(beeping) (music) This is Portfolio Rescue. Before we got on the air, Duncan and I were just talking about how impressed we are by the caliber of questions we're getting from people. People seem to have their finances in order. I'd like to think it's because they're following our advice, but I think actually they follow this stuff because they've already done pretty well for themselves.

Remember, our email here is AskTheCompoundShow@gmail.com. Today's Portfolio Rescue is brought to you by Bird Dog. It's the most comfortable and stylish shorts and pants in my closet. Two weeks ago, Duncan, it's 80 degrees here in Michigan. So I have my shorts on, very comfortable. I got the liner. It's great.

Can wear it with a nice button-down shirt or maybe just an athletic tee. I'm a new convert to the pants. Over the past year or so, my daughter had a soccer tournament this past weekend and we were dealing with wind and rain and hail, so I needed to be warm and comfortable.

So I put on the Bird Dog sweatpants. All weekend, they were just delightful. All the other soccer dads were so jealous of me because I looked stylish and I was comfortable in the wind and rain and hail. BirdDogs.com, if you want to stock up on shorts, joggers, sweats, pants, use the code BenPR and you get a free 20-ounce Bird Dog tumbler for coffee, water.

If you're like me, diet Pepsi maybe, right? Keep stuff hot, warm, cold. That's BenPR and it's at BirdDogs.com. I don't have anything as cool as that as looking good in front of other people, but the sweatpants are so comfy, I've actually been sleeping in them some. They're like comfy pajamas.

They're great, aren't they? Yeah. I love it. Okay. So like I mentioned, we've been getting some great ... I mean, it's really cool how people are so open to sharing with us. People give us their salaries, their jobs, their retirement account balances, when they're going to retire, all this stuff.

People share very personal information, so we don't take that for granted. We really appreciate it. So here is one right now and I think the first one up is our first not to brag of the week. Yeah. Yeah. Getting started strong. So first up we have, "I just read Nick's latest and I'm feeling a bit ashamed.

Nick is awesome and just keep buying is my investment motto. I'm 34, my wife is 28 and not to brag, we make about $590,000 a year with a net worth of 1.2 million. We max out our 401ks and take the employer match, about $55,000 a year. We also save between $20,000 and $40,000 if not more.

Our savings rate in my monthly budget is about 24%. I wonder if they use Excel like you. I also own one income producing rental in the Midwest. However, we live in Los Angeles and spend a lot. We take extravagant vacations. I drive a nice car. Wish you would have told us what kind, but that's okay.

I like nice clothing, etc. After reading Nick's piece, I felt like I should be saving more even though I know we save adequately, if not more than most. Save me, Ben. Listen, you don't need me to save you financially. In your mid-30s, financially, you're doing amazing. You're at four, you have a seven-figure net worth, you make a mid-six-figure income, you have a rental property that's income producing, you have a 24% savings rate.

You're in an amazing place financially. If you never saved another dime, you have $1.2 million net worth and it compounded at 5% per year over the next 30 years. By retirement age, you're looking at $5.2 million. You are fine. You're doing just fine. You need me to save you psychologically.

This is obviously a good problem to have. This person is not alone. It can be a psychological hurdle for people to realize, "I've got my finances in order, but I'm following these personal finance experts and they make me feel bad about myself." I'm not saying that's his Nick. I think this is the part of Nick's post that has our guy Mark worried here.

Nick Majulia of Dollars and Data wrote this Rich vs. Wealthy post. He says, "Mr. Rich," and he's trying to lay it out here, what's a good and bad behavior. He says, "Mr. Rich earns an impressive salary and loves to showcase his success with luxury cars, designer clothes, and extravagant vacations." It seems like this is written exactly for our person writing the question here.

"He is the life of the party and appears to have it all. However, his high income is matched by his high spending habits, leaving him with little savings or investments. Should his income disappear, Mr. Rich's financial situation would quickly crumble, revealing the facade of his seemingly successful lifestyle." I can see why this kind of resonated, because it's exactly what he says.

Luxury car, designer clothes, extravagant vacations. "Ms. Wealthy, on the other hand, earns a similar income to Mr. Rich, but chooses to live a more modest lifestyle. She invests a significant portion of her earnings into a diverse portfolio of income-producing assets that create passive income streams, such as rental properties and dividend stocks.

