Dave Ramsey rips the 4% rule again today.

[2HOTinPHX]

At about 45 minutes in on this video a man calls in and is asking if they have enough to retire....gives Dave a lot of his numbers and mentions the 4% withdrawal rate and Dave goes off......ACK.....now I remember why I don't listen much anymore.... although 6 percent sounds a lot nicer....

 

[ShokWaveRider]

He is another example of someone who makes money of other folk's poor money decisions. He focus' on the gullible, and a lot of what he preaches is just not smart. We stopped listening to his rhetoric about 15 years ago.

 

[RetireAge50]

4% is about the worst case scenario in history. Something higher is more likely (and expected).
The caller had a lot of money so could be flexible when dealing with sequence of returns.

 

[jazz4cash]

I’m not a Ramsey fan so I won’t watch the link. His demographic is kinda opposite of the ER crowd. Does he think 4% is too much or too little?

 

[Time2]

At about 45 minutes in on this video a man calls in and is asking if they have enough to retire....gives Dave a lot of his numbers and mentions the 4% withdrawal rate and Dave goes off......ACK.....now I remember why I don't listen much anymore.... although 6 percent sounds a lot nicer....

He described part of the 4% WR, and the S&P will average 11% gain, so 7% is safe. He just happened to not mention that many of us here went through a 35% to 45% drop in our portfolio twice and that is part of why 4% is recommended.
I also found I should go out and upgrade my house to one that costs $840k instead of $275k. OK, he didn't say I had to, but it was no problem if I did. He has lost touch, not as bad as Suzi Orman, but still out of touch.

He is another example of someone who makes money of other folk's poor money decisions. He focus' on the gullible, and a lot of what he preaches is just not smart. We stopped listening to his rhetoric about 15 years ago.

There are many things I disagree with Dave about, pay low balance debts first rather than high interest debts, saving and paying cash for a house, paying off a low interest mortgage and more.
HOWEVER, much of his audience are people that don't have the ability for delayed gratification, have very little financial knowledge, and can't control their credit card, etc. So his method does get people on the right track and then right side up vs in debt. Although probably not as fast they could get there if they did our method and stayed on track. But staying on track is the problem.

 

[FlaMariner]

DAVE reaches and helps a lot of folks that would otherwise perish in financial purgatory......Agree not much for us here on the board but I know of folks who have latched on to him and it has helped them come out of deep financial holes.......

Not for me...but works for many other folks.

 

[aaronc879]

Most people who are retiring in their 60's can go higher than 4%. Most people on this forum will die millionaires due to being too conservative. If you want to leave a bunch of money to other people then that is fine but I personally would not want to work longer than needed then die without spending the money I worked so hard for. YMMV

 

[obsessed]

Dave may be helpful getting people out of debt but his investment advice is suspect. He advocates for a 100% equity portfolio and bases his advice on the simple average returns of the market instead of the geometric average returns (i.e. compounded). The example I like to cite is take a two year period. In the first the market goes up 100% and in the second it goes down 50% so you end up exactly where you started ($100 to $200 and back down to $100). In Dave's world this is 25% return ((100-50)/2). Not real helpful determining the impact of a downturn on your retirement.

 

[aaronc879]

Dave may be helpful getting people out of debt but his investment advice is suspect. He advocates for a 100% equity portfolio and bases his advice on the simple average returns of the market instead of the geometric average returns (i.e. compounded). The example I like to cite is take a two year period. In the first the market goes up 100% and in the second it goes down 50% so you end up exactly where you started ($100 to $200 and back down to $100). In Dave's world this is 25% return ((100-50)/2). Not real helpful determining the impact of a downturn on your retirement.

With the exception of a couple to a few years of expenses in cash I would say 100% equities is a good choice. Keep it well diversified, S&P 500 or total market.

 

[2HOTinPHX]

I will say he did inspire us to get out of debt with those debt free scream calls and his book the Total Money Make Over. We didn't have a ton of debt but after the 2007 melt down we knew it was time for us to get "DEBT FREE". We sleep better at night now. We didn't follow his advice as we paid off things with the highest rate first. I do see why he recommends to pay off smallest amount first though. Some people really just need to see some wins to get fired up about paying things off.

He is pretty stubborn about other things for sure. He's gotten a little grumpier through the years but so have I... LOL. I wish he could contain his anger a little better on some calls like this one.

