When Should I Sell My Stocks?

Summary

Ask The Compound: “When Should I Sell My Stocks?”

Podcast: Ask The Compound
Hosts: Ben Carlson & Duncan Hill
Date: May 28, 2025

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Episode Overview

This episode of Ask The Compound is centered around one of the thorniest questions in personal finance: When is the right time to sell your stocks? While buying strategies are widely discussed, selling is often neglected, especially for those approaching retirement or large life events. Ben Carlson and Duncan Hill work through audience questions on topics like using stocks in an emergency fund, approaches to Required Minimum Distributions (RMDs), using home equity for renovations, considering pension values in retirement planning, and recommendations for fiction books.

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Key Discussion Points & Insights

1. Using Stocks as an Emergency Fund

Timestamp: 02:06 – 06:48

• Audience Question: Why not overfund your emergency fund by investing it in global stock index funds instead of leaving it in cash?
• Ben's Perspective:
  • He’s “torn” and sees both sides. The case against this approach is clear: “Why would you want volatility in your safe investments that require stability, liquidity, and flexibility?”
  • However, overfunding might hedge against inflation better than cash, and Ben admits, “I don’t have a huge emergency stockpile of cash... I sweep it into my investment account and I put it into stocks.”
  • Potential Issue: Behavioral difficulty of selling after a crash (“that could be painful to do... you’re locking in losses” — 03:18), and delayed trade settlement (“T plus two... you sell today, your money gets here on a Friday. What if you need that cash today?” — 04:42).
  • Advice: If you try this, hold at least a “get out of jail free card” amount in true cash for flexibility. Consider a split—e.g., 75% cash/25% stocks—but only for those who can stomach market swings.
• Duncan’s Take:
  • Wonders if Ben’s own writing about stocks usually going up longer-term justifies more risk-taking. Though he doesn’t fully practice this himself.
• Ben’s Bottom Line: It’s not a terrible idea for thoughtful, disciplined investors, but “match your assets to your liabilities.”

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2. Required Minimum Distributions (RMDs): Timing Withdrawals

Timestamp: 07:10 – 11:03

• Audience Question: Best way to take annual RMDs — monthly, all at once, or time it for stronger months?
• Ben’s Explanation:
  • RMDs are government-mandated withdrawals forcing retirees to draw down tax-deferred accounts starting at 73 or 75, depending on birth year.
  • Math Perspective: Because markets usually rise, selling at the end of the year might allow for more upside, so “all else equal, you want to buy fast and sell slow... But some people can't stomach that for psychological reasons.”—08:38
  • Practical Solutions: Monthly/quarterly sales hedge against bad market timing (“averaging out is a hedge against bad timing or bad luck”).
  • Key Advice: “Pick a strategy you can stick with and not try to tinker with it... If you keep changing the intervals, that's the problem.” (10:54)

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3. Is the 4% Rule Outdated Given Higher Interest Rates?

Timestamp: 11:03 – 12:17

• Audience Question (from chat): Why not raise the 4% rule due to higher CD and bond rates?
• Ben’s Response:
  • In theory, if yields rise, spending rules could too, but most don’t adjust in practice.
  • “There’s a lot of gray here... your spending will change. You’ll likely spend more in your 60s than your 70s and 80s because you’re healthier...” (11:49).

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4. Paying for Home Improvements: HELOC or Cash Flow?

Timestamp: 13:01 – 18:43

• Audience Question: Should I use a HELOC (Home Equity Line of Credit) or cash flow/investments for major renovations?
• Ben’s Experience:
  • He and his wife are replacing carpet with hardwood floors (“my wife tells me it’s already out of style” — 15:12).
  • Chose HELOC for flexibility: “It allows these other investments to be left alone. It increases flexibility. And that’s what the point of the HELOC is for.” (15:29)
  • Tax Advantage: Interest on HELOC for renovations is tax-deductible.
  • Caution: Rates on HELOCs are variable (“ours right now is like 7 or 8%... not great” — 16:25).
  • Strategy: Only sensible if you plan to stay in the house for years; pay it off over several years for manageability.
  • Emotional Side: Most home renovations have a poor dollar-for-dollar ROI (“maybe 50 cents on the dollar if you're lucky” — 17:24). But that isn’t the point: “Because you want a nicer kitchen... do this once, rip the band-aid off, and then it’s there forever” (18:05).

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5. Factoring Pensions into Retirement Planning

Timestamp: 18:46 – 24:22

• Audience Question: How do pensions change the retirement number or financial readiness?
• Ben’s Framework:
  • Pensions are incredibly valuable, often more than people realize. “Having a pension means they have way more financial assets than they think they do.” (19:43)
  • Treat pensions as a stable income stream (“start with their pension income and then you figure out how much they require from other sources” — 22:00), not a lump sum.
  • Lump-sum calculation is less useful—focus should be on income replacement.
  • Inflation Concern: Most pensions lack an inflation adjustment; retirees need stocks to maintain buying power over long retirements.
  • Best Practices: Once stable pension income is established, portfolio risk and withdrawals should be tailored to required additional spending.
• Duncan’s Clarification: Pension formulas may be based on a high-end average of recent years; most can’t pass on pension income to children (20:45).

