PLANNERS: IN THE RETIREMENT PLANNING PROCESS ==

INCLUDE HOUSING WEALTH AND SOCIAL SECURITY BENEFITS 

In our last blog post “case study”, we introduced a couple who had calculated that, in order to maintain their desired income level in retirement, it was going to take both Social Security benefit checks to augment the annuity and investment income they were going to have coming in. 

In a Kiplinger article we cited, the author noted that noted that that “the timing of the decision to start taking Social Security benefits is highly personal, and important factors such as financial assets, life expectancy, and marital status must be considered”. Personal health conditions, major health concerns with any immediate family members need also considered.

An alternative for the couple would have been to consider tapping the equity in their home through a reverse mortgage, which would serve to cover the income shortfall at least until the older of the two has qualified for the maximum social security benefit.

As a wealth planning professional, you’ve no doubt found that many of your clients are also unaware of the tax planning issues relating to their Social Security benefits. Kiplinger discusses IRMAA, an income-related monthly adjustment amount, the surcharge on Medicare when taxable income exceeds certain thresholds, potentially increasing costs to the client by 3-9% annually. Your tax planning for your clients no doubt involves working with their tax advisors to strategically manage income, deductions, and credits. Since tax planning significantly influences estate planning. (“Understanding how different assets are taxed upon inheritance can guide you in deciding which assets to convert, gift, or leave as donations,” Milestone Financial Planning points out), you’re no doubt coordinating with clients’ estate planning attorneys in exploring retirement planning options.

Just as many estate planning and tax planning decisions are interwoven with retirement planning, housing wealth needs to be discussed whenever clients plan to “age in place”.  A reverse mortgage line of credit, for example, can allow clients to delay taking Social Security benefits, and withdrawals can help fund long term care needs. The equity built up in a home can be used to improve the home environment itself, making it safer and more convenient for senior living.

As an advisor, you’re wise to be cautious about recommending any strategy or product outside of your own training and expertise (or not included in your broker-dealer’s approved product line, as we discussed in post #174, housing wealth considerations help clarify – and complement – retirement planning and social security planning decisions.

https://mutualreverse.com/david-garrison

For professional use only. Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

SOCIAL SECURITY BENEFITS BETTER CLAIMED LATER THAN SOONER

After much thought (arguments, considerations, compromises), you made the decision to retire — both of you –at the end of this calendar year. While the original intent had been for both of you to work until you had both reached “normal retirement age”, you have calculated that, in order to maintain your desired income level in retirement, it is going to take both Social Security benefit checks to augment the annuity and investment income you will have coming in. On the positive side, your cars are in good repair and paid for. The home itself is in good shape with no mortgage, and your hope is to spend the rest of your lives right there. There could possibly be an inheritance in your future, but you can’t rely on that and needed to find ways to secure the income flow now.

Waiting until age 70 to claim Social Security benefits has a double advantage, with monthly payments increasing by up to 8% for every year you wait; the survivor benefit will end up being larger as well. “But to take advantage of higher monthly benefits, you may need to accept some short term sacrifice, a Fidelity.com article advises.”When one spouse dies, the surviving spouse can claim the higher monthly benefit for the rest of their life.”

An alternative to consider would be tapping the equity in your home through a reverse mortgage, which would serve to cover the income shortfall at least until the older of you has qualified for full social security benefits. So long as you keep up your property taxes, insurance, and regular maintenance of the home, you will not be obligated to make monthly mortgage payments.* Meanwhile, two positive things will be happening: your social security benefit will increase by as much as 8% for each year you defer. Meanwhile, with the reverse mortgage structured as a line of credit, the unused portion of the equity still grow at the same rate as the rate of interest being charged on the borrowed funds.

Married couples optimizing their Social Security claiming decision are making use of three things, Brian Alleva explains in the FPA Journal — two worker benefits, and a potential survivor benefit. 

