How Much Do You Need to Retire?

Summary

Ask The Compound: "How Much Do You Need to Retire?"

Podcast: Ask The Compound
Hosts: Ben Carlson & Duncan Hill
Date: March 25, 2026

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Episode Overview

In this episode, Ben Carlson, Duncan Hill, and their team tackle listener questions about personal finance, focusing on how much is "enough" to retire, what it means to be “rich” or “middle class” (especially in high-cost cities like New York), optimal portfolio construction (especially for younger investors), the benefits and trade-offs of different retirement savings approaches, and advice for those starting late on retirement planning. True to the show’s spirit, the hosts blend practical advice, candid opinions, real-world anecdotes, and a dash of financial philosophy—making for an engaging, evergreen discussion.

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Key Discussion Points & Insights

1. How to Determine Your Retirement “Number”

Listener question from Jay (37, married, three kids): How do you decide on a retirement target?

• The “Spreadsheet Answer”:
  • The 4% Rule (aka Trinity Study): Multiply annual spending by 25 to estimate needed nest egg (e.g., $100k/yr spending = $2.5M needed).
  • Ben: “I don’t think you should be living and dying by [the 4% rule], but it’s a place to start.” [05:40]
• The Reality:
  • Life is a moving target; expenses, income, returns, and lifestyle priorities change unpredictably.
  • Ben shares his personal experience: “Every single one of those expectations proved to be wrong—my income, my savings rate, the stock market returns—all of it.” [07:15]
• Practical Takeaway:
  • Set baselines and update plans regularly.
  • Understand that “enough is more of a mindset than a number.”
  • Make course corrections as life unfolds—focus on incremental savings increases and flexibility.

“Enough is more of a mindset than a number... these are impossible to know at 37. You’re gonna be a different person at 47, 57, and 67.” — Ben [08:39]

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2. What Does It Mean to Be “Rich” or “Middle Class” in NYC?

Listener question (Craig) about viral NYT article featuring a $500k-earning “middle class” family:

• NYC-Income Reality & Public Backlash:
  • $500,000 household income places you in the top 2% nationwide.
  • Upper West Side median income is ~$155k; 1/3 of residents make $250k+.
  • Family saves $10,000/month—a substantial savings rate.
• Why Don’t High Earners Feel Rich in NYC?
  • Relative wealth: Surrounded by even higher earners and hyper-luxurious lifestyles.
  • Childcare: $4,000/month on daycare highlighted.
  • Housing: Three-bedroom condo can cost $5 million+ to buy.
• Social Perception:
  • Ben: “It makes people really angry when rich people say they’re middle class ... $500k a year, you are not middle class. You are upper, upper, upper class. Okay?” [12:47]
  • “We weren’t meant to see how everyone lives like this ... Social media has ruined wealth for so many people.” [15:18]
• Philosophy:
  • “Rich is a mindset. It’s not a level.” [09:06]
  • NYC = Luxury/lifestyle as a premium choice, not a necessity.

“These people are saving more than the median income. That’s a really good savings rate … They are doing great. They live in New York City. Could they move somewhere cheaper and do better? Yes, but this is their luxury.” — Ben [13:23, 15:41]

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3. Should Investors Under 40 Own Bonds?

Listener (Duncan’s) question: Are bonds still useful for young investors? [17:59]

• Roles of Bonds:
  • Volatility reduction/emotional hedge
  • “Dry powder” for rebalancing when stocks fall
  • Regular income stream
• Why Have Bonds Recently “Failed”?
  • Bond prices dropped as inflation and rates rose in recent years.
  • The old “flight to safety” effect hasn’t always worked; correlations between asset classes have changed.
  • For genuine safety, cash or short-term Treasuries (T-Bills) offer protection with minimal interest rate risk.
• Alternatives & Diversification:
  • “Buffered ETFs” or floating-rate bonds may fit if you know the trade-offs (lower upside, defined losses).
  • Consider barbell portfolios: heavy on stocks and cash, skipping intermediate-risk bonds.
  • For hedging inflation, short-term TIPS can be considered, but even they have risk when rates shift quickly.
  • "If T-bills default, we've got bigger problems." [20:09]
• Rebalancing Value:
  • “Historically, the idea is you want to be able to rebalance in a down market — bonds go up as stocks go down.” [23:07]
  • When correlations break down, you need flexibility: a mix of cash, bonds, and disciplined rebalancing.

“If you just want to take losses off the table, own a more cash-like product or a floating rate type of thing. But then you have to expect when rates are lower, you’re getting the lower income.” — Ben [22:37]

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4. Saving for Retirement While in School (with Tax-Free Pay) — Military Perspective

Listener Daniel (29, military vet, using GI Bill): Should I continue saving 15–20% in a taxable account while not earning taxable income? [25:31]

• Context: Receiving ~$4k/month tax-free disability + $2k/month housing while in school.
• Advice:
  • Keep saving at your current rate, even if it must be in a taxable brokerage account.
  • Treat taxable savings as “optionality” for post-school needs: down payment, starting a business, margin of safety.
  • Commended for financial discipline and benefiting from strong military benefits.
• Broader Reflection:
  • Ben: “More young people should consider serving in the military ... The benefits are amazing and almost every service member who writes in is in great financial shape.” [26:27]

“If you just put that money—that 15–20%—in your taxable brokerage, you’re going to come out with so much optionality” — Ben [28:04]

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5. Catching Up When Starting Retirement Savings Late (50s and 60s)

