Traditionally, retirement plans look to three integers: savings, pension and Social Security. But this may be changing in modern times. Since many employers no longer offer pensions, and with more Americans working until older ages but with few savings to show for it (60% of people do not have enough money saved for retirement), the landscape has shifted. Could this mean that more Americans might instead consider accessing their home’s equity via a reverse mortgage?
If you are not prepared for retirement but have been paying into your home loan routinely for a sizeable amount of time, a reverse mortgage could be a viable option.
One reason is to defer your Social Security benefits. For older Americans who wait to cash in on these benefits until age 70, they stand to reap the benefits of delayed credits that can increase benefits by as much as 8% for each year they defer until reaching age 70.
Another reason is because the rules for Social Security could be changing in the near future. For instance, the government is considering plans to eradicate common strategies like file and suspend, where one spouse files for a benefits as soon as possible, but the other delays to maximize benefits.
Since everyone’s situation is different, the approach to considering deferring your Social Security Benefits via a reverse mortgage is something that should be discussed with your financial advisor.
Two things to consider in this scenario include the fact that you would pay more in interest on a reverse mortgage the earlier you claim it (because you’d have the loan longer); and that waiting until full retirement age for Social Security is a wise move, too.
But if you do not have a pension plan in place, and if holding off to receive your Social Security benefits is temping but unrealistic, you may also want to explore your options with harnessing your existing home equity.
Become informed, ask questions and be realistic when talking to your financial advisor. Plan ahead in your budget for Medicare surcharges that could deplete your income. Compare which option makes more sense from all angles. You might find that it’s wiser to withhold your Social Security benefits longer and tap into your home equity sooner. Your best option is to get sound advice from a qualified professional. Then move forward in confidence.
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With 20+ years experience in residential and investment real estate sales, property management and consultation, Matt is an Ohio licensed Realtor currently working as Sales Manger at Real Property Management. Contact him directly at [email protected] or on twitter.