Preparing for retirement can be complicated. You must figure out how to maintain adequate insurance coverage, elect to receive Social Security payments and have enough cash to last for the rest of your life.
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It’s natural to seek expert guidance to feel confident you’re on the right track. Financial gurus Dave Ramsey and Suze Orman have much to say about retirement, and you might find some of their advice helpful.
However, some of their beliefs could be a total mismatch for your situation. Several certified financial planners (CFPs) weighed in on why retirement advice from Ramsey and Orman may not work for you.
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2 Main Issues With Ramsey’s and Orman’s Advice
Both of these experts offer some great advice, but that doesn’t mean it applies well to everyone.
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It Lacks Nuance
Ramsey and Orman often speak in absolutes, advising that you should take a certain action regardless of your circumstances. Their blanket approach might be fine for some, but could be flat-out wrong for you.
Melissa Cox, owner of Future-Focused Wealth, championed Ramsey’s and Orman’s personal finance tenets for years, but her view of their policies changed.
“I started noticing that some of their advice just didn’t hold up in real life. Not because it was wrong, but because it was too rigid for the real world,” she said.
“We’re not all running the same financial race, and we’re definitely not running at the same pace. The beauty of financial planning is that every single client has a unique financial situation and doesn’t package easily into a box,” Cox explained.
It Ignores Today’s Need for Joy
Both popular personal finance advice givers typically advocate for delayed gratification: Live frugally now so you can retire comfortably later. While doing so may be financially prudent, it saps the present of its joy.
Lawrence Sprung, founder of Mitlin Financial, is adamant that your financial plan should factor in pleasure and fun. His mom passed away relatively young, never getting to experience retirement.
“Dave says, ‘Live like no one else now, so you can live like no one else later’. Why can’t we do both and plan for it?” Sprung said. “Joy should be something we are experiencing every day, not just putting off to a later date that we are hopeful to make [it to]. Many of us are not that lucky.”
Issues With Ramsey’s Advice
Apart from the overall problems discussed above, the CFPs pointed out some potential issues with some of Ramsey’s specific guidance.
Not All Debt Is Bad
Being anti-debt is the cornerstone of Ramsey’s financial platform. However, his view can be extremely limiting.
“[Ramsey] does not delineate between ‘good or bad debt.’ In his eyes, it is all bad,” said Sprung.
Sprung believes you should be OK if you avoid taking on bad debt — often considered as credit card or other high-interest debt — and make your payments on time.
He said, “Make sure you budget for it and your plan stays on track, but you do not need to be debt-free before you experience joy in your life.”
Benjamin Simerly, founder of and wealth advisor at Lakehouse Family Wealth, added that avoiding debt can actually be problematic in some cases.
“When some of my clients ask if they should avoid a low-interest car loan and pull funds from investments to pay for the car instead, we have a disconnect,” he said.
Paying Off Your Mortgage Early Isn’t Always Smart
Ramsey advocates for paying off your mortgage early — though it should be noted that he does acknowledge there are drawbacks.
Homeownership is part of the American Dream, and making that final mortgage payment is an exciting and happy milestone. However, prioritizing paying off your house over other financial goals could backfire.
“You can reach a point where you’re paying enough extra that you’re actually hurting your financial plan. At some point, the interest is mostly paid off on a mortgage, since mortgages front-load the interest. So, additional payments are essentially reducing what can be invested,” said Simerly.
Investing 15% of Your Income Isn’t Universal
Investing 15% of your income is one of those generic rules of thumb that have been circulating for quite a while. However, that amount doesn’t factor in your age, goals and other financial obligations.
“Telling everyone to invest 15% of [their] gross income is a helpful starting point, but not a plan. For someone starting late, 15% might be too little. For someone retiring early, it’s definitely not enough,” said Nick Davis, founder of Brindle & Bay Wealth Management.
“Meanwhile, if you’re in your 20s with limited income and student debt, it may not be realistic. Retirement saving needs to be personalized,” Davis added.
Mutual Funds Aren’t Always Better Than ETFs
Just like your retirement savings amount, your investment strategy must be tailored to your situation. Generally, any investment can be good or bad depending on your risk tolerance, goals and other preferences.
“Ramsey often states he doesn’t like that ETFs (exchange-traded funds) are often used for day trading and other short-term goals. And he is correct,” said Simerly. “At the end of the day, it’s about picking the best fit for you, and often, high-quality funds can be found in similar versions in both ETFs and mutual funds for that very reason.”
