One of the things Dave Ramsey is famous for is telling his audience that they can take sustainable 8% distributions from their stock market portfolios in retirement.
David has two issues with this recommendation: it ignores reams of academic data on sustainable withdrawal rates, as well as the concept of sequence of return.
David points out the potential repercussions of following Ramsey’s approach.
According to the mainstream financial community, 4% is the actual “golden rule” for sustainable distribution rates in retirement.
Ramsey has long complained about the 4% rule being a pretty expensive way to go…
David illustrates a key problem with an 8% withdrawal rate and discusses the role of a volatility shield.
David explains that the money you can put in a volatility shield has to grow tax-free and allow for tax-free distributions.
It’s possible to increase your sustainable withdrawal rate on your stock portfolio to as high as 8%, with a 95% chance of never running out of money – David explains how.
On an apple-to-apples basis, guaranteed lifetime income annuities give you a much higher income than living by the 4% rule in retirement.
Following this Dave Ramsey strategy? David believes that it’s likely going to force you to run out of money 15-20 years in advance of life expectancy.
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