More on Dave Ramsey

Dave Ramsey 2After I wrote my Dave Ramsey piece yesterday (Math Suckage and Dave Ramsey), my friend Wade Pfau, a Princeton Ph.D., a CFA, and Professor of Retirement Income in the new Ph.D. program for Financial and Retirement Planning at The American College, wrote a piece on Ramsey and his suggested 8 percent retirement withdrawal rate: Dave Ramsey’s 8% Withdrawal Rate. My post noted that an 8 percent retirement withdrawal rate is “crazy,” but I focused on the 12 percent return assumption.  Wade deals with Dave’s withdrawal rate nonsense head-on. He pulls no punches.

Here’s a taste.

When it comes to retirement, Dave Ramsey says you should be 100% stocks and that this will support an 8% inflation-adjusted withdrawal rate. It sounds wonderful. Certainly that allows for a lot more spending than what you would think possible if you’re a regular reader of this blog. But this number comes from a completely ludicrous basis. He opened an Excel spreadsheet, assumed a fixed annual return of 12%  [Bernie Madoff might even be jealous of that return sequence], and determined that 8% is a sustainable withdrawal rate with inflation of 4% and that wealth will never be depleted. The problem with this is so basic that it’s hard to believe Dave Ramsey is ignorant about it. It’s the sequence of returns risk. It’s what William Bengen illustrated in the 1990s. The sustainable withdrawal rate can be less than the average portfolio return because people are taking income out of the portfolio, and when the market is down the funds they take out don’t get the chance to rebound on the subsequent recovery.

Wa-bam.  Unfortunately (from an accountability standpoint, I don’t wish ill of or on anyone), Ramsey hasn’t been around long enough for enough people to be damaged by his terrible advice to force its correction.  Please read the entire article and see why Dave’s well-earned credibility in the areas of debt and savings is so badly compromised by his dangerous and damaging investment and retirement planning advice.

Is it asking too much for people simply to be accountable, to own up to their mistakes and to correct them?  Dave?  Paging Dave Ramsey….

Sadly, it appears so.

4 thoughts on “More on Dave Ramsey

  1. Dave Ramsey does a great job helping folks get out of debt, and training them to live within a budget. This is where he should stay, as he is clueless when it comes to investing and insurance. Sadly, many folks will take him seriously when he take about insurance and investing. He can afford to cover his mistakes in these areas, but most folks can’t, and they will suffer the results of his poor advice. He is like most celebs who start to take themselves too seriously.

  2. 8% is probably too high. 3%-5% is probably a better rate. Since Dave assumes a 12% rate of return with an 8% withdrawal, does that assume the portfolio will still be making 4%?

  3. I’ve been listening to Ramsey’s podcasts lately and while he gives solid advice about getting out of debt I’ve noticed some odd advice he gave recently regarding ETFs, and just recently wrote up an article that shows Ramsey doesn’t really have a clue what an ETF actually is and thus is giving out bad information to his viewers. You can see what I’m talking about here:

    http://budgethacks.com/dave-ramsey-exchange-traded-fund/

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