Dave Ramsey rips the 4% rule again today.

[Koolau]

Thanks, but I think I'll pass the religious themed financial advice.
"Greed, for lack of a better word, is good."...Gordan Gekko

That's an interesting take. Personally, I take advice from folks all the time that (if I looked closely enough) I would find major disagreements on such things. I've yet to find one other person that thinks/believes the same way I do in all situations. So under those circumstances, does one only count on one's own council? I like to broaden my horizons when it comes to financial advice - not limit them on other principles. If the advice resonates with me, I tend to take the advice, regardless of other factors - but YMMV.


Yeah. "Wall Street" and GG were quite a "hoot" weren't they?

 

[ShokWaveRider]

I know I am digging up this post, but I was watching one of my favorite travel blog Tubers. I do not invest in the stock market, but I still found it interesting. It is an analysis of Dave Ramsey's 8% Forever recommendation. Let me know what you think?

You do have to listen to his initial Vegas gambling example, but there is a method in it. I thought it made sense.

If you click on the watch on YouTube link, it plays fine.

 

[MichaelB]

I know I am digging up this post, but I was watching one of my favorite travel blog Tubers. I do not invest in the stock market, but I still found it interesting. Let me know what you think?


If you click on the watch on YouTube link, it plays fine.

As a courtesy to fellow members please give us a short summary of what we can expect to find at the link.

 

[ShokWaveRider]

As a courtesy to fellow members please give us a short summary of what we can expect to find at the link.

Done.

 

[2HOTinPHX]

Interesting video, really brings home the need to have a plan for SORR and be flexible on draw down amounts too.

 

[GravitySucks]

Holy Cow. I’ve heard of Ramsey video but this is all I’ve seen of it.

Calling Bengen a moron nerd that never did anything. Unbelievable.

 

[mikes425]

Ramsay just strikes me as an arrogant grifting ass -He’s peddling a whole empire of FA services at a magnaninous premium and i wouldnt want anyone with this level of self interest and bias - with attitude - a seemingly inflexible and smug one - touching my $.

 

[JBTX]

He has either

- lost his faculties as he has gotten older

Or

- playing heavily to his cultural /political affiliation. He seems very much a part of the narrative that obsesses about “elites” etc and seems to have a huge chip on his shoulder.

His ranting about the correct number being 8% is flat out idiotic.

 

[HI Bill]

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

...It's not necessarily and either-or scenario. Instead of under-spending forever, you could:

1) Have cash reserves equal to several year's expenses
2) Reduce or eliminate discretionary expenses during down markets
3) Establish a 'floor' on spending
4) Downsize your home & expenses when the SHTF
5) Use VPW to help you maximize your spending

In the first 15 years of my ER, I'm using #1, 2, 3 and 5 via VPW to maximize spending during what are likely the most healthy years of my retirement. Since my current budget (3 years into ER) includes a 6% WR, and 50% of my spending is discretionary, it's highly unlikely that I'd run out of $, unless we hit a 20+ year deflationary period such as Japan has encountered, or enter a period of unchecked inflation. This all assumes one doesn't Lean FIRE, but has a Fat FIRE scenario (meaning you likely over-saved and put off ER too long).

 

[RetMD21]

Ramsay just strikes me as an arrogant grifting ass -He’s peddling a whole empire of FA services at a magnaninous premium and i wouldnt want anyone with this level of self interest and bias - with attitude - a seemingly inflexible and smug one - touching my $.

I agree. I think he makes most of his money on fees paid for referrals. I tried to see who he would recommend as a FA in my zip code but the next screen requires contact information so I stopped there. Is it possible that he is selecting for unsophisticated folks. For certain financial advisors and insurance agents that might be the target group.

 

[ShokWaveRider]

Dave Ramsey Just reminds me of the "My Pillow" guy. Just another salesman that a lot of people fall for. He takes advantage of the misfortunate, the biggie that makes me cringe, is he has used one's spiritual beliefs promote his practices. Like other financial evangelists (Loose analogy) he started off with standard common-sense ideas, as they ALL do. The ultimate goal to make as much money as possible from those who fall for his charisma. Happens every day on infomercials and folks fall for it.

Not that there is not a snippet of sense in some what he preaches, but be aware of the ultimate goal.

 

[Al18]

Seems a more prudent approach if you had 1 million dollars, to have 60% in stocks and 40% in fixed assets with an initial 4% drawdown. Ignore Dave Ramsey - he seems like an idiot.