With a reverse mortgage, Social Security benefits can be better later than sooner!

https://mutualreverse.com/david-garrison

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

REVERSE MORTGAGE FUNDING CARRIES SAME-AS AND UNIQUE TAX BENEFITS

Interesting. The two of you just have beaten this week’s filing deadline to get 2026 property tax credits for senior homeowners. With your combined annual income just under $69,000, you were able to qualify for the $150 credit despite the fact that your property has continued to appreciate nicely. 

The recently passed Senate Enrolled Act 1 offers property tax relief to homeowners. As part of the benefits available as part of that legislation, Hoosiers over 65 are offered a tax credit of $150 (the income limit for qualifying for the credit has been increased to $60,000 for Individuals and $70,000 for couples)

Having made a firm decision to remain in your home for life, you have been exploring the benefits of reverse mortgage funding, with the initial purpose to use part of the equity to do some restructuring of the bathrooms, kitchen, and laundry room. You’ve been attending seminars about reverse mortgages but put the “project” on hold while you focused on the property tax credit topic. Now ready to get “back on track” with interviewing contractors (and raising funds to pay them), you want to better understand whether you’d be losing tax benefits by taking out a reverse mortgage (as opposed to a second mortgage).

You might say that the tax ramifications for reverse mortgage homeowners are both “same-as others” and unique. 

Same-as tax benefits: 

As reverse mortgage homeowners, you will be obligated to continue paying your property taxes (continuing to be responsible for homeowners’ insurance and maintenance casts). Whatever tax credits are available to Indiana homeowners will continue to be available to you.

Unique tax benefits:

The loan proceeds (set up as a line of credit from which you can draw) will be non-taxable. There will be no obligatory monthly mortgage payments.* In fact the unused portion of your equity will grow at the same rate as the rate of interest being charged on borrowed funds. 

Senate Enrolled Act I, (especially since you’ve applied in time to get the benefit this year) will turn out to be good news for you, not only in 2026, but after you’ve accessed the equity built up in your home through reverse mortgage funding.

https://mutualreverse.com/david-garrison

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

MADE THE BIG HOUSING DECISION? FUND THE LITTLER ONES WITH HOUSING WEALTH

“Ask yourself the uncomfortable but clarifying question: If someone forced you to do the right thing tomorrow, would I know exactly what that is?” If the answer is no, Pete the Planner says, you have a mechanics problem. If the answer is yes, but you still don’t do it, you have a behavior problem.” In his Indianapolis Business Journal column, Peter Davis is talking about managing one’s financial affairs.

When it comes to retirement planning, the two of you, it is clear, have had no trouble knowing that the “right thing” for you is going to be “aging in place” rather than leaving the home you love and moving into a retirement community, either now (you’re both in your late 60s) or later. The “behavioral” challenges you face involve finding the financial resources to remodel the home and grounds in ways that will improve the safety and navigability of your environment, without a) triggering tax on the sale of investments or b) incurring long-term debt repayment obligations. 

Setting up a government backed reverse mortgage or HECM will allow you to access the equity built up in your home, using your “housing wealth” to fund the adaptations needed to make your environment aging-in-place suitable. Importantly, while that housing wealth functions as a line of credit for you, unlike the way a “forward mortgage” would function, there will be no obligation to make monthly mortgage payments* on your reverse mortgage loan, and therefore no need to tap into your investment portfolio. In fact, any unused portion of your home equity would continue to grow at the same rate as that being charged on borrowed funds.

With no “mechanics problem” (you were able to make a key retirement planning decision – to remain in your home), you’ll be using your housing wealth to prepare your future living environment, making wise “behavioral” choices.

https://mutualreverse.com/david-garrison

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

STARTING AFRESH WHLE STAYING HOME

In the years following your husband’s death, you had become resigned to spending the rest of your life alone. As fate would have it, you’ve met a wonderful man, himself a widower, and are planning to remarry. While you had originally intended to sell your home this year, moving into an active adult retirement community, you now intend to remodel the home and stay put. The plan is to take a home equity loan and pay it off in five years.

Meanwhile, your fiancé, who is still working, will be selling his condo and moving in with you. The plan is for you to liquidate investment assets to pay for the major overhaul – or perhaps take out a line of credit on the home, but he’s offered to cover the expense of adding an office and bath with its own access door and parking spot, so he can continue his consulting business. 