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6. Fiction Book Recommendations for Nonfiction Readers

Timestamp: 24:24 – 31:24

• Audience Question: What fiction series would you recommend for a “normal guy” who mainly reads business/psychology?
• Ben’s Book List:
  • Jack Reacher series – Lee Child: “Especially the early ones, is probably one of the better... the books are so good.” (26:43)
  • Spencer series – Robert Parker: “Probably the best wisecracking and kicking ass person that there is.” (27:20)
  • Joe Pickett series – C.J. Box: Modern-day Wyoming game warden; good underdog stories.
  • John Corey series – Nelson DeMille: Set in New York, “probably the most intelligent sarcasm that I can think of.”
  • Prey/Flowers series – John Sandford: Midwest detective fiction.
• Ben on Reading Habits: “I try to read a little bit every night... helps me go to sleep.” (30:09)
• Memorable Anecdote: Ben’s mother reads the last 10 pages of a book first!

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Notable Quotes and Memorable Moments

• On Emergency Funds:
  “Half of my brain absolutely hates this idea. Hates it. But the other half of my brain is kind of like, hmm, this actually makes some sense.” — Ben, 02:53

• On Selling When Markets Are Down:
  “That could be painful to do... you’re locking in losses. I think that’s the whole point of holding cash in the first place.” — Ben, 03:18

• On Matching Assets and Liabilities:
  “I think you should match your assets with your liabilities. And that’s the problem: the stock market over any 12 month period, even over 3 to 5 years, it can be down.” — Ben, 05:55

• On Home Renovations:
  “Do you need to do this? No, it’s something we want to do.” — Ben, 18:19

• On Pensions:
  “Regular income in retirement makes planning so much easier than the opposite.” — Ben, 20:49

• On Retirement “Rules”:
  “Does anyone actually have a 60/40 portfolio or is it just something that we benchmark to?” — Ben, 11:24

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Timestamps Overview

| Segment | Timestamp | |---------------------------------------------------------------------------|-------------------| | Opening & Episode Themes | 00:00 – 02:04 | | Using Stocks as an Emergency Fund | 02:06 – 06:48 | | RMD Withdrawal Strategies | 07:10 – 11:03 | | Should the 4% Rule Change With Rates? | 11:03 – 12:17 | | Paying for Renovations: HELOC vs Cash | 13:01 – 18:43 | | How to Factor Pensions in Retirement Planning | 18:46 – 24:22 | | Fiction Book Recommendations | 24:24 – 31:24 |

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Overall Tone & Audience Value

The episode strikes a relatable, conversational tone, mixing actionable financial insights with humor and candid anecdote. The hosts lay out both sides of nuanced personal finance decisions, emphasize the need for flexibility and matching strategies to individual tolerances, and provide encouragement for creative, thoughtful planning. The lively fiction book segment caps off the episode and humanizes the personal side of money.

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For First-Time Listeners

If you’re grappling with the timing of selling your investments—whether for emergencies, retirement distributions, or life upgrades—this episode gives both strategic frameworks and personal experience. You’ll walk away with practical ideas, thoughtful caveats, and even your next favorite fiction series to unwind between financial milestones.

Transcript

[A]

Welcome back to Ask the Compound. I am your host, Ben Carlson. There's a lot of different strategies for when to buy stocks. There's books, there's formulas, rules of thumb, valuation levels, maybe a dividend yield or 2. Not many people have a good strategy for when to sell. This is especially relevant for retirees who need to sell down their stock allocation for spending purposes. So what's the best time to sell? Find out on today's show. This is Ask the Compound. Our email here is askthecompoundshowmail.com we love all your emails. Are always willing to share very personal and detailed financial information with us, which is great. We appreciate that. If you have a really long one, maybe put it in a chatgpt. Say, hey, give me a TLDR on this. Good idea just for Duncan's sake. I look for the short ones. On today's show, we will be answering questions straight from our audience about when to use your stocks in your emergency fund. Does that make any sense? How you should optimize your RMDs when selling down your stocks? What's the best way to pay for home improvements? To share some personal anecdotes here. How a teacher should factor in a pension in retirement planning purposes. And finally, someone asked me for some booker recommendations that I'm more than happy to give today. Today's Ask the Compound is sponsored by Public. Public is the one place for all of your investing needs. Stocks, bonds, options, crypto, ETFs, high yield cash accounts and more. You can still earn over 4%. That's 4.1% on their high yield savings account. Public is also easy in the eyes. Their website is clean, intuitive, pretty simple to navigate and track all your investments. You can even open an IRA on Public for text deferred retirement saving. In investing, you can even earn a 1% match when you open your IRA at public on your with your annual contributions. Find out [e-mail] ATC that's public.com ATC paid for by Public Investing. Full disclosures on the podcast description. All right. Hello to everyone in the live chat. As always. I can see everyone's there. Someone told me to buy my beer at Costco. Sorry, I'm not drinking Kirkland brand beer.

