Dave Ramsey's 8% Retirement Rule Debate: Higher Income or Higher Risk?

"A highly controversial strategy, the 8% rule can be summed up as Ramsey recommending that retirees allocate 100% of their assets to equities. From there, these soon-to-be-retirees or retirees would then withdraw 8% per year of the portfolio's starting value, with each year's withdrawal adjusted based on inflation. Dave's advice is based on the idea that the market should see an average annual return of around 12%, which is great news if you are 100% invested."

"That being said, there is no question that the rule is heavily dependent on the market achieving double-digit returns every year, regardless of the actual likelihood in any given year. That's not even mentioning that the strategy is risk-on, meaning there's little-to-no balance and safety between equities and fixed income (e.g., debt securities like CDs, Treasurys, municipal or corporate bonds)."

The 8% rule recommends retirees allocate 100% of their portfolios to equities and withdraw 8% of the portfolio's starting value each year, adjusting withdrawals for inflation. The approach assumes average market returns near 12% annually, which would support high withdrawal rates if achieved. The strategy is high-risk because it depends on consistent double-digit returns and lacks allocation to fixed-income instruments like CDs, Treasurys, or bonds. An example: a $500,000 fully equity portfolio would yield a $40,000 first-year withdrawal and, with 3% inflation, $41,200 in year two. The rule remains controversial due to its aggressive stance.

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