 

[Time2]

I'm not giving Ramsey a break on his idea of a 8% WDR. But let's start with getting out of debt, his go to line is, pay off your smallest debt first, when we all know, paying off your highest interest debt is the best financial advice. Why does he say this? It is a psychological plan to give the debtor a small success to bolster their confidence that they can get out of debt. In at least one of the videos Ramsey mentions that the 4% guide means they have to save twice as much and is discouraging to their success of building a nest egg. But, that reasoning doesn't make the 8% WDR anymore sustainable.


Ramsey has got to know about SORR, other than what I just said, his position is not supportable. I think he has dug in so deep, he can't admit he is wrong. Hopefully after the kingdom is turned over to the personalities they will get on the right track.

 

[Dtail]

Well remember Peter Lynch of the Fidelity Magellan fund who had great success.
He stated that one can take 7% WR due to the historical 10% S&P return less 3% inflation.
No concept of SORR and then Bengen came along with a more conceptual common sense approach.

 

[frayne]

Dave is an entertainer and happens to sell financial advice on the side. Some of it is good, like staying out of debt and living below your means and some of it is bad, buying managed MFs and his withdrawal rate silliness. Buyer beware and take his advice for what it is worth.

 

[brett]

From my perspective all the detailed retirement planning spreadsheets and countless 'experts' pronouncements on safe withdrawal rates are no substitute for basic common sense and basic math.

Seems to me that spending time on retirement investment strategies and tax planning would be a far better use of time/effort.

 

[GravitySucks]

Well remember Peter Lynch of the Fidelity Magellan fund who had great success.
He stated that one can take 7% WR due to the historical 10% S&P return less 3% inflation.
No concept of SORR and then Bengen came along with a more conceptual common sense approach.

To be fair, that wasn’t just Lynch. That was the prevailing advice at the time. Bengen was the first to do the research debunking the common advice.

 

[Koolau]

From my perspective all the detailed retirement planning spreadsheets and countless 'experts' pronouncements on safe withdrawal rates are no substitute for basic common sense and basic math.

Seems to me that spending time on retirement investment strategies and tax planning would be a far better use of time/effort.

I'm not certain what you mean by common sense and basic math. I was SO happy to learn about the basics (here on the forum) of the 4% rule based on Bengen's et. Al's w*rk. I found that over 20 years ago and FIRECalc is what I used to decide I was FI back then.

I've always credited myself with "common sense" but I found the decision of whether I was FI or not was fairly complicated. I saw estimates of what one could safely withdraw as high as 8% or more for 30 years. (The financial "porn" of that era - ca 2002 suggested such withdrawals were possible.)

I had a direct report in my w*rk group who retired several years before I did because a local "guy" (broker) said he could give the guy monthly checks (essentially 8%) because he (the broker) would write covered calls on stuff in the portfolio. A few years later, my w*rk mate was repositioning cars to make enough money to pay his bills.

So, I credit this forum with most of my financial acumen. FIRECalc specifically is a great tool IMHO. YMMV

 

[Dtail]

I'm not certain what you mean by common sense and basic math. I was SO happy to learn about the basics (here on the forum) of the 4% rule based on Bengen's et. Al's w*rk. I found that over 20 years ago and FIRECalc is what I used to decide I was FI back then.

I've always credited myself with "common sense" but I found the decision of whether I was FI or not was fairly complicated. I saw estimates of what one could safely withdraw as high as 8% or more for 30 years. (The financial "porn" of that era - ca 2002 suggested such withdrawals were possible.)

I had a direct report in my w*rk group who retired several years before I did because a local "guy" (broker) said he could give the guy monthly checks (essentially 8%) because he (the broker) would write covered calls on stuff in the portfolio. A few years later, my w*rk mate was repositioning cars to make enough money to pay his bills.

So, I credit this forum with most of my financial acumen. FIRECalc specifically is a great tool IMHO. YMMV

Agree. If one has no idea of the 4% guidance WR, then it is a big assistance in helping to decide if one's portfolio is in reasonable shape to retire.

 

[Dtail]

To be fair, that wasn’t just Lynch. That was the prevailing advice at the time. Bengen was the first to do the research debunking the common advice.

True but also he was considered one of the financial gurus at the time and it is hard to believe that he could not reason out an SORR concept.

 

[brett]

I'm not certain what you mean by common sense and basic math. I was SO happy to learn about the basics (here on the forum) of the 4% rule based on Bengen's et. Al's w*rk. I found that over 20 years ago and FIRECalc is what I used to decide I was FI back then.