Listener James (63, wife 56, delayed investing): Is working longer and ramping up savings the right catch-up strategy? [29:19]

• Key Factors:
  • Savings matter more than returns over shorter timeframes (e.g., 10–20 years to retirement).
  • Doubling your savings rate helps more than doubling your investment return (and is more attainable).
  • “Don’t try to swing for the fences”—avoiding risky bets to ‘catch up’.
• Optimal Late-Saver Moves:
  • Delay retirement and social security: “Delaying [SS] from 62 to 70 increases your monthly benefit by roughly 70% — like an 8% annual guaranteed return.” [32:04]
  • Ramp up use of catch-up contributions to IRA/401k.
  • Shift focus from helping adult children to prioritizing self-retirement.
  • Acknowledge that even at 50s/60s, some retirement funds will compound for decades.
  • “Put your oxygen mask on first.” [30:38]

“Working longer not only allows you to save more, but the money compounds for longer, and it lowers the number of years your portfolio needs to last during retirement... That’s the playbook.” — Ben [32:27]

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6. Engagement and Listener Reflections

• Hosts note that many older episodes are being listened to multiple times, reflecting the “evergreen” nature of the podcast’s content.
• Many listener questions span a wide variety of asset levels, spending, and personal backgrounds — not just the “rich.”
• Notable feedback (from James): “Listening back to what you were discussing and the emotion and the questions and concerns showed me that steadily saving, dollar cost averaging and staying emotionally steady was the path to success...” [02:18]

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Notable Quotes & Memorable Moments

• On Retirement Planning:
  “Every few years I’d update my numbers ... My life could not be more different today than it was back then, but going through that process was helpful.” — Ben [07:15]
• On Class and Wealth Perception:
  “If you make half a million dollars a year, you are not middle class. You are upper, upper, upper class.” — Ben [12:47] “We weren’t meant to see how everyone lives like this ... social media has ruined wealth for so many people too.” — Ben [15:18]
• On Bonds and Portfolio Safety:
  “The biggest risk to bonds is actually inflation ... That’s why bonds sell off when inflation goes up.” — Ben [21:51]
• On Military Service:
  “The benefits are amazing ... think about how many excellent questions we’ve received from service members over the years, and these people are almost always in excellent financial shape.” — Ben [26:27]
• On Saving Late for Retirement:
  “Get your son off the payroll ... Ramp up your savings rate, take advantage of the catch up provisions. Don’t try to shoot the moon, work longer, delay Social Security — that’s the playbook.” — Ben [33:31]

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Timestamps for Important Segments

• [04:45] How to estimate your retirement “number” & moving targets in financial planning
• [09:37] Discussion starts on NYC “middle class” $500k household viral article
• [17:59] Should investors under 40 own bonds? The role and relevance of bonds in modern portfolios
• [25:31] Saving for retirement while back in school, tax-free income, and military benefits
• [29:19] Catch-up strategies for those starting late with retirement accounts
• [34:24] Hosts reflect on their own early days of investing and the ease of starting now

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Closing Thoughts

The episode is a testament to the complexities and the personal nature of retirement planning, the evolving definitions of wealth and class, and the importance of consistent, flexible financial habits. Whether navigating high-cost city living, rebalancing portfolios as markets shift, or catching up after a late start, the hosts espouse a theme: financial planning is about ongoing adjustments, mindset, and making the best decisions with the facts at hand—no matter when or where you begin.

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For more questions, write to: ask the compound showmail.com
Remember: “Enough” is personal, and there are no perfect answers—just “evergreen principles.”

Transcript

[A]

Welcome. This is Ask the Compound, the show where you ask and we provide the answers. Let's say you make half a million dollars as a family of three living in New York City. Where does that put you in the class rankings? Most people would say upper class rich. Some people say, well, depending on the neighborhood, that's upper middle class. Some people on the coast might say, actually that's middle class. What is middle class these days? Anyway, I'll answer these questions and more on today's show. Let's do. Foreign. Welcome back. Our email here is ask the compound showmail.com Send us your questions. And if you're live in the chat on YouTube or watching on Twitter, send us your questions too. We'll do them live. I know Dave in the chat has a question for us every week, right, Cliff? Maybe all the usuals. On today's show, we'll be answering questions straight from our Compound viewers about how much you should save for retirement. How much does it take to actually feel rich in New York City? Should you own bonds if you're younger than 40 years old and have a beard and like wearing hats, how should you save for retirement if you go back to school? And finally, how can you make up for lost time if you started saving for retirement late? But first word from our sponsor. Today's show is sponsored by Betterment. Every RIA knows attention. You don't want to turn people away. You don't want to require high minimums, and you want to help clients who are just getting started. Because that's where the long term relationships begin. But here's the truth. Those simple accounts, they take a lot of work. Opening the accounts, trading, rebalancing. Before long, your staff and back office are underwater water and trying to stay afloat. That's why established RAAs are turning to Betterment Advisor Solutions. It's the platform built for segmenting your book and streamlining those smaller and simpler accounts. The onboarding experience is automated and paperless. The portfolio management is streamlined and tax efficient. The client experience is consistent and exceptional. Explore what segmentation can do for your firm today. Lower your operational lift, but keep your standard of service high. All with Betterment Advisor Solutions. Your biggest regret will be not doing it sooner. Learn [e-mail] advisors. So, Duncan, you didn't decide to move to Japan for good. That was just a trip.