She may not have the outward appearance of success, but she enjoys true financial freedom, knowing that her assets and income will continue to support her lifestyle, regardless of whether she works." Now, I'm not trying to put words in Nick's mouth here, but he is showing two extreme examples here.

And the whole point of it is to show that it doesn't matter how much money you make, if you're not living below your means, you're not gonna get ahead and you're not wealthy, right? Having a large income is not the same as being wealthy. So allow me to offer a third option.

This is the Ben Carlson middle ground, 'cause this is where I go. So Mr. and Mrs. Balance. Mr. and Mrs. Balance save 20 to 30% of their income and prioritize spending after that. They spend guilt-free on areas of their life that matter the most to them and cut back everywhere else.

Maybe they drive a new automobile, but don't pay up for a luxury car. They enjoy spending money on experiences, but don't need to stay at five-star resorts. Maybe they live in a nice house, but spend roughly one third of their gross pay on housing-related expenses. They utilize debt where it makes sense, for things like mortgages, maybe a home equity line of credit to fix their house up, but they always pay off their credit card debt.

Automate their savings and investing every month and max out their retirement accounts, but generally leave their portfolios alone. And Mr. and Mrs. Balance don't feel guilty about spending money on the stuff that matters to them, 'cause they know that they are saving and investing for the future. So they prefer to be selectively cheap as opposed to frugal at everything, right?

How's that for some middle ground? That's what I'm looking for here. So the way that I think about it is there's no hard and fast rules for how much you should save or spend, but if you're saving 20 to 30% of your income and your income keeps growing or just stays the same, you're just fine.

I think you just need to do a better job of figuring out how to spend guilt-free and the things that make you happy and defining those areas. So go on extravagant vacations if you want to, but maybe that means you're cutting back on eating at fine dining places, right?

Drive a luxury automobile, but maybe that means you don't get to go to a bunch of concerts and shows all the time. Spend money on nice clothes, sure, but maybe that means you don't buy expensive furniture for your house. Whatever the trade-off is, you have to figure out those trade-offs.

So Nick actually has another rule of thumb called the two times rule, where he says if you want to spend money on something really nice and extravagant, you have to save, too. So I think Nick's example was he buys a $250 pair of shoes, but when he does that, he needs $500, because he's going to save $250 as well.

And it doesn't have to be something simple like that, but I try not to quantify these things as much as my finance brain likes to do that. You need to think about it more qualitatively. So I look at it as my savings rate should be high enough that it feels a little painful at times, where you look at it and go, "God, imagine the amount of stuff we could buy if we didn't save so much." On the other hand, I think I should be spending enough money where that also feels a little painful at times.

Can you imagine how much that money would be worth in 20 to 30 years if we didn't spend it on this? I've mentioned before on the show that I was always a big saver. I was a pretty frugal person growing up. For me, the big way to get over this sort of cavern of being comfortable spending more money was treating my savings like a bill.

So every month, I treat savings in my 401(k), in my IRA, in my brokerage account, in the kid's 529 plans, all that stuff, it's automated and I treat it like a bill. It's non-negotiable. So all those savings go into those accounts automatically and then we spend whatever's left over.

So I do think it's something that can change over time for people, too. Having kids completely changed my worldview of this. We only have a finite amount of time before they become teenagers and never want to spend any time with us anymore. So my wife and I prioritize spending money on experiences now, as opposed to maybe having that money when we're 60 or 70 to do stuff.

So I look at it as I'm selectively cheap in certain areas and selectively extravagant in other areas. I think that's the thing. I don't judge other people's spending habits as long as they're saving money. So this person is saving money. They have a double-digit savings rate. Spend the money on whatever makes you happy, then, and figure out ways to cut back elsewhere.

That's the kind of thing. I think you just have to align any future lifestyle creep with future increases in savings. So I think the biggest problem for people making as much as you do and having a high net worth is trying to keep up with people who have even more money than you.

That's where the problems come in. But otherwise, you're doing fine. If you're saving that much and you can still spend, you're in a good place. Yeah. There's always going to be someone, right? There's always going to be someone that's doing better, spending more, that kind of thing. So yeah, I feel like that's a dangerous game.

I think that's the problem. Some people look at it as, "I need to keep up with this person because they spend so much and they have all these toys and they have a boat and they have a jet ski and they have all this stuff. I need to keep up with them so they spend too much." Other people go down the personal finance track of, "Well, geez, that fireperson is saving 70% of their income and they're eating grass in their backyard to save money by not going out to eat." Whatever it is, and I should be doing that too.

