Dave Ramsey is getting blasted online for saying he's 'perfectly comfortable' with an 8% withdrawal rate in retirement — critics call his advice scary, dangerous, and wrong. Who's right? (2024)

Dave Ramsey is getting blasted online for saying he's 'perfectly comfortable' with an 8% withdrawal rate in retirement — critics call his advice scary, dangerous, and wrong. Who's right? (1)

Money personality Dave Ramsey has landed himself in hot water after a spectacular on-air rant about the popular 4% rule for retirement withdrawals.

It all started when a 30-year-old man with $120,000 already saved for retirement called into “The Ramsey Show” to ask what percentage of his assets he should plan to withdraw in retirement over a 30-year time period.

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The caller brought up a recent video shared by “The Ramsey Show” co-host George Kamel — aimed at rich young Americans planning to retire early — where Kamel told viewers to follow a 3% withdrawal rate if they want their nest egg to survive over 30 years or longer.

“I don't know what the hell George is doing with a 3% withdrawal rate because that's absolutely wrong,” said Ramsey. “It’s ridiculous.”

Instead, Ramsey said he’d be “perfectly comfortable” withdrawing 8% per year, assuming you can earn a 12% annual return from “good mutual funds” — in line with the S&P 500, which has earned an average annual return of 11.8% since 1926 — and you set aside 4% for annual inflation.

Ramsey’s retirement advice has landed like a lead balloon among other money professionals, with some calling his 8% withdrawal rate suggestion “scary,” and “incredibly dangerous.”

So, how do you figure out what’s right for your retirement?

Ramsey’s 8% suggestion

For years, financial planners and retirees have relied on the 4% rule — coined in 1994 by financial adviser Bill Bengen — which states retirees should plan to withdraw 4% of their assets every year, increasing or decreasing that distribution annually based on inflation.

But Ramsey slammed the commonly used rule — and the “goobers” that preach it — stating: “It’s too low! It's not realistic. You do not need to live on 4% of your money for your nest egg to survive.”

If you only withdraw 4% from an investment portfolio that is earning 12% compound annual growth (CAGR), Ramsey thinks you’re missing out on a big opportunity.

“Where the flip is the other 8% going?” said Ramsey. “Well, 4% of it went to inflation [and] the other 4% is just sitting there, so you’re growing your investments instead of living off of them. I'm not destroying the nest egg, I’m not even touching [it]. I’m growing the nest egg by leaving 4% in there and taking 8% off of a 12% growth rate.”

With $1 million saved for retirement, Ramsey said you should be able to withdraw $80,000 each year in retirement and “never destroy” your nest egg. He said telling people $1 million in savings would only safely result in $40,000 annual income in retirement is just “bogus math” from “super nerds” that are “stealing people’s hope.”

On a basic level, his live on-air math about an 8% withdrawal rate checks out, but it is based on a lot of assumptions. For instance, it assumes you’ll have the majority (if not all) of your portfolio invested in equities — which is a risky strategy for retirees — that will consistently achieve a 11-12% CAGR. Not only that, Ramsey also fails to mention additional expenses like the management expense ratio (MER) for mutual funds and exchange-traded funds, which typically ranges between 0.5% and 2%.

These omissions during his very heated tirade against “4% withdrawal rate morons” are what has gotten Ramsey’s critics so riled up.

What are the critics saying?

Dave McKnight, author of “The Power of Zero” took aim at Ramsey in a Youtube video where he said the radio host was “living in a fantasy world where he thinks these kinds of stratospheric distribution rates are sustainable in retirement.”

McKnight’s biggest issue with the 8% withdrawal rate is that “it doesn’t account for investment volatility.”

“Just because you average 11.8% per year — if that’s even possible — doesn’t mean that you’ll be getting precisely that result each and every year,” he said. “As it turns out, the order in which you experience returns in retirement is one of the biggest keys in determining whether your retirement assets will last through life expectancy.”

Fellow personal finance author, Rob Berger, made a similar point on his Youtube channel: “Dave is fundamentally wrong. Without equivocation, he is wrong. An 8% withdrawal rate would be incredibly dangerous.”

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Berger called out the over-simplicity of Ramsey’s argument: “I will certainly agree with Dave that 12 - 4 = 8, but that’s about where our agreement ends.”