[B]

Yeah, just a trip for now. I mean, pretty, pretty nice place though. The, the cleanest country I've ever been to. Like, no litter anywhere. The cleanest. Like public restrooms. Like the quietest sidewalks. It's. It's a. It was a culture shock, for sure.

[A]

I've heard it. Yeah, it's a big difference, I'm sure. All right, so we don't like to fish for compliments here on the show. This place is a labor of love for us. Right. But it's nice to hear feedback from the people who watch and listen. So here's a nice email we received from James. I like this one. I discovered the suite of compound shows this year and have been listening to a couple of ATC shows and went back to the beginning of your shows to listen on Spotify, which is December of 2020. Pretty good timing. I'm now on January 8th of 2025. 2022 was particularly interesting because I was making steady contributions to our accounts but not paying much attention to the markets because we were so busy with my son in high school and travel, baseball and graduating high school and college, sports recruiting. Good for you. Listening back to what you were discussing and the emotion and the questions and concerns showed me that steadily saving dollar cost averaging and staying emotionally steady was the path to success. So I understand that concept that you share better now. Thanks for your content and keep the great work. That's from James. Obviously. 2022 was kind of a scary period bear market. You know, it's funny, most people are probably better off not paying attention. I say it's the extremes. The people in the middle are the ones who. That's where. That's what gets you. Like where a little information, a little knowledge can hurt you. It's either you're paying all your attention to this stuff like we do and. Or none of it. And I think the middle ground is what kills you. Duncan, you. You said you were doing research into some of our podcast numbers this week and discovered that there were certain episodes people were going back to and listening to more than once, which I think is cool.

[B]

Yeah. Yeah. We have episodes. If you look back, we have episodes that have like 160% consumption rate. Yeah. Meaning that the average person listened more than once. So that's pretty.

[A]

That's pretty cool. Because our goal when creating this show was to have evergreen content. So I'm glad that that is actually showing up in that the listening to the past. And I'm sure there's things we've said that people go, wait, that didn't age very well. But the hope is that this is evergreen stuff that can work in any environment.

[B]

So also, just for. For the record, if anyone's going back to listen from the beginning we had a couple of different things we did on the same RSS feed, podcast wise, back before we started Ask the Compound, which was in the beginning, portfolio Rescue. So our first episode, I think was around June 4, 2021. So if you go back before that, you're going to hear all kinds of stuff. A lot of it's good, but I'm just telling you, we started this show in June of 2021, right? Yeah, yeah. If you go back further, you'll hear like we were doing market moment updates, like five minute episodes and things like that.

[A]

Oh, man, I forgot about that.

[B]

Some different stuff.

[A]

That's a long time ago. All right, let's do some questions.

[B]

First. We got a question from Jay. Curious to hear your thoughts on how to determine a target nest egg for retirement. I'm 37, married with three kids, and trying to make decisions about how to save for later versus how much to live on today. I'm familiar with the Trinity study 4% rule and like that concept, but I can see that many expenses will change throughout the years, so I'm having a hard time determining what my number should be. Any thoughts are appreciated. Thanks for what you all do. Welcome back, Duncan, and good luck with the geese bin. Are you still having goose problems?

[A]

You might hear them. My office is on a little lake. They call it a lake, but it's, you know, this little thing.

[B]

And I thought they were bringing in dogs to bark at them and scare them off.

[A]

They came back. I don't know if it's different geese that came back, but they came back and all they do all day is squawk at each other. Okay. All the other producers on our shows are always like, ben, can we shut the geese up? What am I supposed to do?

[B]

Yeah, I mean, are you going to.

[A]

I should for. At lunch, I should just go throw rocks at him. I don't know. I don't know what else to do. Anyway, you might hear him squawking in the background. All right, Jay, the spreadsheet answer here is if you're living and dying by the 4% rule, which we've talked about many times in this show, I don't think you should be living and dying by. But if you are, that would be 25, 25 times your spending. Right. Net of any other income like Social Security and that stuff. So if you spend 100 grand a year, for example, you need $2.5 million. Right? Easy enough. Back of the envelope. We've gotten a lot of questions like this over the years, and unfortunately, there isn't a scientific answer, especially being that far away from retirement. Jay points it out like, your spending will change over time. It's impossible to model inflation. Financial market returns, interest rates, like, no one knows what those look like in the future. So you guess. I think one of the hardest things about being a financial advisor is coming to the understanding that you cannot give clients certainty in the process. Like, when you're creating a financial plan, you have expectations, you make estimates. Sometimes those estimates are essentially educated guesses, and you do what you can, but you need some sort of baseline to come up with some benchmarks and goal posts that you can track along the way to check your progress. Then you use those estimates, those benchmarks, those goal posts to check your progress along the way. So then when those expectations become reality, you can see, hey, wow, I'm doing so much better than I expected. I'll keep doing what I'm doing, or maybe I'll make some minor adjustments and, I don't know, save a little less or, man, I am way worse than expected. I need to change my lifestyle in the future, make some changes to my plan. What is that gross drink you're drinking? What is that?

[B]

You ask every time? Every time I have Matcha, you give me a hard time about it. It's good and it's from Japan.