Why am I not doing that? I prefer the middle ground of, "Listen, I've heard enough stories of people who save their entire life and then they get to retirement age and something health-wise breaks in and they all of a sudden die or someone gets dementia or Alzheimer's or Parkinson's or whatever, and it totally derails their plans." And so I'm a huge proponent of enjoying yourself now as long as you have a decent savings rate that you can delay some gratification for the future.

I think a balanced approach makes a lot more sense and that makes it so you don't have to feel so guilty about spending money when you have the savings taken care of and it's already done. So what you're saying is YOLO. Yeah. You only live once. Yeah. I mean, yeah, YOLO white.

We're like YOLO white. Yeah, diet YOLO. How's that? Yeah. Yeah, there you go. But yeah, this person is doing so well for themselves and if they keep a 20-some percent savings rate at that, I guess the big problem would be if their income doesn't stay forever. We talked before we got on about who are these young people making this much money?

And it's tech people and private equity people from our experience. And so those industries can be fairly fickle. So if that income all of a sudden goes away, then you have to make some hard choices. Right now, the fact that you're saving so much money, you're saving a quarter of your income, you're fine.

Yeah, not bad. Okay. And you know how I look nice and wear nice clothes without breaking the bank? Bird dogs. There you go. Yeah. Smooth. Okay. So up next, we have a question from V. I think is how you say it. I was hoping you could explain the relationship between the 10-year treasury yield and the P/E ratio on equities.

Does a 4% yield on the 10-year indicate a 25 P/E on risk-free assets? So if the 10-year is at 4%, do we just add the equity risk premium to that to get the expected return? You can tell by the way I'm reading that, I have no idea what I'm reading there.

All right. Equity risk premium. It's kind of an academic term. It's basically just any excess return you get in stocks over some sort of risk-free rate. So since 1928, the stock market in the U.S. is up like 9.6% per year. Bonds, in using the 10-year treasury as a risk-free rate, stand in here, are up 4.6%.

So we're talking about a 5% equity risk premium, right? Over and above some sort of benchmark. You could use cash, too. Cash is up like 3-something percent over that. So it would be even higher if you used cash. So the idea here would be, can we just take the bond yield and slap on this historical premium and get expected returns?

I wish it was that easy. John, do a chart on for us. This is the returns by decade for stocks, bonds, and cash since the 1930s. Stocks is the S&P 500. Bonds is the 10-year treasury. Cash is three-month T-bills. And I also put another category in here, starting rates.

And that's the starting 10-year treasury. And sometimes high starting yields led to above-average returns. Sometimes they didn't. Sometimes -- same thing as low starting yields. Sometimes it led to good returns. Sometimes it led to bad returns. Unfortunately, there's not much rhyme or reason here when it comes to rates.

And that's because that relationship with stocks and bonds is not quite that simple. Athalas Damodaran from NYU, a recent guest on Masters in Business with Barry. Highly recommend if you want to listen to that. He's awesome. Yeah, he's great. Updates the equity risk premium on a monthly basis on his blog.

So I get a ton of free long-term data from his blog, actually. John, do a chart on here. This is Damodaran's equity risk premium versus bond yields going back to 1960. The blue line there is bond yields. Orange is the equity risk premium. You can see, there's a little uptick in the equity risk premium when bonds were rising in the '60s and '70s, but it certainly didn't keep up.

And then, it's kind of interesting that as the bond yields have fallen this century, the equity risk premium has actually risen. So, it's not like a one-to-one relationship. The variables are kind of all over the place. And it certainly doesn't always keep pace. It would be nice if it did, but at a certain point, if bond yields were high enough, they become competition for stocks, and you're not going to get as much of a premium there.

So, it's more one of these things that works out of a long-term average. It's not like it's going to follow on a year-to-year basis or anything. So, I'm not sure there's much useful information in this kind of valuation measure beyond the fact that the equity risk premium will likely go up when stocks are going down, and down when stocks are going up.

That's kind of the only ... I actually like John Bogle's expected returns formula better. He outlines this in one of his books. I think it was "Don't Count On It," which is excellent. Very underrated author, actually, for all the great things he did. He breaks down returns into three components.

John, do another chart on here. Bogle looks at this in terms of dividends, earnings growth, and then changes in valuations. And that gives you your returns. This is another one by decades, going back to the 1900s. Bogle started this, and I kind of filled it in the last couple decades.

