The Personal Finance Podcast - The 40 Year Mortgage is Here (Money Q&A)

Episode Date: May 24, 2023

In this episode of the Personal Finance Podcast, we're gonna talk about the 40 year mortgage and what I think about it. How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Thanks to Ka’Chava For Sponsoring the show! Go to kachava.com/pfp and get 10% off on your first order.  Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Hello Fresh: Check out Hello Fresh www.hellofresh.com/pfp50 and use promo code PFP50 for 50% off your first order and free shipping! Delete Me: Use Promo Code PFP20 for 20% off!  Links Mentioned in This Episode:  The 6 Best Vanguard ETF's to Hold Forever 6 Best Fidelity Index Funds to Hold Forever (High Growth!) The Complete Guide to VOO (Vanguard S&P 500 Index ETF) The Complete Guide to VTI (Vanguard Total Stock Market Index ETF) The 6 Best Charles Schwab Index Funds to Buy and Hold for Life! M1 Finance Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the personal finance podcast, we're going to talk about the 40-year mortgage and what I think about it. Welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about the 40-year mortgage and what I think about it. In addition, we're going to go through a bunch of other money Q&A questions as well. If you guys have any questions or want to leave me a money Q&A question, make sure to hit us up on Instagram, TikTok, or you can shoot me an email on the master money newsletter. And follow us on Spotify, Apple Podcasts, or whatever podcast player you listen to this podcast

on right now. And don't forget to leave a five-star rating and review on Apple Podcasts or Spotify. I cannot thank you guys enough for leaving those five-star ratings and review. So today on Money Q&A, we are going to be going through three different questions for you guys. So these are three questions that I've been getting a lot of questions coming in for these. So the first one is, should you consider a 40-year mortgage? And we're going to talk about should you consider it for your personal residence? And we're also going to talk about should you consider a 40-year mortgage if you're going to use it on a rental property?

And these are two very different things. So really excited to dive into that one. Number two is how to transfer your Roth IRA from one brokerage to another. So there's a specific kind of way to transfer it where it has way less headaches. We're going to talk about that here today in this episode. And then lastly, how to decide if you should take Social Security early. We've been getting a lot of questions on Social Security. So I'm going to talk about how you should think about this.

we're going to talk about the math behind this on how you should figure out if you're going to take Social Security. So really, really excited about this episode. We are jam-packed with information on this one. And if you want to see some of the stuff we're talking about, make sure you check it out on YouTube as Anderjankola on YouTube is where we have all of our podcasts. And we have our YouTube content as well if you want additional content. So you can watch me on YouTube there if you want to see some additional visuals as we talk through some of this stuff. So without further ado, if this is something you're into, let's get into it. All right. So the first question is, what do you think about the new 40-year mortgages that are rolling out? So I have been getting a ton of questions since the news has been released about these 40-year mortgages. Now, there are two primary ways that I want to look at this.

The first way we're going to look at this is should you utilize a 40-year mortgage for your own personal residence? The second way we're going to look at this is should you consider a 40-year mortgage if you're looking at an investment property or something along those lines. Now, we are going to explore these two options because these are two very different options that come about when it comes to buying your house. You should not have the same considerations when buying a personal residence when you do when it comes to a rental property. Why? Because your personal residence historically is not a very good investment where most people

think that they're going to put the majority of their net worth into their personal residence. And this is what most people do who do not build wealth. The majority of their net worth is inside of that personal residence and they don't really build much wealth outside of their personal residence. where in fact, if you run the numbers on personal residences for a long period of time, I know in 1940 people bought their house for $20,000, but the rate of return based on what they purchased that house for is still not very good.

