Is an 8% Safe Withdrawal Rate... Safe?
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- Опубликовано: 13 ноя 2023
- Dave Ramsey recently claimed that an 8% withdrawal rate from an investment portfolio is safe for retirees.
Unfortunately, his logic is flawed, and retirement spending math is not as simple as he suggests.
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It's amazing how someone can be so successful at giving financial advice when they actually know so little about many important aspects of personal finance.
Yeah, depressing isn't it?
He knows, he's just lying and bullshitting. Just like how he understands interest rates but doesnt factor them when telling people which debts to pay off first or how long itll take them to pay off.
Then on top of that he's a right wing propagandist, always throwing in political opinions and working to convince people there arent societal problems, everything is just your personal failure.
95% of what Dave does is inspire people to do what they knew they should all along. Very little knowledge is imparted. He could meaningfully teach real estate and business basics, but that's about it.
Yes, he comes across as sincere and overly optimistic, which has repeatedly shown to be a successful marketing formula.
To me, he doesn't come across as sincere or really care about other people at all. Every time I hear him talk I see a person having a hard time dealing with his own ego and opinionated personality. I think he uses the callers as therapy.
I am glad you're factually calling Dave out on his superficial claim!
I am so grateful that i can forward your videos to my friends and family whenever they have a personal finance/investing question. Thank you for being a rational voice in an online sea of quacks 🙏
One could say a... rational reminder :)
Dave needs to stick to telling people to stay out of debt and stop giving out other advice. Following his advice on other topics is just wrong and in some cases dangerous and hurtful. This is just one of many examples.
Big thumbs up on the video Ben. Keep ‘em coming. 👍
Thanks, Ben. Please delight us with your presence more often
Hi, Ben! I have been a fan for a few years now. Thank you for covering the call from 11/2 so well.
Dave is great for preaching investment ethics, like saving, delayed gratification, & avoiding debt. But his investment advice is often sketchy.
Come on man, Dave is not a bad person, just dumb, and can't learn.
The saying I heard is that he's good for people that are bad with money and bad for people that are good with money haha.
Of course it is. It's all about making a sales pitch for his mutual fund.
He's still essentially a quack
He can’t do math 🤷🏻♂️
Thank you for what you do Ben!! You’ve definitely kept me aligned with my long term financial goals.
I love your content, keep it up!
Ben the best I know that does RUclips videos on finance & investing. This is the real deal.
One of the few keeping RUclips worth it.
Lol, Cmon Dave be better AND DO HARD THINGS. Big fan of RR podcast and YT channel - we are living the life of retirement in instalments. Ben, I enjoy your deep dives. Thanks for your great work.
I only watch Dave for the gossip. I watch Ben Felix for the actual wisdom
Agreed
Great comment 😆
Well said 👏👏👏
Love you man!
was waiting for this one....
Great video. I would love to see a tutorial video of how you built the model. I think seeing you build the model would help solidify the concepts covered. Thank you
It's not very fancy or proprietary. I just did a block bootstrap from the fund's historical returns. You can see it here: www.portfoliovisualizer.com/financial-goals?s=y&sl=3ZZJram69hhMPCUjMC8ZVd
@@BenFelixCSI Thank you!
Clicked the thumbs up immediately as I knew what Ben Felix would say. The fact the video is under 3 minutes would normally be a negative, but actually says it all on its own 😂👍
Well done!
Ben with the Finance Bro Patagonia 😎🔥
Ben, thank you so much for making these short, straight to the point videos. They're greatly appreciated!
C'mon Dave, be better! That's a shout out to all Daves btw
Daves, they never learn!
@@BenFelixCSILOL! I'm a Dave and it's true. I never learn.
All depends on the expected death time
The weather is getting colder. Ben’s beard is coming back. The holidays are here!
“I ❤ DIVIDENDS” - oh Ben, you sneaky devil. Keep up the good work!
The problem with fixed income retirement…unexpected expenses. Seem to hit me each month! Expensive car repairs, credit card…etc. Tough to budget exactly and need a lot of buffer
That wooden block in the back, chef's kiss
I always trust the Patagucci vest
Dave understands accounting for risk when it comes to not using leverage for loans. How does he not get to account for risk here too?
Because he's never been retired. He can literally only learn things by personally experiencing them, like every ESTJ I've ever met.
Spot on. He never adjusts for risk when it suits his argument. He quotes this mythical 12.8% return mutual fund he's owned since 1743 but never adjusts for risk.
