Dave Ramsey Misses This One...Badly and it Could Cost You Dearly!

Dave Ramsey is asked a question "Is a million dollars enough to retire on?"  Here's the link for that episode...https://youtu.be/B3Jt6jb46XQ Unfortunately, his answer is HORRIBLE!  Absolutely HORRIBLE!  He asks the caller, "can you live on $70,000 a year?"  Because the market returns 10%, or something like that, and if you're only pulling out 7% you're actually ADDING to your principal, is his insinuation.  NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!!!!!! I can not state this loudly enough NOOOOOOOOOOOOOOOOOOOOOOOO! This is stunning and absolutely horrible advice.  There is something called "Sequence of Return Risk" and if you don't understand it, you could be doomed.  As I wrote in the comments section of his video: If you are pulling out 7% a year on a million. That's $70k.  Now let's say it's 2000 and the markets dropped 9%. Your account value dropped to $910,000.  $70k on that  is...7.6%. After taking out the 70k you're portfolio is $840. The markets dropped 11% in 2001.  So your 840k is now worth...$747k.  You take your 70k off that which is 9.4%.  Now you're down to $677k. The markets dropped 22% in 2002.  Your $677 is not down to $528k. $70k off $528k is 13.2%, leaving your total portfolio at $458k. Less than HALF of what it was just three short years ago.  You are doomed. Will NEVER recover.  In 2003, markets were up 28%.  So now you're $458 grows to 595k but then you take $70k out again.  Now you're down to $525k. 2004, markets went up 11%.  Your $525k grew to 577k and again you take 70k out and you're back down to 507k.    2005 markets were up 5%.  Your 507k grew to 532k and after your 70k withdrawal you're down to $462k.   2006 markets were up 16%. bringing your account to 536k. You take your 70k out and you're back down to 466.  2007 markets up 6%. Your $466k grows to $494k but after your $70k distribution you are down to 424k.  And then 2008 hits. Markets down 37%. you're down to 267k. you pull 70k out and you're account value is all of 197k. All within 8 years time your portfolio is worth 1/5 of what it was.  Oh don't forget, I'm not even including the taxes you are going to pay on those 70k distributions.  If it's IRA or 401k money every, single penny is taxed at ordinary income.  if you're married, those distributions will most likely put you in the 22% bracket. And if you're single those distributions will put you in the 24% bracket.  Thus you're going to lose another 20-25% just in taxes alone! I've seen this exact scenario happen.  Do NOT let it be you! Here are the links to the Vanguard average returns study and the Pension consultants article on sequence of return risk.  https://advisors.vanguard.com/iwe/pdf/FAIVAMR.pdf https://pension-consultants.com/what-do-i-do-now-part-2/