Dave Ramsey’s co-host, George Kamel, suffered backlash recently for going against the standard “4% rule” that Dave and many others teach about retirement and how much you can take out a year to live.
George said what I commonly teach which is more like a 3% rule if you want to make retirement last.
Listen and hear my thoughts on Dave’s response to the challenge and learn how you can properly prepare for retirement – no 4% rule required!
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TRANSCRIPTS:
Speaker 1 (00:00):
Hello, my fellow Ripples. This is Chris Miles, your cashflow expert at Anti Financianal advisor.
Speaker 2 (00:07):
Chris Miles was able to retire twice by the time he was 39 years old, but he’s not content to just enjoy his own financial freedom and peace of mind. Chris wants you to have your own ripple effect so you can live free today. He’s not the financial advisor you expected. He’s the non-financial advisor you deserve. He’s jumping behind the mic right now, ready to make waves. Here’s Chris Miles,
Speaker 1 (00:37):
Walter Schultz for you. Those that work so hard for your money and you’re now ready for your money to start working harder for you today. You want that freedom of cashflow now, not 30 or 40 years from now if you’re lucky, but you want it today so that you can live that life that you love with those that you love. But it’s not just about getting rich, it’s about living a rich life because as you are blessed financially, you now have a greater capacity to bless the lives of those around you because why You’re not freaking worried about your own needs, you’re not having to focus on your own selfish needs and try to take your own bills because you know that you’re taken care of. Now you can help take care of the world too. Guys, thank you so much for tuning in today. Thank you for binging and sharing it with others.
(01:14)
And if you haven’t done so already, go and check out our website, money ripples.com on there. If you’ve got cash that’s been sitting around wondering what to do with it, whether it’s infinite banking or even creating more passive income, check out our website today to see what you can actually do to make your money work harder for you. Now. Okay guys, so I just could not resist. Obviously you guys all know that. Well, if you’ve listened to the show enough, you know that I don’t hate Dave Ramsey. Actually, there are some things I agree with, especially when he talks about how to manage money, be a wiser steward of your money, not spending more than you make and things like that. And heck, even some of the credit card debt and things like that we can agree upon. And yet when it comes to wealth and money, it’s fascinating that even the people on his own team, people that are his own co-hosts may disagree with him and he still refuses to open his eyes and see truth. Let me share with you what I mean as he blasts his co-host here. And I’ll tell you what this co-host is saying. I’m actually kind of agreement with
Speaker 3 (02:15):
Another flaw with fire is that they say you can withdraw 4% of your nest egg, but you’ll really need to withdraw closer to 3% if you retire that early. So look at this. If you’ve saved $1.5 million by your thirties, that amounts to living off $45,000 a year. We’re talking about living for 55 years off one account and not depleting it. And if you withdraw 4%, there’s a higher chance that money’s going to run out well before that time is up. This isn’t a wet finger in the air. I don’t know why wet fingers are in the air, but they are sometimes. This is just honest math. Literally there’s a site called honest math.com and they ran 10,000 different financial simulations to get this chart and show you these numbers. Alright, so let’s look at this chart. On the left side, we see years in retirement on the top we see the withdrawal rate. And as you can see, if you have a 30 year retirement with a 4% withdrawal rate, you’re going to have 3% of that account balance remaining 30 years later. That’s kind of scary considering you’re going to retire at 30. And so a 30 year retirement means at 60 you’re flat broke and you still might live another 35 or 40 years. I
Speaker 4 (03:16):
Am never going to financially recover from
Speaker 1 (03:18):
This. Okay, so let me summarize a little bit of what he’s saying here. He’s saying for those that are trying to do the fire method, right, financially independent, retire early, it’s very popular with groups, especially those under the age of 40 and sometimes in their twenties and thirties mostly. And they’re saying, Hey, I can retire now by living on 4%. But what he’s saying is there’s actually proof. There’s math that’s been done saying that might be too much. And what he’s saying is that really in 30 years, it’s very likely you’ll run out of money. And that’s just based on different scenarios, right? That’s the majority of scenarios you’d be running out of money. So if you’re 30 years old from retire, now say, I’m good, go. That means in 30 years when you’re 60, you’re back to working again. It’s not exactly being financially independent. That’s what he’s really saying here, especially with those younger. But this would also apply to those trying to retire earlier or maybe try to retire in their sixties but live longer. This still applies,
Speaker 3 (04:08):
But when we move on to the 3% withdrawal rate, you’ll see that even 35 years into retirement, if you withdraw 3% a year, you’ll still be left with 90% of the account balance. That’s pretty impressive. And you can even see if you go down 45 years, you still have 37% of that account balance remaining 45 years in.
