Dave Ramsey rips the 4% rule again today.

[Badger]

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.

+1
Retirement financial planning or anything related is far from my expertise yet with no background and a little common sense we have been able to establish a nest egg that may last us until we are well past 125 years old.
We wanted to have control over our retirement without needing SS or pensions (and especially annuities) so we planned accordingly. We had a plan that is much like what is suggested by many on this website, LBYM and save/invest.
No, we didn't have high paying jobs. Teaching in North Florida was not lucrative. Since SS for the past 10 years and a small pension has still been available, our nest egg has even increased while we give maximum gifts to my wife's 2 grown children every year. It just isn't "Rocket Surgery".

Cheers!

 

[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

For those who have a little bit of free time I would suggest you watch the video. The original caller really does a good job of going through his motive and experience on the call. Pretty entertaining...I had posted a comment about this thread I started here and he has visited here now and is going to give a mention to it in his upcoming video. He mentioned the Money Guys are also going to perhaps address the 8% issue too.

 

[Koolau]

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.)

Ramsey also ignores that the "so called" 4% rule (as practiced here at FIRE Forum) includes an inflation adjustment. Its' true that only taking 4% of your initial starting stash every subsequent year OR 4% of each year's ending value is likely too conservative. BUT starting at 8% seems way too optimistic considering the early 2000s and 2008 (and other downturns.) His "simple math" of 12% growth minus 4% inflation is the very definition of getting it wrong. Heh, heh, 2 of my lab mates had to go back to w*rk because they took 8% from their stash!

 

[2HOTinPHX]

I was doing a search on retiring at 60 and ran across this article from the Ramsey team.

https://www.ramseysolutions.com/retirement/can-you-retire-on-1-million#:~:text=Will%20%241%20million%20still%20be,to%20retire%20in%20the%20future.
It mentions being conservative at 7%...ACK.

Let’s imagine you have $1 million in your retirement accounts by the time you retire. Historically, the stock market has an average annual rate of return between 10–12%.1 So if your $1 million is invested in good growth stock mutual funds, that means you could potentially live off of $100,000 to $120,000 each year without ever touching your one-million-dollar goose.

But let’s be even more conservative. Even if your account produces average returns somewhere in the ballpark of 7% each year—that’s still $70,000 worth of income to work with. (Keep in mind that the average household income in America today is around $69,700 per year.)2

The million-dollar question now becomes: Can you live off somewhere between $70,000 and $120,000 each year in retirement? That’s a question only you can answer!

Of course, keep in mind that 10–12% is an average. Some years your money will grow even more than that. Other years you might see smaller returns or even negative returns. If you’re not careful and you stop paying attention to how your investments are performing, you could wind up burning through your nest egg faster than you think and end up relying on Social Security (or Social Insecurity, is more like it).

That’s why you need to keep working with a financial advisor in retirement—in retirement—someone who can help you manage your investments and make sure you don’t accidentally shoot your goose!

 

[FREE866]

That’s why you need to keep working with a financial advisor in retirement—in retirement—someone who can help you manage your investments and make sure you don’t accidentally shoot your goose!

Nah , no need for an advisor, unless you have a very complex situation.



That 1% or more you pay to a financial advisor can easily add up to 6 figures over time.

 

[Dtail]

I was doing a search on retiring at 60 and ran across this article from the Ramsey team.

https://www.ramseysolutions.com/ret...l $1 million still be,to retire in the future.
It mentions being conservative at 7%...ACK.

Let’s imagine you have $1 million in your retirement accounts by the time you retire. Historically, the stock market has an average annual rate of return between 10–12%.1 So if your $1 million is invested in good growth stock mutual funds, that means you could potentially live off of $100,000 to $120,000 each year without ever touching your one-million-dollar goose.

But let’s be even more conservative. Even if your account produces average returns somewhere in the ballpark of 7% each year—that’s still $70,000 worth of income to work with. (Keep in mind that the average household income in America today is around $69,700 per year.)2

The million-dollar question now becomes: Can you live off somewhere between $70,000 and $120,000 each year in retirement? That’s a question only you can answer!

Of course, keep in mind that 10–12% is an average. Some years your money will grow even more than that. Other years you might see smaller returns or even negative returns. If you’re not careful and you stop paying attention to how your investments are performing, you could wind up burning through your nest egg faster than you think and end up relying on Social Security (or Social Insecurity, is more like it).

That’s why you need to keep working with a financial advisor in retirement—in retirement—someone who can help you manage your investments and make sure you don’t accidentally shoot your goose!

The concept of SORR is totally ignored in the article, Use a 10% withdrawal rate in Firecalc and see the results.

 

[JoeWras]

Plug it into Firecalc

OK, Dave. Here's your "Internet Nerd Living In Mom's Basement" take on your 80k on a 1M portfolio.

Yeah, Dave, we're going to get nerdy and use Firecalc. We know how much you love calculators like this that use actual historical return data. </sarc>

Plug in: $80k spending, $1M portfolio, 100% S&P. I'm presuming, Dave, that your "easy" 12% return is based on 100% in S&P.

