Dave Ramsey Says You’ll “Never Touch” Your Retirement Principal If You Withdraw Less Than 12%. Here’s the Catch
Dave Ramsey says living on less than your portfolio earns means you will never touch the principal. Run the same average returns in a different order, and a million-dollar nest egg tells a very different story.
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On November 5, 2026, a listener on The Ramsey Show asked Dave Ramsey how to draw from a retirement account without draining it. Ramsey, the debt-free personal finance host, answered with a simple rule. The episode was called Make Decisions Based on Facts, Not Fear.
Ramsey said: “If it’s making 12% and you pull off less than 12%, it will always be there. So you’re never going to actually touch the million if you live on less than what it makes.”
The market argued with him that same day. The SPDR S&P 500 ETF (NYSEARCA:SPY) fell 4% in a single session, a day Reuters called “a November 5 market bonfire.” Days like that are where Ramsey’s rule breaks down. If you set your withdrawals using Ramsey’s math and the bad days pile up early in retirement, your principal can shrink fast. It also might never fully come back.
Ramsey’s Rule Assumes Returns Arrive Like a Paycheck
Living on less than your portfolio makes is sound. The trouble is the assumption that it makes the same amount every year. Ramsey has used this framing before. In July, he told a caller that if you “make 12 and we pull off 8, we never touch” the principal. Ramsey’s math holds for a bond paying a fixed 12%. Stock funds deliver an average, and averages hide the order in which returns show up.
Say you retire with $1 million and take $100,000 at the start of each year. That is a 10% rate, comfortably below Ramsey’s 12%.
If the portfolio makes exactly Ramsey’s 12% every year, you finish year five with about $1.05 million. In that world, his logic holds. The principal is untouched.
Now give the same portfolio five uneven years: down 20%, down 10%, then up 34% twice and up 22%.
Those returns average exactly Ramsey’s 12%. They don’t arrive smoothly.
After the two bad years, your $1 million has fallen to $558,000. Your $100,000 withdrawal now takes about 18% of what’s left.
The three strong years that follow help, but you end year five with roughly $718,000. The average return matched Ramsey’s 12%. The principal still shrank by more than a quarter.
Switch the order so the good years come first, and the same five returns leave you with about $1.06 million. Same returns, same withdrawals, and a far different ending balance. That gap is sequence-of-returns risk: when you sell shares in a down market to cover living costs, those shares miss the rebound.
A second flaw hides in the word “average.” Ramsey’s 12% sequence compounds at only about 10% a year. Whenever returns bounce around, the simple average exaggerates what your money actually grows at.
Your Withdrawal Rate Decides Whether a Crash Dents or Breaks the Plan
Market timing is out of your control. How much you pull out is the one variable you can set, and it changes everything.
Run the same painful sequence, bad years first, but take $40,000 a year. After two down years, the balance stands at $655,200. That hurts, but each withdrawal takes a much smaller bite. More shares last to ride the recovery. By year five, the portfolio has risen to about $1.23 million, above where it started.
The returns are identical in both cases. At a 10% withdrawal rate, an early downturn permanently reduces the principal. At 4%, the same downturn is temporary. Ramsey’s line puts the danger zone at 12%. The math puts it much lower once returns stop moving in a straight line.
Recent swings show how quickly that can happen. The VIX, Wall Street’s measure of expected volatility, hit 21.15 on November 2 before declining. Even after this week’s drop, SPY is still up 9% for the year. Retirees who sold at the low don’t share in that recovery.
How to Stress-Test Your Own Withdrawal Plan Before the Next Bad Year
- Find your real withdrawal rate. Divide the dollars you plan to take from investments each year by your portfolio balance. Your withdrawal rate is what actually drives the risk.
- Run a bad-years-first test. In a spreadsheet, subtract your withdrawal, then apply a 20% loss in year one and a 10% loss in year two. Look at what share of the remaining balance your withdrawal now represents. If that number rose well above your starting rate, your plan depends on good timing.
- Keep a cash buffer. Hold roughly one to two years of planned withdrawals in cash or short-term bonds. After a day like November 5, you can spend from the buffer instead of selling stocks at low prices.
- Write a spending rule in advance. Decide now that after a down year you will trim withdrawals or skip an inflation raise. Small cuts early in a downturn protect far more principal than larger cuts made years later.
Ramsey’s instinct to live on less than your money makes is right. The real test is the next string of down years, so watch what share of your balance each withdrawal takes after a loss. That early stretch is what planners call sequence-of-returns risk, and we mapped out how to protect against it in a free guide here.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