Speaker 1 (04:26):
Okay? So that’s what George says. Now, there’s a lot of assumptions here that we’re going to go into about that math where he might even be a little overly optimistic, but let’s see what Dave Ramsey says in response to this.
Speaker 5 (04:37):
So my question today is I’m baby step four, five and six. I have about 120,000 saved for retirement. That’s across my IRA, my Roth IRA, my wife’s Roth IRA, and the 401k. How old are you? And I’m 30 years old.
Speaker 6 (04:51):
Good for you. Well done.
Speaker 5 (04:53):
Thank you. I feel from what I’ve been running the numbers with that, I’m on the teetering edge of coasting financial independence, and I’m trying to best understand my plan with the end in mind. So how I’m going to turn that nest egg when I retire into income. I found on your website a little article that talks about a four to 5% withdrawal rate, and I was trying to run the numbers around that and I thought I was close. And then about what was it, a month ago, George Campbell released a video that said that the withdrawal rate for a 30 year time horizon should be closer to 3%. So if I can establish financial independence comfortably, then I was wondering if I could ease up on baby step four to pay off the house faster.
Speaker 6 (05:40):
Okay? I’m a little confused. I don’t know what the hell George is doing, doing a 3% withdrawal rate because that’s absolutely wrong. I’m going to have to find out where that video is and get it taken down. It’s called because that’s just wrong. You don’t need to have a 3% withdrawal rate. That’s ridiculous.
Speaker 1 (05:58):
See, team, the phone calls are flooding in. That’s by a telemarketer,
Speaker 6 (06:02):
Or I hope you misunderstood. I hope we didn’t put out trash like that. Was that four to 5%? No, it shouldn’t have be four to 5%. It ought to be more than that. I mean, if you’re making 12 in good mutual funds and the s and p is average 11.8, and if inflation for the last 80 years has average 4%, if you make 12 and you need to leave 4% in there for inflation raises, that leaves you eight.
Speaker 1 (06:26):
Yeah, but Dave, we all know apparently you don’t. The market has never done 12% ever. No matter what you say sps, the last 30 years, the average 7.75% if you actually run the numbers.
Speaker 6 (06:39):
So I’m perfectly comfortable drawing eight, but if you want to be a little bit conservative, seven, but sure not five or three.
Speaker 5 (06:48):
Well, I was trying to back check it because three to five, I thought that was a big range and a lot of the studies I found showed, well,
Speaker 6 (06:56):
There’s a lot of studies that are stupid in this space.
Speaker 1 (06:59):
So Dave’s assuming he’s smarter than everybody else doing these studies. I found that fascinating.