If you look at it historically, it's going to be a 2 to 4% rate of return because you have to look at the total cost of ownership. And the total cost of ownership means that you're factoring in everything, not just your mortgage payment, but everything else that's also involved with buying a house, meaning your interest, your insurances, home maintenance, which is the massive one that people don't talk about, capital expenditures, things like replacing your roof or your AC, all of that stuff is cost that's baked in. And really, 2 to 4% rate of return is typically what you get with your own personal residence. This is why I always say there's nothing wrong with renting if you

run the numbers and it makes sense. Instead, you should rent in a lot of situations, especially if you don't know what you're going to do in the near future, you should be renting because if you buy a house, you want to stay in that house for a long period of time. Now, why does this all matter when it comes to the 40-year mortgage. Let's break this up with your personal residence first. The first thing is, I don't love a 40-year mortgage for your personal residence. I don't think you need to draw that thing out for 40 years where you build zero equity whatsoever, unless your intent is to do something like a live-and-flip or something along those lines. But still, even with a live-in-flip, you are banking that the market is going to go up over the short-term.

And so if it does not go up and say you have a recession coming to play, you still are holding on to this 40-year mortgage for potentially eight, nine, 10 more years if you have to to stay in that house. So when you're looking at the 40-year mortgage, I don't love it whatsoever. I'd rather you take a 30 or a 15 and consider trying to get that loan paid down. Because if you're holding onto that debt for 40 years for your personal residence, that's what I'm talking about here, is your personal residence, then it's something where, first of all, we're going to talk about the interest rate in a second. I'm going to show you the differential in this episode of how much more you would be paying with a 40-year mortgage if you hold on to that 40-year mortgage in interest.

That's the big bite that you'd be taken for your personal residence. The second thing is is you're building equity slowly in your house. Now, home equity is something that I would not bank on for the long term. Sure, you're going to build up some equity in there. You're going to have that equity available for you. But at the same time, it's not at a great rate of return like we just talked about. So you're going to slowly build that equity. And it's going to be much, much slower than it would be on a 30 or a 15-year mortgage.

In addition, it takes away from your opportunity cost. And you know, we are massive on opportunity cost here on the personal finance podcast. We talk about it all the time. And this can be a multi-million dollar decision in opportunity costs. if you make this switch, it's going to be at least six figures, depending on what type of house that you buy. This opportunity cost is massive in the differential between a 30, 40, and 15 years. Now, you have a couple of options here. You have a couple of options if you went this route, one of which is that you could get the 40 year mortgage and pay it down like a 30 or a 15 year mortgage,

make extra monthly payments if you want to pay that down. But then you also have the option, if anything ever happened, that you could still have that low monthly payment. I just don't love this option because most people are not financially disciplined. Let's get real here. If you're not financially disciplined, if you have a history of not being financially disciplined, then you're just going to make that minimum payment on that mortgage. And you got to remember, when you have a mortgage, that's the minimum amount that you're going to pay because you have all these extra expenses coming into play.

But when you rent, that's the maximum amount that you're going to pay. So you've got to understand these costs that are involved between this. Now, with a 30-year mortgage, you can do the same thing, where people ask, should I get a 30-year mortgage or a 15-year mortgage, I just like to get the 30-year mortgage and have the flexibility to pay it down like a 15-year mortgage if you have the financial discipline. So you have these options available to you if you know that you're going to take advantage of them.

That way, if anything happens like you have a job loss or anything like that, then you can revert back to the minimum payment until you get that new job so that you can reduce your monthly costs. It gives you these options. It gives you this flexibility. But if you don't have that discipline, drawing it out for 40 years is a very, very long time. Anytime we talk about 40 years and investing people are like, I don't want to be. to wait that long. Anytime we bring up 40 years on a mortgage, people are all in because their

monthly payment is lower. This is the difficult piece with this. So you're going to draw out a 40 year mortgage, especially in interest rates like today. At the time I'm recording this, interest rates are very high. They're anywhere between 6 and 8 percent, which in our definition of high interest debt, that is high interest debt. And you think about a 6 percent interest rate is high interest debt in my book. So when it comes to that, you are taking on high interest debt for 40 years. It's a very long commitment that you have to take place when it comes to that 40-year mortgage. Now, let me show you the difference here, because if you only made those minimum payments, this is between 30 years and 40 years. If you're trying to make that consideration and

you're thinking through this, say, for example, you bought a $300,000 house. Okay? And that $300,000 house has a 6% interest rate, which is actually a low interest rate in the environment I'm recording it right now. So you have a 30-year mortgage. Your monthly payment is going to be right around $1,798. And 65 cents if you run the math. So your total interest paid throughout that 30-year mortgage is going to be right around $347,514. Massive amount of interest paid there over the course of 30 years.