[A]

I'm just saying, okay? It just took me out of my. You moved me off my spot. All right, listen, I think every one of these things is a moving target, right? When I was 25, I created my first back of the envelope retirement plan. Okay? I had a spreadsheet, and I took everything into account. My savings rate was going to be, some estimates for future earnings power, and what the stock market returns were going to be. And then I mapped out how much money would that turn into every five years until I was 65, right? 20 years later, every single one of those expectations proved to be wrong. My income, my savings rate, the stock market returns, all of it was wildly off, way different than I could have thought. I didn't have kids back then. I wasn't even married. My life could not be more different today than it was back then. But going through that process was helpful because it showed me how things could work out under certain parameters, given a set of where I was at that day, right? And every few years, I'd update my numbers to see where I stand. Now I can update the estimates. Hey, my savings rate's a little higher, a little lower. I'm making a little more, a little less, whatever it is. So obviously Your spending level is the biggest input here. But I think a lot of this is more qualitative than quantitative when it comes to knowing how much you have enough. Like, enough is more of a mindset than a number. Right. Will you want to keep working when you're older? Do you want to live by your kids and grandkids or travel the world? Do you want a huge margin of safety? You're gonna be a die with zero kind of person, right? I think that's the thing. You're gonna be. These are impossible to know at 37. You're gonna be a different person at 47 and 57 and 67. It's just true. So you do your best. You increase your savings rate by a little bit each year. You set some goals and baselines with the understanding that they almost certainly be wrong. And then you make some course corrections along the way. That's what you do. That's how you plan for retirements decade into the future. It's not enough. Not a lot of comfort to people, but that's what you do.

[B]

Yeah. I mean, this dovetails nicely with question two about it. A lot of it being about your lifestyle.

[A]

Yes. Right again. Yes. Rich is a mindset. Right. It's not a level for people.

[B]

And for people that saw the last episode. Nigma, Julie, he's constantly writing about this and writing good stuff on this very subject. Yeah.

[A]

And trolling people online about it, too.

[B]

It's true. What does he call actual, like, rich? Like over 10 million.

[A]

10 million and up. That's rich. Yeah. 2 to 10. Middle class.

[B]

Upper. Middle class, Right.

[A]

Upper. Yeah.

[B]

Okay.

[A]

Speaking of. Yeah, you're right. Let's read this next one.

[B]

And.

[A]

Okay, I like these questions like this because sometimes people get what, like, gets me riled up, and it gets them riled up. So let's. Let's read this one.

[B]

Well, yeah, this. This article got the Internet buzzing. So, yes, this is. This is perfect to talk about.

[A]

I'm not surprised. We heard about this one.

[B]

Right. So Craig wrote in about this famous now notorious New York Times article. Dan hit us. Okay. So he says, I need Ben's take on the viral New York Times story about the middle class couple who makes $500,000 living in New York City. As a fellow flyover state guy, I'm not completely up to speed on what it's like living as a coastal elitist, but these people can't be serious, right?

[A]

Okay, listen, a lot of people were freaking out about this story online. Now, a lot of people assume the piece was rage bait. And usually I would be on that corner too. Like, the only reason you put out a story like this is to make people mad. And they will share it and they will talk about it and look it, they got what they asked for. This is the desired outcome.

[B]

It's like your birthday take on animal spirits this week. It's rage bait.

[A]

Yeah. Yes. Rage bait. Yeah. I tested it out here and yeah, I even heard from my wife this morning who said, ben, that was a terrible take. Hey, can't win them all. Right. All I was trying to say is that, listen, the birthdays matter more to my kids now than me. I'm a selfless person.

[B]

And if you left it there, I think most people would agree. But then when you said that you don't text friends on their birthday out of principle, I think a lot of people objected to that.

[A]

I didn't realize Michael was so sensitive that I didn't say happy birthday to him. I should have given him HB Day. HBD on a text and it would have been fine. Listen, I've seen plenty of publications and blogs do this over the years. Like if you live in San Francisco and you make $400,000, you're living paycheck to paycheck, like those. That's the desired. But the Times has been doing a series on what it's like to live on different income levels in New York City. So they did this one about like how a choreographer lives on $55,000 and how a house cleaner lives on $24,000 a year and how a physical therapist live on 200,000. So they've. This is a series. So I don't. Obviously the whole series probably gets people angry or. Because I think anytime you show how someone lives their life, like how they spend, someone is going to be upset about it. I can't believe you spend this much on that. Why didn't you spend more on this? So I think. I think that is a thing. So they just. They ask people how you spend on certain budget items and get a sense of people, how people survive in New York. Duncan, do you know the median income in New York City is, if you had to guess, out of whatever, 8 million people, 75. Oh, yeah, $80,000. All right, now here's the part that had people up in arms. I'm going to read from this story. So these people live in the Upper west side. They have. It's a family of three. They have a small child. Upper west side has the sixth highest median income of any neighborhood in the City. I think we're middle class for this area. Mr. O' Leary said we're doing okay. Then it says the couple tries to save about $10,000 each month to put towards an apartment or for an emergency. So they said they're middle class, but okay. It makes people really angry when rich people say that they're middle class. Right. And for good reason. $500,000 a year puts you in the top 2% of earners in America. If you make half a million dollars a year, you are not middle class. You are upper, upper, upper class. Okay.

[B]

And this is an aspirational country. I think most people. Most people, at least in my orb of I know, don't like hate people just because they have a lot of money. Right. Like, that's not the point here. The point is, is don't be out of touch. The point is, if you have a ton of money and make really, really good money, don't pretend that you're middle class when you're not. Because then middle class people get offended.

[A]

And obviously income is not the same thing as wealth. But it says these people are saving $10,000 a month. So that's $120,000 a year, which is more than the median income. They're saving more than the median income. Okay. That's a really good savings rate they have there. Right. It's over. It's like 20 plus percent. And they probably have retirement accounts too.

[B]

What do they spend on child care? Again? Something crazy.