And the easy part is the fundamentals. Earnings are all over the place by decade, but they're not a huge wide range. Dividends, that's a pretty easy one. The starting yield, you can calculate that pretty easily. So, you could back up the envelope a pretty good ... Dividends are 1.5%.

Earnings growth, I think, is going to be 6. Stock market is going to give you 7.5%. But that change in valuations is the big part of it, and that's kind of a filler. It's kind of how people feel about the stock market, and how they feel about where they allocate their assets.

And that's the kind of thing that's impossible to predict. So, the furthest I'm willing to go out on a limb here is that stocks will outperform bonds over the very long term. But over the short term, there's going to be times when bonds and cash outperform, which is not super helpful.

But that's the problem with these things. It's not very easy to come up with, especially in the stock market. The bond market's easy. If you take the starting yield, and if you go anywhere out beyond government bonds, take away any sort of default or credit risk, take that out of the equation, you get a pretty good starting point from the starting yield.

The stock market is much harder to figure out. Sometimes even valuations don't help you much over 5, 10, even 15 years. So, I think the relationship between equity risk premiums and interest rates is probably a lot more noise and signal embedded in it. But, fair question. Look at that 1.2% dividend in the 2000s.

That really stands out there. Yes. I mean, the 1999-2000 is probably the worst entry point in the history of the U.S. stock market. That's a pretty good one. Valuations were so skewed to the upside that, yeah, it had to be pretty -- the first decade of that century was awful.

All right. Let's do another one. Do you know what the equity risk premium is now? You got it? Yeah. Sure. I think so. Close enough. I've read Ben Graham. Yeah. I think I got it. All right. Up next, we have a question from James. Let's see. If one is able to, is there any reason not to just lump some $30,000 to $50,000 into a 529 and call it a day?

What's a reasonable target for the future value of a 529? Seems like colleges can demand whatever price they want, which makes it impossible to predict. I have some thoughts on this one, having been involved in academia in the past. All right. Let's look at the Consumer Price Index for college tuition and fees, set against the regular old CPI, John.

On an annualized basis since the late 1970s, the annual inflation for college is like 6.3%, 3.5% or so for the regular CPI. Almost double over a very long time period. You can see, in this century, it's even risen more. To be fair, things have leveled out a little bit.

Let's do the next one, John. This is over the last 10 years. The CPI is actually above college, and that's more that inflation is playing catch-up, not necessarily that college tuition is slowing. It's still increased at a pretty good rate. So this is the kind of financial planning question that, unfortunately, doesn't have a great answer.

So why don't we bring a financial advisor in to help with this one, since this is another one that's hard to quantify, exactly. Hey, Kevin. Kevin Young, back to the show. Hey, Kevin. Gentlemen, nice to be here. Thanks for giving me the hardballs here. Well, I think this is kind of like planning for a moving target.

And I've heard this from people before, like, listen, I have no idea how much college is going to be, you know, if my kid's going to be in college in 15 years or whatever, how in the world am I supposed to plan for this when college inflation is running at 6% per year?

Is it going to be, you know, $100,000 a semester or whatever it is? How do you even begin to plan for something like that, that is a target that you can't, it's not like you can lock it in right now. So how do you think about this? Yeah, so it is a very, very common question that financial advisors get, is how much is the right amount to save?

And the honest answer is, I don't know. No one really does because, you know, you've got a three-month-old baby at home, understanding what they're going to be interested, where they're going to want to go to school, if they're going to want to go to school, what college looks like in, you know, 17 and a half years from that moment is impossible to predict.

That being said, I think starting out early with a lump sum is a great idea if you can do it. Let the compounding work for you, right? Nick Majulia, our colleague who you mentioned previously, has written a lot about lump sum versus dollar cost averaging. And with a long enough time horizon, lump sum statistically works out far more frequently than dollar cost averaging.

The other thing to consider here, though, would be depending on what state you're in is going to have a big impact on the tax deductibility of this kind of contribution. You might have to spread it out if you want the tax deductibility, right? Yeah, exactly. And so the example here, $50,000.

I live in the state of Connecticut. In Connecticut, I can make a $50,000 contribution to one of my kids' 529s, and I could deduct $10,000 per year over five years. Easy, great, awesome, everybody wins. There are other states that have that same $10,000 deduction per year, but they will not let you carry forward the deduction.

