L.A. Times: Reverse Mortgages Bridge Gap to Maximum Social Security Benefits

In an advertorial published this week, the Los Angeles Times spotlighted the strategic use of reverse mortgages to fill the gap between early Social Security eligibility and the period when retirees can receive their maximum benefits.

While there are obvious advantages to delaying Social Security withdrawal until age 70—when retirees can receive full benefits—doing so might not be so easy for people who either cannot or do not want to defer the monthly cash benefit.

In these cases, the L.A. Times notes strategies that incorporate housing wealth early in retirement, rather than using home equity as a last resort, could help homeowners bridge their finances by replacing all, or a portion, of the income Social Security would have provided during the interim.

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“Setting up a reverse mortgage with a term payout that lasts eight years is one idea to consider in this scenario,” the L.A. Times article states, citing a Forbes article written by Neil Krishnaswamy, a certified financial planner.

A reverse mortgage can also help affluent retirees in high tax brackets seeking to maximize their Social Security benefit, the L.A. Times article notes.

The article references a 2014 case study, “Delay Social Security: Funding the Income Gap with a Reverse Mortgage,” written by Tom Davison, a wealth manager and researcher in Columbus, Ohio, which showed how a reverse mortgage line of credit can bridge the gap and “dramatically improve a retirement financial plan.”

“Davison emphasized the long-term benefits of the reverse mortgage line of credit if the borrower is able to put money towards voluntarily repaying it over time,” the article states. “The reverse mortgage line of credit will grow at a reliable rate and can be used to support spending later in life when fewer borrowing options are available.”

Read the L.A. Times article here.

Written by Jason Oliva

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  • As stated at the header of the page in the LA Times where the article appears, this is nothing more than an ad.

    Using HECM proceeds to completely replace Social Security benefits so that the receipt of Social Security benefits can be delayed to achieve higher benefits later is one of the weakest, if not THE weakest, strategy being recommended to all who might “benefit.”

    The problem is no one is discussing the substantial risks connected to the delay strategy. How is that providing the senior with sufficient information upon which to make a relevant decision for that senior? This is like the complaints our industry makes about the well intended who recommend not taking a HECM based on misinformation.

    The decision to delay Social Security benefits must be based on a multitude of factors. Risks are just some of them. There is little question that few seniors would ever take the course of delaying Social Security benefits by use of HECM proceeds if they had all of the information before them.

    No one is publishing articles which are being published other than through paid ads on this strategy. There is a reason. We should be asking ourselves that even though we can endorse this strategy for use by anyone getting a HECM early enough with sufficient proceeds, should we? Should we be covering up risks with academic degrees (even with a six course personal finance credential) totally unrelated to finance? If so, I know some theologists who will recommend never taking out debt. Or then there is Dave Ramsey and his ilk with many of them holding very relevant grad degrees in finance.

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