Dave Ramsey Says You Can Take an 8% Withdrawal Rate in Retirement! (Is He Right?)
09/13/23 • 9 min
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Today’s episode revolves around whether Dave Ramsey is right – or wrong – in saying that people can take an 8% withdrawal rate in retirement.
A group of fiduciary advisors recently confronted Dave Ramsey on Twitter.
Just like David, they too thought that Dave Ramsey is living in a fantasy world because of the advice he shares with people.
David points out a big flaw in Dave Ramsey’s recommendation of staying 100% invested in stocks your entire lifetime: the approach doesn’t account for investment volatility.
Remember that just because you average 11.8% per year, it doesn’t mean that you’ll be getting precisely that result each and every year.
That’s because 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.
David emphasizes the fact that most people who retire at age 65 need their money to last a full 30 years.
Ramsey’s “one-size-fits-all” approach is the reason why, David believes, he takes positions even if they aren’t supported by the data.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
Today’s episode revolves around whether Dave Ramsey is right – or wrong – in saying that people can take an 8% withdrawal rate in retirement.
A group of fiduciary advisors recently confronted Dave Ramsey on Twitter.
Just like David, they too thought that Dave Ramsey is living in a fantasy world because of the advice he shares with people.
David points out a big flaw in Dave Ramsey’s recommendation of staying 100% invested in stocks your entire lifetime: the approach doesn’t account for investment volatility.
Remember that just because you average 11.8% per year, it doesn’t mean that you’ll be getting precisely that result each and every year.
That’s because 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.
David emphasizes the fact that most people who retire at age 65 need their money to last a full 30 years.
Ramsey’s “one-size-fits-all” approach is the reason why, David believes, he takes positions even if they aren’t supported by the data.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
Previous Episode
The Truth About Doug Andrew's Retirement Philosophy
David starts the conversation by describing why he’s not a huge fan of Doug Andrew’s retirement philosophy.
David then talks about the differences between Doug’s approach and the Power of Zero approach for funding your retirement.
According to Doug, you risk jeopardizing your retirement if you have money in an IRA or a 401K. There’s the danger of losing a sizable portion of your portfolio if the markets were to crash like they did in 2008.
To protect your retirement, Doug believes it would be best to move all your money in the stock market into a Laser Fund/Indexed Universal Life Insurance.
David interprets this to mean that Doug dislikes stock market investing.
For David, the stock market is the single greatest engine of wealth creation the world has ever seen.
What about risks and volatility? David explains that the longer you invest in the stock market, the more likely you won’t lose money and grow your assets over time.
David prefers a retirement strategy that views the IUL as one component of a balanced, comprehensive approach to tax-free retirement.
David reveals why the Roth 401K is an extremely useful tool for funding tax-free retirement.
David shares what his preferred tax-free investment strategy would look like - and why the zero percent tax bracket is so powerful.
David goes through the 3 things that make IULs a unique tax-free investment route:
- A death benefit that doubles as long-term care.
- Serves as a great volatility shield in retirement.
- Safe and productive returns. Also functions extremely well as a bond alternative.
If you believe tax rates will be higher in the future than they are today, you should adopt a strategy that takes advantage of all the benefits in the IRS tax code.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
Next Episode
My Review of the Anti-IUL Book "Lapsed"
David reviews an anti-IUL book, LAPSED, written by financial advisor Elan Moas, who believes IULs are designed to fail rather than succeed.
According to David, the book is written with dramatic and highly-charged rhetoric around what will befall you if you make the mistake of purchasing an IUL.
So the big question is, “Are IULs too good to be true?”
For David, IULs do exactly what they're meant to do. Their true purpose is to give you stock market exposure up to a cap with a guarantee against market loss.
IULs are not meant to be a stock market alternative. They are a bond alternative with returns of between 5% and 7% net of fees over the life of the program.
Insurance companies don't make money on Cap Rates. Cap Rates are a function of two things. First is the cost of options, which is informed by the volatility of the stock market. And second, the carrier's options budget, which is a function of interest rates.
David debunks Elan's theory on how IUL providers are intentionally and aggressively working to confiscate your money.
David shares a chart showing return rates from real and highly-rated IUL carriers.
Only when you see that the author is out to sell you a whole life insurance policy will you understand the motivation behind his misinformed book.
David believes the author's goal is to scare people out of their perfectly adequate IULs into a whole life policy that he would be more than happy to facilitate.
If you like whole life insurance, great. If you like IULs, great. But please don't waste everybody's time with intentionally misleading scare tactics.
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
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