[B]

You can see the chat?

[A]

I can see the chat, yeah. Why?

[B]

YouTube's not working for me. I can't get the chat up. So sorry about that.

[A]

Yeah, you were. You were blocked for malicious comments.

[B]

Yeah, maybe. Who knows?

[A]

All right, let's do it.

[B]

Okay. Up first today we got why is there such an aversion to selling stocks. When thinking about an emergency fund, it seems that three to six months is acceptable. What if instead I save something like 12 to 18 months or more in a taxable account and invest it in a global broad market index fund? If the market were to crash 50%, I'd still have three to six months of expenses saved. But if the market were to rise over the next few years and I don't have to tap into my emergency fund, I'll have a much higher emergency fund even after a subsequent 50% crash. Obviously I'll have to pay taxes on the gains when I have the emergency. But paying taxes on gains is a good thing, not a bad thing. Why am I missing?

[A]

Okay, I am very torn on this one. I would love to hear people in the chat if anyone would actually do this and put stocks into their emergency fund. I've heard this case from one person I know in the past. Half of my brain absolutely hates this idea. Hates it. But the other half of my brain is kind of like, hmm, this actually makes some sense. Like the case against this is pretty obvious, right? Why would you want volatility in your safe investments that require stability and liquidity and flexibility and all this stuff? Plus you'd be inviting all sorts of behavioral challenges into the plate, right? Sure. If stocks get cut in half and you overfunded your emergency fund, okay, you're still back to where you were. But then you'd also be potentially selling when stocks are down and that could be painful to do, right? You're locking in losses. I think that's the whole point of holding cash in the first place. So again, obvious why this is a bad idea. But I don't know, this idea of overfunding your emergency plan, your emergency fund to invest in stocks does kind of make sense. Like you would. You're really hedging against inflation there rather than deflation in some ways. And I guess in some ways I, I, I'm kind of closer to this than the other. Like I'll be honest, I don't have a huge emergency stockpile of cash. I have some, but not nearly as many as like the die hard personal finance people would like that, say six to 12 months or 18 months. What like these really high numbers? I don't have that much. When it gets over a certain threshold, I sweep it into my investment account and I put it into stocks. I don't see the point of holding so much cash. So I guess if you're giving yourself the potential for a bigger emergency fund, that's going to grow and give yourself that margin of safety by having that 12 to 18 months instead of three to six. I don't hate the idea. However, I would still like to make the case for why you should hold some cash in this bucket if you're going to do it. Because why do you have an emergency fund in the first place? You don't know. You're not sure what will happen, you're not sure when it'll happen. You're not sure how much it will cost. When you sell stocks, how long do you have to wait until the trade settles? Duncan.

[B]

It'S two days, right?

[A]

T plus two, right. You sell on today, Wednesday, your money gets here on a Friday. What if you need that cash today? When I transfer cash from my Marcus account, my Hyatt savings account, same day, it's there.

[B]

Oh, I didn't know that.

[A]

Yeah. At least for me. Maybe I have the gold version. So I think if you're gonna go down that route, figure out a number that makes sense to you that you want to have. So maybe if you're going to go down that route, you do a 7525 bucket for this, right? 75 cash, 25, high yield savings account. T bills, money market, whatever it is, or 80, 20 or 90, 10, but something. So you have that get out of jail free card. But this does kind of make some sense to me and I'm sure that a lot of people would really, really hate this idea. But I guess if you're really thoughtful about it and you're okay handling the swings, it's not the worst thing in the world. I would love to hear if anyone else would want to try this.

[B]

Well, I mean, I think to take the other side, a lot of our viewers would say, hey, I've been reading you for years. You basically say the stock market goes up more often than it goes down. So aren't you kind of making the argument for if I'm going to overfund, should be safe in theory most of the time. Right. Over a long period of time.

[A]

But I think you should match your assets with your liabilities. And that's the problem is the stock market over any 12 month period, even over a three to four year period, five years, the stock market can be down. Now if you're playing the probabilities again, you have to make sure you do the overfunding part and are really okay with the fact that you could be selling your stocks when we're down. That's the painful part. I think for A lot of people is selling stocks when they're down and not being able to get in for the rebound.