Speaker 6 (07:05):
Listen, man, the math I just gave you is the math. If you’re making 12% and inflation is four, and you leave four in there, so your nest egg grows by four, it’s simple. Eight is what’s left over. So if you’ve got a million dollars and you leave 4% in there, that’s 40,000 bucks. Okay? So you now have 1,000,040. So the next year you get a rate of return of 12%, 11 and a half percent on the million 40, and the next year it’ll be 1000091.1. So your nest egg is growing by the rate of inflation giving you a cost of living raise every year. So as long as you’re doing that, you’re fine. And so if you want to be a little bit conservative, maybe 5% would you say, but there’s all these goobers out there have always put this 4% crap in the market, and I’m just irate right now that we have joined the stupidity. Why is it that stupid though? I just, it’s too low. It’s too low because it’s not realistic. You do not need to live on 4% of your money for your nest egg to survive even if you did a rate of return of 10% or something. And what it sets up is this guy, now he doesn’t think he’s got enough money and he’s already got $120,000 and he’s 30 years old and he’s on a plan. He’s on a plan to be very wealthy and he’s worried he’s going to have enough money or not.
(08:28)
Stupid people put out low withdrawal rates,
Speaker 1 (08:33):
Accurate withdrawal rates, even overly liberal withdrawal rates. Keep going. Dave can tell us how smart you are.
Speaker 6 (08:41):
You rather, if you think you can only pull off 4% off of investments making 12 where the flip is, the other 8% going, well, 4% of it went to inflation, that’s where it went. The other 4% is just sitting there. So you are growing your investments instead of living off of them. I’m not destroying the NIST egg, I’m not even touching the nest egg. I’m growing the nest egg by leaving 4% in there, taking eight off of a 12
Speaker 7 (09:08):
Brokerage. So go a 10% rate of return, go a little bit more conservative with your rate of return, go 10%, what would you do with 10%?
Speaker 6 (09:14):
Well then four off of that. So six.
Speaker 7 (09:16):
Six, yeah,
Speaker 6 (09:17):
But why are you going to under invest? Yeah, I mean this year the s and p to date was 10% is 10%, and we’re not even at the end of the year yet. Yeah,
Speaker 1 (09:27):
That’s after it lost 20%, just to be very accurate.
Speaker 6 (09:33):
And everybody’s talking about how bad the economy is. So most years mine have done much better than 12.
Speaker 7 (09:42):
But if you can do your standard of living though, lower than what you need, if you don’t need
Speaker 6 (09:48):
It, that’s fine. I’m 62, I’m or 63, I’m pulling nothing off of mine. I don’t need it. I still work. I still have an income. I don’t need any of it. So it’s all just sitting there growing.
Speaker 7 (09:58):
But you could do 4%.
Speaker 6 (10:00):
The problem is when you go down these stupid nerd rabbit holes,
Speaker 1 (10:04):
Pay close stitch and listen to this guys
Speaker 6 (10:06):
In these Reddit threads with these morons who live in their mother’s basement with a calculator, and then you put that out into the dadgum community and then people go, I don’t have enough money. It’s hopeless. I’ll never be able to save enough to retire. A million dollars should create for you an $80,000 income boys and girls. So per perpetually, if forever, you should be able to pull 80,000 forever and never destroy it. And so when you tell people that a million dollars creates a $40,000 income, you go, oh, I’ve got to have $2 million and I can’t make that, then this system doesn’t work. So what you’re doing with this bogus math is you’re stealing people’s hope. That’s why I’m pissed about it.
Speaker 1 (10:54):
Bingo right there. That is the thing, guys. He just said the truth. He just said the very thing that got me to leave being a financial advisor, the difference is he gets paid millions and millions of dollars to keep teaching you this stuff. For me, I was pretty fortunate that I didn’t make that much money as a financial advisor. I hadn’t got my career to the point where I was making hundreds of thousands of dollars whether I did anything or not. So there was a less of an incentive for me to lie to somebody. But look what he just said. He’s like those people that crunch their numbers with a calculator. I wish they would use a calculator, a more accurate calculator more often. He would actually come up with some better numbers here or more conservative like what they’re talking about because it’s just not true.
