When Donald from Boston called The Ramsey Show recently, he expected a scolding. At 57, with a wife who is 64 and ready to retire immediately, $950,000 spread across 401(k)s and IRAs, a paid-off $550,000 home, and a $175,000 salary, he opened with the words of a man bracing for impact: \u201cI was more thinking that you\u2019re gonna tell me I was in trouble.\u201d He also mentioned a salesman circling his portfolio. \u201cI\u2019m worried about running out of money. I ran into somebody who wants to sell me an annuity, which doesn\u2019t sound like the best idea,\u201d he said.<\/p>\n
Dave Ramsey\u2019s verdict on the salesman was immediate and unambiguous. \u201cYou did not find a financial advisor, you found a life insurance agent that called himself a financial advisor. The typical financial advisor will not sell you an annuity except in very rare circumstances. So no, don\u2019t do that and don\u2019t use that guy.\u201d His verdict on Donald himself was just as direct: \u201cYou\u2019re not in trouble. You\u2019ve done very well, my friend. You\u2019re a millionaire. I\u2019m so proud of you. You\u2019re one of them Baby Steps millionaires. You\u2019re one of America\u2019s success stories. You\u2019re proof that we can do it still.\u201d<\/p>\n
The verdict: Ramsey is right on both counts<\/p>\n
Skip the annuity. Donald is in stronger shape than he realizes. The math behind both calls determines whether any reader near retirement is actually safe.<\/p>\n
Start with the compounding case Ramsey laid out. \u201cIf they\u2019re averaging 10%, that million dollars will double in 7 years. You\u2019ll be 64, you\u2019ll have $2 million if you don\u2019t touch it between now and then. When you\u2019re 71, the $2 million will be $4 million.\u201d That is the Rule of 72 in plain English: at a 10% annual return, money doubles roughly every seven years. A 10% average is the long-run U.S. large-cap stock figure Ramsey uses, not a guaranteed forward return, but the mechanic is real. Every year Donald leaves the principal untouched, the base that compounding works on gets dramatically larger.<\/p>\n
Living off the income, not the principal<\/p>\n
Ramsey\u2019s second point is the one most pre-retirees miss. \u201cIf you leave the principal alone and live off the income that it creates, or some of the income that it creates, it runs in perpetuation. To infinity and beyond, as Buzz Lightyear said.\u201d<\/p>\n
Run the numbers against today\u2019s safe rates. The 10-year Treasury yields about 4.5%, and the 30-year sits near 5%. At Treasury rates, a $1 million portfolio would throw off roughly $45,300 a year in risk-free income. A diversified mix tilted toward stocks would historically generate more, with volatility as the trade-off. Donald can live on what the nest egg produces and leave the principal to keep compounding.<\/p>\n
That changes the question. The real one is whether the household can live on whatever the portfolio yields plus Donald\u2019s $175,000 salary while his wife retires now. Ramsey\u2019s answer was straightforward: if the household can live on Donald\u2019s income alone, his wife can stop working today and the portfolio keeps compounding untouched.<\/p>\n
The variable that decides this: spending, not assets<\/p>\n
Whether Donald is safe depends on his annual burn rate against the income his pile can produce. Inflation makes this harder. Core PCE, the Fed\u2019s preferred inflation gauge, has climbed steadily from 126.121 in June 2025 to 129.63 in April 2026, eroding the purchasing power of every fixed dollar of income over a 30-year retirement. A portfolio drawing only its real return, the return after inflation, lasts forever. A portfolio drawing its nominal return slowly shrinks in real terms.<\/p>\n