In particular, Berger was uncomfortable with Ramsey’s suggestion that a retirement portfolio heavy in index or mutual funds that track the U.S. stock market will return 12% every year. Using a tool called Portfolio Visualizer, he proved the CAGR for U.S. stocks was actually 10.25% from 1972-2023.

“What period of time you look at matters,” said Berger. “Even over a very long period of time — 50 to 51 years — you can see the stocks return substantially less than 12%. What you don’t know is what they’re going to return in retirement.”

Other Ramsey critics took to X (formerly Twitter) to call foul on his retirement advice. Caleb Hammer, a personal finance personality who focuses on helping people out of debt, described the advice as “scary” and highlighted that only 32.5% of people would still have money in their nest egg after 30 years of retirement.

What’s the right withdrawal rate for you?

There are a few things to bear in mind when considering Ramsey’s 8% withdrawal rate over the more traditional and conservative 4% rate — or even 3% as money maven Suze Orman would have you consider in this time of economic volatility.

Ramsey’s calculation is based on the assumption that your retirement portfolio will be entirely made up of stocks — which would be unusual as retirees are generally advised to shift their portfolios away from stocks and towards more conservative investments like bonds as they grow older.

It is also important to consider how sequence risk — which refers to how the order and timing of poor investment returns, for instance, due to a stock market slump — can have a big impact on how long your retirement savings will last.

As Berger pointed out: “If we get really bad years — that is stock market losses and inflation — in the early years of retirement, that has a compounding effect. We can have bad years to begin with that are so bad that it tanks our retirement.”

The most important thing to remember is that everyone’s financial situation at retirement is different and while a percentage rule might be a good starting point, you may want to tweak it to suit your situation. If you’re unsure what retirement strategy will work best, consider working with a financial adviser who can help you navigate your specific financial needs.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Insights, advice, suggestions, feedback and comments from experts

Dave Ramsey's Controversial Retirement Withdrawal Advice

Dave Ramsey, a well-known money personality, recently sparked controversy with his on-air rant about the popular 4% rule for retirement withdrawals. During an episode of "The Ramsey Show," a caller asked what percentage of his assets he should plan to withdraw in retirement over a 30-year period. Ramsey criticized the commonly used 4% rule and instead suggested an 8% withdrawal rate, claiming that it is a more realistic approach to retirement planning [[1]].

The 4% Rule and Ramsey's Critique

The 4% rule, coined by financial adviser Bill Bengen in 1994, suggests that retirees should plan to withdraw 4% of their assets every year, adjusting for inflation. This rule has been widely accepted and used by financial planners and retirees for many years. However, Ramsey argues that the 4% rule is too conservative and unnecessary for a nest egg to survive. He believes that by withdrawing 8% per year, assuming a 12% annual return from "good mutual funds" and accounting for 4% inflation, retirees can grow their investments while still enjoying a comfortable retirement [[1]].

Criticisms of Ramsey's Advice

Ramsey's retirement advice has faced criticism from other money professionals. Some argue that an 8% withdrawal rate is too high and unsustainable in retirement. They point out that Ramsey's calculation assumes a high-risk strategy of investing the majority, if not all, of the portfolio in equities, which may not be suitable for retirees. Additionally, Ramsey fails to mention additional expenses like the management expense ratio (MER) for mutual funds and exchange-traded funds, which can range from 0.5% to 2%. Critics argue that these omissions undermine the validity of Ramsey's argument [[1]].

Considerations for Retirement Planning

When determining the right withdrawal rate for retirement, it is important to consider several factors. Ramsey's 8% withdrawal rate is based on the assumption that the retirement portfolio will be entirely invested in stocks, which may not align with the conservative investment approach recommended for retirees. It is also crucial to consider sequence risk, which refers to the impact of poor investment returns in the early years of retirement. Bad years at the beginning of retirement can significantly affect the longevity of retirement savings. Therefore, it is essential to tailor the withdrawal rate to individual financial situations and seek guidance from a financial adviser if needed [[1]].

In conclusion, Dave Ramsey's suggestion of an 8% withdrawal rate for retirement has sparked controversy among financial professionals. While his argument challenges the commonly used 4% rule, critics argue that an 8% withdrawal rate may be too high and unsustainable. It is important for individuals to consider their specific financial circ*mstances, investment strategies, and seek professional advice when planning for retirement.

