Dave Ramsey’s 8% Rule vs. Morningstar’s 3.9%: Where Dividend Income Fits in Retirement

Capital Group introduced target-date withdrawal ranges on October 21. It’s the latest firm trying to answer the hardest question in retirement: how much can you spend each year without running out? Two of the best-known answers are far apart. Dave Ramsey’s guide uses an 8% withdrawal rate, and research from Morningstar (NASDAQ:MORN | MORN Price Prediction) sets the safe starting rate at 3.9%. The reasons for that gap explain where dividend income fits.

Two Numbers Built on Very Different Assumptions

Dave Ramsey’s company publishes a guide on how much you need to retire, and its example uses an 8% annual withdrawal rate. The same Ramsey Solutions example assumes an 11% average annual return. The idea is that if the portfolio earns more than you take out, the principal continues growing.

Morningstar’s State of Retirement Income report, released in December 2025, found that 3.9% is the highest safe starting withdrawal rate for people retiring in 2026 who want steady income that rises with inflation. That figure assumes a moderate stock allocation, a long retirement, and a 90% chance that money is still left at the end. It also leaves out Social Security. Morningstar found that retirees who let their spending rise and fall with the market could start at nearly 6%.

Why Average Returns Can Sink a Retirement Plan

Ramsey Solutions’ 11% average says nothing about the order the returns arrive in. Sequence-of-returns risk is the danger of a bad market early in retirement. If stocks drop in year one and you still pull out the same dollar amount, you’re selling shares at low prices to pay the bills. Those shares can’t take part in the recovery. Morningstar’s lower number shows planning for that case.

Inflation adds pressure. The Research CPI for Americans 62 and older reached 368.066 in September. That was up 0.5% from August and the highest reading in the past year. The index weights housing and medical care more heavily. Medicare’s standard Part B premium rose to $202.90 a month from $185.

Dividends Speak Directly to the Sequence Problem

Dividends come in as cash. A retiree who covers some spending with dividends can leave shares alone after a crash, the exact risk at the center of the Ramsey 8% vs. Morningstar 3.9% debate. On The Clark Howard Podcast, advisor Wes Moss noted that “dividends have grown at twice the rate on average of inflation,” which helps protect purchasing power.

Moss also flagged the limit: “You can have a portfolio that has a 4% dividend yield, but you would have to really get specific on pretty darn high dividend yielders in that three and a half to four and a half percent range. There aren’t that many of them.” Companies can cut dividends, and they often do in recessions, right when retirees need the cash most. A very high yield can signal the market expects a cut. On its own, a high yield doesn’t make a retirement plan.

Bonds now carry more of the load. The 10-year Treasury yielded 4.96% on October 22, after hitting 5.31% on October 5. That yield sits between the two withdrawal rates, so the fixed-income side of a portfolio can produce real income without selling anything.

Social Security Changes the Math for Everyone

Morningstar’s figure excludes Social Security, which still funds part of most retirees’ budgets. The Social Security Administration’s 2027 fact sheet sets a 3.6% cost-of-living adjustment. That raises the estimated average retired worker’s benefit to $2,170 a month from $2,095, and $3,355 for a couple where both receive benefits. Every dollar of guaranteed income is a dollar your portfolio doesn’t have to produce.

What Decides Your Own Withdrawal Rate

Which number fits you depends on three things: how much you can cut spending in a bad year, how much of your budget Social Security and pensions already cover, and how much of the rest dividends and bond interest can pay without selling shares. Retirees with fixed budgets are closer to Morningstar’s base case. Retirees with flexible budgets and solid guaranteed income have more room, though Morningstar’s own flexible-spending research stops at nearly 6%. Morningstar updates this research annually, and the next edition will reflect these figures.

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