MarketWatch Explores Delaying Social Security with a Reverse Mortgage

The strategy of delaying Social Security payments by taking out a reverse mortgage has attracted controversy in recent months, and a new report from MarketWatch finds that the answer is far from straightforward.

Columnist Mark Hulbert talked to Jamie Hopkins, a professor at the American College of Financial Services in Bryn Mawr, Pa. and a frequent proponent of novel reverse mortgage strategies, to figure out if the Social Security delay is worth it.

The idea, according to proponents, is to maximize retirement benefits by supplementing your income with the proceeds from a Home Equity Conversion Mortgage and waiting to claim Social Security benefits until age 70.

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“It would seem a no-brainer to use a HECM to defer Social Security until age 70,” Hulbert wrote. “That’s because you can increase the amount of your monthly Social Security payment by 8% for each year of deferral, and that increase would appear to far exceed the costs of a HECM.”

But of course the strategy isn’t so cut-and-dry. The Consumer Financial Protection Bureau last year issued a warning about Social Security and HECMs, claiming that the costs associated with originating a reverse mortgage outweigh the benefits. Hopkins himself wrote two pieces rebutting the CFPB’s arguments, and also positing that the strategy was underused.

In the MarketWatch piece, Hopkins and Hulbert note that it might not make sense for someone who isn’t in the best health, as he or she could be waiting for a 70th birthday that may never come. In addition, some borrowers might be tempted to spend the money on luxuries or vacations, Hulbert wrote, while using home equity early in retirement could make it more difficult to pay for an assisted living facility later on down the road.

Hopkins concludes with a piece of solid advice for anyone considering a HECM: Find a skilled retirement planner who has knowledge about reverse mortgages and can walk you through any potential upsides and pitfalls.

“Perhaps the best single piece of advice about a reverse mortgage in retirement therefore is: ‘Don’t try it by yourself at home,’” Hulbert writes. “You should definitely consult with a financial adviser who is well versed in the complexities of the subject.”

Written by Alex Spanko

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  • >>In addition, some borrowers might be tempted to spend the money on luxuries or vacations

    Tempted? Some are planning on it!

    Last week I was talking with an 84 Older American, and after covering the current 336k mortgage, She plans on using 150k of the remaining 256k to purchase a Rolls Royce. She absolutely loves the Bentley Bentaga SUV released last year.

  • There are many issues to consider and this should be a facts and circumstances driven decision including evaluating risk tolerance to the benefits at risk by waiting. Another test that should be performed is the theoretical payback period using the increased benefits as the monthly loan payback amount.

    I agree with Dr. Pfau that the strategy itself without the taking of a HECM is greatly underutilized. While taking a HECM to achieve as long a deferral period up to age 70 as possible could be advisable, the help of a competent and knowledgeable financial adviser who is experienced both with the Social Security benefit deferral option and HECMs

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