Dave Ramsey Says You Should Withdraw At 8% In Retirement, But Suze Orman Says Absolutely Not And Calls Even 4% 'Very Dangerous' — Who's Right?

A debate over retirement withdrawal strategies has erupted, with financial experts Dave Ramsey and Suze Orman at the center. This topic was recently posted on the Power of Zero YouTube channel, where differing opinions have sparked a broader discussion among financial advisors and retirees.

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The controversy began when a 30-year-old man with $120,000 saved for retirement called into "The Ramsey Show" seeking advice on how much of his assets he should withdraw annually over a 30-year retirement period. He mentioned a recent video by "The Ramsey Show" co-host George Kamel, which suggested a 3% withdrawal rate for those aiming to make their nest egg last.

Ramsey vehemently disagreed, saying, "I don't know what the hell George is doing with a 3% withdrawal rate because that's absolutely wrong. It's ridiculous." Ramsey recommended an 8% withdrawal rate instead, provided that retirees could earn a 12% annual return from "good mutual funds," aligning with the historical average annual return of the S&P 500. He argued that setting aside 4% for annual inflation made this approach feasible.

Ramsey's retirement advice quickly sparked backlash. Financial expert Rick Edelman responded, "Anyone following Ramsey's retirement withdrawal strategy is doomed." He added, "I and every other legitimate financial adviser have recommended to our clients that when you're in retirement and need to start withdrawing money from your investment, you should withdraw no more than 4% per year." The 4% rule has been a widely accepted standard for over 30 years.

Suze Orman also entered the fray, challenging the 8% and 4% rules with her conservative stance. In an interview with Moneywise, Orman stated, "It doesn't work anymore," adding, "I think it's very dangerous."

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Orman has emphasized the need to preserve as much of the portfolio as possible for unexpected challenges, such as health issues. She recommends a 3% withdrawal rate, noting, "The less money you withdraw each year, the better off you are."

The implications of these differing strategies are significant, as pointed out in a YouTube video posted by the Power of Zero. For a 35-year-old planning to retire at 65 and live on $80,000 annually, Ramsey's 8% rule requires saving approximately $882 per year, assuming an 8% return. In contrast, Orman's 3% rule necessitates saving about $23,450 annually to meet the same retirement income goal.

This major difference underscores why Ramsey favors his higher withdrawal rate; it makes the savings goal seem more attainable. 

Choosing the right withdrawal rate depends on individual circumstances and risk tolerance. While Ramsey's approach offers a more optimistic savings goal, Orman's conservative strategy aims to ensure long-term financial stability amidst unforeseen challenges.

Financial advisors continue to debate the merits of each approach, urging retirees to consider their unique needs and consult with professionals to make informed decisions.

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