Dave Ramsey rips the 4% rule again today.

[dknighd]

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.

I agree! I think the key to a long and happy life is to have money in the bank. If you sleep better at night, you will likely live longer. . .
I'm not sure how Dave Ramsey managed to get rich by suggesting people not get in debt, and have an emergency fund. To think, I've been giving that advice away for free!


Edit: To be fair, some debt is not so bad. Debt is a tool. I borrowed money to help pay for my education. I also borrowed money to buy a house. These were things I thought would pay off in the long term. And they did. Both debts are now paid.
But I have two new debts, on cars. One at 0%, one at 1.9%. I could have paid cash, but why would I? Dave Ramsey would have me pay off the 0% debt first, since the balance is lower. I'm not sure how that makes sense.


Edit2: Don't worry Gumby, somebody will spend it.

 

[Music Lover]

+1. Die with $7MM or be eating cat food with no options at 91 years old. Your choice.

Are those the only 2 options? Are people not allowed to make annual adjustments?

If you're 90 with $7 million I would be my entire net worth that you can safely WD more than 4%.

 

[Gumby]

Are those the only 2 options? Are people not allowed to make annual adjustments?

If you're 90 with $7 million I would be my entire net worth that you can safely WD more than 4%.

You probably could withdraw more than 4% in that scenario, but I'd bet you have your life down to a routine/lifestyle that suits you and a spending level to match that.

Heck, I know I could spend more, but there is no current need to do so. I'm quite happy with the way my life is going right now and I can't think of anything more that I want or need. If the young wife and I are fortunate enough to live into our 90s, it is quite possible we'll leave an 8 figure estate (current dollars), but I don't care. If there is any emergent want or need, we don't have a problem spending for it, but I'm not going to spend money on folderol just because I can't stand the thought of leaving it unspent.

 

[k-man]

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

This is essentially my in-laws. They retired in 1998 and panicked at the worst time....in 2009, and pulled it all out. They managed by being very frugal and some financial assistance from us starting in 2014. As of this year, just my 92 year old father-in-law is left, with about 150K left, a 400k paid for house and needs of 12K a year for basic needs. So, we should be able to get him to the end of the road without too much more out of pocket for us as his discretionary spending is minimal at this point. We'll get the house as an inheritance if it's not needed to pay for long term care, so, not counting on it. Thankfully we're fortunate enough to be able to help.

Ramsey leaves out sequence of return risks....and so it's just bad advice to tell people that it's safe to withdraw 10% of ones portfolio.

 

[dknighd]

Are those the only 2 options? Are people not allowed to make annual adjustments?

If you're 90 with $7 million I would be my entire net worth that you can safely WD more than 4%.

I currently plan to live to 95. But if I was 90 I'd plan for 105. If I make it to 100, I'd start thinking about 110. Smile and be happy.

 

[FI_RElater]

I currently plan to live to 95. But if I was 90 I'd plan for 105. If I make it to 100, I'd start thinking about 110. Smile and be happy.

my planning age is 92_____ two std dev above the mean, and only one person in all family history (including those in the in-laws) made it above that
I use two std dev since some factors indicate more extended lifespan (education and financial), but don't go beyond because of my specific career (which life insurers don't insure at the most preferred rates) and slight medical history effects.
Once we start getting into mid to later 70's the spigot can open even more as even the RMD percentage gets to be 4.5% and generally RMD is very conservative.

So for me its less than 25 years and roughly 30 total for DW; still using 3.5% under a modified Guyton-Klinger approach and have pension and just started the lower PIA SS this year after doing Roth conversions earlier.

Unfortunately, while a couple of the nieces and nephews might be able to use some of DR's debt material they might not be astute enough to recognise the BS of his investment advice.... so I'd never steer them towards DR. The more "challenged" ones will probably have to work far beyond just 60/62 as they aren't college grads and are in far more "blue collar" work... and aren't getting much help against inflation.

 

[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....

I ran across this video critic of Dave's recommended Withdrawal Rate and why Dave has it wrong.

He does a good job! Give the guy some love, he has 81 subscribers. 82 now
He even throws a biblical quote at Ramsey, in an effort to get him to correct his error.

 

[Andre1969]

I currently plan to live to 95. But if I was 90 I'd plan for 105. If I make it to 100, I'd start thinking about 110. Smile and be happy.

If you make it to 100, you might not be thinking about anything at all. When my Granddad got to that point, in many ways he had the mind of a 3 year old, and Dad had to pretty much keep an eagle eye on him.

 

[Koolau]

You probably could withdraw more than 4% in that scenario, but I'd bet you have your life down to a routine/lifestyle that suits you and a spending level to match that.

Heck, I know I could spend more, but there is no current need to do so. I'm quite happy with the way my life is going right now and I can't think of anything more that I want or need. If the young wife and I are fortunate enough to live into our 90s, it is quite possible we'll leave an 8 figure estate (current dollars), but I don't care. If there is any emergent want or need, we don't have a problem spending for it, but I'm not going to spend money on folderol just because I can't stand the thought of leaving it unspent.

