Dave Ramsey's 8% Rule Is Controversial, But Not Entirely Wrong

"Dave Ramsey has never been shy about offering up radical advice. Looking to buy a home? Ramsey might tell you to pay for one in cash and avoid getting a mortgage. And don't even get Ramsey started about credit cards. If you bring up the topic, he'll probably tell you they're evil and encourage you to cut them all up immediately. But there's a reason Ramsey tends to dish out this sort of advice. He really wants consumers to thrive and prosper."

"The 4% rule, which financial experts have long sworn by, has you withdrawing 4% of your portfolio balance your first year of retirement and adjusting subsequent withdrawals for inflation. Ramsey's 8% rule is similar - only he has you taking much larger withdrawals. Many financial planners would argue that an 8% withdrawal rate is too high and puts savers at risk of depleting their nest eggs prematurely."

A financial guru promotes an 8% retirement withdrawal rule that calls for taking much larger annual withdrawals than the traditional 4% rule. The 8% approach relies on a portfolio heavily weighted toward stocks rather than a balanced stock-and-bond split. Supporters argue that higher long-term stock returns could sustain an 8% withdrawal rate. Critics warn that the higher rate increases the risk of depleting nest eggs, because stock market returns fluctuate and may not consistently match an 8% target. Portfolio composition and market variability therefore determine whether larger withdrawals remain viable over a long retirement horizon.

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