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#132: Using a reverse mortgage to defer Social Security benefits


With your tentative retirement scheduled for the end of this calendar year, you have been considering whether to begin claiming Social Security benefits at the start of retirement (you will have reached the age for full benefits). In the course of researching this topic, you found an article about the “Social Security bridge strategy” that explained that, if you can wait the three and a half years until you turn 70, your Social Security will then provide “a larger stream of annuitized income”. To tide you over until then, you’d draw down your 401K and other savings, (You can’t help feeling that the rate of increase in the Social Security benefit is likely to be greater than the rate you’d earn on savings right now!). 

One of the factors you’ve been considering in this decision is that you are in excellent health. On the other hand, while your home is entirely paid for, there are some important maintenance items coming up in the next year or two, including a new HVAC system. There may be some opportunities for part time work to supplement your income post retirement, but you’re reluctant to depend on having “gig” income.

Rather than depending on a combination of your investments and part time income to bridge the income gap you’d experience by deferring your Social Security benefit payments, you might consider using your own housing wealth. With a reverse mortgage set up as a home equity line of credit, you can fund the home repairs and have a source of income beginning when you retire next year, until you reach age 70 or even beyond.. So long as you keep up your property taxes and insurance, you will not need to make any monthly payments on the reverse mortgage..  Depending on the availability of “gig” income, you can adjust withdrawals as needed, allowing your 401K to continue “undisturbed” (thus reducing taxable income). Meanwhile, the unused portion of your reverse mortgage credit line will grow at the same rate as the interest being charged on the loan.

With a reverse mortgage, your own housing wealth becomes the “bridge” in the Social Security bridge strategy.