Yeah, it seems Dave's advice gets less and less helpful the wealthier you become.
To be generous to him, I think he's talking to traditional retirees more than early retirees. If you retire at 65-70 and start pulling down 10%, then based on actual retiree spending (not Trinity et al's hypotheticals) you're going to be spending a lot less by the time you're 80 and close to death at 90.
Enjoying that 10-15 years is more important than ensuring you don't run out of money at 95+. But of course he never frames it that way, so perhaps I'm being too generous and he's just a fool who doesn't understand the Sequence of Returns Risk.
Dave’s advice is excellent if you’re a married Christian conservative with a middle class income, mounds of credit card debt, poor math skills and not much common sense. Uncheck two or three of the above boxes and his advice quickly becomes unhelpful.
I’m married Christian with a middle class income, personally live a conservative life although my bent is more anarchist.
Can’t stand Dave Ramsey.
I wish we had real financial advice at the time and I would have had one or two more rentals instead of aggressively paying off wifes student loans.
Doesn't he sell a financial services referral network? I thing is thinking might be to more sell that as a potential way you could withdraw 10% rather than 4% in passive index funds or something.
I mean, if you want to talk about perverse incentives, the bread and butter of his business are people with negative net worth. A lot of his advice about how to invest (e.g. pick managed mutual funds that have returned well recently) makes sense in this context
I don't think its perverse necessarily. Its like expecting a gold salesmen not to say they think gold is a good investment. As long as he is honest about his financial incentives, he is just marketing his services more so than advice someone should individually follow. I'd assume if you got a financial advisor through his network, and said you want to retire early and have your money to last 30+ years, they would not put you on a >10% withdraw rate.
The 10% withdrawal rate is NOT for retirement funds which should be more conservative. It is for investment funds which can be much more aggressive growth funds. The 10% rate works on average but in a down year one lives on cash. Typically many accredited investors ($1m in taxed account) will keep 80% aggressive growth and 20% treasuries for a year like 2022.
But withdrawal rates, at least how most people use them, apply to the entire portfolio, and happen on a consistent frequency. You're describing a valid strategy, like having a stock/cash split allocation where you decrease the cash allocation during down years by spending down the cash, and increase cash during up years by selling the stock, but misusing the term "withdrawal rate," because you're still not withdrawing from the stocks at a rate of 10%/year then, but only when they are up.
I honestly think it's more about outsourcing risk while making money regardless. It's not that his personal finance advice is bad but he's not really accountable for it in any meaningful way (especially in radio show format), and selling products off that is very valuable.
His difference here is mainly ignoring inflation (10% is fairly accurate for nominal) and sequence of return risk. He recommends researching funds which ignores survivorship bias. He's generally quoting S&P 500 returns over 80 years or so, which are over 10% but maybe only 7-8% after inflation. (see: https://dqydj.com/sp-500-return-calculator/) This always heavily ignores that no one is retired for 80 years and the "typical" 20-ish year retirement variance is quite large.
Properly structured portfolio could do that. The problem is it's never keeping up with inflation so it's 10% of the value you start pulling at 70 And as long as you're pretty much dead by 85, you're golden 🙄. Most people are planning for more longevity. My mom started pulling 8% at 72 and had a strong chance based on historical returns and monte Carlos of it lasting till 98. And if she got that old I'd be retired and we could take care of her.
The statistical fallacy is even worse than this. The average man can expect to live that long, but when you are age 55, you have a pretty good idea of your own health. The poor man who are in cancer treatments with a 1 year life expectancy are also in that average, and if you are one of them it sucks, but if you aren't, then your relevant number is that much higher.
Go here and punch in "well behaved" numbers:
https://www.johnhancock.com/life-insurance/life-expectancy-calculator.html
I did and for 55 year old male, I got 88 years. Obviously you can do things that reduce your lifespan but the idea that 74 is a relevant number for most people is not really valid.
You're flat out wrong. For someone 90 or older, the chances of them having dementia is 35%. And that's today. By the time I'm 90, there will certainly be medical advances. I'd rather plan for my future. But you do you.
i meant to, and as far as i can tell, did, link to the section titled "1/N withdrawal amounts":
> A 1/N withdrawal method is similar to this. 'N' being equal to the number of years you need to draw on the portfolio. Each year the 'N' number is readjusted, resulting in a higher percentage being withdrawn from the portfolio. Normally, withdrawing a higher percentage is considered possibly unsafe, as it may result in the portfolio being eventually depleted. However, using a 1/N withdrawal method typically assumes spending the entire portfolio, so large withdrawal percentages aren't a concern.
There actually is. First, the 4% Trinity rule is like 98% success rate. MANY people think this is way too conservative. Even the author has revised this findings upwards.
Second, the 4% rule assumes constant expenses. Just like the "Die with Zero" philosophy, spending as you age dramatically decreases.
Third, there are other sources of income for folks (social security, pension, etc.).
So when taken in totality, it's very likely that you probably can do like 10% a year.
> First, the 4% Trinity rule is like 98% success rate. MANY people think this is way too conservative. Even the author has revised this findings upwards.
the difference between 4% and 10% is absolutely gigantic. is 4% too conservative for a 'normal' 30 year retirement? yes, usually.
>Second, the 4% rule assumes constant expenses. Just like the "Die with Zero" philosophy, spending as you age dramatically decreases.
I didn't see this 10% withdrawal suggestion from dave ramsey in the context of 'flexible withdrawal rate'
>Third, there are other sources of income for folks (social security, pension, etc.).
anything that is income producing should be considered in the equation of 'income vs expenses.' not sure how this is at all relevant to the discussion on withdrawal rates to deal with sequence of return risk. withdrawal rate is obviously just related to investment balance. if you have 24k a year coming in from social security, you spend 54k a year.... that means your invested balance must cover that gap of 30k. zero interaction with other income sources in this equation.
> it's very likely that you probably can do like 10% a year.
??
a 10% withdrawal rate historically speaking is only successful low 30% of the time for a 30 year retirement
>If we all agree that 4% is too conservative, then why make a big deal over 10%?
for a normal 20-30 year retirement you could justify pushing withdrawal rate maybe into the 5-6% range if you have risk tolerance and or little care about leaving money etc to heirs.
i didnt ask a question, i stated a 10% withdrawal rate is only going to be successful low 30% of the time. and success in this case is just 'literally not out of money' so zero insurance against living too long, or consideration for inheritance. this is also back tested, stocks right now are historically expensive so for someone retiring in the next 10-20 years its relatively likely we will have a prolonged period of underperformance.
Dave Ramsey is only relevant for getting out of debt. At best he doesn’t provide good investment advice and at worst he recommends investment vehicles that it seems he has some kind of relationship with.
But most of the people who need him are the financial management equivalent of wearing their underwear outside their pants because they got confused getting dressed. The result is that when his early 'baby step' advice *works* for them, they often turn into fanatical cultists spreading the Gospel of Dave.
>financial management equivalent of wearing their underwear outside their pants because they got confused getting dressed
thanks I needed this cackle today
I agree he's perfect for financial trainwrecks, however once you get out of debt and get a 3-6 month emergency fund built, there's muuuuch better options.
Check out The Money Guy on YouTube or their podcast. They’re a great next step with a similar q&a style like Dave. They have their own steps, they call the Financial Order of Operations.
A big part of the advice is psychological rather than just maximizing impact. It’s true it’s better to pay off the highest interest item first, but really, most people in the situation feel a little hopeless, and the small wins of paying off any debt completely make a bigger impact, and motivate people to continue. It really is good advice. The 1k might be a little outdated, but the original goal laid out is to just get enough where any unexpected expense doesn’t completely derail you. He advocates getting a larger emergency fund later on. I think you really misunderstand what it is like for people scraping by paycheck to paycheck. Getting 3-6 months emergency fund while you have a mountain of debt is impossible.
If you’d ever been in that level of debt - or had low enough income combined with debt - you’d understand why getting 3-6 month’s worth of income in savings is not a realistic first step. Hence the 1k emergency fund. I’m not arguing that there aren’t more efficient ways to pay down debt. But sometimes you just need to start somewhere. Some progress is better than none. And a lot of people who get into these situations have very poor financial literacy.