[A]

It was like $4,000 on childcare. So guess what? When they're kid. Yeah. So if they're not sending their kids to private school, once that kid's in public school, that's another raise. Way more money, more disposable income.

[B]

$4,000 a month.

[A]

Yeah. For child care in New York City. Yeah. Right. I'm sure it's like a really hoity toity yes to crazy. Right. Anyway, so, yes, these people are not middle class. They're rich. So why don't they feel like they are rich? Because there are so many other rich people in New York City. So here's the estimates. In the Upper west side, the median income is actually more like 155k. And throw up. This chart here, this shows someone did this breakdown of the Upper west side, and they show that one third of people who live in the Upper west side make $250,000 or more. Okay. And this was as of 2023, so you can see the bulk of people make six figures or more. Right. Chart off the number of millionaires in New York City is 400,000. Okay? The number of millionaires, and that's by net worth. The number of millionaires has grown by 45% in the past decade in New York City from people coming in or people just having more money. So obviously this is a relative thing where they don't. But again, that doesn't mean. You call yourself middle class. I understand. Listen, I have all these rich people that live around me. Right. I don't know if you ever saw that show Fleischman is in trouble. It was actually a book too. And he made the comment like. Yeah, he made the comment something like, I would. Because he is a doctor. He's like, I would be a very wealthy person outside of this six block radius that I live in. And so that's obviously part of the thing is these people, man, we live in a small apartment. They said they live in like a 500 square foot apartment. It's got no light in the kitchen. And they see people who live in the penthouse and have three floors and have a townhouse and they go, we're not rich. Those people are rich. And that's obviously the problem. And that's why social media has ruined wealth for so many people too. We weren't meant to see how everyone lives like this. We were meant to see like the. What's the number? 150 people. We weren't meant to see beyond that in the tribe.

[B]

Supposed to just judge people on the carve drive. And then that way super rich people could game the system by driving an old Corolla, you know.

[A]

Yes, exactly. Honda Accord. So anyway, that's it. It's relative. So I'm not like mad at these people. They shouldn't have said the middle class. This one didn't anger me as much as some other ones do. But you know, besides the middle class thing, these people are. They're doing great. They're saving. They live in New York City. They like it. It's a luxury to them. Could they move to Indiana or Michigan or Ohio and. And do much better because standard of living is much lower? Yeah, they could, but. But living in New York City, to them, that's what they're spending their money on. That's their, like, that's their luxury.

[B]

I saw, I saw some people were pointing out that a previous article like this, this is a series New York Times has done, a previous one had like an artist or something that lives in the Upper west side for $36,000 a month or on, I mean, on $36,000 a year salary and it's because of rent stabilized apartments that should be going for $5,000 a month now that are still going for like $800 a month because they're like parents. You've lived in it many years ago and you're able to pass it down to your kids, which a lot of people are calling into question now. Like, why are you able to pass down a rent stabilized apartment like an asset? But yeah, kind of these, these, these articles are good rage bait, I guess

[A]

the middle, it's like the medieval ways. Dave asked, what does a three bedroom condo in Manhattan cost?

[B]

Three bedroom? I have no idea.

[A]

$5 million probably, I think minimum.

[B]

Oh, you're talking to buy.

[A]

Yeah, to buy.

[B]

I thought, yeah, I thought you were saying to rent. Yeah, I don't know. I know one bedroom now is the highest I think it's ever been. I think it's up around, you know, like 4,500 to $5,000 a month in Manhattan. But yeah, I saw something about that recently.

[A]

Good times. And the median rent in New York is still like $1,600. So people, people figure it out. That's the thing is I still sometimes when I go there to visit you guys and visit the office, I can't imagine how 8 million people all survive in that expensive.

[B]

Well, it is a big city and I mean, to be fair, you could live in a place in Brooklyn that is very affordable, but it also would be further away to get into midtown Manhattan than I am here in Connecticut, you know what I mean? So, like it takes a very long time to get across. I did have one other thing to show on this. I actually saw a picture of mom Donnie looking at this family just salivating, just ready to get some tax dollars.

[A]

Yeah, they're going to be moving to Florida soon. All right, let's do another one.

[B]

Up next is a question that I asked you and you were like, save it for the show. So should long term investors under 40 bother allocating to bonds? Have bonds stopped functioning as the safe part of our portfolios? This is something that we've gotten lots of questions about. So it's kind of an amalgamation of other questions.

[A]

But I feel like you've asked me this a number of times over the years. Tell me the setup for why you asked this.

[B]

The setup is part of my safe, part of my portfolio in my mind was, I think it's VTUB ETF and yeah, it's down over 2% over the last month or something. Just like if I'm looking to lose Money, I would take my chance in equities. So, yeah, my, my question is, like, kidding aside. Yeah. I mean, have bonds fundamentally changed forever in their place in the portfolio? Are there better options now? Are, are ETFs that, you know, like jeppy or something like that, that, that have an income component? Are they the better, the better option? What, you know, what are your thoughts on that?

