Rick San Vicente
You’ve probably heard a lot lately about waiting until 70 to claim Social Security. The appeal is simple: the longer you hold off past 62, or past your full retirement age (67 for anyone born in 1960 or later), the bigger your monthly check gets, and that higher amount is locked in.
Of course, it’s a personal call. It depends on how long you expect to live, and even on how much faith you have that the Social Security Administration will keep paying what it’s promised.
A new paper by James Mahaney, posted on the Social Science Research Network (SSRN), points to a benefit of waiting that people don’t talk about much: cost-of-living adjustments (COLAs). Once you start collecting, you get an automatic raise each year based on rising prices. Everyone gets the same percentage, but if you waited, that percentage is applied to a bigger starting number, so your raise is bigger in dollars. Next year’s raise builds on that larger base, and so on, year after year.
In Mahaney’s words, “a retiree who delays to age 70 applies that percentage to a structurally larger base and so captures a larger nominal dollar increase every year for life.” He also describes the value of waiting as “not merely a one-time step-up but a permanent amplification of the only meaningful inflation hedge most retirees will ever own.”
Still, waiting isn’t realistic for everyone, since many people simply can’t afford to go without the income. One option for homeowners 62 and older is a reverse mortgage, whose distributions are tax-free* and could help cover expenses while they hold off on claiming.
A HECM reverse mortgage provides loan proceeds that are generally not taxable* and may be one option to consider for homeowners 62 and older whose budgets are tight, but who see the value of deferring Social Security.
A reverse mortgage is a loan that must be repaid. The loan becomes due when the last borrower sells the home, moves out or passes away. Foreclosure may occur if the borrower fails to meet loan terms, including living in the home and paying property taxes, insurance and maintenance costs. Loan costs vary, and less expensive options may be available. Proceeds may affect eligibility for need-based programs such as SSI and Medicaid. To keep the home when the loan becomes due, the borrower or heirs must repay the loan balance, which may exceed the home’s value.
This article is for informational purposes only and is not financial, tax or Social Security claiming advice.
*Not tax advice. Please consult a tax advisor. A reverse mortgage has costs, interest accrues and the loan balance grows over time, so it’s worth comparing those costs with the added Social Security benefit. A HECM counselor can help you weigh the options. Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
Richard SanVicente, NMLS ID 647335. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Licensed by the Department of Financial Protection & Innovation under the California Residential Mortgage Lending Act, License 4131356. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. Phone #: (866) 200-3210. For licensing information, go to: www.nmlsconsumeraccess.org
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