With you and your husband of forty years on the brink of retirement, you’ve taken on the job of researching planning options. (While all financial decisions will always be made jointly, your work schedule happens to be a bit more flexible, and so you’ve taken on the responsibility of gathering information and conducting meetings with advisors.). One big question up for discussion is whether both of you should begin collecting social security benefits. In a recent conversation with a neighbor, you were warned about the so-called “tax torpedo” that happens when additional taxes have to be paid because half your social security benefits are considered part of your taxable income. The idea, the way you understand it, is that it is smart to delay taking social security to age 70 to the extent you can afford to do without that money coming in.
Your home is fully paid for, but still, you’re not sure you want to afford to do without the income from social security. Whatever extra travel and luxuries you can afford going forward, you believe in enjoying those while you are most physically able to enjoy them. You have three children, but they are not dependent on you, nor would you want to be dependent on their help.
Your financial advisor and tax accountant can “run numbers’ for you showing the tax ramifications related to the timing of your social security benefits. Meanwhile, however, it seems one planning element you have not considered is using the equity built up in your home. Withdrawals from a reverse mortgage line of credit, made at times you want to enjoy those “extras” in terms of travel or luxuries might allow you to defer social security benefits for either or both of you. So long as you keep up your property taxes and insurance, you will not need to make any monthly payments on the reverse mortgage. The unused portion of your housing wealth available in the line of credit will grow at the same rate as the interest being charged on the loan balance.
In the process of doing all this valuable research about different approaches to managing your retirement finances, don’t forget one very important “treasure trove” – the equity you’ve build in your own home.