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 would be happy if Florida got rid of property taxes for homesteaded properties. That would probably accelerate our decision to become Florida residents (vs MN).
That said, I don’t support the idea that paying property taxes means “you don’t own your home”. Property taxes pay for police, fire, roads, schools, and other things that the community needs. You don’t pay full sales tax on your home when you buy it, so I view property tax as and ongoing tax to cover those needed things.
I don’t always agree with how all of those $ are spent, of course, but I generally view them as “user fees” for the community. If there is a better way to pay for these things (sale tax?), I’m fine with that, too.
I do agree that the government selling of properties that have tax liens is conducted in a very shady manner.
Just my opinion. Worth about as much as I charge for it … 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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Scott Bessent, the current Treasury Secretary, was formerly the Chief Investment Officer for George Soro’s Quantum Fund. H was CIO when they broke the Bank of England and made a billion in a day. He spoke at CPAC before the 2024 election and described how many hedge funds were also betting against Trump. Bessent was out on his own when Trump got into office the first time and setup his investments that things would go well, and he beat the crowd.
Warren Buffett doesn’t really pay much attention to government actions. He looks for companies with good management and underling business model that is hard to replicate. Since he has gotten larger, Berkshire does try to influence government decisions to benefit the business.
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Supposedly, Berkshire Hathaway sold a bunch of equities and built their cash to 50% of their holdings when Trump won the last election. It was reported that they were potentially hedging against a possible Trump recession. Some of our neighbors said that prompted them to do the same. A couple of the neighbors said they sold ALL of their equities. (I didn’t sell anything, myself).
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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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Klaus,
Big Secretary Bessent fan here. He is sharp and no nonsense. A family man who happens to have a husband and two kids. You notice how little that is mentioned…..because it is a non-issue. Now I happen to think that Secretary Pete is a smart guy, but prior to Biden he had only been Mayor of a small city. Yes, he is fluent in many languages and served in the military, but look how much emphasis was placed on and still is about who he is married to.
Fortunately most people could care less about who one is attracted to sexually. but sadly it matters to the group that seems overly fixated on ensuring special groups get preference
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I’m sure he’s a nice guy, but I’m not a fan of the policies he has been promoting as Treasury Secretary (tariffs, deficits, increased spending). (I’m certainly not a fan of Mayor Pete’s policies either, or his performance as Secretary of Transportation). As to their personal life, I couldn’t care less, but hope they are both good people.
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I have read several articles recently that describe how the tariffs have reduced the budget and trade deficits. With the current Congress Trump cannot simply submit a budget that balances the budget and starts chipping away at the $38 trillion block of granite. He easily could and probably would if he was the emperor. Next time I read one, I will send it along.
The US middle class has been getting destroyed over the past 50 years through outsourcing, offshoring, inflation, excessive taxation that was not properly adjusted for inflation and intellectual property theft.
Two other recent international developments show that the Trump Administration is trying to have international conflicts benefit the US both militarily and economically. The takeout of Madura has numerous implications besides taking out a bad guy who has flooded the US with deadly drugs and emptied his prisons and sent them to our country. The oil tankers that his administration are interdicting are filled with oil that comes from wells that US Oil Majors developed and were stolen from them without compensation. Prior to Hugo Chavez’s takeover of Venezuela, they were the fifth wealthiest country in the world. The Trump administration wants US Oil Companies to further develop Venezuela’s oil capacity, and the royalties and ancillary businesses could quickly increase Venezuela’s per capita income from $4,000 per year to triple or quadruple. One of the biggest players in this will be Chevron, which I have large holdings in.
The military implications of what just happened in Venezuela are huge. Cuba and Nicaragua are likely to fail into democracy next. China has already been kicked out of Panama. Communists AKA Socialists have already been replaced in Argentina and Chile. Columbia and Mexico are soon going to keep up, whether they want to or not. Chinese military technology was exposed as being not being very good in Venezuela. Chinese technology was supposed to be capable of stopping American stealth aircraft. Might make China think twice about trying to invade Taiwan.
