Dave Ramsey rips the 4% rule again today.

[disneysteve]

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

Well lots of wealthy people are still working - actors, pro athletes, business tycoons, etc. Heck, Warren Buffet is 93 and still at it.

 

[GravitySucks]

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.

WooHoo! Time to up my spending!

 

[LateToFIRE]

Well lots of wealthy people are still working - actors, pro athletes, business tycoons, etc. Heck, Warren Buffet is 93 and still at it.

Indeed, I know quite a few of them. They seem to fall into a couple of different categories:

(1) They are completely defined by their work - zero boundary between the person and work - so work is not work, but personal is not quite personal either
(2) They are addicted to the game and its benefits: power, fame, respect, etc.
(3) They simply love doing it and see it as a game - the competition, the hustle, the excitement, etc.
(4) They've built/created something deeply personal to them and cannot let go of it (ex. founders, performing artists, see #1)
(5) They spend and live like kings/queens - they might make a lot, but they're spending millions on mansions, entourage, etc., have to keep working to afford the image/lifestyle (ex. celebs, big-time athletes)
(6) They are ego-driven power-crazed megalomaniacs (see all of the above)

I'm half joking but this pretty much fits most of the seriously rich people I know who keep working with no intention to ever stop.

 

[Dtail]

Indeed, I know quite a few of them. They seem to fall into a couple of different categories:

(1) They are completely defined by their work - zero boundary between the person and work - so work is not work, but personal is not quite personal either
(2) They are addicted to the game and its benefits: power, fame, respect, etc.
(3) They simply love doing it and see it as a game - the competition, the hustle, the excitement, etc.
(4) They've built/created something deeply personal to them and cannot let go of it (ex. founders, performing artists, see #1)
(5) They spend and live like kings/queens - they might make a lot, but they're spending millions on mansions, entourage, etc., have to keep working to afford the image/lifestyle (ex. celebs, big-time athletes)
(6) They are ego-driven power-crazed megalomaniacs (see all of the above)

I'm half joking but this pretty much fits most of the seriously rich people I know who keep working with no intention to ever stop.

Good list

 

[JBTX]

Indeed, I know quite a few of them. They seem to fall into a couple of different categories:

(1) They are completely defined by their work - zero boundary between the person and work - so work is not work, but personal is not quite personal either
(2) They are addicted to the game and its benefits: power, fame, respect, etc.
(3) They simply love doing it and see it as a game - the competition, the hustle, the excitement, etc.
(4) They've built/created something deeply personal to them and cannot let go of it (ex. founders, performing artists, see #1)
(5) They spend and live like kings/queens - they might make a lot, but they're spending millions on mansions, entourage, etc., have to keep working to afford the image/lifestyle (ex. celebs, big-time athletes)
(6) They are ego-driven power-crazed megalomaniacs (see all of the above)

I'm half joking but this pretty much fits most of the seriously rich people I know who keep working with no intention to ever stop.

Any possibility that some of them really love what they do and would prefer to do that than other typical retirement activities?

 

[ncbill]

DR is worth north of $100 million.

Plenty to last the rest of his life even if he just puts it all into 6-month Treasuries.

 

[RetiredAt49]

Any possibility that some of them really love what they do and would prefer to do that than other typical retirement activities?

I suspect most them have never mowed their own lawn, mopped their own floors, cleaned their own toilets, vacuumed their own carpet, shopped at a grocery store, nor hundreds of other daily/weekly “chores” that most of us retired people still do so yeah - I suppose it would probably be a massive culture shock for the super wealthy (perhaps even lazy) to wake up on their first day of retirement without a single thing to do (at work or at home).

 

[LateToFIRE]

Indeed, I know quite a few of them. They seem to fall into a couple of different categories:

(1) They are completely defined by their work - zero boundary between the person and work - so work is not work, but personal is not quite personal either
(2) They are addicted to the game and its benefits: power, fame, respect, etc.
(3) They simply love doing it and see it as a game - the competition, the hustle, the excitement, etc.
(4) They've built/created something deeply personal to them and cannot let go of it (ex. founders, performing artists, see #1)
(5) They spend and live like kings/queens - they might make a lot, but they're spending millions on mansions, entourage, etc., have to keep working to afford the image/lifestyle (ex. celebs, big-time athletes)
(6) They are ego-driven power-crazed megalomaniacs (see all of the above)

I'm half joking but this pretty much fits most of the seriously rich people I know who keep working with no intention to ever stop.

Any possibility that some of them really love what they do and would prefer to do that than other typical retirement activities?

Yes, thought I covered that in #1, 2, 3, 4. List was intended to be a menu, not a recipe

 

[LateToFIRE]

I suspect most them have never mowed their own lawn, mopped their own floors, cleaned their own toilets, vacuumed their own carpet, shopped at a grocery store, nor hundreds of other daily/weekly “chores” that most of us retired people still do so yeah - I suppose it would probably be a massive culture shock for the super wealthy (perhaps even lazy) to wake up on their first day of retirement without a single thing to do (at work or at home).

