Am I Burning Through My IRA Too Fast?

Summary

Summary of Ramsey Everyday Millionaires Podcast Episode: "Am I Burning Through My IRA Too Fast?"

Release Date: April 23, 2025
Host: Ramsey Network
Featuring: Dave Ramsey, Rachel Cruze

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Introduction

In the April 23, 2025 episode of "Ramsey Everyday Millionaires," the Ramsey Network delves into the complexities of managing retirement funds under challenging circumstances. Hosts Dave Ramsey and Rachel Cruze engage with a caller facing significant financial decisions regarding his $1.2 million Simple IRA amidst personal and economic challenges. This episode offers valuable insights into optimizing IRA withdrawals, managing burn rates, and navigating tax implications to ensure long-term financial stability.

Caller's Situation

The episode begins with a caller sharing his predicament:

• Age & Background: 55 years old, recently divorced.
• Financial Assets: Received a $1.2 million Simple IRA as part of the settlement.
• Employment Status: Unable to work due to cognitive health issues, making the IRA his sole income source.
• Living Situation: Residing in New York City, one of the world's most expensive cities, which exacerbates his concerns about his burn rate and tax liabilities.

Notable Quote:

[00:20] Caller: "I am 55 years old in a divorce settlement. I got a simple IRA of $1.2 million. I cannot work due to some health issues... I'm not sure what to do."

Analyzing the Burn Rate and Tax Implications

Dave Ramsey and Rachel Cruze dissect the caller's financial landscape, focusing on two primary concerns: the high burn rate due to living expenses in New York City and the tax implications of early IRA withdrawals.

• High Burn Rate: The cost of living in NYC significantly drains the IRA, threatening its longevity over the next 20-30 years.

  Notable Quote:

  [01:35] Rachel Cruze: "A great financial planner... is going to hear you where you're like, you're not very risk averse... you want to live and jump out of airplanes."

• Taxation Issues: Withdrawing from the IRA before reaching 59½ incurs a 10% penalty plus income taxes, further depleting the funds.

  Notable Quote:

  [05:21] Dave Ramsey: "If you can produce 10% on 1.2, which I know you can do, then that's $120,000 a year. Okay. Minus taxes... you should be able, without even touching the nest egg to bring that 10% out every year."

The Importance of a Financial Advisor

Both hosts emphasize the critical role of a financial advisor in navigating such financial dilemmas. They advocate for advisors who educate and empower clients rather than simply managing funds.

Notable Quotes:

[04:43] Rachel Cruze: "A great financial planner... their job is to help you live the way you want to live... and how to do it responsibly."

[09:00] Rachel Cruze: "...a good financial planner is going to look at all of that, know the ins and outs of it."

Strategies to Mitigate Burn Rate and Tax Impact

The discussion centers around actionable strategies to address the caller's concerns:

1. Reducing Living Expenses:

   • Relocation: Moving from New York City to a more affordable area can significantly lower the monthly burn rate.

     Notable Quote:

     [02:17] Caller: "You're quite right."

     [02:18] Dave Ramsey: "That's going to affect your burn rate."

2. Optimizing IRA Withdrawals:

   • Avoid Early Withdrawal Penalties: Waiting until age 59½ to withdraw funds eliminates the 10% penalty.

   • Investment Growth: Ensuring the IRA is invested in assets that yield a consistent return (e.g., 10%) to provide a steady income stream without depleting the principal.

     Notable Quotes:

     [07:15] Dave Ramsey: "That's the kind of thing I want to start looking at."

     [06:10] Caller: "It would be tight, but yes, probably."

Disability and Supplemental Income

The caller mentions his cognitive issues and the delay in receiving Supplemental Security Income (SSI). The hosts discuss the potential benefits of disability income to supplement IRA withdrawals, reducing financial strain.

Notable Quote:

[05:50] Dave Ramsey: "If you can jump on that disability, too, and get some income coming."

Balancing Lifestyle and Financial Security

Rachel Cruze and Dave Ramsey highlight the importance of balancing one's desire to enjoy life (e.g., bucket list activities) with the necessity of maintaining financial security. They stress the role of a financial planner in creating a plan that aligns with the caller's personal goals without compromising his financial future.

Notable Quote:

[08:35] Rachel Cruze: "...a financial planner... help you live your proposed life, not theirs."

Conclusion and Takeaways

• Holistic Financial Planning: Engaging with a knowledgeable financial advisor is crucial for creating a comprehensive plan that considers both investment growth and personal lifestyle desires.

