So Dave Ramsey has been caught live on camera saying that the 4% rule is not needed and that you can actually get away with an 8% withdrawal rate for retirement. He also made some other statement in Dave Ramsey fashion, but that’s not what this video is about. I think that statement by itself requires a lot of unpacking to be understood.

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1. Dave Ramsey’s 8% withdrawal Rate
– Dave, isn’t grabbing this rate from the air, he has a logic to the idea but the logic on its own is not enough but its everything else that makes it make sense
– For example: if inflation is 4% and your investment make 12% on average ( which is true )
– Then 12-4%= would give you a withdrawal rate of 8%
Basically saying:
– Where with the 4% rule you need 25 times your annual expenses to retire
– With the 8% rule you would only need 12.5 times which is a lot less
– If you want to make an income of 40k a year, instead of needing $1M you would need 500k
– And that’s massive because that means you can avoid decades of extra time investing

Now on its own ( this logic fails…kinda)
– Here is graph if you only hold stocks, your success rate goes from 98% with the the 8% rule to 76%
– And if you have stocks and bonds then your rate goes from 100% success to 53%
– Basically almost 50-50

Now here is the Good thing:
– Before people ever consider investing and retiring
– Dave has people get debt-free and build and emergency account
– When people start saying for retirement in Dave plan they also try to payoff the home
– So, in the end, the person that would be using the 8% rule in his mind is debt-free, emergency funded, and a paid of home ( which grants that person greater flexibility to take less than 8% during bad markets and so on )

2. My Main Problem with it
– In the book The Physiology of money, the author spoke about luck
– And how sometimes people can experience the other side of the odds, even though the odds are unlikely
– And that when you want to take a risk, you want to make sure the risk don’t mean you getting wiped out

So for me personally:
– I have no Debt
– I have a fully funded emergency account
– And enough to payoff a home
– Would I take more than 4% ( the answer is Yes )

But here is why
– I want more money to invest in real estate and pay cash
– And I still have a job, although I work less and earn less
– So if I do take 8% and I invest all in stocks, and the market is doing great I may consider going as high as 5%
– but if the market is trash, I would consider not taking anything from it

3. Here is the Problem
– If your only life support is the stock market, that’s a terrible idea

So here is what I recommend
– Lower your Cost of living and Remove leverage from your life
– Although be willing to make some money at least part time to subsidize your income
– This will give you a lot of freedom

So in the end ( do I agree with Dave )
– The answer is Yes, if you only invest into stocks
– But… not when the odds are 50-50 and you are counting on the market for your hot meals
– Theirs a lot more to the statement, so you have to think it through

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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