I read and watch a lot of videos on retirement because that’s the next big stage in my life so I want to maximize my knowledge around the topic. The big debate for the past year has been about what is the safe withdrawal rate for your portfolio. Dave Ramsey thinks it can be 8% while most other people think it should be 4% or less.
I think both camps are asking the wrong question. The right question isn’t the rate of withdrawal but the level of risk you’re willing to take over the long term.
Dave Ramsey could be right if all of his assumptions are true. He assumes a 12% growth rate in perpetuity arguing that if you withdraw 8% you still have 4% left to grow. In this perfect scenario he is correct, the money will never run out but is that scenario realistic?
Retire With Julia has a video on the topic and it’s worth a watch to understand the other side of the debate.
Everyone Can Be Right or Wrong
As I stated above, it is possible for everyone to be right or wrong, it simply depends on the time frame so the smart question to ask is what is the level of risk acceptable to me. And the answer for me personally, given the current climate of wars, geopolitical risk, domestic political risk, inflation, demographic changes, immigration and other factors, I plan on having a lower tolerance for risk which means I’ll stick to 4% or less withdrawal of my portfolio when the time comes.
Oddly enough, I’m not even sure why Dave Ramsey gets so irritated at the prospect of people being more conservative with their money. It is far better to have money left over when you die than be deep in debt but Dave Ramsey has filed for bankruptcy and admits he didn’t understand risk, seems like that deficiency continues…
Share The Wealth
Are you a 4 percenter or less or above 4 percenter when you retire? Let me know in the comments below.