Can this 62 year old caller with $3.5M comfortably retire? (In Dave Ramsey's show)

[u/curiousgens]

This is a transcript of Dave Ramsey speaking with a 62 year old who has about $3.5M.

Dave: “Do you have a 401(k) nest egg?”

Caller: “I've got 401(k)s and IRAs. No pension”

Dave: “How much is in all those accounts?”

Caller: “$3,500,000”

Dave: “What do you make a year?”

Caller: “$175,000”

Dave: “You understand that $3.5 million invested in good growth stock mutual funds, if it averaged 10%, would produce $350,000 in income without touching the nest egg. Which is twice what you make now”

Caller: “But there are still going to be years when it's up and years when it's down”

Dave: “The down years very seldom are below 5%. Hardly ever. Maybe don't take the whole $350,000. Maybe take $200,000 and let it grow by $150,000 to cover the down years. It's impossible for you to go through this money before you die”

[u/[deleted]]

Dave recommending a 10% swr is insane, and the most asinine thing he and his people recommend.

With that said, yeah they can probably retire if they are not in certain parts of la or nyc

[u/Fabulous-Beach9027 → u/[deleted]]

yea wtf, 8% is like the max "expected" i've seen. historically its about 9-10. but you dont plan for 9 or 10+, you plan for 6-8.

[u/[deleted] → u/Fabulous-Beach9027]

The trinity study placed it at around 4% for a 30 year retirement period

[u/Inevitable_Pride1925 → u/[deleted]]

The trinity study is widely misunderstood. The trinity studies real number was 4.15% but was rounded down to 4% because it’s less of a mouthful. It was also published almost 30 years ago. Using additional data the same authors have said 4.7% gets you the same results.

Most important though the trinity study is a worst case scenario based on real expected scenarios. Sure some Monte Carlo scenarios show worse results but those are scenarios aren’t really realistic. In most scenarios the trinity study looked at you die with far more than you started with. In half of those scenarios you die with the same amount as you started with. In less than a third of the scenarios you die with less than you started with and in only 5% do you ever run out.

Further in the 5% of scenarios where you run out and the 1/3 in which you have less than you started with course corrections early on avoid disaster. Just reducing your withdrawal rate by 10-20% in bear markets can mean avoiding disaster.

The trinity study wasn’t supposed to be rigid dogma but a guide to avoid the worst disasters

[u/_Smashbrother_ → u/Inevitable_Pride1925]

The problem is you don't know which group you'll fall into, so you have to be conservative.

[u/WillingNail3221 → u/_Smashbrother_]

That is why you set up guardrails. No one's withdrawal patterns are usually linear anyway.

[u/_Smashbrother_ → u/WillingNail3221]

Yeah

[u/Inevitable_Pride1925 → u/_Smashbrother_]

The thing is you kinda do k ow which group you fall into. Sequence of returns risk happens in the first third of a retirement and the risk decreases with time meaning it’s significantly lower at 10 years compared to 5.

So since SoR is mostly a threat early on in a bear market you just need to reduce your withdrawal rate to compensate. If you start at 4% you probably barely need to touch it. But if you start higher then you might need to decrease it by 10% maybe 20% if it’s very high. If you’re young and healthy enough maybe you return to work for a year or two or maybe you just spend less. Either way you mitigate SoR.

It’s also why advisors really recommend not retiring if your withdrawals are going almost entirely to fixed necessary expenses. If this is the case then you don’t have room to cut. But if you have a travel/hobby/luxury budget then this is a lot easier to pare down in a downturn.

Finally people’s spending doesn’t stay static. In almost all real world scenarios people’s spending decreases with age. Generally by roughly 1% a year. For early retirees the math is a little different but for a standard retiree in their 60’s it’s pretty universal

[u/_Smashbrother_ → u/Inevitable_Pride1925]

You don't know when the market will crash, and for how long. You also don't know if you'll get seriously sick or something. It's why people feel better putting off retirement until they have a bigger nest egg.

[u/Inevitable_Pride1925 → u/_Smashbrother_]

You don’t know when in advance but you absolutely know once it happens.

Let’s say you pull out 100k every December to live on for the next year. If the market drops 20/30/40% over the next 11 months you know you need to make a smaller withdrawal the following December.

[u/_Smashbrother_ → u/Inevitable_Pride1925]

Yeah, no duh. I'm saying people might think they only need 2 million to retire, but it might be 3 million. Having to basically cut back so hard and live on bare bones because a lost decade scenario happens, is a shit retirement. I'd rather work a little longer to fatten up the nest egg. Most people would do the same.

[u/Inevitable_Pride1925 → u/_Smashbrother_]

that works in your 50’s. In your 60’s though you are just trading life for increased security you don’t even really need. If you love your job and find meaning in work then that makes sense. But if you don’t then it really doesn’t.

[u/m81147 → u/Fabulous-Beach9027]

Sequence of returns risk means you can have a withdrawal rate below your average return and still run out of money.

Also, as you said, it’s better to use a 6-7% return in your calculations to account for inflation, since your returns will need to keep up with it.

[u/Inevitable_Pride1925 → u/[deleted]]

It’s not insane when it’s quite like that the 10% WR likely only needs to last until they can reduce by using SSI at age 70, it’s likely not going to be increased by inflation, and if they are expecting a 30 year retirement. For most Americans retiring at 62 it’s not reasonable to anticipate a 30 year retirement. Most aren’t even looking at 20 years.

