Will Social Security Be Around in 2060?

Summary

Podcast Summary: Ask The Compound – "Will Social Security Be Around in 2060?"

Date: April 8, 2026
Hosts: Bill Sweet (subbing for Ben Carlson), Duncan Hill
Guests: Bill Archeronian (CPA), Sean Russo (Investment Analyst), Matt Serinaro (Investment Analyst)
Main Theme:
The episode dives into hot questions from listeners about technology and taxes, new "Trump accounts" for kids, prudent investing for medium-term goals, skepticism about bonds, mortgage payoff psychology, and big-picture perspectives on Social Security’s future. The discussion is practical, sometimes irreverent, and always focused on making complex financial topics accessible.

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Table of Contents

1. Will AI Replace CPAs Soon?
2. The Quirkiest Tax Write-Offs
3. Decoding "Trump Accounts" for Kids
4. Investing a Down Payment for Three Years
5. Should You Only Trust Short-Term Treasuries?
6. Paying Off Your Mortgage: Math vs. Psychology
7. Will Social Security Exist in 2060?
8. Career Advice: Moving to New York City
9. Notable Quotes & Moments

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1. Will AI Replace CPAs Soon? [02:26–06:07]

Listener Question: Why can’t AI just do my taxes for me in 2026?
Discussion:

• Bill Archeronian explains that, while AI can handle simple returns soon, the US tax code’s complexity—especially for itemizing, investments, or special deductions—means humans are still needed for nuanced cases.
• Bill A.: "If you have a W2 and maybe you itemize your deductions and minimal activity outside of that, this is going to be doable within the next few years. But outside of that, it gets complicated quickly." (04:00)
• AI language models often miss recent tax law changes or give incomplete answers. Example: ChatGPT failed to recite the correct standard deduction because it wasn’t up to date.
• Despite improvement, the consensus is it will be some years before AI makes most tax pros obsolete.

Memorable Quote:

• Bill Sweet: "Language models are just a giant guessing machine...they don’t keep up with the latest and greatest." (04:28)

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2. The Quirkiest Tax Write-Offs [06:08-07:37]

Hosts Share Tax Anecdotes:

• Bill A.’s craziest write-off: "Plane. An airplane...he was going to depreciate it so he could write the whole thing off." (06:18)
  • Verdict: Possible, but requires nuance and strict record-keeping.
• Bill S.: A client tried expensing a shark as a home office mascot. Rejected!
  • "I'm sorry, your fish are not tax deductible, brother. Maybe they will be in 2029 when the polls change." (07:19)
• The point: This type of context is still tough for AI to make judgment calls on.

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3. Decoding "Trump Accounts" for Kids (aka 530A Accounts) [07:43–12:15]

Listener Question: What are these “Trump accounts” and how do they work?

• Bill Sweet & Bill Archeronian walk through the new 530A (Trump) accounts:
  • Functionally similar to non-deductible IRAs created for minors.
  • Maximum annual contribution: $5,000 per child under 18.
  • For 2025 newborns, the government will kick in $1,000 via Form 4547.
  • Growth is tax-deferred, but after they convert to regular IRAs at 18, distributions before age 59.5 are generally subject to tax/penalty unless converted to a Roth IRA.

Primary Use Case:

• For high earners above Roth limits: contribute after-tax, let it grow, then convert at 18—ideally the child's low-income year—for a large Roth with years of compounding.

Cautions:

• Strict record-keeping needed. Otherwise, risk paying taxes twice on contributions.
• Complexity increases confusion; most Americans will struggle to track cost basis.

Memorable Quotes:

• Bill A.: "Even myself, I'm a CPA, and I won’t keep track of that [cost basis]." (10:00)

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4. Investing a Down Payment for Three Years [13:15–16:59]

Listener Question: With a three-year horizon before buying a house, how should I invest cash intended for a down payment?

Advice:

• Sean Russo: Mix between cash/short-term Treasuries and S&P 500; his own allocation is 50/50 for a similar horizon.
  • "If you held the S&P 500 for about three years, you were profitable about 81% of the time." (15:08)
• Risk tolerance is key. Don’t invest more in stocks than you can stomach losing in a short time frame, especially with life milestones like marriage ahead.

Hosts note:

• If volatility would hurt your plans, err on the conservative side.

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5. Should You Only Trust Short-Term Treasuries? [17:35–25:47]

Listener Question: After seeing how long bonds crashed in 2022, is it foolish to only stick to three-month Treasuries for my “safe” allocation?

Discussion:

• Matt Serinaro: Shows with historical charts that while 2022’s bond bear market was anomalous, it could happen again—short-term Treasuries protected capital while 10-year bonds dropped almost 18%. [19:15]
• Three-month T-bills have minimal risk if rates spike.
  • "If rates increase 300 basis points...three month US treasury yield...would only go down 8 bps, versus a 10-year treasury bond falling into a bear market." (22:42)
• Treasuries also offer tax advantages—state tax-free.
• For money that must be protected over 5–7 years, short duration makes sense.

Alternate viewpoint:

• Slightly longer duration or a higher allocation to equities can help with returns, but at more volatility.

Audience Q:

• Difference between dividend equity ETFs and Treasury funds: more risk in equities, even if the payouts look similar.

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6. Paying Off Your Mortgage: Math vs. Psychology [26:55–30:49]

Listener Question: When does the peace of owning your home trump the math of investing extra funds?

Discussion:

• Sean Russo’s Framework:
  • If mortgage rate < 3.75%, math says do NOT prepay; invest the rest.
  • If rate > 7%, paying off is a “non-negotiable.”
  • In the gray middle (3.75–6.5%), room for personal preference and psychology.
  • "If your mortgage rate is 3.75% or less, you should absolutely not be paying off your mortgage early...if you're 7 plus, you should be paying that thing off." (29:30)
• Recognizes some people over-optimize (“permanent fragility”), while others value the psychological benefit.