Dave Ramsey is getting blasted online for saying he's 'perfectly comfortable' with an 8% withdrawal rate in retirement — critics call his advice scary, dangerous, and wrong. Who's right? (2024)


Dave Ramsey is getting blasted online for saying he's 'perfectly comfortable' with an 8% withdrawal rate in retirement — critics call his advice scary, dangerous, and wrong. Who's right? ›

Ramsey's 8% suggestion

What is the 8 percent rule Dave Ramsey? ›

Such was the case on one of his November 2023 broadcasts, when he served up some bad math on retirement withdrawal rates that would virtually guarantee people will run out of money. During the show, Dave Ramsey said that retirees could safely withdraw 8% from their portfolios each year and never touch their principal.

What is the 7% withdrawal rule? ›

Understanding the 7% Rule for Retirement

Let's illustrate this with a simple example: if you have $100,000 in your retirement savings, under the 7% rule, you would withdraw $7,000 each year.

How much does Dave Ramsey say you need to retire? ›

Some folks will need $10 million to have the kind of retirement lifestyle they've always dreamed about. Others can comfortably live out their golden years with a $1 million nest egg. There's no right or wrong answer here—it all depends on how you want to live in retirement!

What is the 8% rule for retirement? ›

Thinking Big. Recently, a radio talk show host named Dave Ramsey recommended that retirees invest 100% of their assets in equities, from which they would withdraw 8% per year of the portfolio's starting value, with each year's expenditures adjusted for inflation.

What is the 8% rule in investing? ›

So where the 8% rule differs from the 4% rule is that it's focused on passive income yield, not on selling anything. So if you had a portfolio of passive income investments valued around $2 million, and they were averaging about an 8% annualized yield, you would have 160,000 per year in income to live on.

What is the 4 rule for 401k withdrawal? ›

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

Which funds does Dave Ramsey invest in? ›

I put my personal 401(k) and a lot of my mutual fund investing in four types of mutual funds: growth, growth and income, aggressive growth, and international.

What investments does Dave Ramsey recommend? ›

Why are mutual funds the only investment option Ramsey Solutions recommends? Well, we like mutual funds because they spread your investment across many companies, and that helps you avoid the risks that come with investing in single stocks and other “trendy” investments (we're looking at you, Dogecoin).

What is a safe withdrawal rate for a 70 year old? ›

If the individual retires at age 65, that percentage is typically 5% for a single life and 4½% on a joint and survivor basis; the percentages go up to 6% and 5½% if the retirement age is 70.

What is the 25x rule for retirement? ›

The 25x rule entails saving 25 times an investor's planned annual expenses for retirement. Originating from the 4% rule, the 25x rule simplifies retirement planning by focusing on portfolio size.

What is a safe withdrawal rate at 65? ›

One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement.

How much does Suze Orman say you need to retire? ›

Suze Orman is right. In order to retire early, you need at least $5 million in investable assets. With interest rates so low, it takes a lot more capital to generate the same amount of risk-adjusted income.

How to retire at 55 with no money? ›

If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.

How long will 500k last in retirement? ›

Instead, we look at spending needs and we can check on the withdrawal rate later. If you retire with $500k in assets, the 4% rule says that you should be able to withdraw $20,000 per year for a 30-year (or longer) retirement. So, if you retire at 60, the money should ideally last through age 90.

What are Dave Ramsey's five rules? ›

Dave Ramsey Has 5 Easy-to-Use Tips to Help You Build Wealth
  • Have a written budget.
  • Get out of debt.
  • Live on less than you make.
  • Save and invest.
  • Be generous.
Apr 28, 2023

Do 90% of millionaires make over 100000 a year? ›

Here are the cold, hard facts: Almost 7 out of 10 millionaires (69%) did not average $100,000 or more in household income per year—and (get this) one-third of millionaires never had a six-figure household income in their careers.

What is the ideal debt to income ratio Dave Ramsey? ›

But if you do get a mortgage, Dave Ramsey recommends following the 25% rule—remember, that means never buying a house with a monthly payment that's more than 25% of your monthly take-home pay on a 15-year fixed-rate conventional mortgage.

What is the Dave Ramsey budget percentage rule? ›

Whether you have a mountain of student loan debt or you're debt-free and investing in retirement, you're stuck with 50/30/20. Here's the deal: You shouldn't spend 30% of your money on wants if you're in debt, because debt robs this month's income to pay for last month (or last year, even).

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