But if you take a 40-year mortgage, your monthly payment is going to go down to $1,618.72. So with the 30-year, your monthly payment was $1,798. And with the 30-year, it goes down just. under 200 bucks, which is what entices people to do stuff like this. But what you do not want to do is make big financial decisions based on the monthly payment. People who are not good with money make big financial decisions based on the monthly payment. Oh, that car is only going to cost me $200 a month, but it's drawn out for 72 months. I'm going to go ahead and buy that car. This is not the way to make financial decisions. And hey, we've all been guilty of this before in the past.

But you've got to understand the monthly payment has nothing to do with this. The total cost, has everything to do with this. So you look at total interest paid on the 40-year mortgage, and it goes from $347,514 with the 30-year mortgage all the way up to $476,978 with a 40-year mortgage. This is a $129,464 difference that you pay in interest. You pay an extra $120,000 in interest just by having that house for 10 years longer. Now imagine what you could do with $129,000 if you invest, those bad boys instead. It'd be a massive growth for you and your family to build that generation of wealth. So trying to figure the difference between these two, I would rather you not go with the 40-year mortgage. I just think it's a difficult thing to do. Now, if you're in a

situation, you want to buy a house, it's your passion, that's what you want to do. And you don't care about paying that extra interest there. More power to you because money is there to bring you value. If that's what you value and you've decided, I don't care about these extra costs, I can afford these payments. They are less than 30% of my net income. and I can afford these payments and I still am going to be on track to build generational wealth, then fine, more power to you. Nothing wrong with that because you ran the numbers. You understand the implications of what you're doing here.

And you are at the point where you're like, hey, I can't find a house. I have a family that I want to build wealth in this certain area. I want to be in this certain area. Go to these certain schools. This is the life that I want. This is my dream life. Then money is there to do that. That is more power to you.

But if you haven't run the numbers and you're just taking it because of lower monthly payment, that's where the problem comes into play. Another example here, because that was on a $300,000 house. Most of us know, in most areas across the country, especially where I live, you can't get houses for $300,000 in decent areas. So let's say, for example, let's bump that up to $500,000 just to give you the same example, on a 6% interest rate between a 30-year mortgage and a $400,000. If you had a 30-year mortgage, you'd pay $2,997.75 on a 30-year mortgage with a loan of $500,000, okay? So your total interest paid on that would be $579,190.

In 40 years, your payment would be $2,697. Okay? So your payment drops roughly $300 right around there. Your total interest paid would be $794,964. Your total interest paid would be more than the price that you actually took out for the loan on a 40-year mortgage. And the difference in interest would be $2,964. $1,773.

You'd pay an extra $215,000 over the course of that 40 years just to have that 40-year mortgage to save your $2,300 dollars instead of the 30-year mortgage. This is a deal I'm not willing to take in a lot of situations. Now, could you take a 40-year mortgage because you can afford the payments? It's less than 30% of your net income, but a 30-year mortgage is not, and then refinanced later on? Sure, you can do that. But do you have the financial discipline to do it?

That's the question you have to ask yourself, and you've got to get real with yourself. A lot of people try to convince themselves that they would, but really, really think about this. Would you actually do it? Because that is what truly matters, and that's what really it comes down to. You've got to know yourself overall. So on the other side of the coin, let's talk about real estate investing for a second here. Because this is a totally different animal when it comes to your personal residence. You can see you're paying way more out of pocket.

But when it comes to real estate investing, should you consider this? If you are a real estate investor and you are looking for a way to cash flow more, You care about cash flow more than you do about appreciation or equity build up or all these other things. You want the cash flow so you can retire. Say, for example, you ran the numbers figured out, hey, I need X amount of dollars in cash flow every single month. And so I just want this cash flow number to go up so I can be financially free. A 40-year mortgage may be a great consideration for you. Here's why.

