Earlier this month, the Social Security Administration (SSA) announced that Social Security and Supplemental Security Income (SSI) benefits for roughly 70 million American seniors will rise by 5.9% in 2022, the highest increase in the benefit amount seen in nearly 40 years. Since Social Security benefits often serve as a cornerstone of seniors’ finances in retirement, higher benefit payouts will likely make a difference in seniors’ overall bottom line.
This might lead some in the reverse mortgage industry to ask whether or not those higher benefits may commensurately diminish the need some seniors have for creating more cash flow. However, reverse mortgage industry leaders generally do not feel that the higher benefit payments make enough difference in the cohort’s finances to diminish the need for a product like a reverse mortgage.
This is according to outreach conducted by RMD to many of the industry’s top lenders. While anything that provides better outcomes for the industry’s demographic is always welcome, retirement financing is still a significant issue for many seniors to contend with, even with higher Social Security benefit payments. Because of that, reverse mortgages exist as a potential option for some seniors to explore to bolster cash flow.
Larger retirement issues at play, source of the COLA
Since retirees are faced with an abundance of issues related to their later-life finances, an adjustment to Social Security benefits – even one as comparatively large as the one coming in 2022 – will not make up for the bulk of these issues. This is according to Martin Lenoir, chief marketing officer at American Advisors Group (AAG).
“A cost of living adjustment of 5.6% won’t solve the larger retirement issues that America’s seniors are facing,” Lenoir tells RMD. “When roughly half of Americans say they don’t have enough saved to maintain their standard of living once they stop working, and with one in three seniors having less than $5,000 saved or no savings at all, utilizing their home equity could be a key a solution. A reverse mortgage remains an important element in retirement strategies, especially when you look at how eliminating a monthly mortgage payment could affect the average cost of living.”
Lenoir also cites the recently-released figure from a National Reverse Mortgage Lenders Association (NRMLA) analysis in conjunction with data analytics firm RiskSpan, which detailed that homeowners aged 62 and older saw their collective housing wealth increase in Q2 2021 by 3.7% to a record of $9.57 trillion. This helps to emphasize why a reverse mortgage can be part of a sustainable retirement, he says.
AAG also provided a series of statistics to bolster its argument. While the COLA would add roughly $85 to most beneficiaries’ current Social Security check, the 2022 inflation estimate of 2.6% would cut the COLA by nearly $40 to $47.46. According to AAG, $47 a month on its own is equal to the average monthly expenditure for people subscribed to streaming entertainment services (like Netflix, Hulu, Disney+ and HBO Max); is on the lower end of the average monthly cost for internet service; and is well below the average amount paid per month for cell phone service ($114).
The COLA itself can also serve as a reminder for why reverse mortgages may be necessary for some retirees in the first place, considering that the COLA is as high as it is because living costs more due to current levels of inflation. This is according to Scott Norman, VP of field retail and director of government relations at Finance of America Reverse (FAR).
“While the increased COLA level can certainly be helpful and needed for those who depend on Social Security, this development is another reminder of how expensive it is to retire in America with financial flexibility,” Norman tells RMD. “To that end, I do not see a correlation between this adjustment and a borrower’s interest in a reverse mortgage; rather, I believe it is an opportunity to continue working with policymakers to protect seniors and help make retirement as safe and secure as possible.”
Reverse mortgage industry posture related to COLA
Making a distinction between the human benefit and the business reality for the reverse mortgage industry should also be at the forefront of the way the industry perceives this change, according to Scott Gordon, CEO of Open Mortgage.
“A noticeable increase in the COLA is great news for seniors, and we love to see that,” Gordon tells RMD. “But it shouldn’t be scary for the reverse mortgage industry. The boost is offset by real inflation to where seniors might still be falling behind. They still need our help, and I expect any volume change due to this increase will be hard to measure or quantify. I say, ‘Look ahead, move ahead!’”
According to Harlan Accola, national reverse mortgage director at Fairway Independent Mortgage Corp, the specific costs should also be contextualized in terms of the real, tangible benefit this raise will have for seniors.
“The average person gets about $85 more a month – not much more than a few bags of groceries, or maybe a couple of tanks of gas,” Accola says. “This will all be eaten up with the inflation on things that the seniors must buy as a normal cost of living. […] We [at Fairway] are using this story to explain that Social Security will simply not be the answer, as evidenced by the fact that even a 5.9% ‘gigantic’ raise will do very little to impact their lives. They need a much bigger lifeline.”