Ramsey's 8% Retirement Rule Sounds Nuts At First

"Deciding how much to withdraw from your retirement and investment account is one of the biggest decisions that you will make as a retiree. That's because, if you withdraw too much, you will drain your retirement accounts while you still need the money. Since Social Security only replaces 40% of pre-retirement income, you could really find yourself struggling if you have brought your account balance down to $0 and can't continue to live off savings."

"Conventional wisdom says that one key way not to empty your accounts too fast is to stick to withdrawing 4% of your account balance. This rule is commonly referred to as the 4% rule, and experts initially projected that if you followed it, you would have around a 90% chance of your money lasting for a retirement spanning a minimum of 30 years. Ramsey takes a very different stance, though. He believes you can withdraw 8% of your account balance per year."

An 8% retirement withdrawal rate is presented as an alternative to the conventional 4% rule, offering higher annual income but greater risk of depleting savings. Social Security typically replaces about 40% of pre-retirement income, increasing reliance on withdrawals. The 4% rule historically aimed for roughly a 90% chance of lasting across a 30-year retirement. A higher 8% rate can provide more spending flexibility and enjoyment in retirement but carries significant longevity and sequence-of-returns risk. The 8% approach is conditional on maintaining a fully stock-based portfolio, which increases volatility and potential for early depletion.

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