Let me explain why. Because when you get a 40-year mortgage, what's going to happen is every single day instead of you going to work and waking up and paying down that mortgage like you do with your personal residence, your tenant gets up and goes to work every single day. They have to deal with their boss every single day, and they drive through traffic on the way home, come home and are exhausted every single day, and they are paying down your mortgage based on the work that they are doing. That's the reality of what a rental property truly is. Somebody else is paying down your loan for you, and you are building wealth based on them paying down that loan instead of you doing that.

So when that happens, if you care more about cash flow, then a four-year mortgage may be a great consideration because it may allow you to cash flow an extra $100 to $200 per month, depending on what type of property it is. And if it's a larger property, a multi-million dollar property, then maybe you can cash flow even more. So this is a great consideration for people who are interested in becoming landlords because you have lower monthly payments, number one. So those monthly payments are reduced,

meaning you cash flow more every single month, meaning you could build up either a bigger bank role to maintain that property. You could take that cash flow and fund your lifestyle. There's a lot of different things you can do with cash flow. But in number two, it increases the affordability of what you can actually offer that property for. So maybe you can be more competitive with your rental rates because of that, which will help out tenants when they're looking for properties.

Because a lot of people who buy new properties are forced to increase these rents. Because when they increase these rents, they have these monthly payments that they have to keep up with. So you may be able to have a more affordable property for tenants out there, which is going to help them out. You may be able to qualify for more loans because you have a lower debt to income ratio because the amount that you're paying each month in debt, it may be helpful in that situation, and you have increased flexibility.

If you want to pay this bad boy down faster, you absolutely can if you build up that cash bank and just want to start paying it off faster. But if you have a couple of properties on 40-year loans, you could increase your cash flow with multiple properties or multiple units, you know, hundreds of dollars a month, if not thousands, depending on what type of property it is. So in that consideration, a 40-year mortgage on the rental property side would be desirable for some people who are interested in cash flow. But on the personal resident side, it's a very very big.

very different ballgame. And as you can see, this is the difference between the two is that either you're paying down on that interest rate or somebody else is paying down on that interest rate when it comes to rental properties. So that's where you've got to think through some of these notes and how you're going to build them up. Now, obviously with rental properties, there's other ways to get financing the best way seller financing in my opinion, but there's so many other ways. But if you have to go out and get a mortgage, this is going to allow you to cash flow that much more. So I do like that side of it when it comes to building up some of this equity and some of this wealth. So consider that and you can still pay it down for.

faster if you want to, if you're looking for cash flow. If you're not looking for cash flow, you're trying to build up a ton of equity and you want to have all these different properties and you want them paid off, that's a great goal to have. But if that's your goal, then a four-year mortgage probably is not in your best interest. But if your goal is cash flow, you're trying to reduce the amount of costs that you have surrounding a property so that you can cash flow more, then that would be a consideration that I would definitely think through, especially if you have a long time horizon. Now, if you don't have a long time horizon, then maybe shortening that loan would be much better off so you can get that paid off. But if you have a long time horizon until retirement, if you're younger

in your 20s, maybe your 30s, then considering that could be a great option for you on some of your rental properties. All right. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where PolicyGenius comes in. PolicyGenius is an insurance company. They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America, all in one place for free. And

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Indeed on this podcast. Indeed.com slash personal finance. Terms and conditions apply. Hiring, indeed is all you need. This is a question I've been getting a lot lately, which is how to transfer your Roth IRA from one brokerage to another. So some of you may have heard me talk about certain brokerages that I don't like out there. And within those brokerages, some people have had Roth IRAs open there or IRAs open there. They're looking for ways to transfer their Roth IRA from one brokerage to another. And there's a bunch of considerations on why you'd want to do this, one of which is for people who are interested in things like Vanguard index funds, maybe you're buying them in your Roth IRA at Fidelity or Schwab and you have to pay fees to buy those Vanguard index funds. And so what your

preference is is just to move that Roth IRA. IRA to Vanguard so you don't have to pay those fees anymore. That's one consideration. There's a bunch of other considerations. Maybe you have certain things that are tied to your employer and you just want to move it over. So there's all these different things that you can do. The question is, do you have to sell all of your assets inside of your Roth IRA in order to move your Roth IRA? So there's a bunch of considerations that you have to have available to you here. And so let's talk about some of those. So first of all, obviously you're going to have to pick your new brokerage that you're going to move it to before you start to move and transfer that money. And so when you do that, there's four brokerages that I like here

