Dave Ramsey's Retirement Income Strategy Has a Very Serious Drawback

"Many financial experts recommend the 4% rule as a strategy for managing retirement savings. The rule says that if you withdraw 4% of your savings balance your first year of retirement and adjust future withdrawals to account for inflation, there's a very good chance your nest egg will last 30 years. This means that as long as you don't retire too early, there's a strong chance your money will never run out on you."

"While many financial experts feel that a 4% annual withdrawal rate is appropriate in retirement, the problem is that it may not provide you with the income you need to maintain your desired lifestyle. If you intend to spend a lot of time traveling or pursuing costly hobbies, you may need more annual income than what the 4% rule allows for."

Retirement savings should supplement Social Security rather than replace it. A common guideline is the 4% rule: withdraw 4% the first year and adjust for inflation, which has a high probability of preserving a nest egg for 30 years if retirement timing is reasonable. Higher spending needs from travel or costly hobbies can make 4% insufficient. An alternative is to pursue an 8% withdrawal by investing heavily in stocks, which can produce larger annual income but carries much greater risk due to market volatility. Maintaining some allocation away from equities can reduce depletion risk.

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