So in order to really capture it, you'd have to do 10, 10, 10, 10, 10. So now with that out there, the other thing to consider is, OK, well, even if I'm in the highest tax bracket in my state, $10,000 off my state income, is it really going to move the needle?

My argument would be probably having the dollars compounding for that much longer probably outweighs it. Yeah, you're comparing it to investments at that point, right? Exactly, exactly. And so just thinking about, OK, well, what if I put in $50,000? And let's say you return, I think I ran it at 6%.

Obviously, early on, we're going to be pretty aggressive. As we get closer to school, we're going to dial down the risk. You're probably looking over 17-ish years, you're looking somewhere around $130,000 of future value. Right now, that would be enough to pay for a good, large in-state public institution.

It's going to buy you a year and a half at some of the more expensive private schools, your Harvard's, your Duke's, your Lehigh's, et cetera. So those things are unanswerable at this point. It's not a bad idea to start saving early with a lump sum. And the thing that makes me even a little bit more bullish on this idea now than I was even a couple months ago is the new legislation that will allow people to convert unused $529 into a Roth IRA.

So we've got a lot of questions for Bill Sweet about that one. People love that option. Yeah, yeah. So for my daughter, Emma, who's she'll be five in a month or two, if she goes to school and there's $10,000 left over in her 529 at the end of the time, she can convert that at whatever the contribution limit is that year.

As long as it's been in for 15 years and hasn't been added two and five, there's some nuance there. She can convert whatever the contribution limit that is for that year, convert it to a Roth in her name, and 30 years later, she's going to be pretty happy that she did that.

So I think that takes a little bit of the edge off of the idea of, "I don't want to over-save." Because at the end of the day, you're just putting money aside for your kids. And now you've got the extra flexibility of, if we don't use it all, they're already on a great path for retirement.

Right. And the thing about now, it's a moving goalpost kind of thing. But I think that as you get closer to the date, then you can kind of figure out what the actual costs are and where you stand. And maybe that's a time to actually have a good financial conversation with your 18-year-old child about finances and understanding, "Listen, set some boundaries.

We'll pay for your whole state school. But if you go to a private school, we're only going to pay for 30% of it and you have to take the rest." Whatever it is, I think that's a good way to open up to thinking through the various options, depending on how much you have at that time.

Yeah. And I think there's some kind of stigma around parents just being proud. And if their parents were able to pay for college, or they maybe weren't able to pay for college, it's almost like a thing where people feel like they have to pay for whatever school their kid wants to go to or whatever they get into.

But to your point, I think it's a great thing to have that conversation with your child. Alternatively, I have a friend who has five kids, which is pretty rare these days. And he said from the start, "I'm not saving for any of my kids. They're on their own." Yeah.

I guess if that's the decision you want to make, but you're right. But I think a lot of parents do. I understand how a lot of parents out there don't have a ton of savings because they put their child first. That makes a lot of sense to me. Yeah.

And you want to ... Our colleague, Tony Isola, does this for our clients a lot, right? He'll run comparisons of, "Okay, your kid got into this place at $75,000 a year and the state school at $25,000 a year, and they absolutely love history and they're going to be a history major." And he can show you the data that says, "Here's what a graduate of their history program makes two years out of school from each place." Most of these things are not that wide of a spread.

So just having that conversation with the student and saying, "This is the difference. You're not going to make much more by spending $50,000 more a year for four years." It's worth having the conversation. Right. And I'm not picking on history majors because I am one and I love history, so.

Yeah. I was just going to throw into this conversation. I did a poll on the chat whether or not college tuition should be capped or regulated. And the vast majority of people, for what it's worth, we have 130 some people watching right now. But the vast majority of people are saying yes.

So I feel like something might happen down the road. Too many people are getting really upset about this. I would say that that 6%, there's no way that can continue forever. Because at a certain point, the growth in that is just so high, it becomes impossible for people to go and more people are going to college.

So you'd think at a certain point, technology would step in and make things a little easier that would level off. And it's not helping the learning. It's not helping the education, right? I dropped a stat in here that Stanford now has almost 16,000 administrators and they have just under 17,000 students.

That's not professors, administrators. So that probably sounds like a problem. And in my experience, I thought that there was definitely an administrator bloat at the schools I taught at. All right. Let's do another one. Okay. Up next we have a life insurance question. If I died tomorrow, what would be a reasonable amount of money to leave to my child in the form of life insurance?