(11:42)
But it does still hope because when I started running real numbers, when I started putting inflation in closer, not even upward inflation is currently even just a little bit, and I brought the returns of the market down when I realized the stock market wasn’t returning as high as what Dave’s claimed. It’s not 12% and it’s not even 10%. The stock market, again, the s and p 500 has averaged 7.75% in the last 30 years. That’s the real average yield. The actual yield, not the average, the actual yield. And if you guys have seen other videos I’ve done, when you have negative 25% in the market, you need positive 33% to get back to zero. That throws the averages off when you have a negative number. So the average in actual or not the same, that’s a totally different topic here, but it’ll relate to what I’m coming back to with how you live on this money.
(12:33)
So anyways, this is the big problem he’s talking about. He’s saying you should be able to live on 8%. And so he’s saying four or five is conservative. You should be able to live on much, much more than that for 30 years. He thinks the market will keep doing it and he thinks you’re going to be invested in the market if you’re retired, should you be putting a hundred percent of your money in the stock market? Doesn’t that sound a little bit risky? So where do these numbers come from? Well, I’m going to show you here. I’m going to show you exactly where they come from. It’s not the same. So in an article here talking about Morningstar now if you don’t know who Morningstar is, Morningstar is kind of regarded for when I was selling mutual funds. It’s kind of like the company that you listen to, right?
(13:13)
So when he’s talking about nerds in their basement, the Reddit people that are living in their MAs basement, these are not these nerds. These are people that actually much more highly qualified than Dave Ramsey. Even if I don’t totally agree with Morningstar, they’re still way more qualified and more intelligent than Dave is, and yet he’s questioning their math because it doesn’t have to his simple math. Well, your math is wrong, Dave. I’m sorry. So here’s where their math comes from. They were saying, and this is just released this week now, I had mentioned it from end of 2021 after that they actually said it was 3.3% you could pull off. Well, they’ve been creeping up their numbers lately. So it even says that now. It was last year, 3.8%. Now they’re saying pretty much 4% should be a safe way to draw it, is what Morningstar is saying.
(13:56)
Now, I thought that’s interesting, considering we are in a down market year now, it’s recovered a little bit, but it’s still down from what it was in 2021. So he’s saying, here’s what they say, why the raise for retirees this year? Here’s why. Higher bond yields make everything easier for retirees, and he helps explain why the safe withdrawal percent corresponds to portfolio with just 20 to 40% in stocks, right? So they’re saying, because interest rates gone up, hey, you can pull off more money. But here’s the crazy thing is that they’re based on a 30 year timeframe. Who’s to say that interest rates are going to stay higher? Maybe they will, maybe they won’t. So how was that any different really from a few years ago? Well, a few years ago, interest rates were so low, so we wanted to give a conservative number. Oh, well, interest rates are higher short term, so that’s better. So already I see there’s a flaw here because they’re just basing on of, oh, well, if bonds just stay higher, then we’re good. Okay, well that’s good.
(14:50)
Now, they did say with investing 70% in stocks. If you did that, then your safe withdrawal rate goes down to 3.8 so you can withdraw less because they’re saying it’s more of a gamble to try to pull out more money with the stock market. I’ll show you what that means. So anyways, here’s what it’s saying. They’re saying, of course, they’re expecting returns of over nine a half percent with all equity portfolio. I think that’s overly aggressive. That’s not reality. And then they say also that 4.81 on bonds right now, they say this, they say taking less investment risks makes sense for retirees who are seeking the high degree of certainty and consistency in their annual cashflows within 90% probability of not running out of funds. So they’re saying people pull out that 4%, 90% of the different simulations they did of different things happen in the market, 90% of the time you wouldn’t run out of money.
(15:34)
That still means 10% of the time you ran out of money. They’re saying more likely than not, you’re okay. That’s one thing I think is scary. Now, here is the other variable. They do factor inflation. What did they factor inflation to be? They’re guessing inflation is only 2.42% versus the 2.84% last year. So why did the numbers get better? They expected higher returns from bonds and expected a lower inflation number overall over time, you see a problem already 2.42%. That is ridiculously low. We’ve never really truly been in that place. Now, government might say one thing, but we already know the government manipulates those numbers. Inflation even in lower times is still at least five to 10% a year. This is not a new thing. Inflation’s been prevalent always, especially since we got to take off the gold standard, and especially since they started manipulating those numbers after the eighties, the nineties, and the two thousands, they’ve been messing with the inflation numbers to report wrong numbers.
