Dave Ramsey vs Suze Orman: How Much Can You Really Withdraw in Retirement?
Written by
Catherine Collins
Edited by
Amen Oyiboke
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In 1994, William Bengen coined the 4% rule, which represents the percentage of a portfolio he recommends people should withdraw in their first year of retirement. In subsequent years, Bengen advised people to recalculate how much they withdraw based on the rate of inflation. Bengen suggested that this method would help retirement savings last a minimum of thirty years.
Although Bengen’s advice is widely used in financial advising today, there are some detractors. Dave Ramsey, a well-known financial personality and radio host, advises his listeners to withdraw 8%. Suze Orman, a financial expert and best-selling author, recommends withdrawing less than 4% if you want to retire in your 60’s.
Here is an explanation of why Ramsey and Orman recommend these retirement withdrawal rates.
Dave Ramsey: 8% Withdrawal Rate
Dave Ramsey is known for ruffling feathers, and it’s not uncommon for other financial experts to disagree with his views. His recommendation that retirees have an 8% withdrawal rate has sparked numerous videos, discussions, and even articles criticizing his views.
Ramsey believes that a 3% or 4% withdrawal rate makes people hopeless, thinking they need so much more than they do for retirement. Ramsey said he would be comfortable with an 8% withdrawal rate so long as his listeners follow his advice on how to plan for retirement.
An op-ed from self-described “Supernerds” — a term Ramsey used intending to be derogatory — explained why Ramsey’s 8% withdrawal advice was problematic. Namely, it didn’t account for potential losses, according to the op-ed authors.
Suze Orman: 3% Withdrawal Rate
Financial expert Suze Orman is on the opposite end of the spectrum. For those who want to retire and start making withdrawals in their 60’s, Orman recommends a 3% withdrawal rate or less. She explains that if you wait until your 70’s, 4% is acceptable. Only if you have guaranteed income, like Social Security or a pension, should you consider withdrawing more.
Orman went as far as saying the 4% rule is “very dangerous,” citing economic volatility. She prefers a more conservative approach to withdrawals due to uncertainty and recommends that people “take the least amount possible.”
Ultimately, numerous financial experts agree that the best withdrawal rate for retirement depends on individual needs. An ideal withdrawal rate largely depends on a person’s overall health, the age at which they want to retire, and the total amount they have invested.
It also depends on personal spending habits, how they want to spend their retirement years and the overall state of the economy. Some years will produce positive returns, and others have significant losses. Timing retirement appropriately can go a long way in ensuring your portfolio can withstand losses and last for decades.
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