Six Dave Ramsey Tips That Could Hurt Your Retirement Plan, #251

Radio personality Dave Ramsey is a huge name in the personal finance niche. While he’s celebrated for helping countless listeners take control of their finances, many of his recommendations have sparked debate within the financial planning community. 

I’m going to break down six of the most controversial opinions promoted by Ramsey, including advice on retirement withdrawals, debt payoff strategies, Roth accounts, investing approaches, mortgages, and the use of credit cards. I will also weigh up the pros and cons of Ramsey’s methods, highlighting where they might help and where they might hinder your journey towards a successful retirement. 

Whether you’re a Dave Ramsey fan or just curious about best practices for financial wellness, this episode offers a thoughtful, practical take on some hotly contested money moves.

You will want to hear this episode if you're interested in...

• [0:00] Exploring Dave Ramsey’s financial advice and when it might not work for you.
• [07:07] Contribute to your retirement plan to at least match company contributions while managing high-interest debt.
• [09:07] Prioritize pretax 401(k) contributions for potential tax savings and growth, especially for high earners and those nearing retirement.
• [13:57] Some active funds may outperform the market, but it's challenging. Paying off all debt immediately may not always be ideal.
• [17:43] The problem with cash or debit use and envelope budgeting to control spending and avoid debt.
• [20:11] Limiting credit card use could cause missed benefits.

Debunking Controversial Dave Ramsey Financial Advice

In the world of personal finance, few names are as recognized as Dave Ramsey. He’s helped countless listeners reclaim control of their money, but not all his advice sits comfortably with financial professionals. This week, I’m exploring several of Ramsey’s most controversial recommendations, offering candid insight into where these strategies may fall short for those planning a secure retirement.

1. The 8% Retirement Withdrawal Rule is Riskier Than It Seems

Dave Ramsey suggests that retirees can safely withdraw 8% of their portfolio annually. He justifies this by assuming long-term market returns of 11-12%. The problem is that average long-term returns are generally projected in the 6-8% range, and those figures often require heavy equity exposure, something unsuitable for most retirees due to the risk of major market downturns.

The more widely accepted “safe withdrawal rate” is between 4 and 5%, supported by decades of research. Relying on Ramsey’s higher figure may rapidly deplete retirement savings, especially during bear markets. Retirees should consider their investment mix and plan for longevity, erring on the side of caution to avoid outliving their assets.

2. Pay Off Debt, But Not at the Expense of Retirement Savings

One of Ramsey’s hallmark principles is eliminating all debt before focusing on retirement contributions. While high-interest debt like credit cards should indeed be a priority, neglecting retirement savings, especially employer-matched 401(k) contributions, means missing out on invaluable compounding growth and free money from your employer. Ideally, individuals should strive for a balanced approach: aggressively tackle high-interest debt while contributing enough to their workplace retirement plan to secure the full employer match, and, if possible, work towards saving 10-20% of salary for retirement.

3. All Roth, All the Time? Not Necessarily

Ramsey strongly favors Roth accounts for retirement savings, arguing that after-tax contributions and tax-free withdrawals offer valuable benefits. While Roth accounts can be powerful, particularly for young savers or those in lower tax brackets. For higher earners, often in their peak earning years, the upfront tax deduction of pre-tax 401(k) or IRA contributions can provide meaningful savings. Since many retirees drop into a lower tax bracket after leaving the workforce, traditional accounts can be more tax-efficient for certain households. Morrissey advises tailoring the choice to individual circumstances, considering both current and expected future tax rates.

4. Active vs. Passive Investing

Ramsey promotes active mutual fund management and even suggests that up-front mutual fund commissions are worthwhile. In the last decade, though study after study has shown that most active fund managers fail to outperform inexpensive index (passive) funds after fees. With some actively managed mutual funds charging fees of over 1%, the compounding effect of those costs can dramatically diminish returns over decades. Passive investing, through low-cost index funds, allows investors to keep more of their money and often experience better outcomes. The same is true for mutual fund commissions; with so many no-load, low-fee options available, there’s little justification for paying unnecessary charges.

5. Mortgage Payoff Strategies

Ramsey encourages paying off all debt, including mortgages, as quickly as possible and recommends only taking out 15-year mortgages. While debt freedom is a worthy goal, for many, low-interest mortgage debt (especially at rates under 5%) isn’t necessarily worth rushing to eliminate. Investing surplus funds in the stock market historically yields higher returns than today’s mortgage rates. Additionally, restricting home purchases to what’s affordable on a 15-year mortgage makes homeownership unattainable for many. It’s more beneficial to keep total debt payments below 35% of gross income and focus on long-term wealth accumulation.

6. Ditching Credit Cards?

Ramsey’s final controversial opinion is to avoid credit cards altogether and rely instead on cash or debit. While this is a great strategy for habitual overspenders or those burdened by credit card debt. However, for disciplined users, credit cards offer valuable perks, such as travel rewards and cash back, often up to 2% or more. These rewards, when paired with responsible habits (paying off balances monthly), can add up to significant savings without the risk of debt.

Dave Ramsey has helped millions move toward better financial habits, but some of his advice may not serve everyone equally well. There’s no one-size-fits-all approach to money. Evaluating your financial landscape and consulting with a fiduciary professional are key steps toward making smart choices that truly align with your goals and circumstances.

Resources Mentioned

• Dave Ramsey's Website
• A Total Money Makeover by Dave Ramsey
• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Download my entire book for FREE 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

 

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