Mr. Ramsey is notoriously optimistic. If he says it's reasonable, it's a best case scenario.
Sounds like his math is incredibly optimistic🤷♂️
He’s not optimistic, he’s just illogical. He once said that if $500 can turn your life around, you’re already done for. That’s not optimistic imo.
@alvadagansta I call it "Sin a Little Economics." Things like 1% a day is obvious fraud but 13% a year is realistic enough to be believed by smart people driven by the same greed as day trading idiots
You misspelled "a con artist."
@@macy1066 don't throw around fraud allegations lightly
So fresh!
Engaging in an individual market option is fair, but its performance level can’t generate high dividends. Diversification is the secret to optimal performance, that’s why I have my interest set on options based on projected growth and performance.
Oh, first video from Ben I watched in over a year and feels like meeting again an old friend and seeing he did not lose his sharpness: thanks for your work!
Depends on volatility of underlying investments but 2.5 - 3% MAX IMO
This is why I like the idea of keeping a buffer of T-bills for the next few years’ retirement spending. When stocks are up you can sell and refill the buffer, if they’re down you have plenty of cash to wait for a recovery.
You and Azul have the same theme today!
I wanna see Dave Ramsey high school Math grades.
I laughed with you Ben when you have said: unfortunately the logic is flawed 😂
I can;t ve the only one noticed the "I
Since when is Ben so spicy? *grabs popcorn*
Come on Dave !!!
Would be great to hear Ben’s views on Dave’s advices about debt.
Not sure Ramsey is always right suggesting people to use their own money, comes what may, instead of sustainably leveraging.
You are so right here Ben. Better to load up on covered-call, mlp and high dividend ETFs and target a 10% withdrawal rate. (*--*)
Ben would never tell you to buy a single one of those products. He has videos on why they are all poor choices.
@davidbandurak7307 I think Tom knows this and it making a joke 😀.
My SWR goal was always 2.75% but lately I'm afraid that with inflation it will need to be lower...
I can not shift my focus from that "I ❤ dividend" tag.
I've read some studies (Israelsen, Merriman) that 6-7% withdrawal rate meaning you sell fixed percentage of portfolio worth not adjusting for inflation is kinda OK. So, a variable withdrawal strategy.
Variable spending is much more sensible than fixed spending, I agree. There are also combinations, like variable with a ceiling and floor on annual changes in spending.
@@BenFelixCSI Thx for reply Ben. Sure, with variable spending you have to combine your portfolio income with some other income source because of stability or lack there off (if thats the correct expression) most of us from Europe will have some kind of state pension but much smaller portfolios compared to eg. US citizens.
Ideally people should cash flow model their entire retirement and then keep it updated during retirement rather than worry about what the SWR is.
"Come on, Dave--be better." Awesome!
Buy Canadian bank stocks when they are cheap and keep them forever and live on the dividend. Bns had a yiel of 7,6% 2 weeks ago. The good news is that in the long term, the stock and dividend adjust themselves for inflation, and you get a tax reduction on the dividends.
Dave's advice is so bad Ben had to start growing a beard
Ramsey is a charlatan when it comes to financial and investment advice. D.R. should talk about that which he understands and knows best, 'getting out of debt'. Needs to stay out of the financial arena altogether IMO. Super informative vid Ben. Good to see that someone understands the math cause Ramsey doesn't have a clue.
All this time and effort involved with withdrawal rate. We all know selling stock during a stock crash does GREAT damage. Why not brainstorm and come up with options for an infusion of cash during stock crashes, so that stock investments don't have to be sold (or at least delayed).
I know most have bond investments that can be sold during stock crashes, but then that leads to ongoing opportunity costs (HIGH opportunity costs when interest rates are ultra low, like the decade of 2012 - 2021).
Solution: cash-out refinanced mortgage to get an infusion of cash. I know this involves risk, but sometimes going with the least BAD option is the optimal solution. My portfolio is 100% stock with cash-out refinances planned during stock crashes and a reverse mortgage planned if I live past 95. I'm 62, retired.
I know mortgage interest rates are high right now, but those should subside in a few years. Still, today's high mortgage interest rates are still optimal to selling stock during a 40% stock crash.
And, planning with an ultra low withdrawal rate can lead to big opportunity costs (dying with a bunch of money, a lot of frugality wasted).
One consideration for a safe withdrawal rate is the ability to stop or slow withdrawals in down markets. This can greatly increase the safe withdrawal rate. Maybe Dave was thinking about this. Also, the safe rate is the worst case scenario using Monte Carlo, not the average outcome. This is why insurance companies can guarantee a higher rate. They work off averages.
