Dave Ramsey's Dangerous Retirement Advice - 8% withdrawal rate
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- Опубликовано: 6 сен 2024
- There are many "financial gurus" out there, and Dave Ramsey is definitely one of them. Unfortunately, once in a while, there is an advice that can be dangerous to the audience, and I believe this is one of it.
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Dave said 8% not a fixed rate of $80k. redo your simulation with 8% NOT $80,000
Did you not listen? “$80k forever” buddy
@@BigRed2 …. False. He was still speaking in averages. Now prove it. Run the same simulation with an 8% withdraw rate. Then tell us: a) how long the money will last and b) what would the AVERAGE withdrawal amount be. Now you will be intelligently honest. And I’m not saying Dave is correct, I’m just saying you aren’t representing his perspective accurately…. So prove him wrong with this new simulation… we’ll be waiting…
I've looked into this initially, but I thought it was pointless, for the following 2 reasons:
1. If you are retired, you want to enjoy life, and not look at your portfolio every month, to see if the withdrawal for that year would be 80k, or 60k. The goal is to have a certain income, that you can allocate and enjoy life. I'll use 2022 as example, If you expect to withdraw 8% of the 1m portfolio, you expect to withdraw 80k. However, based on the ending balance, you should withdraw 65k. So, when do you adjuts for it? What if you've spent 40k by mid-year, will you spend 25k for the remaining 6 months? This doesn't feel like retirement.
2. Some of your questions are valid, and I had the same when I started the analysis. Of course, no portfolio would run out of money, because one is withdrawing 8% of it. Even if you had a portfolio of $100, you'd still not "run out of money" - although, you'd have $8 for the full year. I think focusing on the "average withdrawal" is also pointless. You should be able to live based on the "lowest withdrawal", because eventually, you'll face it. As such: the lowest annual withdrawal one would have would be just over 4,000 per year. No, it is not a typo, 4,000. In fact, half of the portfolios would at some point have an annual withdrawal lower than 40,000.
The above mentioned are based on simulations as well. Based on the two reasons above, I thought they wouldn't add too much value to the video, and it would be too long, so I ruled to not add them.
I appreciate your questions, and always encourage challenging assumptions. Thank you.
Dave gives psychology advice that happens to pertain to money, and debt more specifically. By the numbers, a lot of it falls apart. I wouldn't recommend people who aren't drowning in debt listen to his advice. Just like I wouldn't recommend someone who doesn't drink alcohol to go to AA meetings.
The other day I heard him tell a guy with a 250k mortgage, 200k in savings, and a 150k income to blow his entire savings on the mortgage. That's just awful advice on its face.
I couldn't agree more. He is known for labeling debt as bad, although, not all debt is bad.
I think the point is that it is better to have something invested and saved for retirement. Most people who follow the advice of having a million dollars invested will most likely have other streams of income in retirement ( Social security, part time jobs, etc.) and will not keep withdrawing at a 10% rate if it destroys the investment they spent their entire lives building. Dave's advice is solid, try to have a million dollars invested when you're headed to retirement as a general rule. You're not going to be mad you've got that money.
I find his statement misleading and wrong. If someone does listen to his advice, it won't turn well.
I do agree with you, that if you have other sources of income, you might not have to withdraw a high percentage of the portfolio and you'll be fine. However, those are completely different assumptions. Being retired, means you get to enjoy life without working or worrying about the finances. If you have a part-time job as another source of income, well, you are not retired.
@kostadin_ristovski if being retired means not worrying about finances then I guess no one will ever be able to retire lol
Aim for healthy 4%
(better 3.5% if you have very good health)
What I agree with Dave is his opinion about different kinds of debts he urges the audience to get rid of.
Dave treats all debt as bad debt. Although that isn't true, the average person struggles with making the distinction, primarily due to the consumer-driven society that we all live in, and ends up with a lot of bad debt. So, his advice to get rid of all debt one by one is definitely useful for many. Don't get me wrong, I don't disagree with everything he says. However, when it comes to his retirement advice, I don't think that's a good one.
Rams gives a lot of BS advice. Sometimes I wonder if he really is as rich as he claims.
I mean he is, but the vast majority of his wealth is concentrated in real estate that he bought for pennies on the dollar back during the financial crisis. I wouldn't take advice from him regarding securities haha
Where did he get the cash to buy all that real estate. He claims he owns over 500 properties free and clear. A lot advice he gives regarding real estate makes no sense either. For example he insists you should pay off mortgages as quickly as possible. Real estate as an investment only makes sense if you can apply leverage and the tax write off.
I've seen info that 4% is safe when you are near retirement age. If you want to retire early, it's more like 2.5%
if you withdraw 2.5% (and increase the withdrawal by 4% per year), not only the portfolio doesn't run out of money, but it actually grows over time, and it grows significantly. Therefore, unless the goal is to leave a much larger portfolio to the next generation, it can be argued that 2.5% is too low of a withdrawal rate.
Also, keep in mind that with a 2.5% withdrawal rate, the portfolio should be 40x the annual withdrawal.
I think it all depends on your assumptions. Every study is going to use different assumptions. I think I heard the 2.5% from one of the videos in the "Ben Felix" channel's videos from a long time ago. I can't find that one. He reads a lot of research papers.
In one video titled "The 2.7% Rate for Retirement Spending" he mentions 2.7% rate for Canadians (who have a longer lifespan than Americans) for retirement (not FIRE).
There is also "The 4% Rule for Retirement (FIRE)" from 5yr ago. Where he mentions one scenario where the safe withdrawal rate could be as low as 2% for FIRE. He also discusses alternative method of withdrawal.
Four months ago, he came out with a video titled "Is an 8% Safe Withdrawal Rate... Safe?" referring to the same thing you are. He also has a video from 4yr ago titled "Dave Ramsey's Investing Advice" where he points out lots of issues with Dave's advice.
In many studies, there's cherrypicking involved. This is the reason why I decided to take a look at all of the data out there and test against it.
Any withdrawal rate below 3% is not going to reduce the portfolio's value over time - even adjusted for inflation, so it can be passed on to the next generation). However, retirement isn't defined as being able to pass the retirement to the next generation, but have enough income for the rest of one's life. Based on the historical data, the 4% withdrawal rate (that increases for the average 4% inflation per year) is feasible.
Dave assumes a 12% portfolio return as a given. The average is 5-8%.
What average are you referring to?
@@kostadin_ristovski the sp500...
Who as been getting 12% the last few years? No-one.
I mean, 2023 was quite a good year :)
Ramsay’s advice is usually terrible. As a rule of thumb, the bigger the channel, the bigger the pile of waste it produces.
That is indeed often times the case.