As you’ve explained to your estate planning attorney, you’re not planning to add his name to the title, as you want your home to be part of the legacy passing to your own children. On the other hand, with him being twelve years your junior, you want your new husband to have the option of remaining in the home for the rest of his life.

Rather than liquidating assets or rather than financing your costs for the construction work through a home equity “forward” loan, you might consider a HECM reverse mortgage set up as a line of credit. While you would be the borrower, your husband would be listed as a non-borrowing spouse. That means that, were you to pass away while the loan is still active, he, as the non-borrowing spouse, would be able to remain in the home. (Of course he’d need to continue to maintain the home, taking care of property taxes and homeowners’ insurance.) Your estate planning documents would need to be adjusted to allow for his right to remain in the home before it passes to your designated heirs. On the other hand, it’s crucial that you understand that, were you to be forced to move to a nursing home or care facility for longer than 12 months, the reverse mortgage loan would become due. 

It appears that reverse mortgage financing would offer a number of advantages given your description of the situation. No monthly mortgage payments* or loan repayments will be required (either from you or from your non-borrowing spouse). And unlike the case with withdrawals from your investment portfolios, equity withdrawals through the reverse mortgage will have no tax ramifications. In fact, whatever portion of your equity is not borrowed or that has been repaid with grow at the same rate as that being charged on borrowed funds.

Not only will you be starting married life “afresh”, you’ll be doing that while staying home!

https://mutualreverse.com/david-garrison

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

HOME EQUITY — THE SWISS ARMY KNIFE OF ESTATE PLANNING

“When it comes to wealth transfer, both givers and receivers need to be seriously strategic. John Vandergriff suggests in a Kiplinger piece With the largest wealth transfer in history beginning to take place, Vandergriff says, parents want to transfer assets as efficiently as possible, leaving heirs with a plan, not a puzzle. Communication is key, he cautions –the more buy-in parents get from their kids, the better it will be for everyone, but parents must be strategic in how they give or leave money,,.

As the two of you were discussing this article, you realized that Vandergriff’s observation that “not everyone wants their children to know about their financial situation or their distribution of assets in the same way” certainly applies in your situation. Now both in your late seventies and just very recently retired, you have been in the process of re-thinking some of your earlier estate planning decisions. You own two pieces of property — your own home and a second home in Florida. Both have been fully paid for for years. with, interestingly, a market value that is remarkably similar. Your original plan was for the two of you to move to a retirement community, allowing your younger son, who now lives with his fiancée in an apartment, to live in your home, paying “rent” and ultimately inheriting the home. The older son, who is better established financially, would inherit your “winter home”. You had not yet reached the point of sharing these plans with either of the boys.

Now, after much discussion and soul-searching, you have decided not to move, but to do what is popularly known as “aging in place”. The amount you’d set aside for the buy-in to the retirement community may or may not suffice to cover the remodel (moving master bedroom and bath to ground floor, redo HVAC and some foundation work, and you have now been weighing the benefits of a reverse mortgage, feeling grateful that you had not discussed the original plan with your sons. At the same time, you want to keep the basic estate planning concept in place, with the younger son eventually owning this home (with the option of occupying it if that is still appropriate for his life), while the older one receives the Florida property.  Now that you have a general plan and numbers become clearer, you intend to find the right timing to share your intentions with both sons.

As you’ve no doubt learned, a reverse mortgage loan becomes due and payable after you have both died. As heir to the property, (your estate planning documents will have specified that he is the one to decide), your younger son will receive a due and payable notice from the lender and he can choose to sell the home (if at the time the home is worth more than the debt, he can keep the difference; if the home is worth less than the amount owed, the mortgage insurance will cover the deficit), or pay the lender (with money you will have left him in your estate plan), and move into the home.