He was not talking about variable withdrawals. I agree those improve things materially.
That 'I love dividends" in the background.... is someone poking the bear again!? lol
0:01 - "No." - Roll credits~
Nice presentation Ben - and - how about that most retirees don't increase their spending with inflation...?
I used to like that point, but a more recent study suggests that the observation is driven by people running out of money. People who can afford to continue increasing expenses with inflation. www.pm-research.com/content/iijretire/early/2023/01/06/jor20231128
@@BenFelixCSIretirement spending is hard to plan but needs thinking about. Care home costs can exceed 100k a year and you may have none or ten years to pay. Living in poverty in retirement is best avoided if possible.
2:55 seems a bit long to say "no".
For these success rates for retirement, I often see 30 years being used. People may retire at different ages, though. Should a reasonably healthy person plan for living until 95, or is some other age typically used, or is there a correlation between years in retirement and life expectancy seperate from age?
Yes, the vast majority of people will not live to 95. But, do you want to be one of the millions who does live that long and runs out of money?
Dave sure generated a lot of reaction videos. He is out on a limb on this one.
He's out on a limb on a lot of things
Rxns = views and attn online. Using the system?
Ben this hair and facial hair is a great look, keep the hair bro, grow it out even. Get your hair growth compounding. There is a hair risk premium that outperforms bald over the long term, well backed up by the data.
I planning to not cut my hair or shave for a while. Currently an undetermined amount of time, but enough that I purchased a beard brush.
I want to know who got you the "I ♥ dividends" decoration. 😀
A good friend of mine made it for me! Since I am so in love with dividends.
The "I ❤ Dividends" sign is subtle af trolling? I've listened to enough of your content to know quality investments in the company are preferred to stock buybacks are preferred to dividends.😉
Come on Dave, be better. Such an accurate statement.
Oh Dave...
@BenFelixDirectMessage-Been following you for years, just don't usually comment. Thanks for all your content!
Hi Ben, I have to ask. I live in a country where low cost index funds/etfs are not available. And moving money is also not possible due to capital controls. The lowest expense ratios I've seen is around 1.5%. What should a person like me do?
Emigrate
Do we have a link to Dave's original clip?
To be fair, he didn't say 8% constant and inflation-adjusted. A 8% variable withdrawal cannot run out of money. You can end up with a tiny portfolio, but not run it to zero
'Come on Dave, be better' 😭 scolding him
He did not say inflation adjusted, though, I believe.
He did. He said the portfolio will increase every year such that your withdrawals stay constant in real terms.
As Ben pointed out, Dave also claims you will never touch your principle .
Another comment - Ramsey makes money by financial advisors paying a fee to be on his recommended list. His motive is to make $ from his franchise.
Is there a way to calculate how much your safe withdrawal rate would rise if you delay retirement by x years? Let’s say 15 years? What would happen with those 2.7%?
If you shorten the horizon the SWR will increase. You would have to run the simulation though. There's not really a back of the envelope way to do it.
@@BenFelixCSIyou can start by looking at the cost of an index linked annuity for each age. Any withdrawal rate higher than the annuity rate is taking extra risk, which may or may not give you a better outcome. Unfortunately you won’t know if it was better until you expire. A tricky problem.
It's funny L7 channel did a analysis of Dave magical four mutual funds they were not great.
The problem with your way of presenting that information is that it's too negative. If you tell someone just starting investing, he can get 2.7% at the end, probably nobody would start.
The issue is at the years when the market goes down significantly. If you are able to withdraw less in those years (maybe relay also on state pension or some temporary job), you'll be able to withdraw something more reasonable on a "normal" year. So basically value cost averaging on the way down I'd say as well. Check at some yearly (or whatever) checkpoint how much you can afford to withdraw and take only that. Of course then you can't rely on this source 100%.
Another point (which I've actually heard from your podcast and makes sense) is that inflation for older person is not as high as for middle aged person (because of different shopping baskets and maybe willingness to give up some quality for price - or no need to follow quality improvements).
Great video. Very jucy drama.
Shooting for 100% safe return rate is overly risk averse.
Ben, do you think Dave would put out a video debating you on this topic?
I doubt I am on his radar at all. Would love it if he responded though!
I would love to see it as well.@@BenFelixCSI
@@BenFelixCSI I'm guessing Dave will be going into hiding concerning this topic, for quite a while.