I would imagine enough to pay off our mortgage and cover expenses until the child can finish college. I've read that the average amount it takes to raise a child to 18 is $300,000. Is $300,000 plus remainder of the mortgage balance a reasonable life insurance target? Some have suggested more to continue funding current lifestyle, my income of $450,000.

However, my wife is also a high earner, so I'm not concerned about reproducing my earnings. >> Okay. This is actually the question from the same guy, James here. He asked both these questions. I like him so much. I got life insurance following the birth of my first child. Honestly, I decided the amount based on a number that sounded good at the time.

I did not crunch any numbers. It's just kind of -- they were kind of like, "Do you want a half a million dollars or a million?" And it was like, I don't know, $10 a month more. I'm like, "Let's do a million." So again, this is kind of another one that you don't really know because -- and it's kind of morbid to think about this stuff, but obviously, again, with a family, this is the kind of thing that you have to have.

It's kind of a difficult decision. So how do you -- when you're working with clients to ensure any kind of risk like this, where do you begin? >> So I think he -- James mentioned the word reasonable. And I think reasonable is one way to approach this. Yes, having enough money to cover the cost of raising a child and your mortgage is a very reasonable approach to life insurance.

Does that mean it's the answer? No, it doesn't. Because there are -- there are other aspects to consider. You know, one thing is you mentioned, you know, your high salary. Okay, if that goes away, but your wife is still a high earner, would your wife want to work if you hadn't woken up this morning, whether that be for three months, six months, forever?

I think there's -- one is I'd have that conversation and be real clear on what that means. And by the way, that's a two-way conversation. Just because you make more as a spouse does not mean that you shouldn't have insurance on a nonworking spouse or a spouse that makes less than you.

My wife works part-time, but a big part of her job is helping to raise our children. If God forbid she wasn't here anymore, I would need help, a lot of it. And so that's something to consider as well. But so I also just think about sort of the outside of the spreadsheet ramifications, right?

What's the emotional toll on something like that happening? And I think that's what leads back to, yeah, the math makes sense, but in your kind of stomach and heart, does it really make sense? For an extra half a million dollars, if you just had a child, you're thinking about 529s and life insurance, I'm assuming you're maybe in your 30s, like you said, Ben, an extra half a million dollars of term life insurance at 15 or 20 bucks a month for somebody making 450, I think that's an appropriate -- If you're in good health and you're relatively young, you are in the stage of having kids, it's not that expensive.

That's the thing. Yeah. And so, you know, to hedge that with a tiny fraction of your income, I think is worth it. Look, the likelihood is that it's not going to pay out. That's why term insurance works. Most of it will never, ever be paid out. But you don't want to be, you know, you don't want to put your family in a situation where they're thinking, wait, if he had, I thought he had this much and he only has this much and you're telling me if he had paid 20 more dollars a month, then I wouldn't have to go back to work and I could be with my family full time or I can do X, Y, and Z.

I just think it's a good idea just to up it. And, you know, you can always reduce it later on. You can always change things. So but it's never a bad idea to lock it in when it's cheap and you're young. Duncan, you can probably get a smaller amount.

Your wife can just sell your hat collection. Yeah, that's, I mean, that's kind of the plan. Beanie babies and hats. All right. We got one more question. OK, up next, we have. My wife and I are retiring next year at 57 with four million dollars in a 55-45 portfolio, a one point three million dollar house and zero debt.

Not to brag. We know we're blessed. If we'll get forty two hundred dollars a month at sixty two and seventy three hundred dollars a month at seventy and a half in Social Security and only need a three percent withdrawal at retirement because we're not spenders. Doesn't it make more sense to take Social Security at sixty two and use our cash bucket and then an IRA at fifty nine and a half for the remaining amount by taking Social Security early?

That forty two hundred dollars a month would stay invested and we'd be doing Roth conversions for years. I know we'd break even at some point in our 80s or 90s, depending on the market. But by that time, we're spending a lot less, even if Rick Edelman is right and we live to one hundred and ten.

Just trying to apply some math and common sense before we have to make some decisions. Good TCAF. Yeah. Thanks for watching. Watching everything. So I think the return you get by waiting from sixty two to seventy is like been calculated like seven or eight percent per year. Right. That sounds about right to you.

That's like the bump you get. And that makes sense based on these numbers that are given here. So they're saying if we just waited or if we took it early, we wouldn't have to pull that forty two hundred from our portfolio. And then, you know, they've kind of it sounds like they've done the break evens here.