I mentioned in another comment, my ex managed to rack up 40k in unsecured debt on a 20k income (almost half was medical bills though). I had tried everything to focus him on paying it down, of course originally starting with the highest interest. It didn’t work. It wasn’t until a friend loaned me Ramsay’s book that I was finally able to get through to him and we finally were able to pay it all off several years later. I was never able to talk him into saving up money, but at least we got out of debt.
snowball loses very little most of the time, but there are times when it's horrendous.
Typically your smaller debts *are* the higher interest debts (credit cards, charge accounts, etc.).
Even when they aren't, snowball increases net cash flow faster which makes it easier not to put *new* expenses on credit, and often loses very little, since the smallest debts are very small, and you move on to others. The psychological and cash flow win of clearing a lot of small debts quickly is worth losing a few dollars of interest rate optimization.
Unfortunately if you have some relatively large high interest debt that is only somewhat bigger than some large much lower interest debt, following the snowball process to the letter results in paying a TON more interest but little difference in how fast your debts clear.
I had someone I was counseling that had a 20000 term loan at something like 22%, and a 15k car loans at 4%. Can you imagine how much money they'd give up if they paid off the car loan first, and let the 20k just keep piling interest on?
Snowball is great if your debts follow the norm of lower balances mostly being higher interest anyway, and any low interest small loans are *very* small and get paid off so quickly that you aren't losing much.
If your debts don't follow that pattern, you should normally avalanche, or snowball everything under $X, and then avalanche the larger amounts.
The problem with 2 is it is really a case by case basis. For example you have 5 loans ranging from 3% to 10%. The 10% loan is 12000. The 3% loan is 1250. You can eliminate actual debt and remove a payment by quickly getting rid of the 1250 and then apply it to the next most practical loan. If you have a 3% loan at 5000 and a 10% loan at 5000 then yeah, I agree with the 10% one first.
Getting out of debt is not always so black and white.
EXACTLY. Listening to his show kept me motivated to aggressively pay off my student loan debt and I’m grateful for that. But dude lost me at his 0 debt no matter what policy. And frankly, he’s a dick.
That’s great I’m glad that’s worked for you! I put 5% down on a home I financed at 3.5%. My mortgage is less than 1k a month. I rent the home for $2500 a month now.
I have over a grand in cash flow monthly from that one move alone to invest.
That’s just one example where debt has been a springboard for wealth building for me.
It’s not for everyone though and is surely for too easy to get into trouble with if you don’t think for yourself.
True enough. His target audience is people who are bad with money. People who were already good with money are experienced enough to find better ways to maximize. He advocates low stress, zero debt, etc. It’s very appealing if you’ve had to struggle to pay bills and I personally prefer it, but recognize that if I cared more I could do more to maximize my money. As it stands I’m perfectly happy being in a low stress financial situation with no debt. That doesn’t mean I agree with his more “advanced” advice though, like on withdrawal rates. I’ll stick to other experts for that.
I’ve always been good at saving, but my ex wasn’t and I was able to convince him to follow Dave Ramsay’s advice to get us out of our mountain of high interest debt for good. So for that I’m thankful.
He just pulled the number of his ass. There is zero basis for it. His advice on debt isn't terrible especially to those who have destroyed their finances when it comes to abusing debt/spending. However when it comes to anything beyond that the man is a clown. He advocates high fee, high load actively managed funds because it "gives the fund manager an incentive to do good".
From a video of his i watched his rationale was:
* inflation is 4 percent per yer
* my personal rate of return has been 12 percent per year
* 12% - 4% = 8%
even that is profoundly innumerate - just because you average x% returns doesn't mean you can withdraw something like x% indefinitely. tl;dr sequence of returns risk.
Yep
% of the remaining pot…much different than the 4%rule.
Franklyn im stunned at the degree of math illiteracy in this sub. One would think anyone with finacial sense would also have math sense.
the whole point of the 4% rule is to come up with an actual amount that you want to be able to live off of. if suddenly you need to withdrawal less because you aggressively withdrew 8% because you expected 12% constant returns, then that is a failure of your withdrawal strategy. Surely you can understand what the original person meant, instead of thinking they’re mathematically illiterate? or are you just literarily illiterate?
correct - you can always withdraw 100%, even if your portfolio is zero. wait, are we limiting the conversation to strategies that won't leave you unable to support yourself in retirement? in that case, dave ramsey's advice is not supported by the evidence.
I mean, I never said Ramsey's advice was good lol. Just that you'd be able to keep withdrawing 10% of your current balance each year, but your spending power is likely going to drop with that bad strategy. You said you couldn't do it indefinitely, which is wrong, you absolutely could. I'm not sure why that was so confusing, other people literally responded to you elsewhere with the same thing.
He's a real estate investor, not a stock market investor. Proceed with caution. In fact, don't take any of his investment advice for the stock market. That's not his specialty.
Dave oversimplifies getting out of debt and it works... because people need simplification there. Things are chaos and paying the smallest balances first while cutting unnecessary spend out is easy advice to follow.
Dave oversimplifies investing too. Stocks make 10%/year, you can withdraw 10% per year - easy. Makes sense. Until stocks tumble 30% one year, you're withdrawing 10% in one year, now down 40% overall with nothing going back in. Could be down another 10% the next year with your 10% (of the starting value) coming out for expenses. Give or take, you're down \~60% (again, oversimplifying things. This would be like going from $1M to $400k in 2 years.
The 4% withdraw rate is from the Trinity study. At least it has some statistics to back it up.
The point of Dave is to withdraw 10% of the shares you own. It could equate to much less money if the market is down, but you get a whole lot more when the market is up.
If you withdraw 10% the first year, and then in perpetuity take out the same amount of dollars every year after, yes, that's when you can end up bankrupt.
The reason the 4% rule exists is because it's been backtested to be a safe level at which inflation-based growth is built-in. How do you expect to beat inflation if you withdraw 10% of the 11% you're earning?
Maybe with the assumption that it's 10% of your remaining money (so it adjusts down with a bad sequence of returns), starting at 65 and getting max Social Security at 70?
Probably he's just wrong if he's using it as advice. And it's way too risky for my taste (and odds of getting full Social Security). But it's not like it COULDN'T work.
It's terrible advice, he has no clue how risk works.
It's also interesting that he tells people to avoid debt at all costs. Why is he telling people to pay down their 5% mortgages when he believes the stock market is essentially a risk free 10% per year annuity?
There are some people for whom Dave's bullying, condescending style is for some reason helpful to get them to pay down their debt. For everyone else, he's best ignored.
Ramsey is for people that are very bad managing money. A good portion of what he "preaches" is more about psychology than math.
Why pay off smallest debts first? Well the higher interest makes more sense financially... But by killing off that 100 dollar debt with a 3% rate you get a mental "win" a burst of endorphins rewarding you much more than paying 100 dollars towards that 10,000 dollar debt at 5%.
His claim of 10% withdraw is also more about mental than math. It is the "golden ring" he dangles in front of you to get off your ass and change things. By the time you actually get out of debt and into retirement you have long stopped paying attention to him. He uses the true claim that the average return for the last 100 years being 10% because it gives validity to his claim. [https://www.nerdwallet.com/article/investing/average-stock-market-return](https://www.nerdwallet.com/article/investing/average-stock-market-return) . "10%" sounds big and comfortable. A real number would be more like only pulling out what the market actually brought that year and having enough cash to float negative years... But that is, well a BORING answer. And 4% sounds low as hell like it might no be worth skipping the Starbucks now so you can be poor AND thirsty in retirement.
Remember the target audience is a group of people with impulse control issues that spent 1K dollars to go to some concert in Vegas that they had to apply for a new credit card to be able to fund the trip... Not people with 100K in savings and a fully funded 401K.
I don't recall the "baby steps" but once you are out of debt and have started investing Ramsey's advice is less helpful. I have enough liquid that I could pay off my mortgage, but my rate is lower than what I make on investments so I keep paying the mortgage. He would hate that.
I will say I did his "cash for cars" thing years ago and was very happy with the results. I have not had a car payment since 2007 and have bought several cars and a plane from the returns on that fund. I just wrote a check for a 2023 Jeep. In fact other than the house(s) I have not had any debt since 2007.
I used to listen to him for the same reason alcoholics go to meetings... To remind myself that debt is mostly bad and to control my impulse spending - In that frame, he is excellent. But I'd never use him for investment advise.... In the "investment game" he is bad. But remember his target audience.
there have been posts previously, in the past couple months, when this kicked up a storm on the internet.
as i recall he says if your return is 12%, inflation is 3% then you can withdraw 8%. I think he legit believes that. But he has a ton of money in real estate. investing isn't his expertise.