Get ready to get mad and drop some hell-bombs our way, Mr. Ramsey.

And the results: drumroll, please...

FIRECalc looked at the 49 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 49 cycles. The lowest and highest portfolio balance at the end of your retirement was $-9,179,280 to $3,921,660, with an average at the end of $-2,084,538. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 34 cycles failed, for a success rate of 30.6%.

 

[Badger]

Nah , no need for an advisor, unless you have a very complex situation.



That 1% or more you pay to a financial advisor can easily add up to 6 figures over time.

+1

Cheers!

 

[Music Lover]

Nah , no need for an advisor, unless you have a very complex situation.



That 1% or more you pay to a financial advisor can easily add up to 6 figures over time.

1% is 25% of 4%.

If you have $2 million, 1% is $20,000. $100,000 (6 figures) gone in just 5 years.

 

[Gumby]

I'd rather forgo the eating of caviar today to preclude the chance of having to eat cat food in ten years. Mais, à chacun son goût.

 

[RetMD21]

Basement dwelling supernerds David Blanchett, Michael Finke and Wade Pfau reply to Ramsey citing SORR and geometric returns

https://www.thinkadvisor.com/2023/1...ave-ramseys-8-safe-withdrawal-rate-guidance/?

I feel sorry for the people that don't know better and even recruit friends and family into the Financial Peace University cult

 

[dknighd]

1% is 25% of 4%.

If you have $2 million, 1% is $20,000. $100,000 (6 figures) gone in just 5 years.

But, 1% is only 12.5% of 8%


Dave Ramsey is essentially click bait. But he provides a valuable service. He makes people think about these things. I would not pay him for this service. But it has value. Perhaps not to me, but for many.

His core message is simple. Live below your means. Do not take on high interest debt. If have high interest debt, pay it off ASAP. Then save some money for when you can no longer work.

 

[dknighd]

I'm 90% sure 4% is too conservative. But not 100% safe. I'm also 90% sure 8% is too aggressive.
SOR can work both ways. Sometimes you are lucky, and sometimes not.


But unless you have money saved and invested it does not matter what the hypothetical return is.


I'm pretty sure that Dave Ramsey and David Blanchett, Michael Finke and Wade Pfau all agree. You need to have money saved (unless you have a generous pension).

 

[latexman]

His core message is simple. Live below your means. Do not take on high interest debt. If have high interest debt, pay it off ASAP. Then save some money for when you can no longer work.

But, he's straying from his message with dangerous misinformation. In my opinion he's doing it on a calculated basis for his own benefit. This could be DR's "big lie" going forward. Let's see.

 

[dknighd]

But, he's straying from his message with dangerous misinformation. In my opinion he's doing it on a calculated basis for his own benefit. This could be DR's "big lie" going forward. Let's see.

He is getting older. So are we all. We might not live long enough to find out.


I kind of hope he is right.


One thing for sure. Paying high interest debt is silly. And we'll all benefit from having some investments. Even if they pay 0%.

 

[Music Lover]

I'd rather forgo the eating of caviar today to preclude the chance of having to eat cat food in ten years. Mais, à chacun son goût.

There is a LOT of grey area in between caviar and cat food.

And, basic human food is actually cheaper than cat food if you know how to shop.

 

[DJRR]

Fascinating to see 14 pages on this. We are clearly not the target audience. Dave does not recommend retiring early, or even at all.

Invest 15% of your income 100% in stocks, make 12%, withdraw 8% if you want when you need it. That will work for the vast majority of people who retire at 67 or 70 with SS, no mortgage, and a nest egg from years of investing. Depending on market conditions when you retire, actual people will adjust pretty quickly to SORR.

The fact that he makes millions recommending "trusted" FAs that use managed load funds is icing on the cake for him. People will end up better off, but not as much as if they were actually educated. If you can sleep at night knowing that then more power to you.

 

[dknighd]

There is a LOT of grey area in between caviar and cat food.

And, basic human food is actually cheaper than cat food if you know how to shop.

Yep.

 

[LateToFIRE]

Fascinating to see 14 pages on this. We are clearly not the target audience. Dave does not recommend retiring early, or even at all.

Invest 15% of your income 100% in stocks, make 12%, withdraw 8% if you want when you need it. That will work for the vast majority of people who retire at 67 or 70 with SS, no mortgage, and a nest egg from years of investing. Depending on market conditions when you retire, actual people will adjust pretty quickly to SORR.

The fact that he makes millions recommending "trusted" FAs that use managed load funds is icing on the cake for him. People will end up better off, but not as much as if they were actually educated. If you can sleep at night knowing that then more power to you.

+1, This is how I'm seeing it as well. Notwithstanding the fact that there is significantly more risk in DR's dumbed-down, 1+1=10 approach than most on this board would be comfortable with, his advice would work for many, if not most middle and working-class retirees. The assumptions behind 4% are extremely conservative (30 years, constant inflation increases, etc.) and would leave most adherents somewhat wealthier at death than when they initially retired.

