Since we’ve been chatting about 2025 investment returns, I thought I’d share this article about Dave Ramsey advocating an 8% “safe withdrawal rate” (SWR) for retirees. I generally think Ramsey is a pretty sensible guy – encouraging people to get out of debt, invest in index funds, and build generational wealth. Still, the idea of an 8% SWR seems more than a bit wild to me. Even if you invest 100% in stocks (which he advocates), could you spend at that rate?
I looked at it a few ways …
First, if I put an 8% SWR into FireCalc – a Monte Carlo analysis with 125 years of market history – the portfolio would have “failed” 100 times. That means you would have gone broke 80% of the time. That’s not a very soothing estimate, although as is often said, “past performance is no guarantee of future results.”
Next, I looked at the span of my own career and early retirement. That is, the roughly 35 years since I started at MegaCorp in 1989. By decade the market was up and down – exceeding 8% easily in 3 of 4 of the “decades”. Perhaps more importantly, when you look at the results cumulatively, it stayed ahead of the 8% SWR the whole time.
- By Decade: 1990s: +15.1%; 2000s -0.8%; 2010s: 13.3%; 2020s: +15.4% (5 yrs)
- Cumulative Growth: 10yrs +15.1%; 20 yrs +8.2%; 30 yrs +9.9%; 35 yrs: +10.8%
- (These numbers include reinvested dividends)
Finally, I looked at our own early retirement period. While I don’t really track spending annually, I think we spend at about a 4-5% withdrawal rate. Obviously, the market has done much better than that over the last 10 years (+13.1% since April Fool’s Day 2016). No surprise, our portfolio would still be looking very strong had we gone out and spent at 8%. We still would be ahead of our original FIRE financial expectations AND have a beach house with a Ferrari in the garage and a speedboat at a nearby marina.
I guess in the end, one has to ask themselves how “typical” they think the last 10, 20 or 30 years of the market have been? While 35 years isn’t a short amount of time – the degree of value creating technological innovation we have seen has been incredible. Ideas drive the market – is this the new normal?
Or, are we sitting on another enormous bubble like we saw in the 2000s? If the next 10 years looks like the 2000s (-0.8%), the cumulative 45 year return would be 7.4% – below the 8% SWR that Ramsey advocates.
Given where we sit today, I think our approach will be to gradually increase our spending, but not as high as a 8% SWR. Frankly, I don’t even think we have the ideas to spend another 1.0 or 1.5pp of our portfolio every year.
Not at this point, anyway. 🙂
What do you think about Ramsey’s approach? How much of a difference would it have made in your retirement?
Image: Grok AI
MrFireStation 
Your post shows that any period over 20 years came in below or at the long-term stock market return that is approximately 10%. I agree that we are overdue for a reversion to the mean that we saw in early 2000.
Using the historical average market return of 10% means that withdrawing 8% only leaves 2% to adjust for inflation. This means one would outlive their savings 100% of the time over a 20 year or longer period.
I think I will stick with the 4% rule. This works out really well for dividend investors. The current yield for out of favor safe dividend stocks covers the 4%. Dividend increases keep you ahead of inflation.
Dave Ramsey is very good at tackling the number one problem for most Americans, and that is that they spend too much and save too little.
In addition to his 8% SWR, another area that I disagree with him is never having a credit card and paying off your mortgage as quickly as possible. I setup my credit cards to auto pay in full every month and get to enjoy the float on my average monthly spending, get a percent or two rewards points which adds up to over a $1,000 per year.
My house has a 30-year mortgage that is fixed at 2.65%. The payments that I am making on my house keep going down in value. During the BiDUMB Administration alone, the value of the dollars I am paying dropped by at least 25%. I also get to invest in the stock market and earn 10%.
A lot of his advice is geared towards those who don’t save, max out credit cards and take out mortgages to buy fancy cars.
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I wonder if he is thinking an 8% SWR is fine if it gradually eats up your principal over your retirement years. Maybe that helps it make sense.
We certainly use a credit card – a Delta Purple Reserve card that has paid off pretty well. Like you say though, his audience is the general public who has already gotten themselves into significant risk.
We did follow his advice to pay off our house. I wrote one of my first posts about it. I’m sure we could have made hundreds of thousands of dollars in investments had we not paid it off, but I think he’s right that “your house feels better when you own it outright”. We paid cash for our vacation I do too.
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As long as you have to pay property tax you never truly own your home. I call property taxes paying the feudal landlord for the right to continue living on your property for another year. If you think it works any differently, I highly recommend attending a County Tax Lien Sale and see how quickly properties are taken away from those who do not pay the feudal landlord.
Florida is actually talking about getting rid of paying the feudal landlord (real estate taxes). Coupling not having to pay the feudal landlord in Florida with not having to pay capital gains tax on your house and I might just decide to flip California the bird!
However, if the selling your house for no capital gains works out like the no tax on Social Security, I would probably be income phased out again. I always pay. There are hundreds of thousands of Somalis who rely upon me working and investing to get paid for doing absolutely nothing.
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I also agree with many of the Ramsey principles, but 8% is a bit too far. I used to listen to him but no longer as there is too much great content in podcast land.
I actually stopped putting money into deferred accounts when I realistically knew what my pension and need would be in retirement. I instead used money for experiences with younger children and their education.
The 10% expected annually returns in the market are tough for the average investor to make in the long run despite what history says as people get spooked in downturns.
8% drawdown in theory works, but as one ages that dwindling pot of gold isn’t as shiny anymore. However, if people follow his advice and put 15% away annually into retirement, they will easily afford to draw down 8%, but they also might be challenged to spend that much. People forget that it is tough to turn the spending muscle into a spending muscle
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“That dwindling pot of gold isn’t as shiny anymore” … that’s a great phrase!
We’ve been pretty successful in not getting spooked in any downturns. I wonder how common that actually is? I know some of the experienced advisors in our neighborhood investment club sold when Trump came in. Many of them cited Warren Buffett as an influence, even though I think Buffett’s advice is usually the opposite.
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I don’t hew to specific % limits. In real-world terms, we provide ourselves a monthly stipend from investment earnings, dividends and interest. That plus our SS payments meets our monthly nut. Over the past decade, that averages 5% withdrawal. Our average annual asset increase over that decade is about 10%. Net: 5% withdrawal works for us so far. But I wouldn’t push to 8%, which would increase our risk more than I’m comfortable with for a 25 year planning horizon.
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Based on those numbers, you are positioned for some splurges, too! Let me know which model Ferrari you are buying! 😉
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