal rates may make sense for risk-tolerant individuals." It also notes that the 4% rule fails to consider typical retirement spending patterns (Go-Go, Slow-Go, No-Go). And as for LTC down the road, admittedly, this is a burden that many retirees will shift to their families and gubment - Honestly, from what I've observed this is not an entirely unreasonable approach.

 

[flyingaway]

I am not using the 8% SWR. But you might be surprised that using the 8% SWR, your chances of broke are lower than your chances of dead every year going forward, so that is why I said in other place that the 8% SWR might work sometimes.

 

[USGrant1962]

Someone was asking about WR's for our international comrades:


https://monevator.com/what-is-a-sustainable-withdrawal-rate-for-a-world-portfolio/

Here's Wade Pfau's article with the backup. For simplicity he uses a 50/50 portfolio, though higher equity AAs generally perform better. The problem with that analysis (and most worldwide SWR analyses) is they include countries that were flattened in WW2 - not a reasonable retirement planning assumption, IMO. So taking getting conquered out of the equation, the global SWR is somewhere north of 3%.

https://retirementresearcher.com/4-rule-work-around-world/

The other risk that is danced around in the Pfau study is going full communist. He notes that in 1900 both Russia and China were growing developed market economies, but can't include them in the analysis.

 

[ERD50]

The Nikkei today is still below the all-time high reached in 1989. 34 years of negative CAGR.

https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data

If you look at that chart, choose the non-log scale to see just how ugly it was.

But, like most charts, that one does not seem to include dividends, so it isn't "CAGR". My post was just a data point, it's as far back as that portfolio analyzer site went, and it wasn't awful for 2002 forward. N225 index Divs seem to average about 1.5% (eyeball), and were as high as 3.8%, so they can't be ignored.

We also need to understand inflation in Japan. The US Great Depression numbers don't look as bad when you consider there was de-flation in some years. And choosing a log scale doesn't change the numbers/values, only the appearance!

Your point probably still stands, Nikkei has apparently done poorly (but we really need a better understanding of the numbers), but we can look and look and find the worst of the worst of the worst, and convince ourselves we must work to the day we die, nothing else is 'safe'.

At some point, you have to fish or cut bait. It is a leap of faith, but it can be a reasonable one, even if not 100% guaranteed (and what is?).

I am not using the 8% SWR. But you might be surprised that using the 8% SWR, your chances of broke are lower than your chances of dead every year going forward, so that is why I said in other place that the 8% SWR might work sometimes.

Heck, 100% WR is safe sometimes. But I'm at least hoping for a few more years than one!

And to be pedantic, an 8% SWR is safe, by definition! It's really only an 8% WR, until we find out after the fact if it was safe (SWR) or not (WR)!

-ERD50

 

[mystang52]

DR is sometimes a mystery.

I know a lot of people who were badly in debt and didn't know what to do. They did the "Financial Peace University" thing and got back on their feet. He was very helpful and changed lives.

With spending, DR is very, very conservative, maybe to a fault. He is conservative on debt, including mortgages. He encourages paying off mortgages (at least in normal times) not just for finance, but for peace of mind. This is something I agree with.

THEN, here he goes off into the weeds on the investment growth side. Pulling $80k per year with $1M portfolio is FAR from peace of mind.

Looking at his daughter's reactions here, I half wonder if she's thinking what I was thinking: maybe he is showing signs of dementia.

I recall seeing Suze on TV many years ago, and much of what she said made sense. IMO her success went to her head and in later years I found her arrogant and didn't always give good advice. Along the same lines, I think DR provides solid advice for people not find a way out of the debt rabbit hole. But again I find his other advice questionable.

 

[mikes425]

Charlatan

Anybody who guarantees 12% a year is a liar. Yeah if you are raking in a fortune in income and can afford to be 100% in equities forever, and he doesnt disclose that he also has this wealth machine that’s part of “his” equation…guess you can be arrogant enough to proclaim this …I sure as hell havent made 12% a year with a moderate conservative PF. I’m concerned about preservation of a 2M PF entering retirement. How “pray tell” would his faithful advisors advise i flip my 40/60 PF from 5-6% return/ year over the last 10 yrs to his “stupid smart” 12% a year ? I’m doing abt. 95k/year in div. income but sure ain’t close to 12% returns and dont own a fi planning company that is generating millions in income like him… I’m sure he’d have a smug non-answer but hey, if anyone wants to back him up, let’s hear the real world explanation on just how it computes in the real world.

 

[LateToFIRE]

I recall seeing Suze on TV many years ago, and much of what she said made sense. IMO her success went to her head and in later years I found her arrogant and didn't always give good advice. Along the same lines, I think DR provides solid advice for people not find a way out of the debt rabbit hole. But again I find his other advice questionable.

I started out with Suze! Bought her first 3 books some +30 years ago. She was one of the first to dive into the psychology of money aspects of saving and financial discipline. Was good stuff for its day. Yes, she later fell into the whole celebrity advisor racket - too bad. But, her early work was digestible and worthwhile.

 

[garyt]

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

Actually not a good point at all. Why does LeBron James continue to play basketball even though he's made 100's of millions of dollars? Why does Tiger Woods continue to try to return to golf even though he's a billionaire. Tom Cruise, Warren Buffet, Elon Musk, lots of billionaires continue to work. Why should Ramsey be different? Maybe he enjoys it.

 

[latexman]

I never drank the koolaid with any of these celebrity FA’s. DR is spreading dangerous misinformation to a lot of folks. I hope those trying to correct the situation have great success.

 

[FiveDriver]

I started out with Suze! Bought her first 3 books some +30 years ago. She was one of the first to dive into the psychology of money aspects of saving and financial discipline. Was good stuff for its day. Yes, she later fell into the whole celebrity advisor racket - too bad. But, her early work was digestible and worthwhile.

I think all of these 'guru' types start out with the same advice. Fundamentally they are preaching the same thing -- No Credit Card Debt, Create an Emergency Fund, Get your Mortgage Under Control, Take Advantage of Your 401K Match. They can call it Baby Steps, or whatever.....at the 50,000 foot level, it's sound advice.

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.

 

[GrayHare]

Yes, just dumping everything into the S&P 500 for the past 40 years would have gotten you about an 11% annual return, but the past 40 years saw declining interest rates that drove up equity prices. That long term interest rate cycle looks to now be turning around.