Observing my extended family, which encompasses a wide range of socio-economic representation, those that "fail" in FIRECalc terms, will fallback on adult children and extended family and/or they will cut back spending to bare basics. These "failures" will not end up on the street, except in very rare circumstances, usually connected to dementia/mental illness. And while a large 4% portfolio will permit FIRE sooner and more confidently, it isn't going to provide any better protection from that potential risk of demise.

 

[Koolau]

I was doing a search on retiring at 60 and ran across this article from the Ramsey team.

https://www.ramseysolutions.com/ret...l $1 million still be,to retire in the future.
It mentions being conservative at 7%...ACK.

Let’s imagine you have $1 million in your retirement accounts by the time you retire. Historically, the stock market has an average annual rate of return between 10–12%.1 So if your $1 million is invested in good growth stock mutual funds, that means you could potentially live off of $100,000 to $120,000 each year without ever touching your one-million-dollar goose.


But let’s be even more conservative. Even if your account produces average returns somewhere in the ballpark of 7% each year—that’s still $70,000 worth of income to work with. (Keep in mind that the average household income in America today is around $69,700 per year.)2

The million-dollar question now becomes: Can you live off somewhere between $70,000 and $120,000 each year in retirement? That’s a question only you can answer!

Of course, keep in mind that 10–12% is an average. Some years your money will grow even more than that. Other years you might see smaller returns or even negative returns. If you’re not careful and you stop paying attention to how your investments are performing, you could wind up burning through your nest egg faster than you think and end up relying on Social Security (or Social Insecurity, is more like it).

That’s why you need to keep working with a financial advisor in retirement—in retirement—someone who can help you manage your investments and make sure you don’t accidentally shoot your goose!

Heh, heh, both my lab mates that had to go back to w*rk had an "advisor" (the same advisor) who told them he'd write covered calls which would "guarantee" that they could take their 8% every year.


I still recall one of these two guys bragging to me how "I never went to college and I had all these kids and I've got a nicer house than you do and I'm retiring way before you will and I'm gonna have more money to spend than now that I'm w*rking and blah, blah blah." The guy actually reported to me, so this was his last "dig" before leaving. I ended up my first summer after FIRE, helping HIM reposition cars - that was his retirement gig. I was doing it for fun. He was doing it so he could still pay his mortgage after his nest egg ran out at 8%. I never gloated as I felt really sorry for him and shared his rage at his "advisor."

 

[Gumby]

....
I still recall one of these two guys bragging to me how "I never went to college and I had all these kids and I've got a nicer house than you do and I'm retiring way before you will and I'm gonna have more money to spend than now that I'm w*rking and blah, blah blah." ...

It is a shame that some people can only experience "comparative" happiness; they can only feel good if they have more, do more, and/or are more successful than others. Ultimately, it's a fool's game, because there will always and forever be people who have more, do more and are more successful by that metric. Better, in my mind, to ask "can I have what I want to have, do what I want to to do and be who I want to be?" If the answer is yes, then I can be happy no matter what other people have, do or are.

 

[SnowballCamper]

+1 to the idea of Enough.

It is a shame that some people can only experience "comparative" happiness; they can only feel good if they have more, do more, and/or are more successful than others. Ultimately, it's a fool's game, because there will always and forever be people who have more, do more and are more successful by that metric. Better, in my mind, to ask "can I have what I want to have, do what I want to to do and be who I want to be?" If the answer is yes, then I can be happy no matter what other people have, do or are.

 

[ychuck46]

I never gloated as I felt really sorry for him and shared his rage at his "advisor."

Financial advisors most definitely have someone's bottom line interests at heart. Unfortunately, it isn't YOURS. Always remember that and educate yourself rather than depending on someone who oftentimes might know less than you do about saving and investing.

 

[Out of Steam]

We are clearly not the target audience. Dave does not recommend retiring early, or even at all.

This is the most important thing to remember when talking about Dave Ramsey here.

Even as a relatively unsophisticated investor with less in retirement assets and income than most here, I have an information level and ability to delay gratification well outside the norm for the people he's speaking to.

That said, his promoting mutual funds with a sales load to his followers is detestable.

 

[TickTock]

Basement dwelling supernerds David Blanchett, Michael Finke and Wade Pfau reply to Ramsey citing SORR and geometric returns

https://www.thinkadvisor.com/2023/1...ave-ramseys-8-safe-withdrawal-rate-guidance/?

I feel sorry for the people that don't know better and even recruit friends and family into the Financial Peace University cult

Excellent article!

"While Ramsey’s advice might be less depressing, it is also dangerous. No retiree should have their savings entirely in stocks. Bonds help buffer downturns, resulting in a higher safe withdrawal rate that comes from a lower sequence of return risk. And no retiree should believe that they can maintain an $80,000 lifestyle after saving $1 million."