But in my thinking, isn't this just a wash? And then there's other ancillary things you have to think about, like the portfolio withdrawals or minimum distributions or taxes, all that other stuff. Isn't that kind of what you're getting down to? You're whittling things down here. Yeah. Yeah, exactly. And, you know, what I would think about here is, you know, I ran some just some basic some basic numbers here.

And I think if you and I'm sure this isn't the case, but if the Social Security payments were exactly equal for for each spouse here, the break even on this, if you delay, i.e. what what amount of money at what age would the delaying the payout make sense as far as you've now collected the same amount of dollars?

It's it's just to age 80. So from 70 to 80, you know, you're you're you're catching up and you're catching up quickly on those previous eight years. And if you live to 90, the number ends up being something in the neighborhood of an extra six hundred thousand dollars in benefits.

So obviously, the longer you live, the better that trade is. That's a variable we obviously can't control. Rick Edelman last week, as you mentioned, I was pretty shook after that episode for a lot of reasons. But I think if if you're if you've got, you know, a decent idea that you're probably going to live into the 90s, then I think delaying probably does make sense on paper.

The other thing that, you know, we obviously can't really opine on because we don't know the makeup of the investment accounts here. But if you're talking about RMDs and doing Roth conversions, those kinds of things are going to drag your income forward, your ordinary taxable income forward. So if you are doing if you're getting your Social Security at 62, you're doing Roth conversions at 62 through 70.

If you're taking one hundred and twenty thousand dollars a year in whether it be long term cap gains or money from your money from your IRAs, all of a sudden your taxable income is going to be relatively high. And the higher your regular income is, the more taxed you get on Social Security.

So, you know, there's this is one of those things where, like we tell people all the time, you can't Google expertise. We we you guys know, we talk to a lot of people that have successfully done this themselves for twenty five, thirty years and they get to this point and all of a sudden there's a lot of questions that you can't quite answer just by plugging in some numbers on an Excel sheet.

Right. And then one question leads to another question and another one. Yeah, exactly. So, you know, you know, I'm not sitting here as a as a shill saying, give us a call. We'll help you out and we'd love to work with you. But at the end of the day, like it might be worth just seeing having somebody run through these scenarios with you, because I think the great thing for this couple is I think at the end of the day, it's not really going to matter yet on the on the spreadsheet.

It'll matter. But are they going to run out of money if they take Social Security early at these spending rates? No, they're not. So it's really a question of what are you trying to really accomplish with the money? Why are you doing Roth conversions? Are you trying to leave a legacy for kids and grandkids?

Are you just trying to, you know, enjoy it while you're here and die with zero? Right. So there's a lot of different variables here. But I think I think delaying it could be helpful because you just know that on the back end, you're going to have a guaranteed income.

That's also shows what a great deal Social Security is for some people. Seventy three hundred dollars a month is I mean, we're talking close to ninety thousand dollars a year in income. Mm hmm. I mean, it's just an amazing program. And it sounds like these people have things all set anyway and don't really don't really need it.

Yep. Yep. And that's the ability. And again, like just going back to the tax piece of it, like that is the devil's in the details with this stuff. And if you're not really thinking about taxes, you're not thinking about, oh, well, if I do these Roth conversions and my ordinary income rate gets bumped up and now I'm paying a higher Medicare subsidy.

Oh, I hadn't thought about that. Right. So there's there's so many moving parts to this. A lot of decision trees. Again, like these people are in great shape. So that's a good thing. But, you know, it might be it might be worth talking to an advisor and a tax and a tax pro as well, just to get a good sense of things.

All right. Duncan's request for next week is question two for some regular Joe's without. I mean, I was just saying to Cliff in the chat, you know, these are these are questions we get, you know, so it's somewhat it's self-selecting. It's true. The people. Yeah, it is self-selecting. Next week, unless something goes wrong, we'll be back here with a rebrand of the show.

Right. Duncan, putting me on the spot. Yeah, I put you on the spot. If I put it out some more work to do. Am I the last guest of Portfolio Rescue? It's possible. Wow. It's got to come through for us over email. Ask the compound show at Gmail dot com.

Leave us a question or comment on YouTube. Thanks for everyone for joining in live. We always appreciate that. Thanks for coming in, for coming back on again. And we'll see you next week with maybe a new logo and a new name. Exciting. Thanks, guys. See you, everyone. you