Visual Aid:

• Sean’s chart showed risk/return trade-offs between mortgages, real estate, and stocks.

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7. Will Social Security Exist in 2060? [31:01–35:19]

Listener Question: As a 20-something, should I expect Social Security to be there for me?

Hosts’ Takes:

• Most young people aren’t counting on it—good to be conservative, focus on savings and investing, and "control the controllables."
  • Matt S.: "It's not even in my brain, to be completely honest...I'm thinking about mostly investments, my actual income." (32:54)
• Social Security is funded by FICA (a flat tax, up to ~$180k), but its expenses nearly match the revenue generated.
• Despite perennial doomsaying, politicians will likely avoid entirely gutting such a popular benefit.
  • Duncan: "I remember being a literal kid and hearing people talk about how Social Security wasn't going to be around in the future...people have been saying it for many decades." (35:04)

Key Message:

• Don’t obsess over reform or projections—focus on increasing your own income and savings rate.

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8. Career Advice: Moving to New York City [36:10–40:03]

Listener Question: Should someone in their early 30s leave a comfortable teaching job for a creative finance startup job in NYC?

Panel’s Stories:

• Sean drove his F-150 from Denver, found Queens intimidating but ultimately career-boosting.
• Duncan accepted a six-month contract, moved from DC pre-pandemic, and bet on himself.
  • Duncan: "My wife and I moved to New York city from Washington, D.C.—that's how bad I wanted a job...it worked out well." (38:27)
• Matt: The city rewards extroverted networking, but anyone can make it work if they take calculated risks and consider long-term regrets more than short-term hurdles.

Key Takeaway:

• Moving to NYC is a bet on your career and relationships—it’s risky, but can offer invaluable new opportunities if you’re open, resourceful, and resilient.

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9. Notable Quotes & Memorable Moments

• On AI tax prep:
  • Bill Sweet: "Language models are just a giant guessing machine..."
  • Bill Archeronian: "I'm a CPA and I won't keep track of that [basis]."
• On crazy deductions:
  • "I'm sorry, your fish are not tax deductible, brother." (Bill S.)
• On Trump accounts:
  • "The government will send $1,000 to their new account. That’s a no brainer." (Bill A.)
• On investing a down payment:
  • "If you held the S&P 500 for about three years, you were profitable about 81% of the time." (Sean)
• On Social Security:
  • "Control the controllables...focus on what you can control." (Matt S., Sean)
• On mortgages:
  • “If your mortgage rate is 3.75% or less, you should absolutely not be paying off your mortgage early. That’s non-negotiable.”
• On career risks:
  • Matt: “I try to place myself 10 years in the future: would I regret not taking the shot?”

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Conclusion

This episode is packed with practical (and sometimes contrarian) financial wisdom, delivered with candor and humility. The hosts highlight the importance of staying flexible, focusing on controllable factors (saving more, tracking goals, risk tolerance), and being skeptical of one-size-fits-all financial advice. Their anecdotes—from AI horror stories to NYC job gambles—add color and realism to every answer. Clever charts and historical data ground the discussion in evidence, while humor and humility keep it accessible for every listener.

Transcript

[A]

I'm Bill Sweet. And coming up on Ask the Compound, we'll do it live. Watch as we file my tax return on air with OpenClaw. Through the magic of artificial intelligence. Then Trump accounts versus 529s, which is actually more politically incendiary. Finally, who does Duncan think is a superior asset? Combine host, me or Ben. Watch him squirm as we poll the audience at the end of the show. Stick around for this and much more right now.

[B]

Hey, Bill.

[A]

Duncan. It's good to be with you. I am not Ben Carlson.

[B]

Sure.

[A]

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[B]

We love Betterment Betterment.

[A]

Big fan, Big fan. For a while. Going back to liftoff days. Duncan. Like I said, I am playing the role of Ben Carlson and you're not. Our man is out fishing in the Gulf of America or whatever we're calling it this week under the comforting blanket of freedom provided by the glow of Artemis ii. Send over a picture of George Carlson. Can we pull that up? Dan smiling ear to ear. Isn't that awesome? And Duncan, I would argue this is not a distraction from work. This is the reason why we work is to get out there with our kids. Duncan, you're recently back from Japan. Where are you heading next?

[B]

That's a good question. I actually don't have anything. I don't have anything planned right now.

[C]

Wow.

[A]

Just work.

[B]

Got to think I'll be a future in California.

[A]

Yeah, that's great. I mean, that's all the way on the other side of the summer, but yeah, that's great.

[D]

Yeah.

[A]

No, we did a trip to D.C. strong recommend. I would strongly recommend that. Coming up.

[D]

But.

[A]

But that's not what the people are here for. They're here for questions. So let's do it.

[B]

It's true. Let's dive in. Okay, up first today we got a question from William in New York. It's April of 2026, and I should be plugging PDFs of my W2 and brokerage account 1099 into a tax GPT to file my return for me. Why am I still typing my tax withholding into a small box in six point font and a tax program written on a UNIX mainframe when Ronald Reagan was president? When is AI coming for CPA jobs?

[A]

Yeah, Duncan, I hijacked the show and I hijacked the first question too. And this one has puzzled me for the last two years. And there's nobody that I can think of who's better positioned to answer that question than my man, Bill Archeronian. Bill, come on camera, please.

[D]

Bill.

[A]

Yeah. What is going on here? Why can I Not upload my PDFs and get a tax return back in year of our Lord 2026?

[E]

Bill, do you know what today's date is?

[A]

It's April 8th.

[E]

Okay. And you know what I do here at Ritholtz, right? What's my job title?

[A]

I do. I do.

[E]

I'm a little busy, but I'm here for the people.

[A]

Yeah, I was going to say I really appreciate it when Duncan and Ben find it in their heart to pull me out of my cage and give me a little bit of a distraction. So I think that's what we're here to do today. But. Yeah. Bill, what is the hold up here? Why. Why can we not plug our tax returns into AI? What do you. What do you think is going on here?

