Follow "Financial Entertainer" advice at your own risk (and peril)!

There are many unlicensed financial entertainers who love to spout out "financial advice" with no (or little) consequences to themseves for dispensing that advice.

Normally, I pay very little to no attention to them. Much of their advice is commonly about how to make educated financial decisions, setting budgets, getting out of debt (often through debt snowballs), curbing one's spending, being properly insured (usually recommending term insurance - which is completely appropriate at this stage of life), and then setting yourself up for financial independence through wealth building.

Many of these topics are often common sense and there is little financial risk to following such advice.

But every once is a while... they get into areas where they have ABSOLUTELY NO CLUE AND NO BUSINESS giving such advice... and even RIDICULING the advice that professionally licensed and credentialed agents and advisors give!

Dave Ramsey gave his opinion on recommended "safe withdrawal rates" and ridiculed the notion of spending 1.9% to 4% of your assets in retirement per year while invested in a conservative portfolio.

Now, the difference between Dave Ramsey and myself... is that I CITE MY SOURCES! I have many links on my site regarding the "safe withdrawal rate". Here's a few of them: Trinity Study: https://en.wikipedia.org/wiki/Trinity_study

Morningstar's 2013 2.8% safe withdrawal rate study: (I uploaded the PDF.) https://www.davidkinderfinancial.com/_files/ugd/f73857_3b2eeb20eb5141278617d3f602806f92.pdf

Dr. Wade Pfau adjusted his recommended % to 2.4% during the pandemic: https://www.thinkadvisor.com/2020/04/14/wade-pfau-virus-crisis-has-slashed-4-rule-nearly-in-half/#

Vanguard's study showed a 1.9% safe withdrawal rate: https://www.marketwatch.com/story/forget-the-4-retirement-spending-rule-would-you-believe-1-9-11664559109 Quite frankly, there's the 'fiction' of safe withdrawal rates: https://approd6.advisorperspectives.com/articles/2023/01/31/the-fiction-of-safe-withdrawal-rates#:~:text=In%20that%20context%2C%20safe%20elicits%20a%20wide%20variety,practice%2C%20the%20safe%20withdrawal%20rate%20is%20a%20fiction%3A

This was all brought to my attention because David McKnight highlighted Dave Ramsey's OUTRIGHT RECKLESS ADVICE by citing an 8% safe withdrawal rate??? He erroneously believes that "if you can earn 12% a year... so why not take out 8% a year? Or are you just fueling into your broker's fears?"

Here's the video by David McKnight:

https://www.youtube.com/watch?v=6tlrLtLwj6c

EDIT: This video was posted on November 11th, 2023, also by David McKnight and he shows Ramsey's own co-host who DID cite the math behind the studies I posted above... and what Ramsey thought of that advice.

https://www.youtube.com/watch?v=9OmuFsK59b8

Ramsey thinks that "AVERAGE = ACTUAL" in his math. He says you can "average" 12% a year, and if inflation is 4% a year, then you can spend 8%." Simple math... in HIS eyes.

Look at this graph:

If you pull out your 8% in a down year, how much do you need to get back to where you were? Let's say the market went down 20%... and then you pull out an additional 8%... well, look at the -30%. You need to earn 43% to get back to where you were.

Why does Dave Ramsey do this? For the benefit of the doubt, McKnight says that he doesn't want to discourage someone from saving for their retirement. When we look at other published articles on how many MILLIONS you need to retire comfortably... I see where he's coming from. I can see that being his best interest for the consumer to take SOME action... but I believe that the truth will set you free.

I've written about these ever-increasing retirement targets myself a while back: https://www.davidkinderfinancial.com/post/how-can-we-plan-with-ever-increasing-retirement-targets

Here's the key: You, as a consumer, cannot hold Dave Ramsey accountable for your own actions (or any other publication or program). Too many disclosures and disclaimers. You are responsible for your financial decisions. I hold myself out as one who can help you make educated financial decisions that feel right to you - including doing nothing if that's what feels right. But these entertainers... they have first amendment protection... and because they aren't licensed, they can't be held accountable for their advice for what they say on the air by the same regulators that hold licensed professionals accountable. It annoys me... and yet, it does allow for professionals, like myself, to stand out with prudent advice to help our clients succeed long-term.

Other professionals ask: "Why doesn't FINRA or the SEC take action on Dave Ramsey?" Here's why: The safe withdrawal rate is a guideline. If I were to talk about it to a client and a complaint arises, it is under the category of educational advice, but not securities advice. There was nothing in my initial licensing courses (life insurance & annuities, and my formerly held Series 7 & Series 66) that talk about this subject.

Financial planning advice is NOT regulated. I know that the CFP Board DOES essentially regulate those who hold their marks for their overall advice that they give... but they primarily determine if you can continue the right to hold the marks and display the CFP marks or not, pending the outcomes of an investigation and complaint. The IARFC association would do the same for those holding their designations (RFA®, RFC®, and MRFC®).

Remember: Dave Ramsey does not take on individual clients. Published articles and books are NOT considered advice. Even my own disclosures help protect ME from consumers who decide to take action on my blogs on their own without professional guidance. I don't see how any government regulator can or will take any action against Dave Ramsey's uneducated advice. I will say this: if someone is determined to follow Ramsey's "advice"... may the Lord bless and keep you (... far away from me).

EDIT (November 13th, 2023): "Supernerds Unite Against Dave Ramsey's 8% Safe Withdrawal Rate Guidance" by David Blanchette, Dr. Wade Pfau, and Dr. Michael Finke.

These are the academic minds behind the original 2.8% safe withdrawal rate study done by Morningstar. You can read their article below:

Supernerds Unite Against Dave Ramsey’s 8% Safe Withdrawal Rate Guidance _ ThinkAdvisor.pdf

Download PDF • 243KB