-Video- Does Dave Ramsey’s Retirement Have a Prayer?

Dave Ramsey’s Retirement-

Best-selling author, Dave Ramsey, oversteps his expertise in budgeting and debt pay-down. Ramsey blogs that an individual who saves for retirement can expect to live on 8% OF THEIR SAVINGS! Ramsey states, “This plan allows you to live off the growth of your savings rather than depleting it.” (1) That is, of course, assuming you earn an average of 8% in growth every year.

In our opinion, and the opinion of most of the industry, an 8% retirement withdrawal rate is not only rosy, it’s reckless. Depletion
of the account is exactly what could happen when Ramsey’s followers don’t earn the optimistic 8% return.

The Lost Decade:

Recent history shows us 8% is clearly too high a projection. From 2001-2011 the S&P 500 returned 0% in growth. It doesn’t take a degree in Math to know that if someone had retired in 2001 and withdrew 8% of their account per year until 2011 they would have had potentially less than half of their original principal left to live on. Not a great recipe for retirement in our opinion.

Prayer or Pipe Dream?

That’s not to say the next decade won’t provide an 8% return or more every year in the S&P. We hope it does! However, given the state of the economy domestically and globally, that’s either a pipe dream or will require some serious prayer, but is certainly not a reasonable expectation.

Recently it seems that the stock market produces new highs while the news reports debt, deficit, and demographic trends that will be headwinds over the next decade. Peaks are followed by valleys and even Ramsey can tell you when you spend more than you make as a country (and a world) you can expect to eat beans and weenies while repaying the debt.

Dave Ramsey's retirement in book form.
Dave Ramsey’s Retirement plan can be read about in more detail in one of his best-selling books like this one.

Our view is not that the next decade will be a miserable existence similar to the great depression or even the great recession (we pray those were generational events) but an 8% projection of growth is almost double what we think is practical.

Practical AND Prayerful:

It’s not that we don’t think you should pray, please do! We pray regularly in our office, but in addition to that, adding practicality is paramount for a successful retirement plan. Here’s how we do it.

Our philosophy is derived from a ridiculously simple Aesop fable, The Goose and the Golden Egg. If you remember back to elementary school, when you first heard this story, the essence is – Don’t abuse the goose, be satisfied with the golden eggs she provides.

Our strategy follows a similar path – Don’t spend the principal, live on the dividends and interest the account generates. The “golden eggs” go to both “owners” and “loaners.” “Owners” of stocks receive profit sharing promises (dividends are profits divided and distributed to owners). “Loaners” are those who have bought bonds (loans to corporations or governments) and receive promises of debt repayment plus interest. This is a much more certain way of projecting future retirement income than a guess (or prayer) of what stock market growth will be in the future.

Depending on risk, the accounts we manage currently yield 4% to 6% in dividend and interest for retirees to live on while keeping principal intact. If a potential retiree adopts this practical and proven approach we think their retirement income projection truly “has a prayer.”

(1) http://www.daveramsey.com/blog/how-to-create-your-retirement-plan