@@BenFelixCSIPretty sure Dave refers to guys like you as "some Goober in his moms basement with a degree" or something derogatory like that. He doesn't like to argue with facts that don't agree with his opinions.
My man, let's say you go 100 percent equity because you have a stable income source. Do you think a 70 US/30 world percent allocation is good? I'm debating between 60/40, 65/35, 70/30.
Working on a video that touches on this. The meat of it is based on this paper, which suggests 50% US 50% international. The paper is worth a look. papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406
I was a big Ramsey fan in 2018 - 2020 ish. I dug out of $86k debt, and now have a net worth over $100k. This was in large part due to Ramsey's podcast.
However, he just punted himself into irrelevancy. That rant was such a big mistake.
Dave's advice can be great for the "get out of debt" phase, but man he should stay away from investing and retirement advice!
You are absolutely correct - the 12% withdraw rate is pure suicide - Read the writings of Retirement researcher Wade Pfau and I use a 2.5% withdraw rate on my funds and this will have a 10-15% failure rate.
Just sign up with one of his ELPs they’ll pull this off for you 😂
Withering.
Ben looks like he's been working hard.
No. Unless your money grows as fast as your hair 😄
Dave built his business on getting people out of debt. I think his message is what his followers/callers need to hear - no sugarcoating. I don't think Dave's business is to get people to financial independence, because advice like this is way too optimistic.
optimistic is one way to put it. it's dangerous
I'm nowhere near 12 percent/year over the last six years!
Ramsey's advice MIGHT work..as long as your portfolio was MASSIVE, in relation to your withdrawls; for necessary living expenses.
Dave's logic is flawed and will push some people into underdelivering with his overpromises. After I saw your video a while back, I immediately started adjusting my assumptions and future rates. Basically, I calculate everything RN with ~3% (expenses x35) to be exact. Better be safe than sorry.
Did your razor break? Lol
Ben - thank you for doing what you do! 2.7% looks like a great constant withdrawal number, but if we consider a variable withdrawal amount, e.g. 5% of whatever the account balance is - how does this type of rule of thumb fare?
Introducing variable spending makes a big difference. It allows for more lifetime spending without trading off a higher failure rate.
@@BenFelixCSI hey which books do you have behind you if you don't mind me asking? any chance that you could at least give a photo that is in focus somehow? via imgur for example
2.7% withdrawal rate is just downright depressing.
You've gotten all you're gonna get from Dave Ramsey after you've absorbed the advice that you should pay off your high interest debts. The guy continues to surprise me with how little he knows about finance beyond that. Even his brand message was bad advice for a long time while interest rates were so low. Paying down your house instead of re-financing and then aggressively buying assets over the last few years would have been a terrible decision.
almost like Dave created some drama to stay relevant and keep eyeballs on Ramsey solutions.
Dave is a grifter and so happy even his allies, like The Money Guy, have come out to call him on his BS. Dangerous "advice" from Dave...
Don't make fraud allegations lightly
@@samsonsoturian6013 You should find something better to do than going through these comments and defending this moron.
@@samsonsoturian6013 Or what?
@@dietbajablast5790 Or you become a known liar
As much as I'm here for dunking on Dave, I have to submit that mortality rates for his fanbase likely do not support needing a full 30 year retirement timeframe.
I watched a clip from Kamal's video that sparked the whole tirade, proving Dave knows nothing about practical real world investing or what's on the editorial calendar of his own company.
Ben this hair and facial hair is an awesome look boss! what's the secret? I didn't know you went bald by choice.
Thanks! No secret. I just decided to stop cutting my hair and shaving for a bit.
Dave has great advice for the financial illiterate and generally means well, but is is stubborn and never changes his opinion in the light of facts...his investing advice is generally good, but his number aren't realistic. Like he rarely factors tax into peoples income when telling them how quickly they can get out of debt. HE also never adjusts for risk when spewing out his own investment numbers.
Dave is helpful in getting people out of debt. But his investment advice is just bad and somewhat ignorant.
This channel is good for learning about investing.
Dave’s advice is for people who are in debt and financially insolvent. He is a debt counselor not an investment advisor. Debt management and investment planning are two different fields and his advice on investing wouldn’t be useful.
It's safe if you only plan to live for 12.5 years of retirement...
Even then it might not be, if you retire through some years that have negative 30% returns (which can happen)
@@glen46823 The 12.5 year plan involves only GICs, or for the very paranoid, shoeboxes under the bed!
Unfortunately DR has a large following, which is too bad in some regards, as some of his advice, such as what you addressed in this video, will get people into trouble.