Tom MacDonald - Reverse Mortgage Consultant

     

 

 

 

 

       Reverse Mortgage Consultant

      Tom MacDonald

 

       707-265-6385      800-801-5727   The Best Reverse Mortgage Website in the U.S.*

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Should I use a Reverse Mortgage to Allow Me to Defer Taking Social Security?

It is difficult for me to give you a yes or no answer.  There are a lot of considerations.  Let me start by giving you some information.

To begin with, Social Security has a calculator on their website to let you determine how much is paid out at different ages.

So let me start with a hypothetical example.  Let's assume someone is age 62 and (s)he is trying  to decide if they should start their Social Security now or wait until age 67. 

For someone born between 1943 and 1954, they don't receive their 'full retirement' until age 66.  To make the arithmetic easy, let's assume their benefit would be $1000.  If they retire at age 62, their benefit would be reduced to 75% of their normal retirement or $750.  If they wait until age 67, their benefit would be increased by 8% to $1,080.  A difference of $330 or 44% more than the $750 they would get by starting early.

If (s)he lives to age 77, they would have drawn a total of $127,500 if they retired at age 62 on $750 and $129,600 if they waited until age 67 at $1,080.  They are already ahead by $2,100 and every year they continue to draw Social Security, they are nearly $4000 ahead.

Now, trying to determine if a Reverse Mortgage taken out at age 62 is a more difficult chore.  First, the goal of most people, at this point in time, is to stay in their home for the rest of their lives.  If they do so, they will never pay back the loan. (Yes, their heirs will.)  So how do you compare not paying anything for a Reverse Mortgage with the extra benefit of more real money.  (Yes, the Reverse Mortgage costs are real money.  You could crunch some numbers to create hypothetical comparisons.) 

Next, the value of the home will have something to do with the amount of money available to the 62 year old and the cost of setting up the reverse mortgage.  As of this writing, someone with a $350,000 home could get about $1080 monthly for the rest of their lives.  That means at age 67, their income could double if they start taking the $1080 available from Social Security.  Or they could take the $1080 for only 5 years owing $64,800 in the principal they have drawn plus closing costs, accrued interest and monthly fees and MIP.  If they chose the second method, their home would only need to be worth about $125,000 in order to take $1080 for only 5 years.

So is it worth taking the Reverse Mortgage at age 62 and deferring Social Security until age 67?  I'm sorry to disappoint but there are far too many variables for me to give a definitive answer.  The Social Security site suggests Other Things to Consider in the basic start early or late decision. 

Looking at the Reverse Mortgage side of the question, details to consider include: the up front costs, the average interest rate over time, the value of having the Reverse Mortgage for other uses, the level of desire to leave the equity to heirs just to name a few.  And then there is the possibility the borrower will never repay the Reverse Mortgage.

While I haven't answered the question, I hope I have provided enough details to help you intelligently analyze and consider this choice for yourself.