Kingdom Wealth Management

Does your spending need a reset?

No spend challenge: How to do a no-spend month | Fidelity While the name sounds extreme, no spend or no buy challenges can help you save money and reach your financial goals. Here's how.

There’s quite a bit of controversy in the financial planning world over Dave Ramsey’s advice to retirees on how to invest and withdraw in retirement. Full disclosure here, I completely disagree with him on both because I care about my clients as a full time fiduciary.

Dave says invest in an all stock/equity portfolio (high risk) and you’ll get an average of 12% from it…so you can take 8% out annually and still have 4% leftover for inflation or bad years.

He gets his 12% return assumption from a 100 year average return on the S&P. What he doesn’t get is something important called “series of returns” risk.

If you take large withdrawals out of life savings at the beginning of retirement and then we experience another great recession like 2008, there’s a good chance you’re going to run out of money. This is amplified by how your money is invested the more aggressively you invest the more you could lose.

If you get into the middle or end of your retirement and you face another significant market downturn like 2008, it doesn’t hurt you as badly because you’ve had 5 or 10 years to build up the account.

This is the sequence of returns risk. Dave Ramsey has some excellent advice for getting out of debt and staying out of debt. But he doesn’t understand the sequence of return risk, and the investment guidance required for a successful retirement plan.

I, like many prudent advisors, recommend clients invest more conservatively in retirement and take a smaller percentage out as well to preserve their life savings so they don’t run out of money in bad market times.

I want to see a 90% chance of success for clients. Dave not so much.