• Action Steps for Listeners:

  • Visit Ramsey Solutions: Explore vetted SmartVestor financial advisors who prioritize education and personalized guidance.
  • Assess Living Expenses: Consider relocating to reduce the burn rate.
  • Plan IRA Withdrawals Strategically: Aim to delay withdrawals until age 59½ to avoid penalties and optimize tax efficiency.
  • Supplement Income Sources: Investigate disability benefits to provide additional financial support.

Final Notable Quote:

[09:00] Rachel Cruze: "A good financial planner is going to look at all of that... to help you, as Rachel said, live your proposed life, not theirs."

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This episode of "Ramsey Everyday Millionaires" offers a thorough exploration of managing retirement funds under unforeseen personal and economic challenges. By sharing the caller's real-life scenario, Dave Ramsey and Rachel Cruze provide listeners with practical advice on optimizing IRA withdrawals, reducing living expenses, and the indispensable value of professional financial guidance to achieve both financial security and personal fulfillment.

Transcript

[Caller]

Foreign.

[Amy]

This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Amy's in New York City.

[Dave Ramsey]

Hi, Amy. Welcome to the Ramsey Show.

[Caller]

Thank you for taking my call, Mr. Ramsey.

[Dave Ramsey]

Sure.

[Caller]

I am 55 years old in a divorce settlement. I got a simple IRA of $1.2 million. I cannot work due to some health issues. My concern is I'm kind of. I'm concerned about my burn rate and ways to mitigate my tax, my taxes. I know I'm getting a 10% early withdrawal fee because of my age and, of course, income tax. I'm not sure what to do.

[Dave Ramsey]

You said you're not able to work because of your health.

[Caller]

Yes, I have some cognitive issues that I'm not getting hired.

[Dave Ramsey]

Okay. And this is your only asset, your only source of income.

[Caller]

Correct. I have no debts and I have no assets.

[Dave Ramsey]

Wow. Okay. And why New York City?

[Caller]

Well, when I got the settlement, I decided to work on my bucket list. So I did a couple things like jump out of an airplane and move to New York City, and then I.

[Dave Ramsey]

Started looking at my awesomeness.

[Rachel Cruze]

Your bucket list is both. Dave likes to jump out of airplanes, and I love New York City. So you check and check.

[Caller]

So I'm living my life. I really do love it. And then I sort of went, well, wait a minute. I need to make this last about 20, 30 years, and then realize that's probably not going to happen the way I'm going through with my burn rate.

[Dave Ramsey]

The reason I asked is not because I hate New York City, but because it's one of the most expensive cities in the world to live in, and we're worried about a burn rate. So those two things don't go together. That's what was running through my head. So, you know, I'm probably going to locate somewhere near people I love and frequently visit New York City rather than try to live there. That would be probably half as expensive.

[Caller]

You're quite right.

[Dave Ramsey]

That's an idea. Okay. That's going to affect your burn rate. There is. I don't know of a. I mean, do you have a good financial advisor in your corner?

[Caller]

I have someone who's managing the ira, but not a financial advisor. No. I feel like I want, like, a tax strategist.

[Dave Ramsey]

Well, there's not financial advisors. Go ahead, go ahead.

[Caller]

Financial advisors want to make me save enough money so I'll have 1.2 million when I'm 100 years old and in a nursing home. And I don't want that I have no one to save my money for. I want to be able to live my life.

[Dave Ramsey]

Now I'm in. I'm with you on that. So a good. The way we define a good financial advisor is not someone that tells you what to do, but someone that teaches you, and then you can make good decisions. So what you're calling us for is the same thing you're calling us for. Good information. Is there some way I can get at this money and lower my burn rate? Because I did do a little math here, and this is not working. And that's the essence of your question. So I am not aware. With your cognitive stuff, there's no formal disability, is there? Like, you've not applied for SSI or something, have you?

[Caller]

I have, but with everything that's going on, they think it's probably gonna take a year or two years before everything might check out.

[Dave Ramsey]

Okay, well, that's. You're talking about the upheaval with the Trump administration.

[Caller]

No, this was even before.

[Dave Ramsey]

No, it doesn't take two years to get SSI approved.

[Caller]

Okay.

[Dave Ramsey]

Unless. Unless there's something. I mean, do you have medic. I mean, you have good doctors opinions and so forth to submit to prove disability, correct?

[Caller]

Yes, I do.

[Dave Ramsey]

Okay.

[Caller]

There's just a long waiting period.

[Dave Ramsey]

I was told there's no disability insurance anywhere in the whole mix of this discussion, right?

[Caller]

No, I have to pay for my insurance.

[Dave Ramsey]

Yeah. Okay. All right. I didn't think so, but I'm just. I'm just fishing here. Okay, so what I. What I want you to. I want you to go to Ramsey Solutions. I want you to check out the SmartVestor Pros. And these are investment advisors that we have vetted. They have to have the heart of a teacher or they don't become one of the people that we put in the SmartVestor program. Okay. They don't work for me, and they don't work for you unless they teach you something and advise you rather than direct you.