[E]

Well, I think we will sometime soon for. For basic tax returns. You know, I think it's inevitable. But when we get there, I don't know, there's. The US tax code is ultra complex. If you have a W2 and maybe you itemize your deductions and minimal activity outside of that, this is going to be doable within the next few years. But outside of that, it's really. It gets complicated pretty quickly. In our careers. Yes, I will be displaced by a robot. And I'm okay with that because I'll be able to talk to clients more often. I'll be able to provide higher value services. But I'd be thrilled on April 8th of 2030 if I wasn't preparing tax returns. That'd be wonderful for My career.

[A]

Yeah. That's kind of where I was going with this, Bill, is I think folks like you and folks in our audience who are doing this type of professional services work, we're probably going to be fine. Right. Because ultimately I do think the language models are going give us the ability to do more for clients, maybe do the higher level work that needs to get done. But I think my observation, guys, is to me, language models are just, they're a giant guessing machine. Right. They're a giant auto predict and I've just seen too many cases. If you're talking to Chad or Gemini, whichever model of choice is, they've searched the Internet and they don't keep up with the latest and greatest. I mean we had a big tax law change bill, the OB3, as you know, on July 4th. And if you ask GPT or whatever, what does this apply to me, the answers that I've gotten are mostly bad. Right. Because they're not keeping up with the latest and greatest. Correct.

[B]

Correct.

[E]

I mean, I asked ChatGPT to recite the standard deduction for us for a married filing joint taxpayer and they couldn't get that right. They gave me the 2024 standard deduction in 2025. We're a long way away. That said, a long way away. At the pace that we've been, that we've been moving with some of these tools, that could happen sooner than anybody expects.

[A]

Yeah. And I'm really excited at the company level, I think, Bill, to invest a lot in this technology and we do have a couple irons in the fire. Duncan, would you trust language model to follow your tax return in 2026?

[B]

Yeah, not right now. I ask it questions all the time about cameras and photography and things that I know quite a bit about. But I want specific answers and it often messes them up. But what is interesting is I'll respond and say something like that's not right. Double check. And then it will often come back and have it right. But yeah, it's right. Not quite there.

[A]

Gotcha.

[B]

I've got a question. This will only be made worse by AI, I'm sure, but what's the, like the craziest thing you've seen someone try to write off on their taxes before?

[E]

Plane. An airplane. An airplane. A guy I talked to once, he, you know, he was in, he was in real estate. He had a few rental properties and he, he had the idea recently to, to buy real estate in multiple states but far away. And I'm like, why far away? Doesn't that make Your life more challenging. He's like, no, I'm going to buy a plane and depreciate it so I can write the whole thing off. And then I'll use the plane to travel to my rental properties.

[B]

And that is okay or not okay. It could be.

[A]

It depends.

[E]

And this is. This is where a computer probably won't have the correct answer. It's in that. It's in that nuance that you need facts and circumstances to substantiate the deduction.

[A]

I've got one for you. It was a shark. I had a gentleman who was running an office. It was like a home office at his front porch, whatever, and he had a gigantic fish tank. And I was looking through invoices of whatever office expenses, and I came across an invoice for some tiny little mantis shark or whatever. And I was like, you can't deduct this, my man. There's a lot of things, isn't it?

[B]

Protection for his office.

[A]

That was his argument, was it was some sort of mascot. And I was like, come on, man, you live there. I'm sorry, your fish are not tax deductible, brother. So, yeah, maybe they will be in 2029. I don't know, when the polls change.

[B]

Okay. Shark complaint. I was not expecting this.

[A]

Yeah. So Bill's time is very valuable. Bill, can you stick around for one more?

[E]

One more.

[A]

Let's go to question two.

[B]

All right, let's do it. Up next, we got one from Kyle, and it says they're from Intercourse, Pennsylvania. I'm pretty sure that's a Bill Sweet Edition.

[A]

It's a real place.

[B]

Kyle asks, can you explain Trump accounts? How much can we put in them? What type of allocation would you use and what can they be used for? This is a really common question. We've gotten this a lot.

[A]

Yeah, I think we did cover this three or four shows ago, whenever, before tax season was upon us. But, Bill, just before I let you loose here and let you chew this one, I'm going to call them 530A accounts. 530Cap A. Because ultimately, I don't really want a lot of politicians names on our accounts. But the only reason I would think of it differently about that is I don't want our guy William Roth to catch any strays. So, Bill, what do you just. What do you think about that briefly

[E]

on the trump accounts?

[A]

Yeah, 5:30 cafes.

[E]

Yeah, I'm going to call them Trump accounts because that's what our leader wants. They were an interesting idea last summer where they've ended up is they're basically just IRAs when it's all said and done. And that can get pretty confusing if you're contributing but you're not getting a deduction for your contribution. Now you have basis in these accounts that if you don't track it properly, you're going to end up paying tax on twice. They can get confusing. Now the federal government is pitching in a thousand dollars for newborns that were born in 2025. Right.

[A]

Even better.

[E]

So on, on your 2025 tax return, if you had a child born in tax year 2025, you can file a Form 4547 after our President and you can, the government will send $1,000 to their new account. That's a no brainer to me. It's a free thousand dollars. Anybody could use that from there. I'm a little skeptical of additional contribution.

[A]

Well, and let me just, let me just talk about that briefly, Bill. So the rules are for any child under the age of 18 you can open one of these things, right. And you can contribute a maximum of up to $5,000 a year. And that, that ends up being a gift. So like there might be some gift tax consequences similar to an ira. But Bill, you stole my point. They work more or less like a non deductible ira. You're contribut they grow in value and then build. When you, when you decide to take a distribution, what happens when you go,

[E]

you have to, you have to track what you put in versus the growth in the account. And that is very, very challenging. Nobody keeps records like that. Even myself. I'm a CPA and I won't, I won't keep track of that.