The Trump Administration is planning to stop Western Europe from buying Russian oil and buy Venezuelan Oil instead, thus starving Russia of the revenue that is funding Russia’s War against Ukraine.
Greenland is the next example. The Chinese and Russian sharks are circling it. Denmark is probably thinking they can rely on the good old USA to bail them out if it gets too bad. Trump is saying that Greenland needs to become a US territory. There are plans to extract valuable minerals from the Country. Don’t you see the profit potential there?
Tackling fraud is starting to look like a trillion-dollar budget drain.
There is a lot going on within the Trump Administration to improve the economics of the US across the board.
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Here’s an article. the US trade deficit just hit the lowest point since 2009.
https://www.theepochtimes.com/business/us-trade-deficit-narrows-sharply-to-lowest-level-since-2009-post-5967913?ea_src=frontpage&ea_med=section-1
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My trade “deficit” with the LEGO and Audi is at an all-time high. I have their products and they have my money. Completely voluntary. We didn’t require any government’s services to make the purchases. I’m not sure where the deficit is?
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I really liked what Bessent had to say at CPAC 2024 and admire him because he is an intelligent person who is trying to help the US. My theory is that he is trying to the opposite of the breaking of the Bank of England for the USA.
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I am not a fan of property taxes that have no correlation with one’s ability to pay. Prior to Proposition 13 getting enacted in California, retirees who played by the rules and paid off their homes were getting property taxed out of their homes just because some fool moved in next door and paid too much for the exact same house. Proposition 13 caps the starting property tax at a little over 1% and the rate of annual increases is capped at 2%. Other states, with Texas being example, charge around 3% of assessed value. Somebody moves in next door from California and overpays, and you might not be able to afford your next property tax bill. My late father in Sioux City, Iowa saw a couple property tax bills raise more than 10% year over year.
Reasonable State Income Taxes and Sales Taxes on non-essentials are a better way to fund government because it does not try to squeeze money out of someone who simply cannot afford it. Your income goes up you pay more. Your income goes down you pay less. I lived in on my raw land in a trailer that I bought for $1,200 in my late 20s. Initially I paid for construction costs out of my pocket and got my hands dirty doing as much a I could. If California suddenly started charging me 3% of market value, they would basically be taking my home from me.
Lee Habib wrote an article on this years ago entitled, “How New Jersey stole my Dad’s House.” The article described how his father scrimped and saved to pay off his mortgage before he retired. New Jersy’s notoriously high Property Taxes ended up costing Lee Habib’s father double what he ever paid for his mortgage. Mr. Habib’s father was property taxed out of his home because he couldn’t pay the Feudal Landlord.
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Again, I view property taxes as a form of sales tax. Just stretched out over time. If a local sales tax works – as they are looking at in Florida – I’m fine with that. Here is a Tax Foundation map that shows average property taxes rates by state …
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I m a beneficiary of the aftermath of Prop 13. We downsized our housing after age 55 and were able to transfer property tax basis from purchase in 1995 plus improvements. What that means is I pay half of the property tax my next door neighbor pays for the same unit as mine for tax purposes is valued at half of theirs. This is perhaps the only tax break I receive of any consequence
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I have been in on my land since 1989 and in the house I built since 1991 or so. I often meet young couples out walking their dogs and somehow Proposition 13 comes up. Here is my pitch, “Your property taxes are only a little over 1%. How would you like to be in Texas where they are 3% of market value? The maximum that they can raise them is up to 2% per year. You can budget for this. You cannot budget for someone moving in next store, who pays double what you did and suddenly your property taxes double. If Proposition 13 ends, everyone will end up paying closer to 3%. They are not going to lower new owners’ property taxes by raising old owners’ taxes. You cannot budget for government greed. It is infinite. Someday you will be me.
Oh, and by the way, the best time to cut your brush is all the time. If you wait until the fires are coming, it will be too late. “
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It seems like California Prop 13 is a huge boon for older folks who have been in their home for awhile. We don’t have anything similar in Minnesota. Our property taxes went up +7% for 2026. That’s less than some counties in the Twin Cities metro area.
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