[Rachel Cruze]

Yeah, we. I just had our meeting. My husband and I meet with ours once a year, and we just had ours yesterday. And I'll tell you, a great financial planner or, you know, someone walking beside you, an investment professional. Their job is to help you live the way you want to live, Amy. So. And how to do it responsibly. And they. And they should have a basic knowledge, if not a pretty comprehensive knowledge on taxes as well. Like, they're going to see a holistic view of your life. And so a good, you know, someone that's on your side is going to hear you where you're like, you're not very risk averse. You know, you're kind of like, yeah, I want to, I want to live and jump out of airplanes and like do it all. I don't want to die with that.

[Dave Ramsey]

I need to get, I need to get you to 59 and a half with the laws that I understand because that gets us past the 10%.

[Rachel Cruze]

All of that.

[Dave Ramsey]

Yes, but you are going to get taxes on whatever you pull out. Income tax. There's no avoiding that.

[Rachel Cruze]

No, but I'm just saying a good financial planner is going to look at all of that, know the ins and outs of it. They're going to be able to run a profile and be able to say, okay, here's this, this and this and this throughout the years. I mean, you're going to be, you're going to get a detailed plan with this person and that's what you need right now. You don't. Right. I mean, it's a little bit kind of all.

[Dave Ramsey]

If you had, if you had a gross income of $130,000 a year, minus taxes, you could, you live on that and do your dream.

[Caller]

Minus taxes, Taxes. That would put me.

[Dave Ramsey]

Income tax 22% and no, put you down about 80,000. 75. 80,000. Take home pay.

[Caller]

It would be tight, but yes, probably.

[Rachel Cruze]

Not New York City.

[Dave Ramsey]

So. Yeah, probably not. Probably not. Probably visiting New York City, but not living there. Okay, but see, that's once you get to 59 and a half. Because if you can produce 10% on 1.2 in Good Mutual funds, which I know you can do, then that's $120,000 a year. Okay. Minus taxes. And it is taxable. You're not going to get away from that. This is a taxable event. And then if you said, also, okay, I'm gonna plan out, I'm 55, I'm gonna plan to be broke at 90. Okay. And so I'm gonna set up 120,000 minus taxes, plus a burn rate to hit me at zero at 90. Then, you know, there's a formula that you can put in a calculator and do that. But it sounds like I don't know what this money's invested in. But if it's producing north of 10%, you know, you should be able, without even touching the nest egg to bring that 10% out every year. You follow me?

[Caller]

Yes.

[Dave Ramsey]

And that, that's the kind of thing I want to start looking at. And then I've got a 10% penalty from 55 to 59 and a half. And I've got my tax rate, and that's going to erode this nest egg a little bit at a time. But I think you've been spending 200 a year, right?

[Caller]

That's correct. Yeah.

[Dave Ramsey]

Okay. And you're right, you can't. I was guessing, but you can't. You're right, you can't do that mathematically because you're going to end up on Alpo at some point in the story.

[Caller]

Rice, beans. Yes.

[Dave Ramsey]

Yeah. Yeah. Well, no dog food is what I was talking about. But yeah, so we don't want to do that. We don't want to do that. So, yeah, let's do that.

[Caller]

Yeah.

[Dave Ramsey]

I do think you've got a doable situation because what happened, it sounds to me like is you went through this divorce and you've got these cognitive things that you're dealing with, and you said, all right, I'm doing the bucket list, screw it. And you kind of got some of that in the last 18, 24 months in the rear view mirror. And now you're kind of going, okay, now I got to get real about this. Did I understand? Is that what happened?

[Caller]

Yes.

[Dave Ramsey]

Okay.

[Caller]

Yes.

[Dave Ramsey]

Yeah. I think you're ready to sit down with somebody and not end up with 1.2 million when you die. But also, let's use some of it and hit the bucket list, but let's not have the burn rate as you said.

[Rachel Cruze]

And if you can jump on that disability, too, and get some income coming.

[Dave Ramsey]

In, if you can get that SSI through and maybe a SmartVestor Pro can help you run that SSI through. If you happen to run into somebody who's got a little bit of knowledge on that, that's helpful. So anyway, hit the Ramsey Solutions website. Find somebody to sit down with that's got the heart of a teacher to help you, as Rachel said, live your proposed life, not theirs.

[Amy]

Thanks for tuning in to Ramsey Everyday millionaires. Need help with your investments? Connect with a smartvestor [e-mail] smartvestor or click the link in the show notes. Ramsey Solutions is a paid non client promoter of participating pros. Learn [e-mail] SmartVestor.