I've always credited myself with "common sense" but I found the decision of whether I was FI or not was fairly complicated. I saw estimates of what one could safely withdraw as high as 8% or more for 30 years. (The financial "porn" of that era - ca 2002 suggested such withdrawals were possible.)

I had a direct report in my w*rk group who retired several years before I did because a local "guy" (broker) said he could give the guy monthly checks (essentially 8%) because he (the broker) would write covered calls on stuff in the portfolio. A few years later, my w*rk mate was repositioning cars to make enough money to pay his bills.

So, I credit this forum with most of my financial acumen. FIRECalc specifically is a great tool IMHO. YMMV

I did the spreadsheet thing for quite some time. After a while I stopped. Before stopping I did a parallel run for two years or so.

My basic focus is on the 'the gap'. The gap between what I receive each month/each year from various guaranteed sources and the our estimated cash flow in retirement. The cash flow is simple...a tape from our current account plus any upcoming changes to expenses/capital items. I do not care about expense categories....it does not change the bottom line cash flow number for me.

The next was investment income in the last year vs. our cash flow requirements for the following year.

I do a cash requirement calculation every November/December at the same time that I do a pro forma tax return for each of us. I calculate what we need and what we need for tax installments during the year and plan our equity withdrawals accordingly.

I compare investment income to estimated cash requirement (based on current and estimated future), adjusted for a conservative E&O percentage to cover off inflation, estimated tax rate, etc.

Those were finger in the wind educated estimates that took 15-30 minutes.

After that it was down to ensuring that the equity investment accounts are increasing at reasonable ROR, net of inflation, net of cash withdrawals.

As a result, I spend much more of my time on investment strategy and tax strategy. The parallel numbers between elongated spreadsheet and these fairly quick, common sense calculations have been surprisingly similar.

 

[Lewis Clark]

True but also he was considered one of the financial gurus at the time and it is hard to believe that he could not reason out an SORR concept.

Peter Lynch made his reputation as a stock picker while managing the Fidelity Magellan fund.

Personal finance issues were not in his wheelhouse as far as I know, as least not publically. And I don't recall these issues discussed in the books he wrote that I read, as far as I recall.

 

[jeroly]

Peter Lynch made his reputation as a stock picker while managing the Fidelity Magellan fund.

Personal finance issues were not in his wheelhouse as far as I know, as least not publically. And I don't recall these issues discussed in the books he wrote that I read, as far as I recall.

Retiring without knowing about SORR is a bit like being driven around without wearing a seat belt... oh wait I did that back in the '70s too.

There really wasn't much 'science' to retiring back when I FIREd in 2001 - I wasn't much different than Peter Lynch or Dave Ramsey in my approach save for using more conservative numbers (i.e., 'I'll assume 8% annual returns and 3% inflation in my all-stock portfolio, each and every year'). I never heard of SORR until maybe five years ago. How I managed to not run out of money is a bit of a miracle.

On the other hand, I felt at the time that I was being really cautious with my 5% WR! I remember that there was one of those 'Your Retirement' glossy magazines back in 1999 by Money Magazine that had a section with a bunch of real people's retirement plans, that were commented on by a panel. There was one guy who had a plan to withdraw 15% a year - that one was just a tad too much for even the optimistic panelists, who suggested that it 'might' not be sustainable.

 

[ERD50]

Retiring without knowing about SORR is a bit like being driven around without wearing a seat belt... oh wait I did that back in the '70s too.

There really wasn't much 'science' to retiring back when I FIREd in 2001 - I wasn't much different than Peter Lynch or Dave Ramsey in my approach save for using more conservative numbers (i.e., 'I'll assume 8% annual returns and 3% inflation in my all-stock portfolio, each and every year'). I never heard of SORR until maybe five years ago. How I managed to not run out of money is a bit of a miracle.

On the other hand, I felt at the time that I was being really cautious with my 5% WR! ...

No, not really. A conservative WR has survived historically, regardless of whether you get to that number by just conservative estimates, or by incorporating SORR.

And even 5%, which is not generally considered conservative historically, survives ~ 75% of the time. So 3 of 4 retirees with a 5% WR would be Alfred E. Neuman's (what, me worry?). Not a miracle at all.

edit/add: And for your 23 year horizon, 5% is > 88% success. And that's not counting any SS/pension.

-ERD50

 

[Gumby]

In light of recent experience, I've been wondering whether we ought also to be talking about the SOIR (sequence of inflation risk) as well as SORR. It seems to me that a couple years of high inflation early in retirement, even if it subsequently abates, will have the same negative consequences as a couple of years of low returns during that same period.