What Dave Ramsey and Suze Orman Can (and Cannot) Accomplish (2024)

Star Power

The market research company YouGov ranks The Ramsey Show as the nation’s 14th most popular radio show/podcast, just behind The Howard Stern Show and just ahead of Dr. Laura. That achievement not only makes Dave Ramsey a major media figure but also places him first in his field. Per YouGov’s statistics, Mr. Ramsey is the country’s leading financial personality.

By my measure, however, Suze Orman takes the prize. I encounter her comments more often, her book The 9 Steps to Financial Freedom has sold more than 3 million copies, and she charges from $100,000 to $200,000 per speech. Twenty years back, Jane Bryant Quinn was ubiquitous. Today, that luminary is Ms. Orman.

Ramsey’s Counsel

Let’s now consider a newly minted retiree who wonders how much money she should spend from her portfolio. She turns first to Ramsey. He advocates an 8% withdrawal rate. She can remove that percentage from her account this year, and then in subsequent years spend the same dollar amount, adjusted for the change in inflation. That is, if she possesses a $500,000 investment portfolio, she can withdraw a real $40,000 from that account each year for the rest of her life.

Some investors, Ramsey concedes, might consider that strategy too aggressive. They can play it safer by spending 6%. Either way, they should invest heavily in equities, perhaps even solely, because bonds cannot earn sufficiently high returns. No need to adopt a more conservative approach. Indeed, states Ramsey, settling for the traditionally recommended spending rate of 4% is “stupid.” Those who advocate withdrawing such a low percentage are “morons.”

Orman’s Counter

Well, that’s clear. Nevertheless, our retiree seeks a second opinion. She therefore turns to the other financial expert of which she is aware, Suze Orman. To our subject’s surprise and consternation, Orman’s advice directly contradicts Ramsey’s. The highest rate that Orman suggests is 4%, which applies only to those who retire relatively late. Workers who retire at a conventional age, during their 60s, should “spend no more than 3% in year one.” Exceeding that amount would be “very dangerous.”

In addition, Orman endorses a markedly different asset allocation. Whereas Ramsey strongly prefers stocks, Orman suggests that investors hold an equity percentage equal to 110 minus their age. By that formula, a 65-year-old would invest 45% of her portfolio in stocks, while a 70-year-old would allot 40%.

Say what? Our retiree is befuddled. Her first source told her to buy stocks and spend 6%-plus of her assets each year, adjusted for inflation. Only “goobers” (yes, that was Ramsey’s word) would settle for less. In contrast, her second source championed a spending rate that was only half of the first expert’s floor, while holding mostly fixed-income securities. What’s more, not only do the two authorities thoroughly disagree, but each holds the other’s view in contempt.

Investment Politicians

Surely, our subject wonders, both parties cannot be right.

Indeed, they can. Ramsey’s approach is directionally useful. Although rigidly using an 8% withdrawal rate is rash, because doing so would historically have bankrupted retirees before 20 years had elapsed on one third of occasions, there is merit in beginning one’s retirement aggressively. If a stock bull market immediately occurs, the elevated spending rate should be sustainable. (Eight percent is excessive, but 6% is possible.) And should a bear market arrive instead, the retiree can salvage her plan by promptly reducing her withdrawals.

Much is also sound with Orman’s counsel. Although a 3% spending rate is cautious by any measure, there’s much to be said for planning for the worst. Nobody gets a second shot at retirement. There is no Plan B for a 76-year-old who has been out of the workforce for 11 years and now realizes that she may outlive her portfolio. Also, Orman softens her message by stating that retirees with substantial pension income may, in fact, be able to spend more than 4%.

Each has grasped one appendage of the elephant. Unfortunately for our retiree—and the source of her confusion—media personalities cannot convey the nature of the entire beast. Their jobs depend upon convincing people that financial issues are simple. (In fairness, Ramsey more so than Orman.) Their audience does not wish to hear about the nuances. They want quick, straightforward answers.

In short, financial experts like Ramsey and Orman are investment politicians. As with their Beltway cousins, the secret to their success comes from appearing accurate rather than being so. I do not intend that statement as an insult. For one, they often are correct. Their advice to avoid debt, hold an emergency fund, and invest in low-cost mutual funds is unimpeachable. For another, being succinct is their job. There is nothing wrong with that.

The Role of Financial Advisors

By and large, the public financial experts satisfy the needs of workers who are accumulating assets. That process truly is simple: save extensively, own mostly equities through mutual funds and exchange-traded funds, and keep costs low. Investment researchers can suggest more elaborate strategies, but the uncomfortable truth is that over the past 20 years, the broad U.S. stock market indexes have outgained all conceivable competitors, save for funds that hold a great many growth stocks. Those who write about asset allocation (raises hand) have reason to be humble.

As witnessed by their conflicting withdrawal-rate advice, though, such counsel fails retirees. The issues for those in retirement are more complex and their solutions less generic. One size does not fit all. To be sure, with enough effort retirees can devise their own solutions. In the internet age, there is no shortage of critical information. The knowledge resides for those who wish to find it.

However, the majority seeks guidance rather than tools. And for that, it requires more than what the media personalities provide. The details that investors had shunned while building their portfolios become essential when they reach retirement, given the individuality of their situations and the complete, absolute necessity of avoiding failure. No longer will such investors accept understanding only part of the elephant. They need to comprehend the whole animal.

That is why personal financial advisors exist—and why they will continue to do so, regardless of the development of financial experts, and even that of artificial intelligence routines. The delivery mechanisms have changed along with technology. In many cases, face-to-face meetings have become a thing of the past. But the need remains because the advice offered by the public investment experts cannot suffice. (Yes, that final statement applies to my work, too.)