at the personal finance podcast. Number one is Vanguard we just talked about. Two is Fidelity. Three is Charles Schwab. And number four is number four is in one finance. So between those four, what you have to consider is what type of investments do I want to buy. And we talk about this a little bit in Index Fund Pro too, where if you're looking at which investments you want to buy, maybe you want to buy Fidelity funds. Well, Fidelity would be the best option for you. Maybe you want to buy Vanguard, well, then Vanguard would probably be the best option for you. Maybe you want to buy Charles Schwab funds. Then maybe Schwab would be the best option for you. Or if you want to buy ETFs and you want the best dashboard and you want that pie system,

then M1 Finance might be best for you because they have some of the best automations out there. They have tools like automatic rebalancing. So there's four options there that you can really consider when you're thinking through this if you wanted the low-cost brokerages, which would be M1 finance. So you've got to gather all the information that you want before you make this transfer. Now, when you're doing this, the key is you're going to, initiate the transfer over to the new account. Now, there's a couple different ways that you can transfer your Roth IRA. There are direct and indirect transfer. So a direct transfer is the easiest

and safest method by far because the funds just move over directly from one brokerage to another without any tax implications. And most major brokerages can do a direct transfer. And you're just going to submit a transfer form. So when you submit a transfer form, you're just filling out a form so you can transfer all those funds. And then the question then becomes, when you select your transfer, do you have to liquidate your investments? So when you do you do, you have to liquidate your investments? So when you do that. There is something called an in-kind transfer where you can move assets from one account to another without liquidating all your assets. So what you're looking for truly here is what is called the in-kind transfer. Because if you don't want to sell these stocks and have the headache of selling

your stocks, moving and liquidating over and then buying the stocks over again or the index funds, the ETFs, whatever they are, then this is the way to do it. So not every single brokerage allows you to do this, but when you want to do an in-kind transfer, it is one of the best things that you can do because it's the easiest path to just get your funds over there. So here's an explanation of the process. You're going to open that new Roth IRA. Once that's open, then you can start to initiate the process.

Then you're going to request that in-kind transfer. The best way to do this for each brokerage is you can either call up the brokerage, which is my preferred method. I just call them up and say, hey, I want to do an in-kind transfer from X brokerage to your new brokerage. How can I do that? They're going to walk you through the process. And sometimes they just help you do it on the phone.

So doing this is the best optimal way to do it. every time I do something like this, especially at a new brokerage, I just call them up. Sure, you can Google it or look on YouTube and even chat GPT will tell you now. But between those three options, I'd rather just call them, get it over with really quickly and make sure it's done the right way. They're going to give you some paperwork that you have to fill out. Once you fill out that paperwork, then you can start the transfer of the assets. Now, depending on the financial institution, this can take several days and or it can take weeks.

So you just want to monitor and keep track of that transfer as you go through the process. But in-kind transfers are not considered taxable events. So when you do this, you will not have any taxable events whatsoever. Instead, you'll just be able to keep those securities and move them over. A lot of reasons why they wouldn't do an in-kind transfer is, for example, if you have Vanguard funds and the place that you're moving it to does not offer these same Vanguard funds, then that would be a reason they probably would not do that in-kind transfer. So you've got to think through that option.

And the best way to do it is just to call the new brokerage that you want to open it up and say, hey, I want to open a new account. And they're going to love that that you want to open a new account with them. and then you say, hey, do you do in-kind transfers? If so, can you help me open that account and we'll just do it right now? That's all you have to say to them. They will help you through that process. Vanguard's super helpful. Fidelity's super helpful. Schwab is super helpful. M1 finance is great too. So all four of them, I've talked to them before and or you can chat with them also, and they'll help you through that process and make it extremely easy. So that's the best way to do it is those in-kind transfers if you can,

because you keep those securities in place and you just move them over from Roth to Roth so that you can make this a seamless transition. So I would just block out maybe an hour or so to get all of this done all at the same time, and then boom, it's done. You don't have to think about it again. And then you're at your brokerage of choice for as long as you want to be there for. So this is one of the best ways to do that is do that in-kind. transfer to make it seamless. All right, the next one is how do you decide if you should take