(16:29)
So already they’re basing this on the government, lied about numbers, where they’ve taken things out to make it a little bit more conservative of a number. And why did they do that? They did that so they could pay less social security to you so they could don’t have to pay as much raise. Let social security last longer, not run out of money as quickly. If they went off the old models of factoring in inflation, which was really true, math is what they were doing. If you ever question that, go to shadows dots.com, you’ll find it there Anyways, so bad assumptions. One is assumption that the market might perform certain way. Two, then inflation’s lower, and they’re still saying you could pull off maybe 3.8 to 4% a year. Here’s the problem is that everybody’s literally banking on the fact that this is going to be real.
(17:12)
But what if inflation is higher? What if it is double? Does that mean now you’ve got to live on 2% instead of four possibly, right? And especially if you’re trying to retire early, 2% probably is safer. But then coming back to Dave’s point and saying, well, if you make 10% inflation’s, two, you make 8%. That’s math. But he hasn’t really factored in something is that most people’s portfolios and they get to retirement and they try to be more conservative. They don’t want to be in the market. When they pull out money, it starts to come out. It’s called disinvesting when the market goes down and you pull out money at the same time. Alright, so lemme give you a scenario. I wish I could whiteboard this out. Maybe I’ll just have my video editor do this for you. So pretend you have a million dollars right now.
(17:55)
Dave’s saying you should be able to pull out 8% a year. Well, that’s 80,000 a year. Well, here’s what happens. Say that that million dollars, you pull out 80,000 a year, now you’re down to 920,000, but the stock market drops like it did last year, 20%. Well now you’re 920,000. When you lose 20%, that now means you’re left with about 180,000 less. So that would bring you down 920,000 minus 180,000 or easily down to $740,000. Now he’s saying, well, this last year is 10%, the year’s not over yet. Well, you’re right, the year’s not over yet. Well, you’re now at $740,000, but remember you’re trying to live on 8%. So you’re going to try to pull out $80,000 again because you’re counting on $80,000. But by the way, inflation’s a little bit higher. So you might want 5% more. So you might say, well, instead of $80,000, I’m going to pull out $85,000.
(18:47)
Well, you pull out 85,000 next year. Now you’re nine 40. Or sorry, you’re seven 40. So now you’re down to 655,000. Well, good news, the market went up 10%. Let’s just say that next year. Well, great. Well then you recover some of that loss. Well now you’re 6 55 is now just over. It would actually put you at 720,000. So now you recovered to seven 20,000. But remember, you thought you’d be just fine because hey, the market is better than what you’re doing, but you already went from 1 million to 720,000 and you still want to be pulling out maybe 85,000, maybe 90,000 the next year as inflation keeps going up. Again, they’re trying to factor in inflation. You need to pull out more and more each year. Well, what if that next year, let’s just say we keep it 85,000, you pull that money out once again, you’re now left with 635,000.
(19:34)
Now let’s just say the market goes up, but it only goes up 5%. Well guess what? Now you’re at 666,000. Well that’s the number. Great number isn’t 666,000 is where you’re at now, but guess what? Inflation’s still kicking your butt. You got to pull out 90,000 next year. So you pull out 90,000, you’re now left with 576,000. But remember, still average, we’re still doing good. And let’s just say it goes up another 10% the next year. Oh good, we need that. So 1.1, we’re up to 634,000, but I wanted to take out 90,000 the next year. So $90,000 taking out the next year, and you’re at 544. Alright, well, if the next year you actually did lose another 20%, well that 5 44 times 0.84, 35,000, but you still got to pull out, say 95,000 this year. So now you take out 95,000, you’re now with $340,000.