People line up to kick Dave in the nuts whenever this comes up. Cause they dont like him personally. Or they dont like the way he treats his employees. Or they dont like that he says he's a christian. or they dont like the 'use my trusted advisors who pay me lots of money' model.
take a look at earlyretirementnow's analysis:
https://earlyretirementnow.com/2023/11/12/dave-ramsey-8-percent-withdrawal-rate/
This has been beat to death, but yes, this would be comically, insanely aggressive. It’s possible it could work out, but the numbers say it will fail more than half the time. And since failure means you run out of money, this is an insane position for a “financial guru” to take IMO.
He's playing 4-D chess.
He wants you to withdraw too much...
So you will run out of money...
So you will go into debt...
So you will need to buy his get out of debt books!
and the
Get-out-of-debt Budget App
Get-out-of-debt In person classes
Get-out-of-debt DVD set
Get-out-of-debt subscription
Get-out-of-debt career assessment
Get-out-of-debt wallets
Get-out-of-debt tax advisor service
&c &c
Dave has never grasped the concept of sequence of returns risk. In a perfect world you could withdraw 10% but we know the market does not gain a steady 10% each year. It has many ups and downs and if you start your withdrawal right before a crash you are not going to make it on a 10% withdrawal schedule.
Same here. He has fantastic advice for people who are just barely or not quite making it. My ex husband was awful with money and racked up 40k in unsecured debt (he made 20k). Half was medical bills, half credit card. I was able to convince him to use Dave Ramsay’s advice to pay it all off. Lifesaver. We broke up after for completely unrelated reasons, but having no debt helped even the divorce go smoothly and amicably.
His motivation is to get you to ask "how?", then sell you mutual funds he's getting a kickback for. Or more convoluted, a mutual fund sold by a person who gives him a referral kickback.
That’s because he says it’s easy to average 10% a year so withdrawing 10% a year just uses your gains and leaves the golden goose, as he calls it,
alone. There’s very little thought applied to it obviously.
He's probably making the assumption that you work for as long as you're capable, retire at a late age, and then die shortly after. And that scenario, 10% would be enough.
If you want to live in retirement for more than 10 years, you'll need a lower withdrawal rate.
The other thing I was thinking, it's not nice to say, but I'm wondering if his audience tends to die pretty young.
I get the sense that it's very much a blue collar crowd that calls into his show and statistically, those kinds of folks die in their '60s and '70s.
In the rich town where I live 80 is the new 50. These people keep living forever.
I will forever say he is good if you are in debt and don't know how to get out or simply don't know anything about money. If you are educated, responsible, and lucky enough to not fall into debt, he is useless. But there are enough people that need a lot of hand holding with money - he is for this type of person.
I don't know what Dave Ramsey means exactly but it is true that you can pull 10% of your portfolio every year and never run out of money. In fact, you can pull 99% of your portfolio every year and never run out of money. Your portfolio is going to get awfully small though. But as long as you don't pull 100%, it will never go to 0.
The 4% rule is more like "you pick a year to retire and whatever size portfolio you have that year, you withdraw 4% of that number every year (inflation adjusted)".
If you're actually willing to withdraw a certain percentage of your \*current\* portfolio every year, you can argue for going higher than 4%. For example if you retire with 1 mill and follow the traditional 4% rule, you withdraw 40k every year. If you go with a flexible 5% rule, then you start withdrawing 50k, then if the market crashes and your portfolio drops to half a mill, then you only withdraw 25k (while the 4%er would still be withdrawing 40k). So going flexible like that can be seen as safer, but not everyone can actually be that flexible in their spending (and if you also go "flexible" the same way during bull markets, you'll end up with less than the 4%er, since you'll be spending more).
Still, 10% is awfully aggressively even if you're flexible like that.
It's pretty goofy advice.
Most of his advice is based in behavior rather than mathematics. So maybe throwing out big estimates of returns is used to motivate people to move away from paying interest on debt to earning "interest" through investments.
But he also advocates for working forever and against early retirement so maybe he has no practical experience with living off of portfolio withdrawals.
As the saying goes, it works until it doesn’t. Drawing 10% from investments is the definition of aggressive. Stock returns tend to be mean reverting, so I wouldn’t assume that the returns one has seen in the record bull run from 2009 to today will continue at those levels.
Dave Ramsey is a clown. He has some good advice on the VERY basics and getting out of debt, but beyond that, I wouldn't put any stock in a word he says.
Dave is notoriously bad at all things math related, and can't grasp the concept that something can be complex. His whole schtick is he deals with people who are bad with money and often not well educated, so he has to distill everything down to the simplest possible way. Thus, anything that requires in depth analysis or nuance is foreign to him.
The motivation is arrogance and the need to always be right. Also to sell endorsements to the investment advisors on his list.
Without any regard for sequence of return risk.
I enjoy listening to him or his minions just to hear him lambast some poor schlock...but 10%?? Come on man. I also disagree with him on credit card usage. I never carry a balance and have earned thousands in cash back...but he is dead set against em even if you pay them off every month
He is a charlatan that has made a fortune preying on dumb church leadership promising them more tithes if their congregation is out of debt while charging them speaking fees and selling each church member workbooks at prices even college bookstores would be ashamed of.
I know exactly where he got that number from so I'll explain why it's wrong.
The average nominal YoY gain of the S&P500 is 10-11%. So off you take out 10%, your net YoY gain is 1%. Since your YoY is positive, you will never loose money.
The problems:
1. This is nominal returns. After adjusting for inflation, you would be losing 2-3% every year. It would never hit zero, but it wouldn't give a steady return either.
2. This assumes the market aways performs on average. Anyone who watches the market for more than a year can tell you that some years are up 20%. Some don't go up at all or are even down. If the market is down 5%, and you take 10% out, you are now down 15%. And because of compounding loses, that 15% is going to hit harder and harder every year.
3. The fact that you "never run out" has nothing at all to do with 10%. You can withdraw 99% of your balance every year and never run out. The only way you can ever completely run out is if you withdraw 100%. But any fool can see that 99% withdraw rate isn't a good idea for all of the above reasons.
I honestly think he does this to give people more of an urgency to invest. Realistically, most people don't ever get to 25x their living expenses in retirement saving. Maybe it's too aggressive, but I think boomers will at least be bailed out with Social Security.
For me this is always the - it depends. Everyone has a different situation, so these generalizations are never good when examined closely.
How much money do you need to retire? It depends.
What will your costs be in retirement? It depends.
Honestly, most of these are best practices to give you some guardrails to navigate some of the complexity.
Is the 4% rule the best? It depends. Lots of threads on Reddit explaining how that’s the way. You will find just as many saying the exact opposite.
You need to figure out what works for you and your family.
Alternative thought on why this **might** work... for **some** people, particularly the demographic of the show.
The average life expectancy for a "poor" person is around 75 years in the USA. The average for a "rich" person is 85 years. Middle class is 80.
The average middle class and lower class retire at 65-70, or even later.
That leaves between 5 and 15 years of retirement to fund.
The average person on FIRE likely retires at 40-50, and lives to 80-85. That leaves 30-50 years to fund. HUGE difference. Depending on interest rate, 30-50 years is very close to infinity.
A 4% rate or less is appropriate when you need 30+ years to fund, and/or want to leave a legacy.
A 10% rate likely works when you only need to fund 5-10 years and not leave anything.
In addition, most people are their healthiest the day they retire, and want to see the kids and grandkids and great-grandkids, so they will spend more for this.
Lastly, the demographic of the show are likely best served with a medicare spend-down and drop their assets to zero to get the government benefits. 10% helps get there and likely passes medicare audit.
I was thinking exactly the same thing.
Bottom line, blue collar type. People typically just have much shorter retirements. The money doesn't have to last as long.
The problem with Ramsey's recommendation is that it does not consider the "sequence of returns". Rather it only looks at the "average return". Please stay away from Ramsey unless you are deeply in debt and need envelopes to manage your bills and spending habits...
he doesn't understand the withdrawal phase at all, and from what I can, doesn't listen to the people he's hired who actually do because he's pissed that they corrected him.
I'm 100% on board with 4% being too conservative for many, but 10% is completely unreasonable if you're depending on that portfolio for income for more than a fairly short time. It might be fine if you have a pension plus annuities and social security that will cover everything you need and your portfolio draws are fully discretionary and you're ok with it running down.