[A]

Yeah. And on the 18th birthday my understanding is they convert to IRAs. And then what happens if you take a distribution at age 19? That's where I'm going with this.

[E]

If you're, if it converts to an IRA and you take a distribution at age 19, that is not a, that does not meet one of the exceptions, you end up paying tax on a 10% penal.

[A]

Yeah, tax plus 10% and ordinary income too. So typically your 19 year old doesn't have a lot of other income, but that's where I don't really see a place. So in effect it's a non deductible contribution. But Bill, where I'm going with all this, I do have a use case. I love non deductible contributions for folks over the Roth area contribution limit. And so the ability to fund a trump account with the goal of converting it to Roth. DANIEL can we pull up my chart here for this? I think that to me is the primary use case where if you do this over 18 years, Bill, and you have a generous compound rate of, let's say 3% or 4% real, and that's just a guesstimate, you end up with an account worth almost $100,000, a little more than $100,000. And I think the estimated tax on the Roth conversion, which is penalty free by the way, would be about $20,000. And then ultimately you're handing your 18, 19 year old Roth IRA with $95,000 on it on their 18th birthday. Bill I don't think that's necessarily a bad idea for folks who can afford it.

[E]

It's a wonderful idea because if you think about an 18 year old, their income is probably very low. They are probably paying on that Roth, on that conversion from IRA to Roth, their tax rate is going to be low, they're going to pay low tax. The conversion then sets a five year clock where if the student, if that person, I shouldn't say student, if that 18 year old needs funds after five years, they can use the converted amounts without paying any tax or penalty. So there's a lot of flexibility. After you convert to a Roth, best case scenario, they don't touch it. And that, that super compounding tax free over decades is very, very powerful. So that is a wonderful use case. And again, you have to track what you've put in versus the growth over the 18 years because you don't, when you convert, you don't want to pay, you don't want to pay tax on the amount that you already put in because you didn't get a deduction on that.

[A]

Right, right, right. Okay. So Bill, I got 27 more questions. I'm sure you're excited to stick around. So I'm going to bail.

[E]

I have stuff to do. It is April 8th. I have seven days to finish.

[A]

God bless you. Yeah. Thank you for working hard for our clients. Everett. Dan Lee's. Yeah, thank you very much, guys.

[B]

Thanks, man.

[A]

All right, let's kick up to question three. Question yes, sir.

[B]

I want him to get back to filing taxes, especially because he does mine. But is there any reason they didn't just make this a contribution to an existing IRA account? Like why did it need to be yet another account? It's just adding complication. That's why people are so confused. A lot of the questions we get, people are just very confused.

[A]

I think so, yeah. The primary answer is. Duncan, I don't know a lot of six month olds that have earned income and IRAs don't have a. They have an earned income requirement.

[B]

Right.

[A]

So you basically have to work and at that. Usually for kids that's not possible. So that's, that's why these are different. But to answer the bigger question, why?

[D]

I don't know.

[A]

I think it was politics.

[B]

Okay. Yeah. So probably a mix. Mix of both.

[D]

Yep.

[A]

Yep. All right, question three.

[B]

Okay. Up next, we got one from Joe in Truth or Consequences, New Mexico, which I'm pretty sure there's another location you added there.

[A]

It's a real place. It's a real place.

[B]

Yeah, I've heard of it. Okay. I'm sitting on a decent amount of cash that I had intended to use for a down payment, but I don't see that happening for at least three years now. How would you invest this if you were me? I'm in my late twenties, max out my 401k dollar cost average into the S and P every month and have a variable universal life insurance policy. Volatility. Does. Does worry me a bit given the time horizon, especially since I'm planning to get married soon. Well, congrats on getting married soon. That's cool.

[A]

Yeah, that's awesome. Yeah, Very, very, very big deal. So Duncan, I asked you, who is it in our whole organization over more than 80 people now that, that, that would answer this question. Well, and I also thought, geez, I really need an offensive line. Like I am not a strong, muscular man. So I enlisted the help of Sean Russo. So Sean came to the show.

[B]

We sorted by tallest. That's how we. Oh my gosh.

[A]

Exactly. Came to the top. But the tallest in my heart, Sean. So yeah, what do we.

[B]

For our longtime viewers, everyone here's. You know, you mentioned a lot by Josh and by Michael and Ben, but just give everyone a brief rundown. What, what is your position at Real Sean?

[D]

I'm an investment analyst. So I help Josh and Michael and our whole investment team allocate and do cool charts and research stuff. But not as cool charts as Matt. So remember that.

[B]

And, and you've been on CNBC recently.

[D]

So that's been on cnbc. What are your thoughts? Animal Spirits. One time each though. So this is my last time I'll be on Asset compound.

[A]

Oh, wow, that's correct. Yeah. Sean's fingerprints are across the organization. But Sean, what do you think of Joe's question? Because I thought that was really interesting. I thought you'd have a good take on it.

[D]

You know what? It's funny because, like, I'm in the exact situation as Joe. I'm in my late 20s, doing my best to max out my 401k and Roth. Like, this is perfect. It's almost like you built this question for me. So, yeah, I think levered unliquid private credit is perfect for Joe. I'm just kidding. No, do not do that.

[B]

No, you have my attention.

[D]

Yeah. No, no, no, no. I have a very Ben Carlson esque answer to this. And that is, it doesn't all have to be one or the other. It says he's a little bit worried about volatility. So I think having his cash slug is important. But also, if we want to do a chart on Daniel. The holding period for the S&P 500. These are returns by holding period for the S&P 500 since 1871. So basically, if you held the S&P 500 for one month, any month since 1871, you were profitable about 57% of the time. So look at the three year. If you held the S&P 500 for about three years, you were profitable about 81% of the time. I think if you mix that with some, some cash. I'm personally doing this myself. I have about 50% s and P500. 50% cash or short term treasuries. Mix those two things, I think you'll be in a really good spot in three years.