[B]

I think right now you're making a good point about cash flow. I mean, right now, in my public, you know, saving High yield Savings account, I'm getting 4.1% right now. That's. That's pretty nice. A couple years ago, it was like, what. We were getting 0.25 from, you know, Marcus and all those companies. So.

[A]

Yeah, Yeah, I. I don't know that most people would have the ability to stomach this, although I'm sure that there are some people. If you really plan it out, then I. I don't absolutely hate it. All right, let's do another one.

[B]

I might be one of his people.

[A]

Do you do this or are you saying you would do it?

[B]

I mean, no, I have a decent amount that I try to be responsible with and keeping. Like I said, I have a public high yield savings account, and then I'm responsible for you.

[A]

Is like two times levered ETF instead of three times. That's responsible for you.

[B]

Yeah. Or just not levered, you know.

[A]

All right.

[B]

Yeah. Up next, we got a question from John. My RMD that's required minimum distribution. Right.

[A]

You got it.

[B]

Is 100% s and P500. Do you have any strategies for taking distributions? Should I take 1/12 each month, wait until the end of a year and hope the value increases or maybe redeem during historically strong stock market months? What are your thoughts? I know you're going to like the one in months.

[A]

Well, see, this is one of those things that they don't really teach you how to do. Right. Like when to sell. Right. So you got it right. Recurred minimum distribution. That's like the minimum amount that you must withdraw annually from retirement accounts once you reach a certain age. And so this is traditional IRAs, SEP IRAs, simple IRAs, 401ks, 403bs, 457 is something, I think not Roth IRAs, obviously, but needed to be said. So when does it start? If you were born. If you're 73 years old and you're born before 1960, that's when you have to start. And then if you're born after 1960, it's 75 now. So the number has gone up over time. So why does the IRS do this? Because they want you to pay taxes eventually. Right? They want to. They can't let you defer taxes forever. And there's a penalty if you don't do this. So you end up having to do it. So let's take a look at how they are calculated. So John, give me a chart on here. This is just a handy factor and they do this life expectancy factor. And essentially you take the life expectancy factor, you divide it by your age. That gives you the percentage of account value. So it's funny, people always talk about a 4% rule on, on your assets. Again, this doesn't kick into 73, but it ends up being right around there and it gets higher as you go. So let's take age 75 as an example. It's 24.6 divided. And we're talking. So if you had 100 or a $500,000 portfolio, right, we're talking a little over $20,000 that you have to take out at age 75. All right, chart off. So that's like the crash course in RMDs, right? It's a specific formula. You have to figure it out. But the question is like, when do you take it out? As he's saying, beginning of the year, throughout the year, quarterly, monthly, end of the year. If we're basing this purely on math, right, the stock market usually goes up, as you said, Duncan, all else equal, you want to buy fast and sell slow. That means, again, all else equal, lump sum, put it in quickly, get it invested. The stock market usually goes up, but when you're selling, you want to string it out. So that could mean end of the year or it could mean dollar cost averaging out instead of beginning of the year, right? So that's math if you're playing the probability, spreadsheets, market history, that sort of stuff. However, some people cannot stomach that, the math for psychological reasons. So some people prefer to dollar cost average into the market even when sitting on a lump sum and knowing that's the better option. Some people also want to hedge against bad luck and say, if I take it all out every year in December or every year in January, what if that's just a bad time? The stock market had just fallen. And so I want. Averaging out is a hedge against bad timing or bad luck. I think that's totally reasonable. I think you could make the case about when to sell in a number of different ways. I think if you pull it all at the end of the year or the beginning of the year or the middle of the year, you could get that bad luck in timing. So most of the time it won't happen, but sometimes it will and you're going to be second guessing yourself or kicking yourself. If you're really worried about that scenario, maybe once a month or once a quarter makes sense. I do like the idea of selling out at the end of the year just because it allows for more growth potential and you'll have that cash ready for spending purposes heading into the next year. Right. So. And I think a one time sale is probably easier. You could automate the monthly or quarterly sales to it. It just, it makes it easier. So I really don't think there's a right or wrong answer here. I think whatever you do decide to do, I would pick a strategy that you can stick with and not try to tinker with it and go. If you keep changing the intervals based on what you wish would have just happened, that's the problem. So I think you just figure out whatever you're good with and stick with it.

[B]

Makes sense to me.

[A]

All right, someone in the chat, Michael, wants to know why wouldn't you change the 4% rule based on what the 10 year or 20 year CD bond rate is? So you're saying like, hey listen, rates are higher. Could we have a higher spending rate? I don't hate that. Obviously rates can and will change in the future.

[B]

Sounds like complexity.