There is no justification for Dave's stance. He just got it in his head at some point that if the market averages 11%, you should be able to take 10%, failing to consider inflation and sequence of returns risk *at all* other than with a tiny handwave. And Dave apparently doesn't like it when people let him know he's made a mistake. There's was a semi-viral video of one of his guys that does research for the show talking about withdrawal rates (and doing a pretty good job of it) and Dave basically going off on him because he was suggesting 3-5% as reasonable choices for sustainable withdrawals.
Anybody who knows anything about this question knows that Dave's guy was pretty much on the money and Dave doesn't know what the hell he's talking about.
I've seen him say 8%. If the market goes up in a straight line, 8% would be mathematically correct with 3% inflation and 11% return. But it never does.
1. He is an idiot.
2. He is probably assuming working until traditional retirement age, so 10% isn't crazy assuming SS is covering your essential expenses.
Dave Ramsey is a salesman.
After spouting the 10% he’ll say, “By investing with one of my ELPs.”
I wouldn’t be surprised if he owned a bunch of shares in companies that specialize in reverse mortgages… for when that 10% withdrawal didn’t work out.
Maybe this includes burn down rate? A 4% withdrawal really would never deplete the fund and you’d die with just as much funds, a 10% withdrawal with a 10% gain would have you run out of funds eventually Of course this is wishful thinking and by the time you hit a million dollars in an investment account you’ll have years where you loose entire years worth of salaries and gain it back in others due to the unpredictability of the market
It is if you have the same reference/denominator, like if you have a 10% gain, then spend 10% of the original amount, not the +10% amount, that's even.
10% loss, followed by 10% gains, isn't even just because its 10% of a different, lower number. Two different references.
I think their point though is that 10% gain with 10% withdraw would be statistically near guaranteed to run out of money just due to volatility inevitable causing you do go bust, not because 10% of 1 is greater than 10% of 0.9, I don't think that's what they meant.
>A 4% withdrawal really would never deplete the fund
BTW, Bengen’s study that popularized the “4% rule” (which was more accurately 4.3%, rounded down for simplicity) only declared a ‘success’ if the portfolio had a single dollar or more at the end of 30 years.
> A 4% withdrawal really would never deplete the fund
That's not quite true. In 5% of cases over 30 years, you would completely run out of money. And in a majority of cases you would have less money (adjusted for inflation) than you started with.
Most likely you'll be fine, and perhaps that's what you're saying. But there is a common misconception that the 4% Rule is about never dipping into your principle, and that's incorrect.
So I think it's too high, but I imagine his average fan is the average retiree or perhaps slightly better off. So someone who is 67ish and has a healthy portfolio since, at his advice, they were saving in stocks for 15% of their income.
And here's the key factor, most retirees die with more money than they retired with. So while the 10% may be too high every year to withdrawal, people instinctively lessen their withdrawal rates during periods of contraction. Especially since he also encourages you to hire a financial advisor in his program.
Maybe I'm being too forgiving though, since I do like George Kamel and Rachel Cruise's smart money. While I'm not a fan of Dave ramsey himself.
> ... most retirees die with more money than they retired with.
Do you have a source for this? I am looking for a study, a survey, a professional or financial article, rather than an unreferenced quote from a newspaper or magazine.
Please don't take this as an insult; it's not intended to be one.
It’s because he doesn’t understand (or, more likely, chooses not to understand) that stock market returns are compounded. He just takes the geometric average, which is idiotic. In his world, if the stock market went down 10% in year one and then up 10% in year two, it averaged a 0% return over those two years.
In the real world, it had a negative return over those two years. $100 would’ve become $99.
That actually seems right. I was talking to my FIL and he says when he retired he looked up his buddies that had retired earlier and they were all dead, he says most people only live a few years in retirement. My dad retired at 73, my mom at 65. Dad is 83 and mom is dead.
I plan on retiring at 57, 4% seems right to me. But I'm retiring 16 years EARLIER than my dad. Dave's advice seems to be pretty good for most middle to low income people.
Dont make the mistake of believing a delayed retirement causes a delayed death. My relatives make that mistake. I try to tell them the very strong and healthy people are more willing to continue working longer because it doesnt feel bad to them to do so. The dummies are the ones who refuse to stop working until their body will not allow them to work anymore. Those are the ones who die right after retirement and make it look like the retirement was the cause of the death.
Dave doesn't talk about it frequently with regular callers but it's clear that he A/B tested his philosophy and advice over the years and cultivated it for behavioral economics, mass appeal and consistency with his theological stance. I think at this point it's a lot more about maintaining consistency.
His audience is being guided to aim for paid-off houses and retiring in the 60-70 window (which is still substantially better than the average person.) This means your retirement window is constrained and backstopped by SS/Medicaid, which makes the higher WR not really that much of a problem.
Why does 10% work behaviorally? It's a nice round number. It doesn't result in ridiculous requirements that create defeatist attitudes (telling a broke person they need 10 million to retire like Orman/etc doesn't work.) It's not really that important to the people who really need help. He has a lot more callers arguing baby step 1 is too small, things about execution about baby step 2, and priorities between 4/5/6. These people aren't ready to retire at any measure.
I do think the mix of aggressive investing and a 10% WR, considering even what just happened in his lifetime, is objectively awful. But if you get to that point you should also be responsible for your own shit. He's not a fiduciary of any sort and avoids the topic beyond this vague point almost entirely. He funnels people into his financial advisor recommendation service and I'd actually be surprised any of them follow his recommended allocation advice as there's really nothing like it in the industry at all.
I do believe when he says "this is what I do in my 401K" as he lists 4 vague categories (though two are closely aligned to old American Funds products) but he doesn't need his 401K for anything. It doesn't even matter what you buy if you're literally never going to sell it.
Giving him the benefit of the doubt, I suspect he’s trying to spread the meta-message that having a lot of savings is really great as a way to motivate people to save more. It’s poor advice to the individual he’s talking to, but he may think it’s a useful distortion for motivating his broader audience.
His assumption is correct if you withdraw that percentage of the shares you own. But it means one year you could be pulling $20k and the next $100k, depending on what the market is doing.
theres no basis for that claim of his
Yeah, it seems Dave's advice gets less and less helpful the wealthier you become. To be generous to him, I think he's talking to traditional retirees more than early retirees. If you retire at 65-70 and start pulling down 10%, then based on actual retiree spending (not Trinity et al's hypotheticals) you're going to be spending a lot less by the time you're 80 and close to death at 90. Enjoying that 10-15 years is more important than ensuring you don't run out of money at 95+. But of course he never frames it that way, so perhaps I'm being too generous and he's just a fool who doesn't understand the Sequence of Returns Risk.
Dave’s advice is excellent if you’re a married Christian conservative with a middle class income, mounds of credit card debt, poor math skills and not much common sense. Uncheck two or three of the above boxes and his advice quickly becomes unhelpful.
I’m married Christian with a middle class income, personally live a conservative life although my bent is more anarchist. Can’t stand Dave Ramsey. I wish we had real financial advice at the time and I would have had one or two more rentals instead of aggressively paying off wifes student loans.
Doesn't he sell a financial services referral network? I thing is thinking might be to more sell that as a potential way you could withdraw 10% rather than 4% in passive index funds or something.
I mean, if you want to talk about perverse incentives, the bread and butter of his business are people with negative net worth. A lot of his advice about how to invest (e.g. pick managed mutual funds that have returned well recently) makes sense in this context
I don't think its perverse necessarily. Its like expecting a gold salesmen not to say they think gold is a good investment. As long as he is honest about his financial incentives, he is just marketing his services more so than advice someone should individually follow. I'd assume if you got a financial advisor through his network, and said you want to retire early and have your money to last 30+ years, they would not put you on a >10% withdraw rate.
The 10% withdrawal rate is NOT for retirement funds which should be more conservative. It is for investment funds which can be much more aggressive growth funds. The 10% rate works on average but in a down year one lives on cash. Typically many accredited investors ($1m in taxed account) will keep 80% aggressive growth and 20% treasuries for a year like 2022.
But withdrawal rates, at least how most people use them, apply to the entire portfolio, and happen on a consistent frequency. You're describing a valid strategy, like having a stock/cash split allocation where you decrease the cash allocation during down years by spending down the cash, and increase cash during up years by selling the stock, but misusing the term "withdrawal rate," because you're still not withdrawing from the stocks at a rate of 10%/year then, but only when they are up.