[A]

I take it. I dig it. And that, that to me is the right answer, right? Sean, there's, there's really no, no, no perfect answer for this, for this type of question. But ultimately, what type of risk are you looking to afford? I just always wonder, Sean, I don't want to be in that 20% of time that, that my, that my account's down. Right? That's the thing. If I'm getting married, if I'm looking to buy a house, and I think that's it. You kind of have to make that gamble, right? And you have to make that decision up front. You can't go in and kind of see how it feels. Correct.

[D]

That's the risk aversion thing. Like, you have to know that answer as soon as you start doing this. Like, for me, 50. 50 is honestly a little, like, light for me. Like, if I, if I think at minimum I'm going to be spending money in three or four years, I might up it to 60, 40. But I'm. I'm addicted to stocks. Like, I love buying stocks. I hate cash, get cash away from me. But other people are very Different. And if you're older. Right. If you're supporting someone, like I don't have kids, I'm not about to get married in the next couple months. Like those are some, you know, defining factors.

[A]

Yeah. Steady income is also super important. So cool.

[B]

And why would a 20 something have a variable universal life insurance policy?

[D]

Yeah, that one was weird.

[A]

Yeah, we'd have to bring in Jonathan or Brian on that one. Duncan. Yeah, I think it's just more that, hey, I've got that base covered. That's my read on it. Yeah. And God forbid if something happens. Okay, so gotcha. So cool. Sean, I'm sure you've got other work to do across. You've got your fingerprints across the firm, so we're going to let you go.

[B]

I think we'll see you again though.

[A]

It's possible. It's possible. If you stick around, we might not be done with Sean. All right, Duncan, let's go. Q4.

[B]

All right, let's do it. Up next, we got one from Jack in Short Pump, Virginia.

[A]

It's a real place. Duncan, stop laughing, okay? Stop laughing at the good people of Short Pump.

[B]

Hello, Ben and Duncan. I'm 51 and planning to retire in five years. I know I'll need some safety in my portfolio to avoid selling stocks in down markets. I've come to the conclusion that the only portfolio I can really sleep well with is one where the safe portion is invested in three month Treasuries. No other bonds make sense to me, especially after 2022. I honestly don't understand taking on additional risk for an extra percent or two. The allocation I'm working toward is one year in cash, seven years of spending in a short term government bond ETF and the rest 77% in a balanced ETF fund. Am I missing something by going with short treasury bonds only? Duncan, I really particularly relevant because we were recently, me and Ben were recently just talking about this. How people don't trust bonds. Especially young people who saw what happened in recent years. They don't trust bonds anymore as being safe.

[A]

Yeah. And Duncan, I really, really, really like this question that Jack asked because it connects the dots to the question that Sean just answered a moment ago. But the person that sits next to Sean every day in the office is my main man Matt Serinaro of his give a day. So Matt, can you.

[D]

Come on.

[A]

Matt also is very handsome, very, very strong. And ultimately Matt, I could not pick somebody better to answer this one. So what do you think of Jack's question here? What pops in your mind well, yeah, yeah, definitely.

[C]

I've got charts to show you guys. First off, Sean is. Sean is being modest. He does literally everything and anything at Ritholtz and he's got some killer charts in the doc too. So let's start there. Jack, you've got an interesting situation. First off, you're 51 and you're planning to retire in five years, so bravo.

[A]

Yeah, not to brag. That's awesome.

[C]

Huge not to brag for Jack and I. First, before I jump into sort of the question on the actual duration of Treasuries, I want to show you guys what happened in 2022 to bonds because bonds got absolutely smoked in 2022. Daniel, can we do chart one? Here we go. All right, guys, so this is the total return path of the three month T bill and the ten year U.S. treasury bond in 2022. And look at the difference between these two. The ten year treasury got crushed down 17.8%. That's like nearly a bear market. Actually hit 20% in late October and the three month T bill was up 2.1%. So Jack is onto something here with limiting some of that duration risk with short term treasuries.

[A]

Could not agree more because if you take that longer duration, pick up that extra yield, that could be a whipsaw event. But Matt, how many times can we expect a 2022 to happen, right? I mean, to me that was actually a unique set of circumstances. Just basically zero interest rates for all the time we had all that Covid stimulus. Is that something that has happened many times throughout history or is that actually a unique circumstance?

[C]

No, it's unique. It's an anomaly. But when I think of Jack's situation, he's 51, he plans to retire when he's 56. I'm not gonna sit here and say it can't happen again. I think that we should probably plan for that type of situation at least somewhat and have it within our calculus. Because the last thing I want to do is just completely dismiss some sort of situation where bonds get crushed the same way they did in 2022 and stocks also get crushed at the same time. And maybe we are entering that sort of regime on a go forward basis. It's not the base case. But is it in the spreadsheet? It would be in the model.

[A]

Yeah, definitely. Particularly since that was a not that long ago. But then to your point, Matt, it's really like if you have a part of your asset allocation that is quote unquote safe, like the dry powder and that's like you said, 17% decline is no fun on a year to year basis. So that's the part of your portfolio you'd want to take some ballast in and yeah, but what's the reward? Why would people a longer duration mat?

[C]

Well, I mean I guess it's a good, good segue into our second chart here. So Daniel, if you want to throw up, chart two. Here we go. All right guys, so this is something that Sean showed me this morning and it is so shout out to Sean and also FM Investments because I grabbed it from their website. This thing is sick. So on the left hand side we have different treasuries ranging from three months to the 30 year U.S. treasury bond. And then along the horizontal axis at the top we have changes in interest rates and how that's going to impact the actual price movements of these bonds. And so as you can see, the longer duration you have, the more susceptible you are to drawdowns if interest rates rise. Now that was 2022. The flip side of that Bill is if you see a large decrease in rates and that's all the way bottom right corner of this panel, you could see long Treasuries rip higher. I think for Jack, this sleeve of his portfolio is meant to be an anchor and so he's not trying to take on that duration risk. He wants to be closer. And I've sort of shaded it here and I've given you this 2022 scenario. If rates increase 300 basis points right now for the three month US treasury yield which is currently yielding 3.71%, that bond price would only go down 8 bips versus a 10 year treasury bond falling into a bear market. Essentially 20% if rates move up by 300 basis points. So I'm with Jack on limiting the duration risk here and sticking with three month deals.