An 8% Withdrawal Rate Might Not Be OK
You may have heard that it’s safe to withdraw 4% of your portfolio each year in retirement. Doing so can help ensure that you don’t outlive your money.
Ramsey said that, due to historical stock market performance, you can actually withdraw 8% each year and live a richer life without sacrificing security. He suggested that you stay 100% invested in stocks so that your cash continues to grow enough to keep pace with your spending.
Michelle Petrowski, founder of Being In Abundance, said there are two big issues with this strategy. “First, most folks probably don’t fully understand the level of risk they’re taking with a 100% stock portfolio.
“Second, there’s the concept of sequence risk — something that doesn’t get talked about enough. That’s the risk that your nest egg may not grow as expected — or worse, could shrink — if you experience negative market returns late in your working years or early in retirement,” she explained. “Selling off investments in a down market (at a loss) to cover living expenses can slow the growth of your nest egg — or worse, cause it to shrink far too fast,” said Petrowski.
Taking Social Security Early Isn’t Necessarily the Right Move
You’ll get the largest possible Social Security payment each month if you delay claiming benefits until you reach full retirement age — 66 or 67, depending on your birth year. You can claim benefits as early as age 62, but that can reduce your monthly payment amount by up to 30% for life.
“For retirees with longer life expectancies, delaying until full retirement age can be one of the best ‘investments’ they make. Ramsey assumes people can cover the gap with their nest egg, but who wants to leave that guaranteed income on the table?” said Davis.
Long-Term Care Insurance Needs Are Nuanced
Long-term care (LTC) insurance can help you cover expensive care during your golden years, including nursing home stays. Ramsey suggests buying the coverage a few years before retirement, at age 60.
Davis said, “This isn’t exactly bad advice, but it’s definitely not universal. LTC insurance can be incredibly expensive and is not always the best solution. Some clients are better off self-insuring, while others may benefit more from hybrid policies. Like many of Ramsey’s rules, this is overly rigid for such a nuanced issue.”
Issues With Orman’s Advice
The experts also pointed out some reasons Orman’s advice might not work for everyone.
Sometimes Discretionary Spending Is OK
Your avocado toast purchases or Starbucks runs can add up to a tidy sum. Orman believes you should skip them and invest the cash instead.
“Suze Orman speaks often about buying a $5 cup of coffee and the fact that if you gave that up and directed those funds to a Roth IRA or retirement account, you could be giving your retirement account a boost,” Sprung said. “Although this is true, many people derive joy from that cup of coffee, and if they have budgeted for it and they can afford it, I believe they should [have it].”
A 3% Withdrawal Rate Might Not Be Enough
Orman’s stance on a safe withdrawal rate in retirement is the complete opposite of Ramsey’s. She encourages you to spend even less than the standard 4% rule.
Melissa Murphy Pavone, founder of Mindful Financial Partners, said the strategy “may be prudent for some, but overly conservative for others who have a solid income stream or want to spend more in their early retirement years, while they’re active and healthy.”
ETFs Aren’t Always Better Than Mutual Funds
Orman also takes the opposite view to Ramsey regarding ETFs vs. mutual funds, favoring the former.
“[She] notes that ETFs often have lower fees than mutual funds and can provide some tax benefits over mutual funds, as well. And she is correct, given that the ETF in question is the right fit for your portfolio,” said Simerly.
However, “both ETFs and mutual funds can be a great fit for your portfolio,” he explained. “The best place to start is [asking] which format has the best of breed in the fund you want? More often than not, doing your research on the best fund of a particular type will answer the question for you on ETF vs. mutual fund.”
Guidance You Should Follow Instead
So, should you abandon Ramsey and Orman’s teachings entirely? Maybe not.
“Ramsey and Orman gave us a solid start. But at some point, we all have to stop following rules made for the ‘average person’ and start creating a plan that actually works for who we are and what matters most to us on a deeper level,” said Cox.
Pavone added, “Work with a fiduciary — ideally a CFP — who can assess your full financial picture and help you make decisions that support your long-term goals, not just someone else’s rules of thumb. Because at the end of the day, retirement isn’t just about numbers. It’s about the kind of life you want to live.”
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Sources
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Melissa Cox, Future-Focused Wealth
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Lawrence Sprung, Mitlin Financial
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Benjamin Simerly, Lakehouse Family Wealth
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Nick Davis, Brindle & Bay Wealth Management
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Michelle Petrowski, Being In Abundance
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Melissa Murphy Pavone, Mindful Financial Partners
This article originally appeared on GOBankingRates.com: 12 Reasons Retirement Advice From Dave Ramsey and Suze Orman May Not Work for You
