Dave Ramsey's 8% Withdrawal Advice Could Lead to Ruin: Peter Mallouk

Personal finance celebrity Ramsey in a recent podcast denounced strategists who advocate safe withdrawal rates as “goobers” and “supernerds” who “live in their mother’s basement with a calculator.”

The widely recommended 4% safe withdrawal rate is unrealistic and leads people to think they’ll never save enough to live on that income in retirement, according to Ramsey.

“A million dollars should be able to create an $80,000 income for you, boys and girls, perpetually! Forever!” Ramsey said.

In response, retirement and wealth planning experts David Blanchett, Michael Finke and Wade Pfau, who all teach at the American College of Financial Services, wrote a column for ThinkAdvisor calling Ramsey’s advice dangerous and his math wrong.

“No retiree should have their savings entirely in stocks. Bonds help buffer downturns … And no retiree should believe that they can maintain an $80,000 lifestyle after saving $1 million. They either need to save more, retire a little later or spend less. Although reality is a little more depressing, it is still reality,” they wrote.

Ramsey’s simple calculation — retirees experiencing 12% mutual fund returns and 4% average inflation should be able to withdraw 8% from their portfolios — doesn’t account for the difference between average returns and real-time earnings from an investment, they noted.

Nor does it take into account sequence of return risk, i.e., the negative effects of high withdrawals during a market downturn early in retirement, they said.

Peter Mallouk. Photo: Janie Jones