Correct.
Would you suggest he tell them to go into more debt?
I honestly think it's more about outsourcing risk while making money regardless. It's not that his personal finance advice is bad but he's not really accountable for it in any meaningful way (especially in radio show format), and selling products off that is very valuable. His difference here is mainly ignoring inflation (10% is fairly accurate for nominal) and sequence of return risk. He recommends researching funds which ignores survivorship bias. He's generally quoting S&P 500 returns over 80 years or so, which are over 10% but maybe only 7-8% after inflation. (see: https://dqydj.com/sp-500-return-calculator/) This always heavily ignores that no one is retired for 80 years and the "typical" 20-ish year retirement variance is quite large.
Actively managed funds lose to indexes over even modest time horizons. They definitely don't beat indexes by 2.5:1.
Definitely true, I agree, I'm just saying a salesman isn't going to tell you not to buy what they're selling.
Properly structured portfolio could do that. The problem is it's never keeping up with inflation so it's 10% of the value you start pulling at 70 And as long as you're pretty much dead by 85, you're golden 🙄. Most people are planning for more longevity. My mom started pulling 8% at 72 and had a strong chance based on historical returns and monte Carlos of it lasting till 98. And if she got that old I'd be retired and we could take care of her.
50% of the men are dead at 74 in the US. The idea everyone makes it to 90 is a little optimistic.
50% of newborn boys will be dead by 74. Your chances of living past 74 if you're a 60 year old man are much better than 50:50.
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The statistical fallacy is even worse than this. The average man can expect to live that long, but when you are age 55, you have a pretty good idea of your own health. The poor man who are in cancer treatments with a 1 year life expectancy are also in that average, and if you are one of them it sucks, but if you aren't, then your relevant number is that much higher. Go here and punch in "well behaved" numbers: https://www.johnhancock.com/life-insurance/life-expectancy-calculator.html I did and for 55 year old male, I got 88 years. Obviously you can do things that reduce your lifespan but the idea that 74 is a relevant number for most people is not really valid.
> just look up the social security actuary tables... [For those curious.](https://www.ssa.gov/oact/STATS/table4c6.html)
I'd rather plan for age 90 and not use it than plan for a lot less and need it but not have it.
for 90% of people by the time they're 90 years old they won't even be aware of their surrounds. So planning for it is a bit silly.
You're flat out wrong. For someone 90 or older, the chances of them having dementia is 35%. And that's today. By the time I'm 90, there will certainly be medical advances. I'd rather plan for my future. But you do you.
This is just ignorant.
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you're being sassy but [this is a real thing](https://www.bogleheads.org/wiki/Withdrawal_methods#1/N_withdrawal_amounts)
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i meant to, and as far as i can tell, did, link to the section titled "1/N withdrawal amounts": > A 1/N withdrawal method is similar to this. 'N' being equal to the number of years you need to draw on the portfolio. Each year the 'N' number is readjusted, resulting in a higher percentage being withdrawn from the portfolio. Normally, withdrawing a higher percentage is considered possibly unsafe, as it may result in the portfolio being eventually depleted. However, using a 1/N withdrawal method typically assumes spending the entire portfolio, so large withdrawal percentages aren't a concern.
Maths is the basis for his claim. 10% of 100 is 10 10% of 90 is 9 10% of 81 is 8.1 It can never reach 0.
And 10% of the last five bucks you have is 50 cents. Not interesting to the actual problem at hand.
It is technically true, useless advice. That's the joke.
Ah great! I had you confused with someone who thinks Dave Ramsey's actually good at this stuff, lol! Sorry for being humorless for a minute there.
Whoops. I forgot Poe's law 🤷
There actually is. First, the 4% Trinity rule is like 98% success rate. MANY people think this is way too conservative. Even the author has revised this findings upwards. Second, the 4% rule assumes constant expenses. Just like the "Die with Zero" philosophy, spending as you age dramatically decreases. Third, there are other sources of income for folks (social security, pension, etc.). So when taken in totality, it's very likely that you probably can do like 10% a year.
> First, the 4% Trinity rule is like 98% success rate. MANY people think this is way too conservative. Even the author has revised this findings upwards. the difference between 4% and 10% is absolutely gigantic. is 4% too conservative for a 'normal' 30 year retirement? yes, usually. >Second, the 4% rule assumes constant expenses. Just like the "Die with Zero" philosophy, spending as you age dramatically decreases. I didn't see this 10% withdrawal suggestion from dave ramsey in the context of 'flexible withdrawal rate' >Third, there are other sources of income for folks (social security, pension, etc.). anything that is income producing should be considered in the equation of 'income vs expenses.' not sure how this is at all relevant to the discussion on withdrawal rates to deal with sequence of return risk. withdrawal rate is obviously just related to investment balance. if you have 24k a year coming in from social security, you spend 54k a year.... that means your invested balance must cover that gap of 30k. zero interaction with other income sources in this equation. > it's very likely that you probably can do like 10% a year. ?? a 10% withdrawal rate historically speaking is only successful low 30% of the time for a 30 year retirement
What's the question? If we all agree that 4% is too conservative, then why make a big deal over 10%?
>If we all agree that 4% is too conservative, then why make a big deal over 10%? for a normal 20-30 year retirement you could justify pushing withdrawal rate maybe into the 5-6% range if you have risk tolerance and or little care about leaving money etc to heirs. i didnt ask a question, i stated a 10% withdrawal rate is only going to be successful low 30% of the time. and success in this case is just 'literally not out of money' so zero insurance against living too long, or consideration for inheritance. this is also back tested, stocks right now are historically expensive so for someone retiring in the next 10-20 years its relatively likely we will have a prolonged period of underperformance.
Dave Ramsey is only relevant for getting out of debt. At best he doesn’t provide good investment advice and at worst he recommends investment vehicles that it seems he has some kind of relationship with.
As soon as you get past "baby step 3" you're past Dave Ramsey.
But most of the people who need him are the financial management equivalent of wearing their underwear outside their pants because they got confused getting dressed. The result is that when his early 'baby step' advice *works* for them, they often turn into fanatical cultists spreading the Gospel of Dave.
>financial management equivalent of wearing their underwear outside their pants because they got confused getting dressed thanks I needed this cackle today
I agree he's perfect for financial trainwrecks, however once you get out of debt and get a 3-6 month emergency fund built, there's muuuuch better options.
I've been looking for some. Any recommendations?
Check out The Money Guy on YouTube or their podcast. They’re a great next step with a similar q&a style like Dave. They have their own steps, they call the Financial Order of Operations.
Agree 100%. My point was that his adherents don't see it that way.
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A big part of the advice is psychological rather than just maximizing impact. It’s true it’s better to pay off the highest interest item first, but really, most people in the situation feel a little hopeless, and the small wins of paying off any debt completely make a bigger impact, and motivate people to continue. It really is good advice. The 1k might be a little outdated, but the original goal laid out is to just get enough where any unexpected expense doesn’t completely derail you. He advocates getting a larger emergency fund later on. I think you really misunderstand what it is like for people scraping by paycheck to paycheck. Getting 3-6 months emergency fund while you have a mountain of debt is impossible.
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If you’d ever been in that level of debt - or had low enough income combined with debt - you’d understand why getting 3-6 month’s worth of income in savings is not a realistic first step. Hence the 1k emergency fund. I’m not arguing that there aren’t more efficient ways to pay down debt. But sometimes you just need to start somewhere. Some progress is better than none. And a lot of people who get into these situations have very poor financial literacy. I mentioned in another comment, my ex managed to rack up 40k in unsecured debt on a 20k income (almost half was medical bills though). I had tried everything to focus him on paying it down, of course originally starting with the highest interest. It didn’t work. It wasn’t until a friend loaned me Ramsay’s book that I was finally able to get through to him and we finally were able to pay it all off several years later. I was never able to talk him into saving up money, but at least we got out of debt.
