Dave Ramsey’s the kind of financial expert you know you can trust, and he’s got a lot to say about what retirees shouldn’t be doing with their money.Â
The heavy bag
You might think that your retirement debt’s manageable. You’d be wrong. Dave Ramsey has said many times that any debt payments you’ve got to make during retirement will take away a good amount of your income. That’s right. Before you even get to use it.
Ramsey says you’ve got to clear your consumer debt before you even think about building any serious wealth. All of it. Credit cards, car loans, medical bills, personal loans, the whole thing. It’s hardly glamorous. But getting all that sorted gives you more room to play with financially.
The house question
Ramsey’s also had a few things to say about mortgages. He doesn’t treat them like credit card debt, sure, but he’s also not saying that you should keep your mortgage through your retirement. He says the opposite.
According to Ramsey, the best thing you can do is attack your house payment while you still can. Even if that’s before you retire. Pay off your home, and you’ve paid off a huge bill. It’s absolutely worth it.
The monthly map
‘Retirement.’ You hear that, and you think that your budget’s going to retire too. But no. Turns out, Ramsey recommends that you keep budgeting during your retirement, and you keep counting income. List the expenses. Give each dollar a job.
He says that one of the worst things you can do is not budget. Everything going in and out? You’ve got to track it. That’s not to say retirement should feel like homework or anything, but you’ll feel better when it does. Say goodbye to those random money leaks every month.
The golden eggs
Ramsey has some recommendations about how you should think about your savings, too. They’re kind of like a goose that lays golden eggs. The nest egg’s the goose, and the growth’s the eggs. The problem comes with how you imagine it.
You can’t spend so much that you begin carving up the goose. Watch your withdrawals. As soon as you take out too much from your retirement accounts, you’re going to cause issues for the money that’s meant to keep giving you income. You really want to live that way?
The little check
It’s a fact. Social Security makes up a lot of retirement income for many Americans. Ramsey gets that. But what he wants retirees to know is that they shouldn’t treat their Social Security as the whole meal and rely completely on it. It shouldn’t replace a full paycheck.
No, it’s meant to be a side portion of your retirement ‘meal.’ That’s it. Don’t go into retirement assuming that your Social Security funds are going to cover everything. You’ll be disappointed.
The fine print
Medicare’s another of those things that sounds way bigger than it is, and that’s why Ramsey’s so concerned about it. He says too many people act like it’ll handle all their bills. Your medical costs aren’t like that. Just look at Original Medicare.Â
That’s not going to pay for any routine dental care you’ve got to go through. Don’t get us started on long-term care. Fair enough, you probably don’t want to spend your time looking at the fine details about Medicare. But do you want to end up with a surprise later on?Â
The forever plan
It’s not a retirement plan to tell yourself that you’ll keep working. Ramsey’s big on making people understand that. Yes, he recognizes that anyone who’s behind their savings might need to catch up and work a few extra years. That’s not meant to be your whole strategy, though.
He says you should invest around 15% of your gross income once you’ve eliminated debt. You’ll need an emergency fund as well. Counting on working forever never works out because work can change. Your health can change.
The extra chair
There’s one thing that Ramsey seems to think every retiree should know. Don’t make every decision alone. You shouldn’t be relying on the internet either because, as it turns out, he recommends working with a qualified financial advisor.
You shouldn’t be going solo. Not because retirees can’t handle their own money, far from it. Ramsey just says that a good advisor will keep your plan organized. They’ll deal with the accounts and taxes. Withdrawals? No problem. They’ve got it covered.
The one-company bet
Dave Ramsey has one major issue with stocks, and it comes from the single kind. They’re too risky. Too many eggs, one very wobbly basket, what’s the point? In fact, he explicitly warns people not to put all their retirement income in individual stocks.
One bad run is all it takes to ruin those savings completely. Then it’s bye, bye, retirement income. Instead, Ramsey’s big on growth stock mutual funds because you get to spread your investment over many companies. One goes down, and it’s not too bad.
The tempting shortcut
On paper, taking money out of a 401(k) or IRA early seems smart. Your debt’s gone. Problem solved, right? Except, no. Ramsey’s team has warned that withdrawing your money early could mean you’ll have major income tax problems. There’s a 10% penalty, too.
So much for a solution. Ramsey said you should really, seriously, leave your retirement savings alone unless things get really bad. You know, like bankruptcy or foreclosure. Those are the only excuses.
The shiny package
Ramsey doesn’t buy into whole life insurance. He’s not against it, but he’s against people thinking that it’s going to work like an investment. It’ll give you higher costs. It’ll give you weaker returns. It’s no wonder that he’s a big supporter of other investment choices instead.
Get term life for protection, and protection only, and then invest your money separately. You could try retirement accounts. Maybe mutual funds. Doesn’t matter that it’s boring because boring is way better than something dangerous.
Sources: Please see here for a complete listing of all sources that were consulted in the preparation of this article.
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