Social Security early? So for those who don't know, Social Security, you could take it at various ages depending on when you were born. So there are times where you could take it at age 62, all the way up to age 67. Now, the difference between the two here is you got to figure out, do I want to take it early at 62, where my overall amount that I'm going to get paid is reduced? typically it's all the way up to 30% that it can be reduced, or should I take it to 67 and I can get those full Social Security benefits? At first glance, most people may be saying to themselves, well, I'd rather just wait until 67 and get the full amount

so that I can maximize the amount of money than I'm making every single month with Social Security. But in a lot of circumstances, there's a lot of other considerations that I want you to think through before you make that decision. Because for me personally, I'm actually going to, if it's around by the time I'm 62, I would take it early. Now, one thing to note before I dive into this is if you're young and you're, you're thinking about Social Security, I would not factor Social Security into my overall retirement plan as you're starting to build wealth. Just add it as icing on the top when you get to that age.

Instead, people have been saying Social Security is going to go away for decades and decades and decades. It's still here right now. We don't know what's going to happen in the future. So what I would not do is depend on it for your retirement. Instead, it's only usually, you know, one to two thousand bucks anyways. So what I would do instead is I would build up my own wealth and rely on that. And then Social Security could be amazing icing on the top. Or if you get it, by the time you retirement age, that could be your vacation fund or your fun money or whatever else you want to do with it when that time comes. So here's what we're going to consider as we go through this process with Social Security is there are a bunch of pros and there's a bunch of cons to taking it

early. Pros are if it's going to help you retire early and you get that freedom, then obviously you want that extra cash flow and you can retire right now if you start. taking that social security, that's a great reason to take it because you get five years of your time back and time is precious once you get to the age of social security, you want to make sure that you are maximizing the amount of time that you are utilizing. Also, if you have health concerns or anything along those lines, having that flexibility of taking it early is really, really powerful. And you want to figure out the break even point because there is math, and we're going to talk about this here in a second, that when you do this math, you're going to figure out

what is my break even point at what age do I have to be to break even? Because if you live for a very long time, then sometimes it makes more sense to take Social Security later. But there is a break-even point that we will do the math on here coming up. Now, some cons to taking it early would be reduced monthly benefits. You can reduce as much as 30% based on that. So if you get $1,000 a month, it could go all the way down to $700 per month if you take it at 62 instead of 67. But we also want to know, hey, what's that opportunity cost if I invested those dollars instead? If I'm waiting to take that money, what if I just got that money invested it? We'll talk about that here in a second, too. Then you also have limited earning potential if you take it early.

There's tax implications if you take it early. And there's impact on your spouse. Because if you're the higher earning spouse, claiming early may reduce your survivor benefit for your spouse that your spouse could receive upon your death. So there's a couple of things to think about when it comes to that. But we're going to do the break-even math here. So say, for example, we got our boy Joe.

We got a guy whose name is Joe, and he's ready to turn 62, which is the youngest age that Joe is allowed to take his benefits. So his full retirement age is age 67. Now, this is a very common situation for most. This is the case. And if he waits until then, his benefit would be $1,000 per month at 67. I'm making the math super easy right now for your boy. But he was thinking of starting right away.

And at 62, he would receive 30% less or $700 per month. During those first five years, Joe would have a grand total of $42,000 in benefits if he took it at age 62. But if he waited until age 67, at what age would he need to be to come out ahead? within this math equation here. So the math looks like this. What you're going to do is you're going to take the benefits that Joe would have received at age 67, which is $42,000 total dollars

from $62,000 to $62,000 and divide that by what he would have forfeited each month by taking them early. So $300. So the difference between what he would actually forfeit is $300, and you get 140 months when you do this. So that's 11 years and eight months beyond his full retirement age at $67,