 

[RetiredAt49]

With the exception of a couple to a few years of expenses in cash I would say 100% equities is a good choice. Keep it well diversified, S&P 500 or total market.

That’s exactly what we are doing (100% equities) except we have rental properties that generate income and we can always sell a rental property to minimize SORR but I agree with Dave and other “experts” (like Ken Fisher) who suggest retires have a very high equities allocation. It’s not for everyone so no need to bash those of us who choose to have high equity allocations just like I don’t bash people who feel they need a more “conservative” allocation.

 

[Koolau]

4% is about the worst case scenario in history. Something higher is more likely (and expected).
The caller had a lot of money so could be flexible when dealing with sequence of returns.

As long as folks are willing to cut back, maybe way back, maybe all the way back to zero then, a much higher WDR than 4% is probably just fine. 4% is sort of a set and forget way to save and to spend. 7 or 8% requires a lot of management when things get tough.

 

[CardsFan]

Most people who are retiring in their 60's can go higher than 4%. Most people on this forum will die millionaires due to being too conservative. If you want to leave a bunch of money to other people then that is fine but I personally would not want to work longer than needed then die without spending the money I worked so hard for. YMMV

You are probably correct Re: the bold above, and I am sure DW and fall into that group. But for some of us, the work was not so bad, the compensation was good, and a few more years working meant we will (likely) never have to worry even if we both need LTC. There are sufficient funds.

Not every one can get to this point, so we are thankful.

And we have a DS and DDIL who can benefit from whatever we leave, so we don't feel like we "wasted" any of that time or money.

Just my 2 cents.

 

[USGrant1962]

Most people who are retiring in their 60's can go higher than 4%. Most people on this forum will die millionaires due to being too conservative. If you want to leave a bunch of money to other people then that is fine but I personally would not want to work longer than needed then die without spending the money I worked so hard for. YMMV

I agree and think there is a big blind spot related to Social Security. The 4% rule assumes you are living 100% off your portfolio. Yet most Americans have Social Security (or a government pension instead). Using FIRECalc and entering your SS, you will see that early retirees can spend greater than 4% prior to collecting SS. Enter your SS estimate and use the Investigate tab and solve for spending level. In my case it is something like 4.5% prior to SS, which becomes 3.5% or less after SS. It's not 11%, but it is higher than the 4% rule which ignores other income.

Second is that Dave mostly speaks middle income and lower income people. A lot of folks don't realize that SS is extremely progressive. Study the "bend points" to understand why. It replaces a large portion of lower and even middle income worker's income. So using a "rule" that ignores SS for that demographic is ultra conservative and probably just wrong.

So yea, Ramsey's advice is over-simplified and not too useful for most early-retirement.org members. But I have people in my extended family that definitely could use his program.

 

[Markola]

Vanguard is pretty smart and they don’t pay any attention to a 4% rule or any other fixed %. Rather, it’s about taking into account all income, understanding daily spending and planning for lumpy spending, then constantly re-running a Monte Carlo simulation to ensure that the whole, very comprehensive plan maintains a certain success score or higher.

 

[pdxgal]

There are many things I disagree with Dave about, pay low balance debts first rather than high interest debts, saving and paying cash for a house, paying off a low interest mortgage and more.
HOWEVER, much of his audience are people that don't have the ability for delayed gratification, have very little financial knowledge, and can't control their credit card, etc. So his method does get people on the right track ...

I would've agreed with you about paying low balance debts first. Then I heard a recent Freakonomics episode where they explained the method behind Ramsey's madness. Successfully accomplishing a relatively small task (the low balance debt) can motivate people to then tackle bigger tasks (the high balance debt). I've found it to be true in my own life for things like decluttering, that can seem overwhelming at first. The Freakonomics show was quite thought-provoking:

https://freakonomics.com/podcast/are-personal-finance-gurus-giving-you-bad-advice/

 

[Gumby]

Most people who are retiring in their 60's can go higher than 4%. Most people on this forum will die millionaires due to being too conservative. If you want to leave a bunch of money to other people then that is fine but I personally would not want to work longer than needed then die without spending the money I worked so hard for. YMMV

This is my number one rule about money - it is always better to have money and not need it than to need money and not have it. If there is a pile left when I go, it still will have served its purpose even though it was not spent.

