Dave Ramsey on the Smartest Way to Withdraw Money After You Retire

Many financial advisors urge retirees to withdraw no more than 4% of their nest egg annually. Doing so is the best way to ensure you maintain financial fitness so you won't run out of money before you die, these experts contend.

However, money guru Dave Ramsey has a different idea. He recommends withdrawing 8% annually and adjusting withdrawals higher to account for inflation.

Dave Ramsey's withdrawal philosophy

Ramsey recommends that retirees keep 100% of their portfolio invested in stocks. During the first year of retirement, he suggests withdrawing 8% of the nest egg to cover your costs. This might include everything from bills to fun things such as travel and hobbies.

With each subsequent year, Ramsey recommends adjusting withdrawals higher to meet the rate of inflation.

Why he doesn't subscribe to the 4% rule

Ramsey has characterized the 4% rule as "absolutely wrong" and "ridiculous."

He says that telling someone with a $1 million nest egg that they can only withdraw $40,000 annually is "bogus math" that amounts to "stealing people's hope."

By selecting the right mutual funds, you should be able to earn annual returns of 12% or more, Ramsey contends. In his view, such returns make an 8% withdrawal rate feasible.

The counterarguments

Many money professionals have criticized Ramsey for being too optimistic in his assumptions.

For starters, Ramsey assumes the stock market will return roughly 12% annually going forward. While such returns are certainly possible, they are not a sure thing.

The Standard & Poor's 500 index — which tracks hundreds of the biggest companies that publicly trade in the U.S. — has returned 11.8% annually since 1926.

However, since 1957, it has returned less — roughly 10.5% annually.

In addition, anyone who has invested in stocks for any length of time knows that returns can be volatile. As recently as 2022, the S&P 500 had a negative return of around -18%.

Withdrawing 8% of your nest egg in such down years means you will lock in some losses forever rather than giving the money a chance to rebound.

Of course, retirees could simply suspend withdrawals during such down years, or take on part-time work to bring in more income. But for many retirees, neither of those options is realistic.

Critics of Ramsey's approach include financial expert Rick Edelman, who has said, "Anyone following Ramsey's retirement withdrawal strategy is doomed."

An alternative to Ramsey: The 4% rule

Traditionally, financial advisors have suggested that a 4% rule is a safer alternative.

Developed by financial planner William Bengen, this rule suggests that if you withdraw 4% of your portfolio annually, your money will last throughout a retirement of three decades or more.

Many of today's money professionals use this rule as a benchmark for retirement planning. For example, Morningstar research suggests that 3.9% is a safe withdrawal rate for retirees in 2026.

Some financial experts consider even 4% to be too aggressive. Suze Orman says she recommends a 3% withdrawal rate.

Where Ramsey and his critics agree

While many financial professionals disagree with Ramsey's 8% approach, Ramsey's approach to managing money during retirement is more in line with the views of his critics.

Here are some of Ramsey's recommendations for managing retirement income that are more likely to win praise from others.

Avoid debt

Ramsey hates the notion of having debt at any point in life, and that includes retirement. As he has said, "Debt doesn't create stability, it creates pressure."

Many financial advisors agree that people who eliminate as much debt as possible prior to retiring are more likely to avoid financial trouble during their golden years.

Keep an emergency fund

Like many money professionals, Ramsey is a big advocate of keeping enough money in an emergency fund to cover at least six months' of your expenses.

Ramsey says having access to this pool of cash can keep you from doing dumb things when the market sinks, such as selling stocks in a panic.

As he said on "The Ramsey Show" in 2016, "The emergency fund is not about making money, it's insurance to keep you from cashing out or going into debt for stuff."

Stick to a budget

Ramsey is a firm believer in a "zero‑based budget," where you take all your income, subtract your expenses and arrive at a sum of zero.

As the Ramsey Solutions website argues, "It's the best method because it puts you in control of your money."

Bottom line

So, who is right: Ramsey or his critics?

There is no way to know for sure. Ramsey's prediction of 12% annual stock market returns sounds aggressive, but markets have returned similar amounts for long periods in the past.

On the other hand, markets have gone through long stretches of poor underperformance. If you are unfortunate enough to retire during one of these times, following Ramsey's advice could cause you to risk running out of cash.

In the end, only you can decide which approach makes the most sense. If you are unsure, consider sitting down with a financial advisor who can help you develop a plan to make the right moves during your golden years.