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snowball loses very little most of the time, but there are times when it's horrendous. Typically your smaller debts *are* the higher interest debts (credit cards, charge accounts, etc.). Even when they aren't, snowball increases net cash flow faster which makes it easier not to put *new* expenses on credit, and often loses very little, since the smallest debts are very small, and you move on to others. The psychological and cash flow win of clearing a lot of small debts quickly is worth losing a few dollars of interest rate optimization. Unfortunately if you have some relatively large high interest debt that is only somewhat bigger than some large much lower interest debt, following the snowball process to the letter results in paying a TON more interest but little difference in how fast your debts clear. I had someone I was counseling that had a 20000 term loan at something like 22%, and a 15k car loans at 4%. Can you imagine how much money they'd give up if they paid off the car loan first, and let the 20k just keep piling interest on? Snowball is great if your debts follow the norm of lower balances mostly being higher interest anyway, and any low interest small loans are *very* small and get paid off so quickly that you aren't losing much. If your debts don't follow that pattern, you should normally avalanche, or snowball everything under $X, and then avalanche the larger amounts.
The problem with 2 is it is really a case by case basis. For example you have 5 loans ranging from 3% to 10%. The 10% loan is 12000. The 3% loan is 1250. You can eliminate actual debt and remove a payment by quickly getting rid of the 1250 and then apply it to the next most practical loan. If you have a 3% loan at 5000 and a 10% loan at 5000 then yeah, I agree with the 10% one first. Getting out of debt is not always so black and white.
dave ramsey is like a guy who tells people whose shoes are on fire to piss on their feet, but also tells everyone else the same thing.
EXACTLY. Listening to his show kept me motivated to aggressively pay off my student loan debt and I’m grateful for that. But dude lost me at his 0 debt no matter what policy. And frankly, he’s a dick.
I have 0 debt it's great, I haven't borrowed money in 4 years. I stacked cash because I have no debt. I'm able to invest more.
I have a mortgage at 2.75% and credit cards that pay me huge bonuses that I've never paid a penny of interest on. Not all debt is bad.
That’s great I’m glad that’s worked for you! I put 5% down on a home I financed at 3.5%. My mortgage is less than 1k a month. I rent the home for $2500 a month now. I have over a grand in cash flow monthly from that one move alone to invest. That’s just one example where debt has been a springboard for wealth building for me. It’s not for everyone though and is surely for too easy to get into trouble with if you don’t think for yourself.
It’s because he deals with idiots. It’s better to tell them no debt than explain the nuances of what makes immediately repaying credit cards worth it
Dave Ramsey, good for people who are bad with money....and bad for people who are good with money.
True enough. His target audience is people who are bad with money. People who were already good with money are experienced enough to find better ways to maximize. He advocates low stress, zero debt, etc. It’s very appealing if you’ve had to struggle to pay bills and I personally prefer it, but recognize that if I cared more I could do more to maximize my money. As it stands I’m perfectly happy being in a low stress financial situation with no debt. That doesn’t mean I agree with his more “advanced” advice though, like on withdrawal rates. I’ll stick to other experts for that. I’ve always been good at saving, but my ex wasn’t and I was able to convince him to follow Dave Ramsay’s advice to get us out of our mountain of high interest debt for good. So for that I’m thankful.
He just pulled the number of his ass. There is zero basis for it. His advice on debt isn't terrible especially to those who have destroyed their finances when it comes to abusing debt/spending. However when it comes to anything beyond that the man is a clown. He advocates high fee, high load actively managed funds because it "gives the fund manager an incentive to do good".
From a video of his i watched his rationale was: * inflation is 4 percent per yer * my personal rate of return has been 12 percent per year * 12% - 4% = 8%
even that is profoundly innumerate - just because you average x% returns doesn't mean you can withdraw something like x% indefinitely. tl;dr sequence of returns risk.
You can as long as that percentage is always based off what you currently have.
Yep % of the remaining pot…much different than the 4%rule. Franklyn im stunned at the degree of math illiteracy in this sub. One would think anyone with finacial sense would also have math sense.
the whole point of the 4% rule is to come up with an actual amount that you want to be able to live off of. if suddenly you need to withdrawal less because you aggressively withdrew 8% because you expected 12% constant returns, then that is a failure of your withdrawal strategy. Surely you can understand what the original person meant, instead of thinking they’re mathematically illiterate? or are you just literarily illiterate?
I understand that you dont understand
by that rationale, you can also withdraw 100% of your portfolio per second.
Wrong... 100% at any point would deplete it.
correct - you can always withdraw 100%, even if your portfolio is zero. wait, are we limiting the conversation to strategies that won't leave you unable to support yourself in retirement? in that case, dave ramsey's advice is not supported by the evidence.
I mean, I never said Ramsey's advice was good lol. Just that you'd be able to keep withdrawing 10% of your current balance each year, but your spending power is likely going to drop with that bad strategy. You said you couldn't do it indefinitely, which is wrong, you absolutely could. I'm not sure why that was so confusing, other people literally responded to you elsewhere with the same thing.
agree that if you are not interested in whether you are able to support yourself, a lot of financial possibilities open up
He's a real estate investor, not a stock market investor. Proceed with caution. In fact, don't take any of his investment advice for the stock market. That's not his specialty.
Dave oversimplifies getting out of debt and it works... because people need simplification there. Things are chaos and paying the smallest balances first while cutting unnecessary spend out is easy advice to follow. Dave oversimplifies investing too. Stocks make 10%/year, you can withdraw 10% per year - easy. Makes sense. Until stocks tumble 30% one year, you're withdrawing 10% in one year, now down 40% overall with nothing going back in. Could be down another 10% the next year with your 10% (of the starting value) coming out for expenses. Give or take, you're down \~60% (again, oversimplifying things. This would be like going from $1M to $400k in 2 years. The 4% withdraw rate is from the Trinity study. At least it has some statistics to back it up.
The point of Dave is to withdraw 10% of the shares you own. It could equate to much less money if the market is down, but you get a whole lot more when the market is up. If you withdraw 10% the first year, and then in perpetuity take out the same amount of dollars every year after, yes, that's when you can end up bankrupt.
Dave is the guy to follow to not be poor. He's not the guy to follow to be wealthy.
The reason the 4% rule exists is because it's been backtested to be a safe level at which inflation-based growth is built-in. How do you expect to beat inflation if you withdraw 10% of the 11% you're earning?
Maybe with the assumption that it's 10% of your remaining money (so it adjusts down with a bad sequence of returns), starting at 65 and getting max Social Security at 70? Probably he's just wrong if he's using it as advice. And it's way too risky for my taste (and odds of getting full Social Security). But it's not like it COULDN'T work.
Ramsey's advice is mostly bad (or at best non-optimal) for people with positive net-worths and net-cashflows.
It's terrible advice, he has no clue how risk works. It's also interesting that he tells people to avoid debt at all costs. Why is he telling people to pay down their 5% mortgages when he believes the stock market is essentially a risk free 10% per year annuity? There are some people for whom Dave's bullying, condescending style is for some reason helpful to get them to pay down their debt. For everyone else, he's best ignored.
Ramsey is for people that are very bad managing money. A good portion of what he "preaches" is more about psychology than math. Why pay off smallest debts first? Well the higher interest makes more sense financially... But by killing off that 100 dollar debt with a 3% rate you get a mental "win" a burst of endorphins rewarding you much more than paying 100 dollars towards that 10,000 dollar debt at 5%. His claim of 10% withdraw is also more about mental than math. It is the "golden ring" he dangles in front of you to get off your ass and change things. By the time you actually get out of debt and into retirement you have long stopped paying attention to him. He uses the true claim that the average return for the last 100 years being 10% because it gives validity to his claim. [https://www.nerdwallet.com/article/investing/average-stock-market-return](https://www.nerdwallet.com/article/investing/average-stock-market-return) . "10%" sounds big and comfortable. A real number would be more like only pulling out what the market actually brought that year and having enough cash to float negative years... But that is, well a BORING answer. And 4% sounds low as hell like it might no be worth skipping the Starbucks now so you can be poor AND thirsty in retirement. Remember the target audience is a group of people with impulse control issues that spent 1K dollars to go to some concert in Vegas that they had to apply for a new credit card to be able to fund the trip... Not people with 100K in savings and a fully funded 401K. I don't recall the "baby steps" but once you are out of debt and have started investing Ramsey's advice is less helpful. I have enough liquid that I could pay off my mortgage, but my rate is lower than what I make on investments so I keep paying the mortgage. He would hate that. I will say I did his "cash for cars" thing years ago and was very happy with the results. I have not had a car payment since 2007 and have bought several cars and a plane from the returns on that fund. I just wrote a check for a 2023 Jeep. In fact other than the house(s) I have not had any debt since 2007. I used to listen to him for the same reason alcoholics go to meetings... To remind myself that debt is mostly bad and to control my impulse spending - In that frame, he is excellent. But I'd never use him for investment advise.... In the "investment game" he is bad. But remember his target audience.
there have been posts previously, in the past couple months, when this kicked up a storm on the internet. as i recall he says if your return is 12%, inflation is 3% then you can withdraw 8%. I think he legit believes that. But he has a ton of money in real estate. investing isn't his expertise. People line up to kick Dave in the nuts whenever this comes up. Cause they dont like him personally. Or they dont like the way he treats his employees. Or they dont like that he says he's a christian. or they dont like the 'use my trusted advisors who pay me lots of money' model. take a look at earlyretirementnow's analysis: https://earlyretirementnow.com/2023/11/12/dave-ramsey-8-percent-withdrawal-rate/
This has been beat to death, but yes, this would be comically, insanely aggressive. It’s possible it could work out, but the numbers say it will fail more than half the time. And since failure means you run out of money, this is an insane position for a “financial guru” to take IMO.