[A]

Yeah, but I don't know that there are many people who actually do follow the 4% rule. It's one of those things like the 6040 portfolio. Does anyone actually have a 6040 portfolio or is it just something that we benchmark to? And it's this thing that people hold high. So I don't know if anyone actually. Because your spending will change. You're probably going to spend more in your 60s than you do in your 70s and your 80s because you're healthier, you probably going to travel more. So I think your spending is probably going to change over time in ways that you aren't thinking about right now. And so the amount. And you're probably going to spend more when there's a bull market, unless when there's a bear market, let's be honest, that's how most people probably think. Dave in the chat said, I'm being very two handed today. On the one hand. On the other hand. Listen, Dave, things are not black and white in the finance world. There's a lot of gray here. I'm trying to give both sides, but I'm saying, listen, I'm fine with the stock market emergency fund and I think he should probably wait till the end of the year to sell. If we're thinking going through probabilities here.

[B]

And I mean Warren Buffett himself, even he changes the breakfast he gets at McDonald's based on how the market's doing. Right?

[A]

Does he really?

[B]

I've heard that. I read somewhere that he, he gets like, the cheaper. There's like three different things he gets and depending on how the market's doing.

[A]

Listen, everyone says, everyone says Buffett, like, has lived in the same house forever. I read the book. He had a racquetball court in his house. He wasn't living on the street corner. Right. He, he, he has a place in like, Santa Barbara and Buffett did he. He probably should have spent more, but he did just fine on himself. Someone in the chat says that I spend 4% of my RMD on Miami vices every year.

[B]

Oh, I was going to say clothes. You're. You're our fashion. You're our fashion guy, you know, probably.

[A]

All right, let's do another one.

[B]

All right. Up next, we got a question from Clark. You've talked about this a few times, but curious if you could riff a bit on how you view home improvements and renovations. I have $250,000, a $250,000 HELOC that I'm gearing up to use for three projects, a roof update and two bathroom updates. I doubt I'll do all three at once and I'll spread them out over the next six months. I'm lucky that my cash flow has enough margin over the year that I could probably just pay for each out of that. However, I feel like I missed out over the last 10 years by not levering up more. How do you think about leverage via home equity versus just cash flowing?

[A]

All right.

[B]

Don't think you've ever cash flowing as a verb like that before.

[A]

You've levered up plenty over the years. It sounds like. So have I.

[B]

It should have been more.

[A]

I wish I would have borrowed more to when rates were 3%. What are you going to do? This is great timing because my wife and I are having a similar discussion right now about when and how to do renovations. So we built our house eight years ago. How do I know this? Because we moved in one month after we had twins, right after they were born and they just turned 8 this month. So I know we've been in our house for eight years. I still don't know how. I think I must have blacked out. I don't know how we had a three year old twins and we were building a new house, selling our old house and moving into a new one all in the same month, basically. I still really don't know how we figured that out.

[B]

Yeah, that sounds Suboptimal.

[A]

Yeah. Not great timing at the time. The builder told us you were going to regret something. He said he's built himself, like, five houses in his life, and he said every time, right when we're done, we realize there's something we wish we would have done for us. We have hardwood floors on the main level in the basement and the upstairs level. We have carpet. We realize with kids and dog and just general wear and tear, man, we wish we would have just done hardwood on the top floor in the basement, too. So my wife wants to do hardwood throughout. And of course, we've had the house for eight years, and my wife tells me it's already out of style. Of course it is. What was I thinking eight years ago? Like I had any choice in the matter of what we picked out. So it's probably going to be expensive. We're going to put hardwood floors, like, throughout our house. It's going to be really expensive.

[B]

What kind of wood we talking?

[A]

Do you think I know anything about anything? Whatever I'm told to do. That's what I'm saying.

[B]

You sound like Nate Bargazzi. Have you seen his bit about how his wife does all the house? Stuff like that?

[A]

I mean, I get some say, but it's going to be. Listen, it's going to be the interior designer and my wife against me. So anything I'll say, oh, that looks nice. And they're going to say, oh, you're an idiot. No, stay out of this conversation, buddy. So again, it's going to be expensive. So we could tap into our cash savings. We could sell some investments in my brokerage account. But I don't want to. I want the flexibility. I'm going to leave that alone. So we're going to use our HELOC for this. Why? Well, it allows these other investments to be left alone. It increases flexibility. And that's what the point of the HELOC is for. If you use a HELOC for renovations, you get to write off the interest for tax purposes. Right. You also get the choice of paying it off over a period of like 25 years, depending on the lender. I don't want to pay it off over that period, but the thing is, you could. So I think as long as you plan on staying for the house for a number of years, it makes sense. I think just pay it off over the course of a few years or so and you're good. So you're not paying a ton of interest. Because the downside is HELOCs are variable rates. So if rates keep rising, you could pay more. So ours right now is like 7 or 8%. So it's not, not a great rate to borrow. So payment could increase. It sounds like he could be paying this out of cash flow, but maybe just like me doesn't want to, so wants the flexibility. So you're kind of paying unnecessary interest, I guess. But I just look at the HELOC as a total flexibility and that's what it's for, especially if you're staying in the house. I think that's the whole point of this. So, yeah, I think it makes. And again, if you have the cash flow to eventually pay it off, you can pay it off in a few years and then start another project. That's pretty much what happens for most people. I think you do one project, you pay it off and do another.