That's where I am. I just don't need much else in my life. My big BTD this summer was buying several hundred DVDs for a dollar or two at resale shops. I'm preparing the ones I want to keep at the Old Homestead and the dupes I plan to take home.

Other than that - maybe someday we'll fly business or 1st class. So far, we can't pull the trigger on the extra price - even though we can afford it. What's wrong with this picture?

 

[Koolau]

I currently plan to live to 95. But if I was 90 I'd plan for 105. If I make it to 100, I'd start thinking about 110. Smile and be happy.

Heh, heh, if I live to 95, I'll likely think I'm 22 and marry some young thing to help spend my left-over money. I'm sure it happens.

Of course, all bets are off if DW is still around. Nix on the young thing - guess we'll leave a lot on the table.

But seriously, my plan runs to 99. If I get that far, I'm guessing I won't even be thinking about finances. Probably will be vegging in a bed someplace. Please, God, not that!

 

[Andre1969]

Ramsey leaves out sequence of return risks....and so it's just bad advice to tell people that it's safe to withdraw 10% of ones portfolio.

If you simply pull out 10% of your portfolio's value at the end of the year, and leave the rest, it will actually go on forever. It's just that, if your portfolio keeps depleting (and it most likely will at that rate), you have to pull out a smaller amount every year, and eventually you're going to need some kind of supplemental income to live off of

For instance, if you have $1M, and pull out $100K, you have $900K left.
If at the end of the next year, it gets back to $1M in value, you can pull out another $100K. But if it's a bad year, and that $900K drops to, say, $500K, then you can only pull out $50K.

Of course, that's not how the 4% rule (or 3%, 5%, or any % rule) is supposed to work. And I don't think Ramsey gets that.

 

[Sojourner]

I ran across this video critic of Dave's recommended Withdrawal Rate and why Dave has it wrong.

He does a good job! Give the guy some love, he has 81 subscribers. 82 now
He even throws a biblical quote at Ramsey, in an effort to get him to correct his error.

Great video. I happily watched it, since I'd much rather give this guy YT clicks and ad revenue than DR himself.

It's astonishing how glib and nonchalant DR is about something as crucially important as one's safe withdrawal rate in retirement. It's almost beyond belief that he advises people they can withdraw 8% (or more!), in perpetuity, and feel safe and secure about it! "Oh sure, as long as you're invested in good, broad market mutual funds that traditionally have earned 11-12% annually, then why should you limit yourself to 4 or 5% withdrawals? Why not do 8%? Or even 10%?" Oh...my...god. Wow. I feel very sorry for anyone unlucky enough to be taking his advice about SWR.

 

[Time2]

If you make it to 100, you might not be thinking about anything at all. When my Granddad got to that point, in many ways he had the mind of a 3 year old, and Dad had to pretty much keep an eagle eye on him.

I have breakfast once a week with a 98 yr old. His mind is all there, always lucid, but his body is worn out. We have to walk him to his car after breakfast, a walker has been suggested many times, last breakfast as I was walking him out, he tripped and he said, I would be on the ground and not able to get up if I wasn't holding you. He drives to the restaurant, in fact he drives out for all his meals, because he can't physically cook or clean dishes. He was getting meals on wheels until they found out he drives and they stopped his meals. He has had a younger girlfriend in her 80s for over 30 years. They live next door to each other. It is a 60 ft walk to her door, but he drives over because walking is to difficult. He is up on today's news and can tell you about 60 years ago. I'm not sure I want to be all there if I can't do anything other than eat and watch TV. His girlfriend says he has no health issues, he's just worn out.

 

[Time2]

Heh, heh, if I live to 95, I'll likely think I'm 22 and marry some young thing to help spend my left-over money. I'm sure it happens.

There is hope if you don't mind an older women, she's 26. Just hope your relatives don't try to pry the money from her ;-/
Anna Nicole and billionaire J. Howard Marshall.

 

[donheff]

Late to the game as usual. I notice the thread and we are already 4 pages in. I never actually watched DR before, entertaining and over confident, but that makes a good showman.

His 4% segment was interesting but seemed to be apples and oranges. I think he was talking about withdrawing x% of the portfolio each year, rather than starting at x% and adjusting that fixed amount up each year for inflation. Two very different things. He picked 7% because that is the average growth over average inflation. As we all know, whatever amount he picks can be pulled in perpetuity but will be as volatile as the market is volatile. He thinks the 4% rule is too conservative for his audience, but his 7% rule could leave them eating cat food after a downturn if they needed the starting amount to live.

 

[GenXguy]

I never watch or listen to Dave Ramsey. Pretty unbelievable that he's recommending up to 10% withdrawal rate. What a way to set people up to fail. That's some pretty terrible advice, as the video above shows.

 

[ExPatKiwi]

That's where I am. I just don't need much else in my life. My big BTD this summer was buying several hundred DVDs for a dollar or two at resale shops. I'm preparing the ones I want to keep at the Old Homestead and the dupes I plan to take home.