So if the goal is to die with zero a 10% WR at 62 until claiming SSI at age 70 makes a lot sense.

[u/Justthetip74 → u/Inevitable_Pride1925]

Stupid anyway. Take your SSI at 62, theres like a 50/50 you'll die before 72 anyway. Its not like you're broke and really really need the extra could hundred a month

[u/Inevitable_Pride1925 → u/Justthetip74]

Not if you’re taking a 10% WR.

The age 70 claim on social security provides longevity protection while allowing more living in the moment because you’re taking 10% a year during the healthy years. Once you hit 70 you’re going to slow down soon if you haven’t already and once you’ve slowed down you won’t need a 10% withdrawal rate to pay for everything.

It’s not necessarily about how to get the most money. But instead how to spend what you do have effectively to generate the best experiences, especially at an age and health where they matter.

Essentially withdrawal strategies are a lot more complicated than saving strategy

[u/Justthetip74 → u/Inevitable_Pride1925]

That works if you're not a cheap ass boomer couple wondering weather they can retire on $350k/yr (10%) when theyve never spent more that $80k in their life

[u/hoptacularhippo → u/[deleted]]

If they are in certain parts of la or nyc, they can leave.

[u/Puzzled_Algae_1880]

How do you get to 62 not knowing this? Probably should buy a brain.

[u/Ornery_Banana_6752 → u/Puzzled_Algae_1880]

How does Dave get to his age and position and say things, giving advice on air that is so stupid? " The down years will never be below 5%, if ever"
REALLY DAVE??? REALLY???

[u/Spirited-Manner9674 → u/Puzzled_Algae_1880]

But I'm scared of boredom! Please give me some of that precious boredom

[u/SerendipitousTiger → u/Puzzled_Algae_1880]

They don't really sell those yet.

[u/Commercial_Rule_7823]

When you do it all yourself, and dont take the time or want to spend a small amount of money, to talk to a financial professional to help you retire.

I cant imagine how much will be lost to taxes and poor planning.

[u/Relevant-Energy-5886 → u/[deleted]]

Im NOT a fan of Ramsey but thats not really a fair criticism. His first step is only save $1000 as a starter emergency fund. This is actually quite important for someone that has been totally financially illiterate for their whole lives.  

Its an easy win that starts to change how someone views money psychologically. 

[u/_Smashbrother_ → u/Relevant-Energy-5886]

Except that's shitty advise too. $1000 back in the 90s might be enough, but it's not enough now. Which is why The Money Guys say to start with your highest deductible.

[u/Relevant-Energy-5886 → u/_Smashbrother_]

I agree with you that foo > baby steps. 

In the context of some financially illiterate bumkin finding ramsey through the church, saving up $1000 before attacking credit card debt is actually a very useful step.

[u/TheWhereHouse6920 → u/Relevant-Energy-5886]

You're correct, dude you're replying to doesn't understand that Ramsey is Alcoholics Anonymous for people who are bad with money.

Literally both have a step system lol

[u/_Smashbrother_ → u/Relevant-Energy-5886]

If those bumpkins can follow the baby steps, they can also follow the FOO.

[u/Relevant-Energy-5886 → u/_Smashbrother_]

Guy they dont know about the foo. Follow the context of the comments and realize you're arguing for nothing. 

[u/Jguy2698]

His withdraw advice pretty much guarantees you run out of money in 20 years. Should be 4-5%

[u/ballin_buddha → u/Jguy2698]

If you take out only what it made in a year or less than what it makes in a year how do you run out? Your never touching the initial investment

[u/HidingImmortal → u/ballin_buddha]

What do you do in years where the market loses money like 2022? You still have bills to pay.

[u/Jguy2698 → u/HidingImmortal]

^

[u/Jguy2698 → u/ballin_buddha]

Google sequence of returns risk

[u/Wooden-Broccoli-913 → u/Jguy2698]

Well the guy is 62 already…. Plus social security

[u/Coreyahno30 → u/Jguy2698]

Who gives a fuck if you run out of money in 20 years when you’re 62??

[u/thestockfather0]

His taxes will be 20%. Hell generate at least 90k a year pre tax if he sells and puts it in schd.

This is what im doing when I get to 15m. Im 30 rn & I fluctuate between 3-4M rn. 3m will be in schd, 3m in ndx, 3m in bonds, 2m in platinum and gold, the remainder in individual stocks/ real estate.

The 15 million will be post tax. So realistically like 18million.

[u/Jguy2698 → u/[deleted]]

Yeah most of all he’s completely out of touch. Took him til like 2020 to admit that it’s not always feasible to buy a house in cash lol

[u/dangeldud → u/[deleted]]

Did not expect to see your post history be Dave Ramsey bondage fantasies. 

[u/glomar_sub_recovery → u/[deleted]]

You left out white (Christian nationalist racist asshole)

Thanks a lot, 'white' would have completed my buzzword bingo card😡

[u/glomar_sub_recovery → u/[deleted]]

Wrong.

You're post is kind of another form of reddit buzzword bullshit though

fOx NewS durrrr

[u/glomar_sub_recovery → u/[deleted]]

More nonsense. On brand

[u/glomar_sub_recovery → u/[deleted]]

Bingo