Dave Ramsey put out a video in late 2025 stating that retirees should take out 8% from their portfolio each year. He stated that this would not even touch the principal. He appears to assume that the entire portfolio is invested in stocks and even mentions the S&P 500.
Let's see how that math works out using real-world S&P 500 total returns (price increase + dividends) since 1960 and a starting balance of $1 million.
I'll add the assumption that a retiree's money would need to last 30 years - from age 65 to 95.
1960-1990. The table to the left shows that withdrawing 8% would generate about $80K the first year but would drop to about $46K about 14 years in (age 79). Would retirees be able to adjust their spending downward? At the end of 30 years, the retiree would be withdrawing $119K but to keep up with 4% inflation, the retiree would need to withdraw about $250K a year after 30 years.
1965-1995. Sliding the 30 year window right by five years shows a little improvement but not much. Low point is $42K nine years in and after 30 years it sits at $155K - still far short of the $250K to keep up with inflation.
1970-2000. This period of time works out better. The 8% withdrawal dips to $50K after 5 years but recovers nicely to $282K which does keep up with inflation. Could the retiree survive on the lean years five years in?
1975-2005. Even when including the 2000-2002 dot com bubble burst, the retiree who started retirement in 1975 would work out very well. Their yearly withdrawal would go way up pretty much through their retirement with the dot com bubble burst barely slowing it down!
1980-2010. Likewise, the person who retired in 1980 would do very well through the first 25 years of retirement with only the last three years being questionable. And the retiree would be in their 90s by then so would it matter?
1985-2015. The person retiring in 1985 would do decent for the first 20 years but would hurting pretty badly in and after the 2008 banking crisis which would hit when they were 78 years old. Their 8% would be well below what they would need based on their first 8% withdrawal.
1990-2020. Someone retiring in 1990 would do fine for the first 17 years but the 2008 banking crisis would cripple their withdrawals for the next 13 years.
1995-2025. The person retiring in 1995 would do fine the first 12 years but again the 2008 banking crisis would cripple their withdrawal amounts and it would not recover even 30 years in when they would need about $250K but would only be withdrawing about $173K.
Inflation Affects Withdrawal. A retiree who took out $80K the first year of retirement would need $259K their 30th year of retirement to account for inflation. It is crazy how 4% a year can compound after 30 years.
My Conclusion: There have been two 30 year periods where Dave Ramsey's 8% withdrawal would have worked - the yearly withdrawal would not have dipped too low and the yearly withdrawals would keep up with inflation. But in the other six periods, the retiree would be severely affected by stock market swings to the point where I have my doubts they would be able to resist over-withdrawing and thereby risking eating into their nest egg, perhaps even driving it to zero. Personally, I think 8% is too high, even if you keep your entire savings in the S and P 500. Most people spread their money over stocks, bonds, and treasuries which would bring the safe withdrawal rate way down - but would protect the retiree during stock market crashes. I'll post the video with Dave Ramsey's statement separately.