I wouldn't say "never" as some of them are from humble beginnings, but these are things they haven't done in a very long time, and have no intention of ever doing again. To keep working often gives them a sense of purpose, for better or worse, not simply a way to fill the time.

 

[Music Lover]

Indeed, I know quite a few of them. They seem to fall into a couple of different categories:

(1) They are completely defined by their work - zero boundary between the person and work - so work is not work, but personal is not quite personal either
(2) They are addicted to the game and its benefits: power, fame, respect, etc.
(3) They simply love doing it and see it as a game - the competition, the hustle, the excitement, etc.
(4) They've built/created something deeply personal to them and cannot let go of it (ex. founders, performing artists, see #1)
(5) They spend and live like kings/queens - they might make a lot, but they're spending millions on mansions, entourage, etc., have to keep working to afford the image/lifestyle (ex. celebs, big-time athletes)
(6) They are ego-driven power-crazed megalomaniacs (see all of the above)

I'm half joking but this pretty much fits most of the seriously rich people I know who keep working with no intention to ever stop.

People that I know, not rich but comfortable, that kept working:

(7) They had no life outside work and thought that they'd be bored.
(8) One person would rather work than spend all day with their spouse.

 

[FREE866]

People that I know, not rich but comfortable, that kept working:

(7) They had no life outside work and thought that they'd be bored.
(8) One person would rather work than spend all day with their spouse.

hahaha
I think there are many many people who would relate to # 8!

 

[sparky08]

Any possibility that some of them really love what they do and would prefer to do that than other typical retirement activities?

That's what my Dad said when I asked him why he wouldn't retire.

 

[clifp]

A very nice analysis of Ramsey's rant.

https://portfoliocharts.com/2023/11/10/why-dave-ramsey-is-dangerously-wrong-about-withdrawal-rates/


The interesting thing is that more than 1/2 of the retirement plans succeed with an 8% WR which is way higher than I would have guessed

Ramsey does more good than harm, IMO. Susie Orman is probably the opposite.
It also seems really important to reiterate in for early retirement 30 years isn't long enough time to measure. I retired in 2000, my WR was ~3% up until 2009 went over 4.5% as my portfolio shrunk to just over 1/2 its real value.

A 100% stock portfolio at 4% would be down to 140,000 year 2000$, $238K today. If I retired at 65 I'd be 88 and good chance I'd be dead. If I had fully paid off my home, I could probably make do with some help from family or the government for my remaining years.

At 64, I'd hate to have only $238K plus social security.

 

[LateToFIRE]

A very nice analysis of Ramsey's rant.

https://portfoliocharts.com/2023/11/10/why-dave-ramsey-is-dangerously-wrong-about-withdrawal-rates/


The interesting thing is that more than 1/2 of the retirement plans succeed with an 8% WR which is way higher than I would have guessed

Ramsey does more good than harm, IMO. Susie Orman is probably the opposite.
It also seems really important to reiterate in for early retirement 30 years isn't long enough time to measure. I retired in 2000, my WR was ~3% up until 2009 went over 4.5% as my portfolio shrunk to just over 1/2 its real value.

A 100% stock portfolio at 4% would be down to 140,000 year 2000$, $238K today. If I retired at 65 I'd be 88 and good chance I'd be dead. If I had fully paid off my home, I could probably make do with some help from family or the government for my remaining years.

At 64, I'd hate to have only $238K plus social security.

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.

 

[Time2]

It was in the article although not named 'Sequence of Returns Risk', Ramsey ignores it.
FireCalc with $1,000,000 portfolio and an $80,000 WDR says, "For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 98 cycles failed, for a success rate of 20.3%."
Must have been some years of poor SORR, during those 123 market cycles of 30 years!

 

[clifp]

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?
.

My definition of financial failure in retirement is a broader than that. For most people, for most of their life money is a constants source of stress in their life, from the long-term question, how will I pay for the kids college, to short-term how will I pay for the unexpected $1,000 expense

For the fortune few, (although many on the forum) at some point money issues stopped becoming a major source of stress and shifts to the annoyance level. Financial independence is when you've accumulated enough wealth you don't even worry about losing your job.

I count as a retirement failure, anyone who has reached the point where money wasn't a major source of stress, but in retirement, it has now become one. For me Feb-April 2009 was the only period in retirement, where I started to get worried. But if I had continued to feel that way, I would have called my financial retirement planning a failure, even if hadn't exhausted my savings.