(20:29)
Are you getting scared yet? Because now you’re at the point where you have to live on almost a hundred thousand a year. You only got 340,000. You see my problem Now, let’s just say the next year, great year up 25%. I’m going to even do that 1.25. So boom, a four 25,000, dodge that bullet. Oh, but I got to take out now with inflation after now, it’s been probably what, seven years or so that I’ve been doing this now. So minus a hundred thousand leaves to 325,000 even the market goes up 10%. You only made 32,000 bucks. You still got to live on a hundred thousand dollars a year. That is the problem guys. The market all has to do with have a few bad years and you start to run out of money much, much faster, much faster. This is why when he’s talking about living on 8%, it doesn’t work.
(21:12)
You will run out of money in the next 10 to 20 years depending on how the market does now versus if you take out 3%, you got a much better chance. Now, if you’re younger, if you are 30 years old, trying to be financially independent, retire early 2% is probably a better number. So you don’t run out of money. This is what I mean about disinvesting, is that what they don’t really factor in is yeah, you can have that money coming out, but when you pull out money at the same time, imagine if you lost 10% from a million dollars, you’ve done 900,000 and then pulled out a hundred thousand to live on. You’re now done $800,000, you’ve just lost a lot of your cash. You would have to make up now at least a 25% return to get back to a million bucks again, right?
(21:50)
It’s huge, a huge big gap. And if it doesn’t do that, well now what? You’re just losing money slowly along the way while your needs still go up. Does that make sense? So anyways, that’s my point. That’s the big thing I want to really drive home guys, is that you need to make sure that you stop listening to these talking head guys that really just speak out of their butts. I mean, he really is coming out with numbers just based on theory, but not actual practicality. So at least Morningstar, at least they were trying to do it. Even if they put inflation way lower than what we know it is still, they’re saying 3.8 to 4% is more likely what you should be able to pull out. So I think for George there to get slammed by his own co-host, Dave Ramsey by his boss, Dave Ramsey, I think is unfair.
(22:38)
I think he was doing a better service for people, especially if you’re trying to be financially independent, retire early, he’s definitely doing a better service. But has Dave listened? No, he doesn’t listen. He uses assumptions that he thought worked many, many years ago and just don’t apply till today. And for the most part never, ever did apply because he’s just come out with overly inflated numbers. And like he said, when you bring realities to it, people lose hope. Well, of course they do, Dave. So you’re just selling him. You. You’re just selling the things that they want to hear to make them feel warm and fuzzy about it. But in reality, they still live lives of struggle, having to live cheap on rices and beans or worse just so that they can let their money stretch out because they listen to you. That is uncool in my mind, that is lacking integrity, that is bordering up being a liar in this case.
(23:29)
I think that’s bull. I think that’s horrible to do to people. Give them the reality and then give them hope by giving ’em something better than the stock market. The great thing is, is that our clients, when they know they can make 10% or better returns on their money, that’s contractual. Even in many cases where they actually get paid that based on a contract, not based on market guessing, but actually on a contract, and they get paid 10%, that million dollars now pays ’em a hundred thousand a year, they can know more what to expect. They have better hope because it’s real. It’s not speculation and it’s going up and down with the markets that is real, that is predictable. But unfortunately, he doesn’t teach that. Even though he’s made lots of money in real estate and in business, he still teaches you to put your money in the market where he doesn’t even pull it out because he doesn’t need it.
(24:12)
He’s different than the average American. He’s telling you to do something he doesn’t do himself. You can do it better by you living a better life. So guys, my challenge to you is question the crap out of people like him. Really, if you want to be in the stock market, great, live on two or 3% and you might be able to make it. But if you want a better lifestyle, you want it to work harder for you so you don’t have to work so hard for it, let’s look at some alternative that might be better. You can check out more information on money ripples.com. Make it a one form prosperous week. We’ll see you later.