[A]

Cool. Sounds good.

[B]

So why would you even bother if you can get a high yield savings account that's giving you 3.5 or 3.75% like you can, depending on where you look like. At what point is it not even worth bothering to have to put it into a brokerage account and put it into three months treasury buying bonds. Two bills.

[C]

Bill. Bill, how about you take this one because certainly I'm not the expert there.

[B]

Is it just taxes? Is that the answer?

[A]

Tax answer would be mine. Yeah, that ultimately if you're getting Treasury Interest Jackson, Virginia Tax rates in Virginia, between 5 and 6% on your income, that's completely state tax free. So you do pick up a little bit of after tax Yield. But Duncan, like, if you think about, okay, a high yield account, like, what are they doing with the money? Like, fine, if it's FDIC insured, you're going to get the dollars back. Short duration Treasuries, more or less. They're equivalent, right? More or less. The yield might not be the same, but usually you're getting a little bit better yield by going direct to the source versus through an intermediary.

[B]

Okay. Yeah. It just seems like a lot of hassle for very little difference in some cases, but maybe adds up over time, I guess, the tax savings especially.

[A]

Cool, cool, cool, cool. Great.

[C]

One more chart. I know we got to move. One more chart for Jack.

[A]

Let's move it.

[C]

Okay. All right, Jack, I just plotted out the 5 year average rolling returns by different stock and 3 month t bill split for you. So right now you got a 77% stock and 23% T bill allocation. Based on your question, historically since 1928, I totally. Ben Carlson this and went back as far as I could. We miss you, Ben. And we did. And I'm showing the average five year rolling return on the left and then the max drawdown over five year rolling periods. And so Jack, your allocation to 77% stocks and 23% T bill saw an average five year rolling return of 60% and a max drawdown of 35%. I'm suggesting, I mean, instead of thinking about duration risk, adding a little bit more stocks to that portfolio of yours could also help mitigate some of that drawdown that you're. That you're worried about. The max drawdown across 5 year rolling periods for 60, 40 with 60% S&P 540%. 3 month T bills is only 24% and the average 5 year rolling return is still solid at 51% with a 94% win ratio, mind you. So just something to think about.

[B]

Yeah.

[A]

Matt brings the custom charts.

[B]

What would you say to Roberto in the chat who says SCHD is better than bonds? And that's the Schwab High Dividend yield etf. Whatever.

[A]

Yeah, just different things because like that that thing's investing in ETFs bonds itself. Right. So it's a pass through, it's a container. Yeah, both are applicable depending on the circumstances.

[B]

It's also a lot more risk. Right? I mean, I'm pretty sure. Correct me if I'm wrong, but I'm pretty sure that's the dividend etf.

[A]

Oh, the dividend etf.

[B]

I'm pretty sure that's the dividend etf.

[A]

Oh, Definitely. Then, yeah. Then that's a different thing.

[B]

Maybe I'm wrong.

[A]

Yeah. I thought that was a money market etf. Forgive me.

[C]

Well, you're also quoted a price every day for that. And if you want to set it and forget it and you want to kind of leave it aside, maybe you don't want.

[B]

That's the dividend equity etf. Yeah.

[A]

Yeah, Gotcha. Yeah. No, that's just a different thing, Duncan. I wouldn't.

[B]

Yeah, the only similarity is that it's paying off dividends, you know, like a coupon I guess you would get. But there's a lot more risk in that. Sure, absolutely. Than short term bonds.

[A]

Yep.

[D]

Great.

[A]

Let's jump over to question five.

[B]

Let's do it. Hang around, Matt. All right. This one is from Brandon in Santa Claus, Indiana. Is that a real place too, though?

[A]

It is.

[B]

You got the chat going now. Okay. I keep hearing math heavy advice. Don't pay off your mortgage early. If your rate is low, put the extra cash in the index instead. But it feels like if we always followed the math, we'd never buy the house in the first place. We'd be lifelong renters with massive brokerage accounts. Is there a point where the math becomes a distraction from actual financial security? At what point does the psychological dividend of an equity heavy home outweigh the 6% spread I'm losing by not having money in the S&P 500? Are we over optimizing our lives into a state of permanent fragility just to squeeze out a few extra basis points? I like this question because this.

[A]

Me too.

[B]

This is what I'm talking about. People are always like, oh, owning a house isn't, you know, all it's cracked up to be and you should just rent for life and stuff. And I know I'm going to get emails about that again. That's fine, I understand. But yeah, it is. Discounting a lot of the comfort element and just like quality of life element of owning your own house.

[A]

Yeah. So when I was prepping for this show, gentlemen, I asked around, I said, what's something that I can do a little bit differently? Right? And maybe just tweak it a little bit. And I got a comment from a gentleman that was more or less, hey, why don't you answer some questions for normal people? Right? We've been spending this lot of time doing 5 million, 10 million accounts. And again, that's. That's our clients. So ultimately it makes a lot of sense. But we're also guys to show for the people and that Gentleman was Sean Russos or Sean, can you come back in? And I want you to take the first bite at this one. So somebody who's. Yeah, somebody who's man of the people. Yeah. Are you over optimizing your life living by a spreadsheet? I think that's what this came down to.

[D]

There's two things I agree with and one thing I disagree with. The thing I agree with is, yes, on paper, stocks are better than real estate. The average return for stocks is 9%. The average return for real estate historically in the past like 100 years is about 4%. So yes, they're right on paper.

[B]

That's annualized returns.