The government-insured reverse mortgage can be a very flexible, almost Swiss-Army- Knife tool to help you make this retirement/estate planning combo work for you, and ultimately, for your sons.

https://mutualreverse.com/david-garrison

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

HEALTH WON’T ALLOW FOR EITHER LONG-TERM CARE OR LINKED BENEFIT INSURANCE? LINK HOME EQUITY TO AGING IN PLACE 

As a financial planner, you understand that one of main budgeting challenges your clients will face as they enter into retirement will be related to health costs. With that in mind, while you are not yourself a licensed insurance agent, you have begun to systematically refer clients to knowledgeable long-term care insurance colleagues. 

For those of your clients in their sixties who have the wherewithal to “pre-fund” long term care insurance while still preserving assets for their beneficiaries, you recommend they look into linked-benefit policies. (True as some of your colleagues have pointed out such a large prepaid premium commitment can divert client assets from investment accounts you would otherwise be managing. But, with the intention of remaining active in your financial planning practice for decades to come, you must put clients’ long-term benefit ahead of your own interests.)  

The problem you’ve described that arises for some of your clients is health-related, rather than a matter of affordability. While linked-benefit, or hybrid long-term care because the underwriting is focused on the life insurance aspect along with the long-term care aspect, may have less stringent health requirements than traditional LTC, health issues may indeed disqualify some.

First, you are certainly to be complimented for continuing to educate yourselves on long-term care insurance options on behalf of your clients. The escalating costs of senior care, whether in the form of home care, assisted living, or nursing home care, pose an enormous retirement planning challenge. That challenge is even more daunting for those unable to qualify for LTC insurance coverage. It will become important for many to consider using the equity built up in their home as the “insurance” element in their retirement plan, in the form of a HECM reverse mortgage set up as a line of credit.

With a government-backed reverse mortgage, so long as your clients continue to occupy their home, taking care of home maintenance costs, taxes, and insurance, no monthly mortgage payments* would be required. Monies withdrawn would be non-taxable, while the unused portion of their equity would grow at the same rate as that being charged on borrowed funds. Since by definition, a reverse mortgage represents a non-recourse loan, heirs would never be left owing any money to the lender.

When LTC insurance options become unavailable to clients, “linking” their home equity to their potential future need for long term care can be the key to “aging in place.”

https://mutualreverse.com/david-garrison

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

STAY-AT-HOME SENIOR VALUES INDEPENDENCE 

Following a round of visiting with former neighbors who’ve sold their homes and moved into various luxury retirement communities, you’ve decided that lifestyle is not for you. Having nursed your husband through an extended illness prior to his passing, you have moved “back into life” again, becoming very involved in community and cultural activities. You value the very independence you feel some of those former neighbors have given up by moving, and you feel able to manage well in terms of upkeep.

Along with the life insurance benefits from your husband, you have been able to support your needs through a combination of Social Security, pension income, and investments. While in the course of his extended illness and later death, there were substantial costs; those have all now been paid in full, leaving you debt free.

Now, at age 69, you’ve been looking into taking out a reverse mortgage on the home, as a financial “back-up” plan going forward. While your son and daughter have been assigned power of attorney in your estate plan documents, you would prefer not to discuss the reverse mortgage with them. Eventually, you want them to have the choice of owning the home, either renting it out or of one choosing to live there once you no longer can, but, for a variety of reasons, you prefer not including them in the mortgage decision-making process or in your financial and estate planning in general at the present time. 

As a parent, you certainly do not need your children’s permission or approval to take out a reverse mortgage on your own home. However, if you are forced by illness to vacate the home, and when you die, your children will be contacted by the lender to inform them of their options. Children with prior knowledge, needless to say, will be better prepared to make informed decisions. There is no chance they would be financially harmed, since, in the unlikely event that the value of your home were to decline and end up being less than the debt at the time of your death, they would have no responsibility for the deficit. Should they decide to sell, any profit would be theirs to keep… 

When and if, at some future time, you decide to discuss your intentions with your son and daughter, they are sure to realize you’ve honored your own desire for independent “aging in place” while thinking ahead for their benefit as owners-to-be.

https://mutualreverse.com/david-garrison

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. 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. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender