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#109 Substituting reverse mortgage draw-downs for IRA withdrawals


November 8th, 2022

You’ve just realized that all the Social Security “good news” flooding your newsfeed might well be bad news in disguise when it comes to taxes. Yes, you’re each scheduled to receive a hefty raise in your Social Security benefit due to the more than 8% cost of living adjustment. Yes, the standard deduction for married couples, you’ve learned, is also being raised, but, since you’ve already been paying tax on 85% of your Social Security, that means most of those “extra” dollars will be going to tax. When CNN recently commented that “the higher COLA could prompt some beneficiaries to get bumped into a higher tax bracket – they must have been talking about you!

With both of you now in your fifth year of retirement (she’s 68, you’re 70), the rising costs of food and gasoline have so far not severely impacted your everyday lifestyle. A substantial portion of your income comes from a fixed joint lifetime annuity (from an inheritance she received), and you have been making regular withdrawals from both IRA Rollover accounts. There is a joint investment account as well, consisting mostly of municipal bond funds; you do not take money out of this joint account, considering it your “rainy day” backup account. In the year leading up to your retirement, you completed several home renovation projects, paying for those in full, and you made the final payment on your home mortgage at that time. Your estate plans have been recently updated, including paid-up life insurance policies that can be used for long term care if needed. You believe that your focus now needs to be on tax planning.  

It does sound as if tax planning might be needed now. Were you to apply for a HECM reverse mortgage on your home, you could replace, your taxable IRA withdrawals with tax-free withdrawals from a line of credit secured by your housing wealth. The money you receive will not affect your Social Security or Medicare benefits (in fact, you can each postpone IRA withdrawals until age 72).   

Substituting reverse mortgage draw-downs for at least a large part of your IRA withdrawals might well ease the burden implicit in the coming calendar year Social Security “good news”.

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894