[D]

You're saying annualized? Yes, yes. So if you want to only live on paper and have the highest return possible, you would never own a home. I agree with that. The other thing I agree with is we can get to a point of where we're like over making ourselves permanently fragile and optimizing. Like if you eat a granola bar and your sleep score is messed up, you become too fragile. Like I also agree with that. But that does not mean that you should be taking out a psychological dividend when your mortgage rate is 3%. So like there's a little bit of a push and pull. And I made a chart, Daniel, if you want to chart on to help us decide what decision to make. My brain likes to think in buckets. So I made four different interest rate buckets here. And the idea here is you basically get a risk free return by not paying that interest rate. You add that interest rate as well as with the 4% annualized real estate return. And that's how we get the dark blue bars. So if you look on the far left, that's taking the highest range. So 3.75% interest rate plus the 4%, you get about a 7.8% return versus the historical annualized average return for stocks that we've gotten in the last 100 years of 9%. So to me, if your mortgage rate is 3.75% or less, you should absolutely not be paying off your mortgage early. That's non negotiable. I call it a non negotia. Don't even go there. I'm sorry, you don't get a psychological dividend. It's not worth it. I put this giant gray box around the middle part because that's from the 3.75% range to about six and a half percent range there. Like it's really hard to differentiate. Maybe you're older, maybe you're More risk averse. Who knows? I could go either way. Totally get it. And maybe that's where our, our caller is. And then outside of that, if you're 7 plus, that's another non negotia. If you have a 7% interest rate or higher, you should be paying that thing off. That's how I think about it.

[A]

Okay.

[C]

Non negotia. Look at this charts, by the way. Look at these charts.

[A]

Yeah, this beautiful. Yeah. Where do, where do those come from? That's great. That's great. Yeah. So running out of time. Let's, let's, let's move forward, Duncan.

[B]

All right. I mean, you're the captain today, so we can go as long as Captain Sweet.

[A]

Full speed ahead.

[B]

Up next, we got a question from Nick in Ding Dong, Texas, also a real place.

[A]

Just saying. Okay.

[B]

I'm in my late 20s, doing what I can to save for retirement, making around the median salary $60,000 in the US and I've been listening to the show. I was listening to a few old episodes and came across one talking about Social Security. As someone who has a while to go, I'm worried about politicians slashing benefits or raising the retirement age. I think the solution is to eliminate the cap on FICA taxes. I've heard Bill refer to FICA as a flat tax, which confused me because it doesn't hit every dollar with a cap around 180,000. Personally, I'm more of a fan of progressive tax taxation, but lifting the cap would better even the playing field to tax everyone that flat tax. Is this a reasonable solution? Will Social Security be here for me in the 2000s? I don't know what he's talking about. You got to give some.

[C]

Bill, Bill, can you explain this to me? Like I'm a 26 year old that just looks at charts all day. That's kind of what's happening.

[A]

Gentlemen, I urge you please to take a look at your form W2 from TriNet or whatever company might have supplied you that this year and take a look at what's being taken out of your paycheck. Right. So for roughly somebody, just hypothetically, for round numbers earning $100,000, you are paying roughly $7,600 in Social Security and Medicare taxes, and they're getting taken out of your paycheck. Right. That's one thing that's happening. That to me, gentlemen, is a tax on income because it's calculated based on your income and it is a flat tax up to roughly 160, or I remember the cap is this year, $180,000. And it is different entirely from the actual income tax, which we spend all of our time calculating and formulating. So that, to me, is what's going on. The point of that tax is to fund Social Security and Medicare, two programs that we intend to file for benefits someday. And so the question. Matt, Sean, this is why I want you guys on the show. Are you planning on Social Security income and Medicare being there for you guys in the 2000s? I think it's a reasonable question, and that's why I wanted to ask you both.

[C]

It's not even, it's not even in my brain, to be completely honest with you. I don't even factor it into when I'm thinking about retirement or it's honestly just. I'm thinking about mostly investments, my actual income.

[A]

Sure. Focus on what you can control.

[B]

Right?

[A]

Yeah, yeah, Sean.

[D]

Yeah. No, I, I have like, a very, like, football coach mindset, and they always just say no one is coming to save you or control the controllables, which is what you just said. I know that's like, kind of dark and depressing, but, like, who knows? Like this, this guy's asking in 30 or 40 years where Social Security will be. Who knows where it's going to be in like three years? I mean, like, truly, like, we. No one here knows. Um, and especially not me. So, like, for me, my, my thought to this, to this question wasn't even to, like, specifically answer it, which is probably not great for a show called Ask the Compound. But with that being said, to me, the biggest thing that this person could do is not worry about taxes, not worry about security. Let all that stuff go because you can't control it. I would say, what can you possibly do to get that income higher so that you can invest more?

[A]

Yeah.

[D]

Can you take more things off your boss's plate? Are there side hustles? Like, what can we possibly do to get that 60k to be 120k in the next five years? That's what I would focus on. Because you can't control the Social Security. You can't control any of the other stuff.

[A]

It's a Nick Magulia ism. Right.

[B]

I'm older than these, than these two guys, and even I never think about Social Security when I'm thinking about, you know, the future and retirement. But just Ben's going to kill us if we don't save us. I agree with Ben. I think it will be there. Like, to answer the question, I don't know if it will be cut. I don't know like what, what amount? But, but yeah, I don't think, I just think it would be too politically unpopular to be like, oh, we're going to do away with it or something.

[A]

That would be people paying into the system. Yeah. And just very br. Daniel, can we pull up the chart really quick and I'll breeze through it. But this fiscal year we're expecting to raise about $720 billion from FICA taxes. And that's to every worker, every self employed person, every person with a job, everyone at Ritholtz wealth is going to be paying into this system. The problem is on the right side of the chart you can see the Social Security system alone almost encompasses that social insurance income. And Medicare is another, almost $500 billion at this point.