 

[Aerides]

Most people who are retiring in their 60's can go higher than 4%. Most people on this forum will die millionaires due to being too conservative. If you want to leave a bunch of money to other people then that is fine but I personally would not want to work longer than needed then die without spending the money I worked so hard for. YMMV

See I'd rather be "aw shucks coulda spent a bit more" than "Oh... I can't afford that <insert major health expense thing> that could really improve my quality of life now that I'm 80..." I also don't want to have to do math every time I want to upgrade something, or worry when a roof needs replacing.

A few years back I decided it was time for a pool already. Very BTD. DH ran the numbers and it made exactly no difference. If I'd retired 3-4 years earlier, it might have been a No. I love my pool.

If only we had a crystal ball! Never worry though, when I croak the money will go to good places and people.

 

[AZsniper]

I think Dave Ramsey gives great advice!

Bengen, who is the originator of the 4% rule originally determined it to be 4.15, then rounded it to 4. Now he has updated that to 4.75 if you have heard him recently. And he has said it can be higher too.

4% is very conservative and I think it is reasonable to withdraw more.

 

[Time2]

There are many things I disagree with Dave about, pay low balance debts first rather than high interest debts, saving and paying cash for a house, paying off a low interest mortgage and more.
HOWEVER, much of his audience are people that don't have the ability for delayed gratification, have very little financial knowledge, and can't control their credit card, etc. So his method does get people on the right track and then right side up vs in debt.

I would've agreed with you about paying low balance debts first. Then I heard a recent Freakonomics episode where they explained the method behind Ramsey's madness. Successfully accomplishing a relatively small task (the low balance debt) can motivate people to then tackle bigger tasks (the high balance debt). I've found it to be true in my own life for things like decluttering, that can seem overwhelming at first. The Freakonomics show was quite thought-provoking:

https://freakonomics.com/podcast/are-personal-finance-gurus-giving-you-bad-advice/

I may have said it poorly, I don't agree with "pay low balance debts first" either, but, I do understand the reason he counsels that plan.

 

[FREE866]

I agree and think there is a big blind spot related to Social Security. The 4% rule assumes you are living 100% off your portfolio. Yet most Americans have Social Security (or a government pension instead). Using FIRECalc and entering your SS, you will see that early retirees can spend greater than 4% prior to collecting SS. Enter your SS estimate and use the Investigate tab and solve for spending level. In my case it is something like 4.5% prior to SS, which becomes 3.5% or less after SS. It's not 11%, but it is higher than the 4% rule which ignores other income.

Second is that Dave mostly speaks middle income and lower income people. A lot of folks don't realize that SS is extremely progressive. Study the "bend points" to understand why. It replaces a large portion of lower and even middle income worker's income. So using a "rule" that ignores SS for that demographic is ultra conservative and probably just wrong.

So yea, Ramsey's advice is over-simplified and not too useful for most early-retirement.org members. But I have people in my extended family that definitely could use his program.

All great points. I find people on this board tend to be hyper conservative with regards to AA and WR which is fine, but reality is 4% is super conservative and as you pointed out is 30 years!


And yes...as a starting off point DR's basic concepts would be perfect for my family members as well.

 

[Andre1969]

Just going to FireCalc and doing a 4% withdrawal rate (say, $40K/yr, $1M starting balance), over the course of 30 years gives you a 95.1% chance of success, without putting in any other parameters. And even the worst case has you running out of money around the start of year 23, so you still get a good 22 year run.

Even if you throw in a modest SS amount of $5,000 per year, that bumps you to a 100% chance of success. However, worst case puts you with a balance of $87K at the end of year 30. So, if you're still alive and healthy at that point, you'd be in danger of outliving your money.

 

[athena53]

The example I like to cite is take a two year period. In the first the market goes up 100% and in the second it goes down 50% so you end up exactly where you started ($100 to $200 and back down to $100). In Dave's world this is 25% return ((100-50)/2). Not real helpful determining the impact of a downturn on your retirement.

YES! I see this "reasoning" a lot. Its especially prevalent in the years after a downturn. If I lost 25% last year and I'm up 25% this YTD I am NOT back where I started.

As others have said, Dave has helpful "baby steps" tactics for people who are struggling with debt and can't separate "wants" from "needs". His rules don't apply too everyone.

 

[arcyallen]

If you followed his 7% withdrawal advice starting in 2000, you'd be broke. In 2013. Ugh.

 

[Time2]

If you followed his 7% withdrawal advice starting in 2000, you'd be broke. In 2013. Ugh.

But, but, how can that be, Ramsey says you earn 12% in the stock market.