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\u00a9 Beth Gwinn \/ Getty Images<\/p>\n
A 62-year-old divorcee called into The Ramsey Show with a portfolio most Americans will never see. She has zero debt, a paid-off car, no rent because she lives with a partner, and roughly $1.5 million in retirement funds. Her monthly spending: $2,000. Her biggest fear: running out of money.<\/p>\n
Dave Ramsey was not gentle. \u201cShe\u2019s a freaking millionaire and she\u2019s scared to live because she read your stupid but common law goal whatever the garbage the line was for 4% withdrawal rates,\u201d he said, calling the rule \u201chope stealing.\u201d Co-host George Kamel piled on: \u201c4% is way too conservative. You\u2019ll end up leaving a whole lot of money, but in the meantime, you didn\u2019t live your life.\u201d<\/p>\n
The stakes are real for anyone approaching retirement with a decent balance. Withdraw too little and you underlive a life you already paid for. Withdraw too much and you outlive the money. Ramsey\u2019s answer was blunt, but his assumptions deserve scrutiny.<\/p>\n
Right diagnosis, aggressive prescription<\/p>\n
Ramsey is correct that a paralyzed millionaire living on $2,000 a month is not winning. He is also correct that the original 4% rule, popularized by financial planner Bill Bengen, came from a 1994 study, and that Bengen himself has since suggested a higher figure closer to 5.5%.<\/p>\n
Where Ramsey diverges from most retirement researchers is his math. His framework assumes 12% annual returns from good mutual funds and a 6% to 8% withdrawal rate that never touches principal. Apply that to the caller: 8% of $1.5 million is $120,000 a year, or $10,000 a month. Ramsey argued that if the portfolio grows 12% and she pulls 8%, it still compounds at 4% a year, meaning her balance would roughly double to $3 million by age 72.<\/p>\n
He tied this to inflation directly: averaged around 4.2% over 84 years, so earning 12% and leaving 4% inside the account preserves purchasing power. Kamel added: \u201cIf you cash it out and put it in a checking account, it would become finite.\u201d Ramsey\u2019s line was sharper: \u201cIt\u2019s mathematically infinite if you don\u2019t touch it.\u201d<\/p>\n
The problem is that 12% is roughly the long-run nominal average of U.S. large-cap stocks, a figure that hides deep drawdowns and comes with no guarantee. J.P. Morgan Asset Management currently projects S&P 500 earnings growth around 11% for 2026, and other houses are more cautious: one 2026 outlook pegs U.S. equity returns at 4% to 5% average over the next five to 10 years. Plug 5% returns and 8% withdrawals into the same portfolio and the balance shrinks every year.<\/p>\n
Why the 4% rule<\/a> exists<\/p>\n The 4% rule was built to survive the worst 30-year stretch in the historical record, including retirees who quit working right before the 1973 to 1974 bear market or 2000 to 2002 tech crash. That is the sequence-of-returns problem<\/a>: pulling 8% during a two-year decline of 30% locks in losses the portfolio may never recover.<\/p>\n Inflation sharpens the point. The Consumer Price Index sits at 334.0, up 0.5% in a single month. Core PCE, the Fed\u2019s preferred gauge, has climbed steadily from 126.43 to 130.08 over the past twelve months. A retiree who assumes 12% returns and gets 6% while inflation runs 4% has a very different portfolio in ten years than the spreadsheet suggested.<\/p>\n The variable that decides your answer<\/p>\n