[B]

And for the record, I remember being a literal kid and hearing people talk about how Social Security wasn't going to be around in the future, you know, so it's, it's one of those things people have been saying for, for many decades. And so yeah, maybe one day it'll be true. But yeah, it's hard to imagine.

[A]

Good point. So we're running out of time, Duncan. This one's very important for Matt and Sean, so can you please read question seven?

[B]

Okay, this, this question was submitted by Bill, but I'm going to read it just the way that he wrote it.

[A]

Yes, please.

[B]

I'm a professor and I, and it's from Duncan in Rocky Top, North Carolina. I'm a professor and I teach creative art at a local college in the South. I'm fascinated by finance and investing and I have an opportunity to move to New York City in my early 30s for a creative media position in a finance adjacent startup. What advice would you give to someone weaving the country life? It was Washington D.C. for the record, to find their place in the big city. Do you think things will work out for me over the next seven to 10 years? Even if something weird happens like a murderous global super pandemic immediately after I move? And yeah, if you didn't already put it together, Bill wrote that about me.

[A]

True story.

[D]

This person vegan, it's possible.

[A]

True story. Duncan moved in August of 2019. Correct me if I'm wrong, right? Got a place in Brooklyn and the realtor told you what, when you were like this, looking at the size of

[B]

this, it's a 385 square foot apartment and they were like, you know, you'll never eat here. You'll be eating out every meal and don't worry about it. It's tiny, but yeah, That's New York.

[A]

And guess what happened right after that. So the reason, Duncan, I wanted to have you ask that question is Matt and Sean. One of the things we get a lot at Ritholtz is we have folks ask, hey, how do I get started? How do I get in finance? Duncan walked that path. Shawn, I was talking to you earlier this week. I pictured Sean driving in his F150 on 990 from Colorado and pulling into Queens and being like, what on earth is happening here? So, gentlemen, I ask you, what would you tell somebody who's thinking about a move to New York City?

[D]

I literally. This is how silly my decision was. Well, it was a good decision in hindsight, but I literally drove my F150 from Denver, Colorado, like, 14 hours with my mom and all of my plants, and then parked myself 14 hours later in Queens where there's literally no parking spots.

[A]

There's no parking.

[D]

Yeah, it's a bad decision to bring that. But anyway, it's really worked out. There's benefits and there's downsides to moving to a city like New York City and Chicago. And in my opinion, so far, the benefits have outweighed the negatives. And that is developing relationships with people, networking, getting to do things like this. If I was in Denver, who knows if I would even be at rich wealth anymore. Like, things like that happen. And so being able to develop relationships, being within the energy of the city. Everyone talks about this energy in New York City. Like, I'm able to go and, you know, talk to Sam Rowe and all of the guests. We get on the compound of friends. Like, it really sets your career forward being in cities like this. But with that being said, like, there's some uncomfortable things that you really have to know that you're going to have to deal with. Like, I take the subway six or seven days a week.

[A]

Right.

[D]

Like, going wherever, that's not fun. Sometimes, like, I'm walking outside and it's negative 20. Like, who knows?

[A]

Like, Duncan's real dealer lied to his face about cooking endorsed Covid.

[B]

It's also, it's like investing. It's risk. You're taking risk. And different people have different risk tolerance. So Sean has a high risk tolerance. I'd say. I, you know, to add to that story, I moved up to take this job and it was technically a six month contract, which you probably remember, Bill

[A]

and I, because I signed that contract.

[B]

Yeah. My wife and I moved to New York city from Washington, D.C. that's how bad I wanted a job and thought it would Work and at the time I was working five days a week in my office. So yeah, that was a pretty big risk. But yeah, it worked out well. What about you?

[A]

Hey Matt, what do you think?

[C]

Yeah, yeah, I think it's so situational, person by person. I do think the city rewards somewhat extroverts, people who are talkative and will go to those networking events and stuff. That doesn't mean that you can't be an introvert and be very successful in the city and enjoy your life. I'm just saying I think that going to networking events and talking to people has been very helpful for myself, definitely. But I think I make these big decisions based off what I think I would theoretically regret a decade from now. Like, you know, I try to place myself, let's say I was making this big, big decision right now in my life to move to New York City. I already live here, but let's pretend I would kind of imagine not 27 year old me wondering if it was a good Choice, but like 36 year old me 10 years in the future saying, is that something that you would have regretted doing? And like in Duncan's standpoint, even if it's a six month stint, theoretically, like you can get out of the city pretty easily, you know, terminate your lease and get out. But I think it definitely rewards people who just kind of are taking a shot on themselves. Exactly what Duncan did.

[B]

For the record though, most leases in New York City, if you cancel them, you are, you're on the hook for the rest of it. So it is not one of the easier places to get out of a lease.

[A]

And most of the time a global super pandemic doesn't shove you into your 300 square foot apartment.

[B]

True.

[A]

Right over there. Well go, well go pick up a

[C]

job at a, at a bar. Bar back and, and pay the rest and then leave and then run away.

[A]

Yeah, that's great Shark.

[B]

And Matt's advice, pull yourself up by your bootstraps.

[A]

Exactly. You go to the bar, it's good stuff. And hang out, go to the bar. That's awesome. So yeah, gentlemen, we ran late, but thank you very much. Glad to have the offensive line here with me. Really appreciate it and Duncan, thanks as always. But so if you. Yeah, yeah, great work. If you have a question for acid compound for Matt, Sean Ben Carlson, please send your comments to acidcompoundshowmail.com this show only works because of questions from folks like you. Thanks to Dave, thanks to Philly Mike in the chat and gentlemen, I'll see you in may on the other side of the tax deadline and rate and review.

[D]

Thanks guys.

[B]

Please rate and review Spotify, Apple, subscribe on YouTube do all the things thanks

[A]

for staying late on my first show. Thanks guys.

[C]

You crushed it Captain. You crushed it.

[B]

See everyone,

[F]

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 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.

[G]

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