[A]

Okay, so bonds have not changed forever here. So the reasons to own bonds, right, you want a volatility reduction or emotional hedge. That's one reason. Another reason is you want dry powder to rebalance when stocks fall. Right. And the third reason is you want some regular income. Those are kind of the main reasons that you own bonds. The question is, and I think what a lot of people have been asking themselves in the 2000s is what kind of bonds do I own and what do I want to hedge? There's a million different ways to own fixed income. There's like cash, like bonds, like T bills. You could even say a high yield savings account is kind of like that, a certificate of deposit, a money market fund. Then you have US Treasuries and corporate bonds. You're talking about a muni bond fund, right. There's tips, there's floating rate bonds. So the question is like, what are you trying to hedge for? And I think what a lot of people have realized is just what's happened in recent months and why your bonds are down is because the price of oil went up, inflation expectations went up. When inflation expectations go up, interest rates go up, right? So inflation's going to be higher, rates are going to be higher. Bond rates and bond prices are inversely related. When interest rates rise, prices fall. And you're right, the whole thinking is, man, in the past, when we had a crisis like this flight to safety, right? That's why I own bonds. It's a flight to safety, Right.

[B]

I guess that's the other way to phrase the question is, I mean, is there any hedge other than inverse ETFs which lose you money every other day of the year? Well, when market's up, I just don't get it because gold down big time lately as the market's in turmoil, bonds in my case, down. So yeah, what's the hedge?

[A]

So it's different because the thing that a lot of people learned in 2020 is that like, or 2022, when bond yields went from the Fed, took rates from 0 to 5, is that, oh no, this is really bad for bonds. But there are floating rate bonds, right where the rates went up and then those ones went up immediately and they did okay, right? Cash did okay. If you have something that's very short term, like one to three month T bills, that's going to do fine in these scenarios because guess what, that they're so short term you're not going to have a lot of interest rate risk. So it's just, you're just going to get the yield and you're not going to get any of the losses. Right? Because it's way too short term to see losses unless there was a default or something. But if T bills default, then we've got bigger problems in our hands. So the other question is. So if you want to like I want to hedge inflation, but tips got crushed in 2022, remember all the questions we got on that? Because people, because they act more like bonds than tips. So you need. Well actually I need short term tips, not long term tips. Because long term tips more like bonds when rates rise. And if you want.

[B]

That was an ltbz I remember.

[A]

But if you want that like recession deflation, flight to safety protection, then you want to own Treasuries because when those rates fall, prices go up and you get a big boost. So I think the thing is you have to be more thoughtful and it's trade offs if you want, if you want none of the downside of owning bonds. If rates rise and inflation goes up, you probably want something like T bills or a cash component, right? You want like a barbell. You got stocks over here, you got your triple NASDAQ Oatley position over here. On the other side you have cash that's like nothing in the middle, right? That's a barbell portfolio where on a nominal basis cash is not going to go down, you're going to earn the coupon. But the problem is if rates fall, then you get a lower yield, you're not earning much on it. So that's the trade off, right? If you want to earn some reward on your bonds, you have to take interest rate risk or credit risk or some sort of risk. And the risk you're earning, you're feeling in bonds now you is interest rate risk. And that's because the biggest risk to bonds is actually inflation. If inflation is higher, your nominal dollars that come back to you on a regular basis are going to be worth less. So that's why bonds sell off when inflation goes up. So there are ways to hedge it. You could own like short term tips would probably do okay in a situation like that. Again, cash is going to do okay. So I guess you want to, if you just want to take losses off the table, own a more cash like product or a floating rate type of thing, but then you have to expect rates are lower, then you're getting the lower income.

[B]

How would you react to someone considering replacing bonds in their portfolio with buffered ETFs? Do they have a place or no, that could.

[A]

If you. That's a more defined outcome sort of thing. And you know what your losses are like because there's some buffers that have zero percent losses. Right. And your gain is capped to a certain. That could make sense to me if you know what you're getting into.

[B]

For our young people that are totally new to investing, part of the idea here is that you want to be able to rebalance in a down market. You know, your bonds historically went up and so then you sold some of them and rebalanced into stocks. And you know, it was like a nice, nice system, but it doesn't work if, if bonds and gold and the market are all following in concert, you know, it makes it harder to, to benefit from that.

[A]

Doug in the chat says the hedge is holding a cash position in short term Treasuries. I think that's probably like a, simplest way to do this is you just keep it ultra short term and then you go, you know what, even if I don't earn much in yield, if rates fall, I've got this protection piece regardless. That's like I'm giving up. Like, I know sometimes I'm giving up on the income and I know the volatility, like it's not going to shake at all and I'm never going to lose money on a nominal basis. That to me, that's cash and T bills is like the simplest, easiest hedge there is. And in the 2022 scenario where bonds got crushed, cash did great. Because when short term rates went up, you got the short term effect immediately of those higher rates. So that that's your better hedge against. But you just have to. The trade off is if we get a recession or deflation or rates fall, you're not going to get the boost. So maybe you have some sort of, you have your muni bond you're holding plus a cash position that kind of offsets it. You might just have to have a little more diversity in that fixed income portion of your portfolio. Okay. Dave in the chat asks, would you rather earn $125,000 a year in Grand Rapids, Michigan or $500,000 a year in Manhattan? That's a good question. Guess what it probably depends where you're born, family situation. There's no, there's no right or wrong answer.

[B]

Yeah, yeah. I don't have a strong attachment to either. But if you said coastal North Carolina, then yeah, I'd probably pick that. Personally.

[A]

Everyone thinks where they were born is the best place in the world.

[B]

A lot. Especially, you know, Nicole might take offense to this, but especially Long Islanders. They really love Long Island.

[A]

Like Nicole on Long island, not in Long Island.

[B]

Right, right, right. Yeah, they really, really love Long Island's doing something right in the marketing department. That's all I'll say.

[A]

I learned the, the accent is lawn guy land. That's how you say it. Like lawn L, A W, N. Okay. Yep. All right. Another question also.