[B]

I mean, I can't relate as someone who's not a homeowner, but I just am happy to hear that people actually still care enough to do this kind of stuff. I feel like so many people live in a place for a long time and are just like, ah, it's not worth the money to, you know, update it. I think it's cool that people care enough to try to keep their house, you know, the way they want it, you know.

[A]

Yeah, part of, part of me does think this like, like if you did the one to one value of. I remember I had a friend in college and he was telling me his parents were doing this huge kitchen renovation and they asked the people that they were, they were renovating, they said, you know, you're going to do this big renovation. It's going, we're going to put new countertops in and new flooring. It's going to look great. How much is this going to increase the value of our house? And they're like not even close to a one to one, right? Maybe 50 cents on the dollar if you're lucky, maybe 30 cents, something like that. And they were saying, well, why are we doing this then? And it's like, well, because you want a nicer kitchen. And I think that's, that's the point. If we put this money into hardwood floors, is it going to increase the value of our home? I guess it'll make it nicer, like instead of the carpet. But is it going to, are we going to get a one to one return on it? Probably not. So our thought process is we're going to be in this house for a long time, do this once, and then we don't have to repair you know, replace the carpet every seven or eight years. We do it once, we rip the band aid off, and then it's there forever. So that's kind of the thinking. But, yeah, you're right. It's one of those things that. Do you need to do this? No, it's something we want to do.

[B]

Yeah. Hey, there's an idea. You could use a lot of gold and hardware and things throughout your house, maybe a golden toilet or sink, and then that'll appreciate over time, right?

[A]

Yeah, but. What? Ah, boy. But then, no, I'm just gonna use physical bitcoin.

[B]

There you go.

[A]

That'll appreciate way more. All right, next question.

[B]

Okay, up next, we got a question from Cole. Thank you for the work you do. Your podcast has been incredible, an incredible resource for me. As a 26 year old early on in their career in finance, I'm reaching out for advice on behalf of my parents, who are both approaching retirement, currently 55 and 57. One is a public school principal earning 150k and eligible for a 65% pension, while the other works for the town and will receive an 80% pension on a $70,000 salary. As we start thinking about retirement dates, I'm not sure how to factor in their pensions when calculating their retirement number or assessing their overall financial readiness. Should we be treating the pensions like an income stream, a lump sum equivalent? Are there best practices for incorporating pension benefits into a broader retirement plan?

[A]

All right, so credit to Cole for and his parents for having this retirement discussion together. This is a discussion probably not enough people have together to figure out. I have some friends who are teachers, and I've told them over the years that having a pension means they have way more financial assets than they think they do. Right. We did a show with, remember, Nick Magiulli a few months ago where we tried to calculate what the actual value of a pension is. Right? You take the cash flows into the future, you bring them back to the present value at some interest rate, and it ends up being worth way more than you think. Because if you think you take a portfolio and you take 4% of it over time. Right. A million dollars at the 4% rule is $40,000 a year or something.

[B]

And maybe a dumb question, but just to clarify the 65% and 80% numbers, that just means what your final salary is, or is that like an average of your last 10 years?

[A]

Usually some of them will do like the average of your last three years, or it could be based on your highest level. The formula is probably a little different for Each, but it's usually based somehow on your highest level. So I think that's what they're saying. 150 eligible for 65% pension. 65% of that. Right. So we're talking, you know, between the two of them, we're talking, you know, well into the six figures and for.

[B]

The rest of their life, but can't be passed along to children, is that right?

[A]

That would be. Yeah, that'd be my. My sense. And then, I mean, the one thing to mention here that I was going to mention in a minute is it's probably not. It doesn't have the inflation kicker like Social Security. So that's like the one thing to think about. But I think regular income in retirement makes planning so much easier than the, than the opposite, because this is why retirement has become so much more challenging for people. Back in the days when more people had a pension and it wasn't everyone, my research shows, I think it was 45%. At the peak in like the 1970s, 45% of employees had a pension. Now it's more like 10%. So it wasn't ever everyone, but it was still a pretty high number.

[B]

It predated the 401k, right?

