#32 Avoiding Early Social Security Through a Reverse Mortgage
EARLY SOCIAL SECURITY? A REVERSE MORTGAGE MIGHT BE A BETTER WAY TO GO
Your plan had been to work at least until your so-called Social Security “normal retirement age” of 67, but here you are, barely 62, victim of a pandemic-based downsizing. You have been applying for jobs and will certainly find a way to earn some money, but there is little prospect of continuing your former standard of living. You’ve considered taking early Social Security to avoid the cash crunch, but learned, much to your horror, that the reduction in your monthly benefit would be in the four figure range!
Yes, you have a modest investment account, but your 401k plan was seriously eroded in the course of your divorce. What’s more, you’ve learned, now that you’re no longer part of the company, you cannot tap that 401k through a loan. Taking stock, you realize that fortunately, in the divorce, you were awarded full ownership of your home, which has only a partial mortgage balance remaining. And yes, you’re expecting an inheritance at some point in the not-too-distantfuture, but need to find ways to bridge the financial gaps now. A home equity loan is a possibility, but, although your credit record has been good, without being able to demonstrate a reliable current income source, you’re not sure you’d qualify. Is early Social Security the best choice after all, you wonder?
An option to consider is a reverse mortgage, using the equity in your home as a resource. Unlike the second mortgage you’ve considered (where you’d need to make regular payments), a reverse mortgage would give you a source of income that could help cover the income shortfall until you qualify for your full social security benefit. With a reverse mortgage, you will not need to make regular installment payments to the lender, because the equity in your home will serve as collateral for the loan. Depending on your success in finding work, you may stop those withdrawals and even start repayments. The advantage is that, so long as you keep up your property taxes, insurance, and regular maintenance of the home, you will not be obligated to make payments. Your 401K can continue to grow tax-deferred, and IRA funds can continue to grow tax-deferred, and your Social Security can grow to their “normal” size.
Not intended as tax advice. Please consult a tax specialist.