Other than that - maybe someday we'll fly business or 1st class. So far, we can't pull the trigger on the extra price - even though we can afford it. What's wrong with this picture?

Hmm sound like me don't want to waste money and always looking for a bargain.

 

[Lewis Clark]

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.

I used to listen to Dave Ramsey while driving to work. I heard him explain his reasons on his debt snowball a couple of times.

He readily acknowledges that the math tells us to pay off the highest interest rate first.

However, he approaches this from the psychological perspective of people heavily in debt. For those folks, the psychological win of eliminating a small debt often serves as motivation to continue the debt payoff process. Given the demographic he serves this is not a bad strategy. Better a sub-optimal strategy (from a math perspective) than no strategy at all.

 

[Markola]

His book Total Money Makeover changed my daily spending management and mindset. Other than that, meh.

 

[jazz4cash]

I am mot a DR fan bit I watched the video anyway and I do agree with his opinion of Credit Scores. His co-host called them catfish of the financial services industry.

 

[RetiredAt49]

I never watch or listen to Dave Ramsey. Pretty unbelievable that he's recommending up to 10% withdrawal rate. What a way to set people up to fail. That's some pretty terrible advice, as the video above shows.

While I have never listened to Mr. Ramsey, the idea that someone with an all stock portfolio could actually withdrawal 10% of his/her portfolio is not crazy at all (inflation adjusted - but not to be confused with the 4% rule/style where that initial amount is fixed).

Sure, you’ll have some years where your portfolio dips and you don’t get the same withdrawal amount as the year prior but take a look at how the following Portfolio Visualizer result looks using this strategy for the past 51 years from 1972 - 2023 (Note that 1973 and 1974 were two big/horrible years for the market too). Granted, if you absolutely needed a hard budget then the Bengen 4% rule is a much better guide. For those of us with some flexibility, the Ramsey approach isn’t horrible and quite honestly it more closely matches what we do (spend a little more when the market is good and cut back during a bear market).

https://www.portfoliovisualizer.com...o+3&asset1=TotalStockMarket&allocation1_1=100

 

[youbet]

^^^^^^

Great post! Thanks RetiredAt49.

 

[ERD50]

While I have never listened to Mr. Ramsey, the idea that someone with an all stock portfolio could actually withdrawal 10% of his/her portfolio is not crazy at all (inflation adjusted - but not to be confused with the 4% rule/style where that initial amount is fixed).

Sure, you’ll have some years where your portfolio dips and you don’t get the same withdrawal amount as the year prior but take a look at how the following Portfolio Visualizer result looks using this strategy for the past 51 years from 1972 - 2023 (Note that 1973 and 1974 were two big/horrible years for the market too). Granted, if you absolutely needed a hard budget then the Bengen 4% rule is a much better guide. For those of us with some flexibility, the Ramsey approach isn’t horrible and quite honestly it more closely matches what we do (spend a little more when the market is good and cut back during a bear market).

https://www.portfoliovisualizer.com...o+3&asset1=TotalStockMarket&allocation1_1=100

It's not as bad as I thought, but it's still bad IMO.

Use FICALC ( ficalc.app ) to more easily show individual years. For 1973 (which doesn't fail with a 4% inflation adjusted plan), sure 10% looks good for the 1st four years of 1973-1977, but 1978-2003 provides less than $40K except for 1999 and 2000 ( barely more than $40K), with many years in the $24~$30K range.

edit/add: OK, I see that FICALC provides average spend, and that was $35,788.05 for the 10% of portfolio, but the 10% also ends at $180K, where the 4% of start is almost gone ~ $7K.

So if we take $173K delta, divide by 30 years, we'd have another $5.777K to spend each year, bringing the average to $41,555.

Of course none of this can be known in advance, but that math makes it more apples-apples.


-ERD50

 

[youbet]

It's not as bad as I thought, but it's still bad IMO.

All withdrawal plans have their pros and cons ERD50. Most aren't even understood by the folks critiquing them. For example, look at all the posts here where the posters think Ramsey's advise is to withdraw 10% based on the Bengen methodology, which, of course, it's not.

Personally, I don't use or recommend any withdrawal plan. I play it by ear, month by month and year by year, managing my WR and AA based on my understanding of historical data and predicted trends. And I try to be aware of all the popular recommendations and their pros and cons.

So far, 18 years in, I've apparently been too conservative. But that only becomes observable after the time has past......... Now I'm paying particular attention to the "gifting with a warm hand" thread" !

 

[jazz4cash]

, the idea that someone with an all stock portfolio could actually withdrawal 10% of his/her portfolio is not crazy at all (inflation adjusted - but not to be confused with the 4% rule/style where that initial amount is fixed).

Sure, you’ll have some years where your portfolio dips and you don’t get the same withdrawal amount

Nope. DR claims 10% in perpetuity without touching the principal. It’s not clear to me that he is suggesting variable withdrawals.