 

[MarieIG]

A very nice analysis of Ramsey's rant.

https://portfoliocharts.com/2023/11/10/why-dave-ramsey-is-dangerously-wrong-about-withdrawal-rates/


The interesting thing is that more than 1/2 of the retirement plans succeed with an 8% WR which is way higher than I would have guessed

Ramsey does more good than harm, IMO. Susie Orman is probably the opposite.
It also seems really important to reiterate in for early retirement 30 years isn't long enough time to measure. I retired in 2000, my WR was ~3% up until 2009 went over 4.5% as my portfolio shrunk to just over 1/2 its real value.

A 100% stock portfolio at 4% would be down to 140,000 year 2000$, $238K today. If I retired at 65 I'd be 88 and good chance I'd be dead. If I had fully paid off my home, I could probably make do with some help from family or the government for my remaining years.

At 64, I'd hate to have only $238K plus social security.

I believe that he is helpful with budgeting, debt elimination, and giving. I totally disagree with an 8% withdrawal rate as way too risky. Coincidentally, I just saw a video (Rob Berger) on that last night. (He also disagrees, citing the SORR.)

 

[donheff]

Any possibility that some of them really love what they do and would prefer to do that than other typical retirement activities?

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.

 

[Andre1969]

Isn't Dave Ramsey's withdrawal strategy to simply take 8% (or whatever % you choose) from whatever the portfolio worth, at the end of the year?

If you use a formula like that, you'll never run out of money, no matter what the withdrawal rate. Even a 99% withdrawal rate would theoretically never run out of money, except for the fact that it's hard to deal in fractions of a penny. Still, using a percentage of the end-of-year balance, your actual dollar amount will probably swing wildly from year to year, depending on how the stock market goes.

 

[Car-Guy]

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

That's my feeling about all FA's in general. I guess maybe they are trying to earn enough so they can take their own advice.

 

[disneysteve]

Isn't Dave Ramsey's withdrawal strategy to simply take 8% (or whatever % you choose) from whatever the portfolio worth, at the end of the year?

If you use a formula like that, you'll never run out of money, no matter what the withdrawal rate.

Sure you will. What happens when you’re taking 8% of the $10,000 you have left. Yes you’ll get $800 but you can’t live on $800. You’ll effectively be out of money long before that.

 

[donheff]

Gotta say like Andre69, I thought Ramsey was either talking about an end of the year approach or a flat rate without inflation adjustments. If he was proposing our concept of the 4% rule he would have to be nuts. It does call his judgement into question if, as it seems, he simply doesn’t understand what the 4% rule is. And in any event, he is confusing a lot of listeners.

 

[brett]

Not a believer in any of those so called one size fits all retirement rules. In many instances they are, IMHO, nothing but PR gags by those who make their living doing this.

From my perspective it comes down to common sense, ones financial situation and lifestyle. and old fashioned back of the envelope math. One does not have to be a mental giant to figure it out in the space of five or ten minutes.

When I retired early my spouse queried our longer term financial outlook. I did not need any spreadsheets, any retirement rules. It took ten minutes. No fancy spreadsheet or expense or line item expense analysis. Pen, paper, and a calculator. Expenses, fixed income, investments, variable investment income spinoff, inflation adjustment, E&O adjustment.

The numbers 12 years ago are very similar to the numbers today despite significant changes in lifestyle, ROR's, inflation, etc. It is really not that difficult.

 

[BlueberryPie]

Look up Rob Berger's YouTube video on why Dave's 8% has only a 40 % probability of making it. He does a good job explaining so I won't repeat it here. It's not so much whether you can do 3%, 4.15% or 5% as much as Dave's explanation of how he calculates 8% is flawed. And belittling both the caller and his own staffer didn't do him any favors either.

As for people saying the 4% rule ignores SSA, you don't understand the 4% rule. The 4% rule says you need to start with 25x the amount you want to withdraw yearly for 30 years.

For people who FIRE or think that the SSA is going to go the way of the dodo, then yes, you say "I need $75k/ year to live on in retirement, so I need 25x$75K before I retire". If you need $75K.in retirement but expect to get $50K from social security, the amount you will need to withdraw from your portfolio is $25K/year so you only need the portfolio to be 25x$35K.

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.

 

[2HOTinPHX]

Look up Rob Berger's YouTube video on why Dave's 8% has only a 40 % probability of making it. He does a good job explaining so I won't repeat it here. It's not so much whether you can do 3%, 4.15% or 5% as much as Dave's explanation of how he calculates 8% is flawed. And belittling both the caller and his own staffer didn't do him any favors either.

As for people saying the 4% rule ignores SSA, you don't understand the 4% rule. The 4% rule says you need to start with 25x the amount you want to withdraw yearly for 30 years.

For people who FIRE or think that the SSA is going to go the way of the dodo, then yes, you say "I need $75k/ year to live on in retirement, so I need 25x$75K before I retire". If you need $75K.in retirement but expect to get $50K from social security, the amount you will need to withdraw from your portfolio is $25K/year so you only need the portfolio to be 25x$35K.

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.

Nice find...

Here is the link to Robs video..