[A]

Yeah, predated the 401k. Now we have a 401k and you're on your own. Right. But the reason that was so much easier is because you didn't have to think about it. It was regular income. You didn't have to think about, am I doing the 3% rule, the 4% rule, or the 5% rule, or am I taking 7% out? Whatever it is, you didn't have to think about that. It was just a number and you knew what the number was and then you could spend it. Right. And if you wanted more than that, then you had to have other financial assets that you could tap. So I think that's the way to think about it. And so I think it's kind of annoying sometimes to answer a question with a question, but then you ask like, well, how much should I take from my portfolio? And then the question to that is, well, how much do you spend? So I think you start with their pension income and then you figure out how much they require from other sources. Maybe they're. Whatever it's 100 and whatever thousand dollars that they're getting for their pensions, maybe that will be enough. Where they don't have to take anything from their portfolio and then they're just. And that happens to a lot of people, I think. Then they get to the point where they can take a lot more risk with their portfolio because this essentially is the bond piece, right? So now you can have a lot of equities and maybe Cole, they're investing for you in the future. Grandkids, right, that's the. Or they have that as a backstop if they need some more money. Because you're not going to keep up with inflation over time. Especially if a teacher retires at, you know, 60 and they're returning kind of early, they have a 30 year retirement, they're not going to keep up with inflation, then they're going to need stocks to keep up with inflation for them. So then you can figure out how to build that portfolio. So I don't think the lump sum equivalent makes sense here because the whole point of retirement planning is figuring out how much, how to turn those financial assets into income now. So the income piece, you know already that's a huge piece of the pie. And so I think you start with the income because you know it, it's formulaic and then you move on to the portfolio. How much else are you going to need? Right. If you want to spend this much, that could be 3% of your portfolio. If you want to spend more and go on more vacations, that's going to be 5%. And figure out, that's how you figure out how much they're comfortable with and you can get a game plan. And obviously again, that changes over time. Like I said, they're going to spend probably more in their 60s than they want their 70s, 80s and 90s. But I think that it's, this is, their retirement planning is pretty easy compared to most people these days. It's just how much more are you going to need? Will that, will that be enough or will they need to draw from their portfolio and then that's how you can help figure out the allocation for them going forward. It could mean they want to take way more risk and could mean they don't have to take any risk and they can just keep it on bonds and cash and CDs or whatever. But that's, that's the starting point.

[B]

And I know zero about pensions. Are they typically a match situation or have they just put away a certain percentage of your salary? Every pay?

[A]

Yeah, for, for a lot of people. A lot more young teachers these days are having to put in a lot more money than I think teachers did in the old days.

[B]

Okay, so it is like a matched, like a 401k match kind of deal.

[A]

That, that's my understanding is a lot of Teachers these days have to put some money in themselves. Where in the past it was kind of thought that the government would do it for you.

[B]

Okay.

[A]

But yeah, though they're in a really good position. So, yeah, they're doing better off than probably most people retirement planning these days because they know what their income is going to be. They have a set income.

[B]

Yeah. That's nice.

[A]

All right, one more question.

[B]

All right, last but not least, we got one from Eric. I noticed you often have fiction books on your website as recommendations. I'm an avid reader myself, but I only read nerdy nonfiction, business, finance, and behavioral psychology books. If you had to pick a series for someone trying to get into fiction, what would you recommend? I'm 43 and a pretty normal guy. Father and husband. I like that last line.

[A]

This sounds like I sent the question myself because that's kind of me. I do love reading fiction. I was one where I probably read more of the nerdy nonfiction back in the day. The business, finance, behavioral psychology. It's funny, I think podcasts have replaced a lot of that for me. So I still read some nonfiction, but not nearly as much as I did before. So I love reading fiction because I love the character development and storytelling. I think it's so much easier to create a great plot twist in a book than it is in a movie. I'm a huge fan of a twist, if you can get me with a twist. And I spend a lot of time guessing it. You know, my mom does. She reads the last 10 pages of a book first and then goes and reads from the start. And I think she's crazy.

[B]

Yeah, no, I don't want to do that.

[A]

She can't. She can't wait. She's so impatient. See, I did not get my long term investing genes from my mother. Obviously they come from my dad because she can't wait long enough to read the end of the book, so she reads the beginning first. I just find reading fiction is a great way to turn my brain off. And I'm constantly. As someone who writes a lot of finance nerdy stuff, I'm constantly impressed that people have the ability to be creative enough to write fiction in that way. So the first series that really got me into a series was, remember the Alex Cross novels by Robert Patterson? So the movies were called Kiss the Girls and Along Came the Spider. It was Morgan Freeman was in them back in the day.

[B]

Gotcha.

[A]

Very good. Then he started churning out 15 books a year and the quality suffered, but the original ones were pretty good. So I have some Recommendations, but in different categories. So these are some of my favorites and they're all kind of similar because at a certain point I feel like I could put in, you know, all these different attributes and chat GPT could come up with me a character that, like that I, that I read. So John, give me my first one. The first one is just like if you want kicking ass and taking names. Jack Reacher, especially the early ones, is probably one of the better. Lead child is amazing. I guess he writes all the book by hand, first in cursive and then he hands them off to someone to type them. But the Jack Reacher series starting off from the beginning is. Is great. They never quite figured out the movie with Tom Cruise and then the Amazon series is okay, but nothing like the books. The books are so good.

