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.
“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