[B]

We've got over 1300 people watching live right now, so.

[A]

Yo, pretty good.

[B]

Pretty good number.

[A]

Send us your questions.

[B]

All right. Up next, we got one from Daniel. Hey, Duncan and Ben, I love your show and dedication. I'm 29 and joined the military after graduating college and just recently got out. The VA rated me as 100% service connected, meaning I'm receiving $3,938 a month tax free. I'm going back to school using the GI bill and am receiving just over $2,000 per month for housing. I've always saved 15 to 20% of my take home pay for retirement in either an IRA or my old thrift savings plan. For the next several years, I won't have a taxable income at all since those benefits are considered tax free. Should I continue to save 15 to 20% of this pay towards retirement even though it would have to be saved in a taxable brokerage account or should I wait until after college? Thanks so much for all of your help and expertise. I hope to be able to help folks with their finances like you guys do someday. Thanks.

[A]

All right.

[B]

Thanks for your service and thank you

[A]

for your service as always. Before we get to this question, I had a thought on this. There's a huge freakout happening among young people about what AI will mean for entry level workers. The guy from anthropic keeps saying 50% of entry level workers are going to be toast, which I don't know what PR person keeps letting him say this even if he thinks it's rule. Listen, some people may say I'm crazy for suggesting this given the geopolitical state of the world, but I think more young people should seriously consider serving in the military if that is your concern. There's going to be no jobs for me. Military teaches you discipline it teaches you teamwork, it teaches you leadership. And not only that, as Daniel points out, the benefits are amazing. Think about how many excellent questions we've received from service members over the year. And these people are almost always in excellent financial shape. Right. Daniel here has a healthy savings rate for retirement and the government is not only paying for his education, further education, but he earns an income and they're paying for his housing. Tax free income, all of his income is tax free, plus his housing is paid for. Plus I think there's this element of sacrifice which is just something I have a ton of respect for that I think a lot of young people, I think it would do them good. Now people say that's easier for you to say, middle aged guy, you didn't have to deal with this. But both of my grandparents in general,

[B]

talking about the service component, I think I've read that the rates of volunteership are way down in young people today. And it's something that gives people meaning in some way, some kind of sacrifice, some kind of contribution. Even if it's not military, some kind of volunteering or volunteer work.

[A]

Yeah, Some people say no, don't do, but I don't. Both of my grandfathers served in World War II. One of them lied about his age. He said he was 18 when he was only 17 to join. And I respect that a lot. And I know the world is a different place now and joining the military is not easy. But I think if people don't know what to do next, I think it's something that should be considered. Okay, back to the question. Obviously be nice if you could continue to save in your tax deferred, determined accounts. But I think your facts, your income's not being taxed and you're getting education and you still, it sounds like, have the ability to save. Like listen man, if you just put that money in that 15 to 20% still in your taxable brokerage account, you're going to come out of school with so much optionality. Want to buy a new house, you're good down payment. Want to get married and pay for the wedding. Great, you have all the savings. Start your own business. Like think about that taxable account as your seed vehicle or your margin of safety when you graduate, can't find a job. Oh well, I've got this taxable account sitting there as my flexibility. Your biggest expenses are being taken care of while you have the chance to continue socking away money. This is a great thing. You're going to be in such good shape if you do this and you graduate with just this enormous margin of safety. And then you can always turn those retirement contributions back on since you've already been doing them for four or five years. He's in a great place. No notes. Keep doing it.

[B]

Yeah. Impressive.

[A]

It is, right?

[B]

Yeah.

[A]

Yeah.

[B]

Nice work.

[A]

Good job. All right, we got one more.

[B]

Okay. Last but not least, we got one from James. I'm 63 and my wife is 56. We're in the 12% tax bracket. Much of our years have been spent working in the nonprofit world with modest incomes but good benefits. We do not own a home and have a son graduating college this year and then entering a one to two year master's program. We got started investing for retirement a couple of years before the gfc. Unfortunately, I was listening to all the wrong people, so most of the money was in cash. In 2019, I finally started getting better educated and began to dollar cost average into the S&P 500 and Target Day funds. Currently, my wife has $121,000 in her 401k split between Roth and traditional. I have 74,000 in a traditional IRA and 47,000 in a Roth IRA. Along with helping pay our son's college expenses, I got him started with a Roth IRA, which is at $22,000. I plan to delay taking Social Security and keep working until 70 to help make up for the lost decade. Obviously, I'm needing to play catch up, but I'm trying to do it wisely and not swing for the fences. Do you think I'm on the right track? This is something we've talked about before, that people. People sometimes compound their. Their issues because they miss out being in cash. But then they go super risky to try to catch up.

[A]

Yeah, I'm glad he said that.

[B]

Yeah.

[A]

Yeah. So this. This is the common occurrence, right? Starting late for retirement. Some people put it off because, hey, they have a bunch of new expenses when they're young and I'll just start saving later. And some people assume they can make up for it in the future. Sometimes this makes a lot of sense to me. You put your child first and you spend more on them and you put all. They're your priority, and then you go, oh, my gosh, I haven't thought about myself. And then sometimes you listen to the wrong people even when you do start to save and it costs you in terms of missed gains, whatever. Crying over spilled milk. I taught my kids that one the other day. They still didn't get it. I don't understand. What do you mean spilled Anyway, I think the good news is that James and his wife have a plan in place. I love the fact that they've already helped their 22 year old son start saving for retirement. But I think now it's time to put your oxygen mask on first. Right. I did write a chapter about this in my everything you need to know about saving for retirement book. James, send us your address and I'll send you a free copy. So I'm glad he's not trying to swing for the fences because I look at this in the book. So throw this up here. I looked over relatively shorter time frames. Your savings rate matters way more than your investment return. So I looked at the baseline being you save 10% of your income and you earn 6%. What happens after 10, 15, 20 years? Because that, you know, that's maybe how much time you have. If you double your savings rate, it actually leads to better outcomes than doubling your investment return. And guess what, doubling your investment return is way harder than doubling your savings rate for most people.