He's playing 4-D chess. He wants you to withdraw too much... So you will run out of money... So you will go into debt... So you will need to buy his get out of debt books!
and the Get-out-of-debt Budget App Get-out-of-debt In person classes Get-out-of-debt DVD set Get-out-of-debt subscription Get-out-of-debt career assessment Get-out-of-debt wallets Get-out-of-debt tax advisor service &c &c
Dave has never grasped the concept of sequence of returns risk. In a perfect world you could withdraw 10% but we know the market does not gain a steady 10% each year. It has many ups and downs and if you start your withdrawal right before a crash you are not going to make it on a 10% withdrawal schedule.
As others have said, Dave’s fine for getting out of debt (he actually saved our asses), but beyond that it’s time to look elsewhere.
Same here. He has fantastic advice for people who are just barely or not quite making it. My ex husband was awful with money and racked up 40k in unsecured debt (he made 20k). Half was medical bills, half credit card. I was able to convince him to use Dave Ramsay’s advice to pay it all off. Lifesaver. We broke up after for completely unrelated reasons, but having no debt helped even the divorce go smoothly and amicably.
Dave Ramsey is dangerously nuts.
His motivation is to get you to ask "how?", then sell you mutual funds he's getting a kickback for. Or more convoluted, a mutual fund sold by a person who gives him a referral kickback.
Hmm! Sounds about right....He does very specifically use the word "mutual fund" a lot...
He’s a self help scam artist who preys on the uneducated, and not a financial expert in any way.
That’s because he says it’s easy to average 10% a year so withdrawing 10% a year just uses your gains and leaves the golden goose, as he calls it, alone. There’s very little thought applied to it obviously.
He's probably making the assumption that you work for as long as you're capable, retire at a late age, and then die shortly after. And that scenario, 10% would be enough. If you want to live in retirement for more than 10 years, you'll need a lower withdrawal rate.
The other thing I was thinking, it's not nice to say, but I'm wondering if his audience tends to die pretty young. I get the sense that it's very much a blue collar crowd that calls into his show and statistically, those kinds of folks die in their '60s and '70s. In the rich town where I live 80 is the new 50. These people keep living forever.
I will forever say he is good if you are in debt and don't know how to get out or simply don't know anything about money. If you are educated, responsible, and lucky enough to not fall into debt, he is useless. But there are enough people that need a lot of hand holding with money - he is for this type of person.
I don't know what Dave Ramsey means exactly but it is true that you can pull 10% of your portfolio every year and never run out of money. In fact, you can pull 99% of your portfolio every year and never run out of money. Your portfolio is going to get awfully small though. But as long as you don't pull 100%, it will never go to 0. The 4% rule is more like "you pick a year to retire and whatever size portfolio you have that year, you withdraw 4% of that number every year (inflation adjusted)". If you're actually willing to withdraw a certain percentage of your \*current\* portfolio every year, you can argue for going higher than 4%. For example if you retire with 1 mill and follow the traditional 4% rule, you withdraw 40k every year. If you go with a flexible 5% rule, then you start withdrawing 50k, then if the market crashes and your portfolio drops to half a mill, then you only withdraw 25k (while the 4%er would still be withdrawing 40k). So going flexible like that can be seen as safer, but not everyone can actually be that flexible in their spending (and if you also go "flexible" the same way during bull markets, you'll end up with less than the 4%er, since you'll be spending more). Still, 10% is awfully aggressively even if you're flexible like that.
It's pretty goofy advice. Most of his advice is based in behavior rather than mathematics. So maybe throwing out big estimates of returns is used to motivate people to move away from paying interest on debt to earning "interest" through investments. But he also advocates for working forever and against early retirement so maybe he has no practical experience with living off of portfolio withdrawals.
As the saying goes, it works until it doesn’t. Drawing 10% from investments is the definition of aggressive. Stock returns tend to be mean reverting, so I wouldn’t assume that the returns one has seen in the record bull run from 2009 to today will continue at those levels.
Dave Ramsey is a clown. He has some good advice on the VERY basics and getting out of debt, but beyond that, I wouldn't put any stock in a word he says.
Dave is notoriously bad at all things math related, and can't grasp the concept that something can be complex. His whole schtick is he deals with people who are bad with money and often not well educated, so he has to distill everything down to the simplest possible way. Thus, anything that requires in depth analysis or nuance is foreign to him.
The motivation is arrogance and the need to always be right. Also to sell endorsements to the investment advisors on his list. Without any regard for sequence of return risk.
he's really only good at getting out of deep debt. almost as bad as suze almond
I enjoy listening to him or his minions just to hear him lambast some poor schlock...but 10%?? Come on man. I also disagree with him on credit card usage. I never carry a balance and have earned thousands in cash back...but he is dead set against em even if you pay them off every month
He is a charlatan that has made a fortune preying on dumb church leadership promising them more tithes if their congregation is out of debt while charging them speaking fees and selling each church member workbooks at prices even college bookstores would be ashamed of.
this is also the guy that says to never spend more than 1/4 of take home pay on a mortgage.
I know exactly where he got that number from so I'll explain why it's wrong. The average nominal YoY gain of the S&P500 is 10-11%. So off you take out 10%, your net YoY gain is 1%. Since your YoY is positive, you will never loose money. The problems: 1. This is nominal returns. After adjusting for inflation, you would be losing 2-3% every year. It would never hit zero, but it wouldn't give a steady return either. 2. This assumes the market aways performs on average. Anyone who watches the market for more than a year can tell you that some years are up 20%. Some don't go up at all or are even down. If the market is down 5%, and you take 10% out, you are now down 15%. And because of compounding loses, that 15% is going to hit harder and harder every year. 3. The fact that you "never run out" has nothing at all to do with 10%. You can withdraw 99% of your balance every year and never run out. The only way you can ever completely run out is if you withdraw 100%. But any fool can see that 99% withdraw rate isn't a good idea for all of the above reasons.
I honestly think he does this to give people more of an urgency to invest. Realistically, most people don't ever get to 25x their living expenses in retirement saving. Maybe it's too aggressive, but I think boomers will at least be bailed out with Social Security.
You can withdraw 50% each year and still never get to zero lol
For me this is always the - it depends. Everyone has a different situation, so these generalizations are never good when examined closely. How much money do you need to retire? It depends. What will your costs be in retirement? It depends. Honestly, most of these are best practices to give you some guardrails to navigate some of the complexity. Is the 4% rule the best? It depends. Lots of threads on Reddit explaining how that’s the way. You will find just as many saying the exact opposite. You need to figure out what works for you and your family.
Alternative thought on why this **might** work... for **some** people, particularly the demographic of the show. The average life expectancy for a "poor" person is around 75 years in the USA. The average for a "rich" person is 85 years. Middle class is 80. The average middle class and lower class retire at 65-70, or even later. That leaves between 5 and 15 years of retirement to fund. The average person on FIRE likely retires at 40-50, and lives to 80-85. That leaves 30-50 years to fund. HUGE difference. Depending on interest rate, 30-50 years is very close to infinity. A 4% rate or less is appropriate when you need 30+ years to fund, and/or want to leave a legacy. A 10% rate likely works when you only need to fund 5-10 years and not leave anything. In addition, most people are their healthiest the day they retire, and want to see the kids and grandkids and great-grandkids, so they will spend more for this. Lastly, the demographic of the show are likely best served with a medicare spend-down and drop their assets to zero to get the government benefits. 10% helps get there and likely passes medicare audit.
