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November 14, 2023: Dave Ramsey’s 8% SWR, 2024 HSA Limits, 2023 Year End Wins, Take a Walk and Community Wins

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.

Dave Ramsey’s 8% Withdrawal Rate is NOT Okay

ChooseFI is a ‘positive vibes’ kind of place, but there are rare occasions where I see dangerous advice put out into the world by personal finance celebrities that needs to be responded to.

This is one of those times:

Dave Ramsey’s delusional rant recently in response to a caller pursuing CoastFI revealed Dave’s basic lack of understanding of much of personal finance, including:

  • How much you can safely withdraw each year.  Dave explicitly advised 8% as a safe withdrawal rate, to the deep discomfort of his daughter Rachel (seated next to him).  3% to 4% SWR is much more in line with reality.
  • Per Dave, “$1 million should create for you an $80,000 income (each year).  Perpetually. Forever.  And never destroy it (the principal balance of $1 million).”  However, there is a greater than 56% chance (per Karsten in the link below) that you will run out of money with an 8% withdrawal rate.
  • He believes 12% annual return should be expected, when most reasonable people expect returns in the 6%-8% range.
  • He doesn’t understand that “average returns” don’t imply you get that same 12% return every single year (again, 12% is crazy) and it’s all a straight line up and to the right. We all should understand that sometimes the market goes up and sometimes it goes down.

I believe that Mr. Ramsey has done a lot of good for millions of people with catastrophic financial situations, but his advice is simply dangerous for your financial stability once you’ve moved into a stable place.Our good friend Karsten from Early Retirement Now just published an in-depth rebuttal entitled, “How Crazy is Dave Ramsey’s 8% Withdrawal Rate Recommendation” that is an important read to truly understand safe withdrawal rates.

2024 HSA Contribution Limits

Last week I highlighted the new IRS Contribution Limits for many accounts and Rachel wrote in to say the HSA (maybe the most tax advantaged of all accounts!) limits increased as well:

The HSA contribution limits for 2024 are $4,150 for self-only coverage and $8,300 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.

Calling for 2023 Year End Wins!

My favorite ChooseFI podcast episode each year is our “Year End Wins” episode where we play voicemails and read emails from the community celebrating your biggest wins from the past 12 months.

If you want to share your wins with the community on this 7th annual wins episode, send in a voicemail (or hit reply to this email and I can read it on the episode) and tell us the details of your FI wins from 2023!

I’d love to highlight as many of these as possible on the episode airing at the end of December.

Take a Walk

“I’m not saying going for a walk will solve all your problems, I’m just saying there’s no problem that’s going to be made worse by going for a walk.”

–          Ryan Holiday

ChooseFI Community Taking Action This Week

  • Vicki said, “My 1% is after I listened to Episode 462 with JL Collins about “Pathfinders” with you yesterday, I am finally invested in the Total Stock Market Index Fund in a Roth IRA outside of my employer retirement fund! Thanks for all you do to educate the community and encourage us to find our own way to FI.
  • Lee said, “I am an ultramarathon runner and have had my eye on a race in the mountains in Whistler, British Columbia next fall. It is 325 days from now, which means flights are just now coming online. I got an American Airlines sign on bonus recently, and with a little bit of flexibility on the arrival and departure date (my fiance and I are making a 7-day vacation out of it), I was able to find a nice sweet spot redemption! Overall, the flights including fees/taxes would have cost us $1080 ($540 each). We were able to get them for 27,000 points (13,500 each) + $115 fee ($57 each). For an overall value of 3.6 cents per point and saving us a whopping $965! So glad I was able to learn about travel rewards through ChooseFI.
  • Alex said, “My 1% better this week had to do with reading your weekly newsletter. I took your advice and searched my name to see if I had any unclaimed money in my name. Not to my surprise, nothing showed up under my name. However, when I searched my wife’s name, there was an available claim. She submitted it, and a $61.00 check was mailed to us! I also searched my immediate family and saw the names of my brother, dad, and both brothers-in-law. I let them know, so they could claim their funds. Thanks for the tip!
  • K said, “My 100% better: My 16 year old son started his first job this week. I gave him the 1000 foot view of taxes, retirement accounts, savings, and the power of compound interest. I showed him what just $100 saved per month at his current age could become by retirement vs what would happen if he waited until he finished college and started a career instead. (Spoiler – those 6 years alone cut his end net worth in HALF). He was so amazed, the next day he came back to me with his proposed budget for retirement, savings, and ‘fun money’ AND asked if he put 100% of his first 2 months of paychecks (since I explained to him that retirement contributions are calendar year based through employers), if I would be willing to give him a 6-month ‘personal loan’ next year so he could still get the car he had planned on in a few months. So not only will he max his $100/mo goal this year by contributing the whole $1200 this year, but he has a solid plan for savings, budgeting, and even retirement going forward. I grew up in poverty so I certainly had no early education like this, but was inspired to have this talk with him from Choose FI and the recent episodes discussing second generation FI etc., hence, 100% better this week.
  • Laurie said, “I recently turned down a job offer that came with a 74% salary increase. I’m currently working in a fully remote provincial government job up here in Canada. Although I don’t make a lot, I have a defined benefit pension, an incredible amount of flexibility with my schedule, and-most importantly-I get to spend so much time with our 2-year-old and 4-year-old daughters. The job I was offered was a fully in-office role that would have required both of our kids to be in extended before and after care. We’re at the very beginning of our FI journey and still working our way out of consumer debt, so the money was incredibly tempting. But after a lot of introspection, I realized that you can’t put a price tag on time with your family. Our debt paydown (and eventually FI) goals may take longer to complete, but our kids will only be little once. Right now, I have the chance to be present in their lives at a time when they still want to hang out with their mom. Giving that up would have been my biggest regret. And, to add another 1%, the day after I turned down that job offer, I received an update that I’ve moved on to the next round of a federal government competition that I’ve been in since January 2023. This potential job would also come with a defined benefit pension, similar flexibility, a slightly more modest salary increase, and the opportunity to move to a lower-cost-of-living city. If I were to get this job, I’d still have all the things I value, plus the jackpot of a little more money and a lower cost of living. If I had taken the big-money job offer, I would have been crushed to see this update come in. As it stands, I’m happily looking towards opportunity while still getting to spend time with my kids.
  • Alex said, “My 1 % better this week is becoming more active in the winter months. My wife and I love to get outside and go for walks when the weather is nice, but now it is dark by the time we get home (not to mention it is slowly getting colder and colder). A couple weeks ago, we bought a walking treadmill pad. This works for us because it is not super bulky, and it can be put away in the closet when it is not in use. We have made it a goal to walk 3 miles every week and I have been able to accomplish that the last 2 weeks. We will take turns walking a mile at night after our 1 ½ year old child is in bed. This is a win/win for us because we can still watch a show or movie together while also moving our bodies.

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.
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