[B]

Yeah. I, I couldn't get past like episode one of Jack Reacher, I think.

[A]

Yeah. And he, he recently handed off the. The book writing to his brother. So they're not nearly as good anymore. I kind of stopped. But the first 15 or 20 of these are well worth your time.

[B]

Well, that'll keep you busy for a while.

[A]

Yes, that's a lot of them. Next one. This is probably the. My pound for pound, the best detective series I've ever read by Robert Parker. He's no longer with us, I think, but the Spencer series and I think these started in the 1970s. But here's why. These are shorter books. So I think some are less than 200 pages, maybe 150 pages for some of them. But it's probably the best wise, cracking and kicking ass person that there is. Okay, so he's. He's got some just amazing one liners. He's always. It's. He's the prototypical sarcastic, funny. Hey. He also cooks, he drinks beer, he's good to the ladies and he can take anyone down. Probably the, Some of the best written ones that you just. The lines are great. So that's another favorite. All right, let's do another one. If you want more of an everyman hero who's kind of unassuming. Underdog story. The Joe Pickett series by C.J. box is great. I've read every one of these. I feel like I've kind of grown up with. So there's probably 20, 20 of these or so. I do realize I probably could have been spending my time doing something else, but I really get into these and I really like them. And this one was a TV series too. Not, not great. But this, this is a Wyoming game warden, so a world completely away from Me. Right. Hunting and. But it's always this guy finds himself in these crazy situations, and that's when you have to kind of read in order because you get to know the characters and the different bad guys from.

[B]

These are some prolific writers.

[A]

Yeah.

[B]

Everyone you've shared has a bunch of books.

[A]

All right, I got one more. This is for our New York people. This is Nelson DeMille, who's a long island guy. A lot of these take place in New York, and there's not as many of these, but this is the John Corey series. And these are more like. His books are long, like 5, 6, 700 pages, but probably like the most intelligent sarcasm that I can think of from. These are more like CIA terrorist books. Very good. Very well written. Again, he's a Long island guy. Not as many of them. And then I got one more for my Midwestern people. Okay. I guess I've done a lot of reading over the years. John Sanford has the Prey series, Lucas Davenport, and then Virgil Flowers, and this is a Minneapolis detective. So if you're a Midwest person. Okay, anyone in the chat, drop me some other recommendations. But because I read through all of these, and now I don't know what to do.

[B]

Yeah, that's a lot. That's impressive. How many books do you read a year?

[A]

I don't know.

[B]

Don't act like you don't know. We all know. You know? Exactly.

[A]

Well, there's a lot of books that I pick up and read, and then I drop immediately because I'm not into them, But I'd say 20, 25 books, maybe.

[B]

That's. Yeah, that's. That's impressive.

[A]

And I've gotten better at skimming and. And such, but I. I try to read a little bit every night just to. Helps me. Helps me go to sleep.

[B]

Have you ever read. I like J.G. bauer? Have you read any J.G. bauer?

[A]

No.

[B]

Kingdom Come, Millennium People. He's had some good stuff.

[A]

All right, well, add it to my list. I would say start with either Reacher or Spencer. Those are the two. Those are my two top ones. And then if you really want to go off the beaten path a little bit, do Joe Pickett.

[B]

And this is. This is not a fiction, but I'm reading this right now for our racing fans. Go like hell. It's the true story of the Ford versus Ferrari. You know, story from the movie.

[A]

I like that movie. That was very good.

[B]

Yeah, it's a good book.

[A]

Good one. I do all my reading on Kindle now, though.

[B]

Okay.

[A]

So I have, I don't know, a thousand books on there.

[B]

It feels like that's convenient. I still like. I like paper books though. I like holding it.

[A]

People say no one reads anymore, but I'm still keeping Amazon alive. You know, this is another personal finance thing though. Books is one of my categories where I have guilt free spending. If I see a book that I want to read and it looks good, I buy it. I don't think about it. There's other things I think about before I buy. Books are not one of them.

[B]

Same. Yeah, yeah. I've got an irresponsible amount of books in my log that I need to. I need to read one day.

[A]

Yeah, everyone does that. But I think it's. It's good to have a goal, right? I'll get to you someday, I swear. Sure. Okay. Thanks to everyone in the chat as always. I saw Duncan's mom showed up again today. That's great. Thanks everyone for watching live on Twitter. Remember, if you have a question for us, you can leave it in the live chat, you can leave it in the YouTube comments, or you can email us. Ask the compound. Show gmail.com thanks everyone for watching as always and we'll see you next week.

[B]

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.