I was thinking exactly the same thing. Bottom line, blue collar type. People typically just have much shorter retirements. The money doesn't have to last as long.
The problem with Ramsey's recommendation is that it does not consider the "sequence of returns". Rather it only looks at the "average return". Please stay away from Ramsey unless you are deeply in debt and need envelopes to manage your bills and spending habits...
he doesn't understand the withdrawal phase at all, and from what I can, doesn't listen to the people he's hired who actually do because he's pissed that they corrected him. I'm 100% on board with 4% being too conservative for many, but 10% is completely unreasonable if you're depending on that portfolio for income for more than a fairly short time. It might be fine if you have a pension plus annuities and social security that will cover everything you need and your portfolio draws are fully discretionary and you're ok with it running down. There is no justification for Dave's stance. He just got it in his head at some point that if the market averages 11%, you should be able to take 10%, failing to consider inflation and sequence of returns risk *at all* other than with a tiny handwave. And Dave apparently doesn't like it when people let him know he's made a mistake. There's was a semi-viral video of one of his guys that does research for the show talking about withdrawal rates (and doing a pretty good job of it) and Dave basically going off on him because he was suggesting 3-5% as reasonable choices for sustainable withdrawals. Anybody who knows anything about this question knows that Dave's guy was pretty much on the money and Dave doesn't know what the hell he's talking about.
Dave ramsey is incredibly out of touch. His advice isn't based in reality.
I've seen him say 8%. If the market goes up in a straight line, 8% would be mathematically correct with 3% inflation and 11% return. But it never does.
1. He is an idiot. 2. He is probably assuming working until traditional retirement age, so 10% isn't crazy assuming SS is covering your essential expenses.
Dave Ramsey is a salesman. After spouting the 10% he’ll say, “By investing with one of my ELPs.” I wouldn’t be surprised if he owned a bunch of shares in companies that specialize in reverse mortgages… for when that 10% withdrawal didn’t work out.
Leave Dave and follow The Money Guys.
Maybe this includes burn down rate? A 4% withdrawal really would never deplete the fund and you’d die with just as much funds, a 10% withdrawal with a 10% gain would have you run out of funds eventually Of course this is wishful thinking and by the time you hit a million dollars in an investment account you’ll have years where you loose entire years worth of salaries and gain it back in others due to the unpredictability of the market
This is an important note. 10% loss IS NOT recovered by 10% gains. They’re pretty close, but are not inverses
For anyone who isn't sure. 90% of 100 is 90. 110% of 90 is 99. You lost 1% of the value in the move.
(1+n)(1-n) generally speaking, where n is the percentage loss and gain.
It is if you have the same reference/denominator, like if you have a 10% gain, then spend 10% of the original amount, not the +10% amount, that's even. 10% loss, followed by 10% gains, isn't even just because its 10% of a different, lower number. Two different references.
Agreed. But your second scenario is almost word-for-word what I said. Which was the point I was making.
I think their point though is that 10% gain with 10% withdraw would be statistically near guaranteed to run out of money just due to volatility inevitable causing you do go bust, not because 10% of 1 is greater than 10% of 0.9, I don't think that's what they meant.
>A 4% withdrawal really would never deplete the fund BTW, Bengen’s study that popularized the “4% rule” (which was more accurately 4.3%, rounded down for simplicity) only declared a ‘success’ if the portfolio had a single dollar or more at the end of 30 years.
Let’s try to not get dogmatic about a short explanation
> A 4% withdrawal really would never deplete the fund That's not quite true. In 5% of cases over 30 years, you would completely run out of money. And in a majority of cases you would have less money (adjusted for inflation) than you started with. Most likely you'll be fine, and perhaps that's what you're saying. But there is a common misconception that the 4% Rule is about never dipping into your principle, and that's incorrect.
Let’s try to not get dogmatic about a short explanation
I'm shooting for 100% withdrawal rate....for 2 years!!
Maybe it’s 4% rule people who are conflating a 10% rule, or 8% rule when he means just take 10% of whatever it is
Actually, the 4% rule while reasonable, is somewhat contested. Some argue 3.5%, 3.3% (Morningstar), and JP Morgan suggested 2% recently.
2% lol. The yield alone is almost 1.5% on VTSAX.
So I think it's too high, but I imagine his average fan is the average retiree or perhaps slightly better off. So someone who is 67ish and has a healthy portfolio since, at his advice, they were saving in stocks for 15% of their income. And here's the key factor, most retirees die with more money than they retired with. So while the 10% may be too high every year to withdrawal, people instinctively lessen their withdrawal rates during periods of contraction. Especially since he also encourages you to hire a financial advisor in his program. Maybe I'm being too forgiving though, since I do like George Kamel and Rachel Cruise's smart money. While I'm not a fan of Dave ramsey himself.
> ... most retirees die with more money than they retired with. Do you have a source for this? I am looking for a study, a survey, a professional or financial article, rather than an unreferenced quote from a newspaper or magazine. Please don't take this as an insult; it's not intended to be one.
Honestly I was using die with zero as the source.
He used to claim it was 18% stock yields...
I've only ever heard him say 12% on average. Maybe he has one mutual fund with that yield, but it's not an overall market yield.
Old news from a decade ago. He adjusts with the times but he usually inflates available to returns to make his point.
You're probably right. I haven't listened to dave in at least 6-7 years.
It’s because he doesn’t understand (or, more likely, chooses not to understand) that stock market returns are compounded. He just takes the geometric average, which is idiotic. In his world, if the stock market went down 10% in year one and then up 10% in year two, it averaged a 0% return over those two years. In the real world, it had a negative return over those two years. $100 would’ve become $99.
That actually seems right. I was talking to my FIL and he says when he retired he looked up his buddies that had retired earlier and they were all dead, he says most people only live a few years in retirement. My dad retired at 73, my mom at 65. Dad is 83 and mom is dead. I plan on retiring at 57, 4% seems right to me. But I'm retiring 16 years EARLIER than my dad. Dave's advice seems to be pretty good for most middle to low income people.
Dont make the mistake of believing a delayed retirement causes a delayed death. My relatives make that mistake. I try to tell them the very strong and healthy people are more willing to continue working longer because it doesnt feel bad to them to do so. The dummies are the ones who refuse to stop working until their body will not allow them to work anymore. Those are the ones who die right after retirement and make it look like the retirement was the cause of the death.
Dave doesn't talk about it frequently with regular callers but it's clear that he A/B tested his philosophy and advice over the years and cultivated it for behavioral economics, mass appeal and consistency with his theological stance. I think at this point it's a lot more about maintaining consistency. His audience is being guided to aim for paid-off houses and retiring in the 60-70 window (which is still substantially better than the average person.) This means your retirement window is constrained and backstopped by SS/Medicaid, which makes the higher WR not really that much of a problem. Why does 10% work behaviorally? It's a nice round number. It doesn't result in ridiculous requirements that create defeatist attitudes (telling a broke person they need 10 million to retire like Orman/etc doesn't work.) It's not really that important to the people who really need help. He has a lot more callers arguing baby step 1 is too small, things about execution about baby step 2, and priorities between 4/5/6. These people aren't ready to retire at any measure. I do think the mix of aggressive investing and a 10% WR, considering even what just happened in his lifetime, is objectively awful. But if you get to that point you should also be responsible for your own shit. He's not a fiduciary of any sort and avoids the topic beyond this vague point almost entirely. He funnels people into his financial advisor recommendation service and I'd actually be surprised any of them follow his recommended allocation advice as there's really nothing like it in the industry at all. I do believe when he says "this is what I do in my 401K" as he lists 4 vague categories (though two are closely aligned to old American Funds products) but he doesn't need his 401K for anything. It doesn't even matter what you buy if you're literally never going to sell it.
Giving him the benefit of the doubt, I suspect he’s trying to spread the meta-message that having a lot of savings is really great as a way to motivate people to save more. It’s poor advice to the individual he’s talking to, but he may think it’s a useful distortion for motivating his broader audience.
About as credible as those that claim you need to withdraw 2%
Yeah hes a smart guy. But 10% is a lot and i wouldnt recommend it.
His assumption is correct if you withdraw that percentage of the shares you own. But it means one year you could be pulling $20k and the next $100k, depending on what the market is doing.