meaning his break-even age would be $70,000, years old. So after age 78, that's when Joe would start to come out ahead. So you got to figure out what is my average life expectancy going to be based on there's a lot of factors that come into play with that. Gender, your health, all these different things that come into play. And depending on what the math is here, that's how you can figure this out. So you divide what you would have received, which in Joe's case was the $42,000 over the first five years, and then what you would have forfeited, which is the $300 a month. But guess what? We're going to do a little more opportunity cost math here. So say, for example, you take it early and you want to invest those dollars instead,

at a 7% rate of return, that would be $700 per month that you could invest every single month. So if you did that annually at a conservative 7% rate of return, I'm factoring in, you got a little bonds up in this portfolio. So if you did that, $700, 7% rate of return over the course of five years, instead of having that $42,000, you'd have $49,837. And if you got that 10% rate of return, it would jump up to like $52,000. between the two factors here. So if you did that, you would increase the amount that you had by an additional $7 to $10,000 depending on what your rate of return was between 7 to 10%. So this is a major factor that comes into play because you could have an additional $10,000, which would skew that math

even more to an older age if you did it this way. So this is something where this consideration, if you wanted to invest those dollars, is an option for you. So if you want to live on this cash flow, you just use the original math that we just talked about. But if you are going to take that money and invest it, just take that money, invest it for the first five years, and then do the math based on that opportunity cost there. So there are a bunch of other reasons to take it, including if you want to retire early, concerns about Social Security's future, enjoyment of life. There's so many different reasons to take it early. You've got to look at your own personal situation. What would I do? That's one question that a lot of people are going to ask me. What would I do if I was in the

situation right now, would I take it early? Or would I wait until retirement age at 67? Almost every single situation, I would take it early. For example, we just talked through this with my parents. My parents are at this point in time where they're thinking about this, and they have decided after we talk through all the options that they're going to take it early. So for me, I would always take it early because that's guaranteed money that you're going to be making. Obviously, life's not guaranteed. You don't know how long you're going to be living. And so taking it early is one where you control the opportunity instead of waiting it out and trying to wait till age 67. I'd rather take the money early, live on that money, enjoy life with the time that I have,

especially while I'm young, take the money, and then you can grow it, you can invest some of it, you can do all these different things to actually skew that data even more. Now, if you think you're going to live to 100 years old, I would still take the money early, I would still have that cash flow every single month, and then you can either invest those dollars, you can live your life. It's up to you what you do. Sure, the math would be in the favor of taking it at 67 if you live to 100, but for most cases, I would still very much take it early. personally because I want that money guaranteed. I don't know what's going to happen here in the near future.

So that's the thoughts on that. You can run the numbers for yourself. The key is just running the math for yourself and looking at your own personal situation, looking at your health situation, looking at do you need the cash flow now? Do you hate your job? And you just want to get out of there and have that freedom available to you. There's so many different factors at play. And that's where I would think through that and what my ideal life is when it comes to taking this.

We will do an entire episode on this where I will dive even deeper because I do get this question a lot. So we will do a full on deep dive and consider a bunch of other considerations, show you a bunch of other math problems that you can do with this so that you can really make the best decision for you and dial this down. So that'll be for the optimizers, the people who want full optimization. If you want the short answer, though, I would just take it early. That's my own personal opinion when it comes to taking Social Security. Thank you guys so much for listening to this episode of Money Q&A. If you guys have any questions, make sure you join the Master Money newsletter, which will allow you to respond to any, emails that we send out every single week and you can ask your questions there or you can ask questions on Instagram, TikTok, YouTube comments, all those different places also. So just let me know that you want this on Money Q&A and we can answer those questions for you on Money Q&A. If you guys got value at this episode, please share it with a friend and we truly appreciate you doing that.

And don't forget to leave those five star rating and reviews on Apple Podcasts, Spotify or whatever podcast player you love. It truly does help out the show. Helps us grow the show so people can learn how to build generational wealth. I truly believe anybody in this world can build generational wealth. You just have to have the head knowledge and have the psychology in place so that you can go forth and take action in the right way. So I cannot thank you guys enough for listening to this episode. Our goal is to bring you as much value as we possibly can,

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