[B]

But see, these numbers are kind of depressing for people who relate because. Yeah, it's, yeah, the compounding they've missed on so much. Compounding.

[A]

Yeah, you can do chart off. That's the point is that compounding doesn't help as much. But here's the thing, some of this money is still going to be untouched for 20, maybe 30 years, even in your 50s or 60s. Right. So. But yes, over the short time when you're trying to get to your number, the savings matters more than the compounding. That's the point. So. Right. So the fact that he's not trying to swing for the fences, that's good. But it does seem like they have the right plan in place. So Charlie Ellis wrote this book about retirement savings. He wrote about this retirement savings crisis and what to do if you started later. He said if you delay your retirement from age 62 to 70, it could reduce your required savings rate by more than 50%. Okay, so the fact that James, he's already doing this, right? He's already said, I'm gonna wait till 70 because I can allow things to compound more. It's less spending that's coming out of the money. So working longer not allows you to save more money. The money compounds for longer. It lowers the number of years your portfolio needs to last during retirement. And as he said, it lets you delay taking Social Security. Delaying Social Security benefits from 62 to 70 increases your monthly benefit by roughly 70%. That's like 8% per year guaranteed return that you'll get that much more when you start taking your Social Security. So if he waits, that's, that's honestly the biggest part of it. The fact that he's willing and able. And he said that we took some other stuff out of here. He said, listen, I'm in good shape, I take care of myself, I'm healthy. You never know. Some people have to retire not because they want to, because they have to. And then guess what? Once your son graduates from school, that'd be a great time to ramp up your savings and think about the catch up contributions. 20, 26 IRA contribution limit is 7500. If you're 50 or older, you can contribute an extra 1100 dollars to that. If you are in your 401k for your wife, you can contribute an extra $8000 per year as of right now if you're 50 or older. Okay, so I don't think I'd make many changes here. Right. He's. Again, just get the. I think the biggest thing is get your son off of your. Get him off the payroll. Right, son, off the payroll. That's the time many people can start saving because their kids are off doing their own thing now. Hey son, guess what? We helped you get to this far. You take it away from here, right? Ramp up your savings rate, take advantage of the catch up provisions. Don't try to shoot the moon, work longer, delay Social Security. That's the playbook. Sounds like they're on the right track. And again, send us your address. I'll ship you off a couple books. I'll give one just send you one for your son too.

[B]

I asked the chat this question. So what age were you when you first had a retirement account and started for retirement?

[A]

I did not start that or I was probably 22 or 23 and I opened it. My dad helped me open an IRA in a T roll price with a target date fund. And I think I was. My first contribution was a thousand dollars. It was all the savings I had in the world and I was putting $50 a month in there and I slowly but surely worked it up from there. Yeah, I was, I wasn't making any money.

[B]

I was out of grad school when I first got a job that had a 403B and before that I had a brokerage account in college that I in the GFC started buying some stocks.

[A]

See, it's so much easier for young people now to. Because I remember I wanted to buy Vanguard Funds and all the minimums when I started out were $3,000. I couldn't even afford to make my initial purchase. So the fact that you can do fractional shares now and open up a Robinhood account and trade and buy from your phone, it's in. The contributions have been taken out and the fees have been taken out. It's so much easier now than it was in the past to do.

[B]

I think I paid 795 to buy one share of Microsoft for like $34. Yeah, I still have.

[A]

I remember I signed up for a 999 brokerage account for my first one. The brokerage doesn't even exist anymore. It's called like, trade King or something.

[B]

I'm a share builder through img.

[A]

I remember that one. But yeah, the barriers to entry are so much lower now. It's so much easier to save, which is great. And I think why so many more young people are involved in the stock market. It's easier.

[B]

Yeah. Yeah. People can set it now with all these different apps. You can set it to just buy 5 bucks of s and P every. Every Wednesday or something. Right. You know, it's pretty. Pretty handy.

[A]

But no, it's not. It sounds to me like they have the right plan in place. Like they're. Because there are some people who are. Who this happens to, and they're delusional about it and they go, no, no, no, I'm still. I'm gonna retire at 61. I don't care. It's like, okay, fine, you have to totally change your lifestyle. And. But the fact that they're putting it off. More people are living longer. I like it. All right, great questions today. Wide variety. We had a wide variety of income levels, assets. Right. Problems.

[B]

We did.

[A]

Quit complaining to us about people. About. We don't. We only answer questions from rich people. It's not true.

[B]

It's true. Before we get out of here, I just wanted to say to. To Brewery Dave in. In Michigan that we're thinking about him. I saw on social media he. He had a fire. So we're thinking about you, Dave.

[A]

Yeah. Geez, that's tough. He's gonna live as a brewery now. You better have a beer or two, maybe for.

[B]

Yeah.

[A]

All right. If you have a question for us, ask the compound showmail.com and we'll see you next week.

[B]

See everyone, thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill, and any of their guests are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Foreign.

[A]

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