Generally, no. Reverse mortgage proceeds are considered loan proceeds, not income, so they don’t affect Social Security retirement benefits. However, needs-based programs like SSI and Medicaid have different rules, and may be impacted. It’s always recommended to consult a financial professional and the appropriate government agencies to discuss how a reverse mortgage may impact your specific circumstances.
If running out of money is your biggest retirement worry, you’re certainly not alone. According to a recent retirement study, 64% of Americans worry more about running out of money than death, driven heavily by inflation and economic uncertainty.1
Fortunately, older homeowners may have another financial resource available to them: their home equity.
Reverse mortgages allow eligible older homeowners to access a portion of their home equity as cash without giving up ownership or having to make monthly mortgage payments. You are still required to meet the loan terms, such as keeping current with property taxes, homeowners insurance, and maintenance.
Like any major financial decision, it’s important to get all of your questions and concerns addressed in the process.
When it comes to applying for a reverse mortgage, there are a lot of questions around benefits. Do reverse mortgage proceeds affect the benefits you can receive from Social Security? Will you still be eligible to collect your benefits? While there are a lot of misconceptions and myths surrounding reverse mortgages, here are some facts you need to know about reverse mortgages and Social Security.
Why Reverse Mortgage Proceeds Don’t Reduce Social Security Retirement Benefits3
According to the Social Security Administration, 97% of Americans aged 60 to 89 either receive Social Security benefits or plan to receive them.2
Social Security provides a foundation of retirement protection for Americans of all earning levels. Benefits are based primarily on your earnings history and the age you begin receiving benefits, rather than being based on your income or assets.
So, what does this mean for reverse mortgages? Simply stated, having a reverse mortgage does not have any bearing on your standard Social Security benefits.3 You remain eligible, whether or not you have a reverse mortgage.
Reverse mortgage funds are considered loan proceeds, not income. Social Security retirement benefits, meanwhile, are based primarily on your earnings history and the age at which you begin receiving benefits. So, receiving reverse mortgage proceeds does not, by itself, reduce your Social Security retirement benefits.3
It’s important to note that Social Security retirement benefits and Supplemental Security Income (SSI) are different programs.4 SSI is needs-based and has separate income and resource requirements. While loan proceeds generally are not considered income for SSI purposes, funds retained into the following month may count toward SSI resource limits.5 If you receive SSI or other needs-based benefits such as Medicaid, consult the appropriate government agency and a financial professional to understand how reverse mortgage proceeds could affect your individual situation.
What’s more, for some homeowners, opting for a reverse mortgage could provide additional financial flexibility while delaying Social Security retirement benefits.
Can a Reverse Mortgage Help You Delay Social Security?
Determining when to start receiving Social Security benefits is undoubtedly one of the most important decisions you’ll make in retirement. While one school of thought is to start collecting as soon as possible, it’s important to note the potential benefits to deferring Social Security as well.
You can begin receiving Social Security retirement benefits as early as age 62, but starting before your full retirement age generally results in a lower monthly benefit. Your full retirement age depends on the year you were born. For those born in 1960 or later, for example, full retirement age is 67.6
If you wait beyond your full retirement age to begin receiving benefits, your monthly benefit continues to increase through delayed retirement credits until age 70. There is no additional increase for delaying benefits beyond age 70.7
If you’re planning to delay your Social Security benefits, but could use some additional cash now, a reverse mortgage could be just the solution. By tapping into the equity in your home and using it strategically, you may be able to delay Social Security and receive a higher monthly benefit later. As always, it’s recommended to meet with a financial advisor and appropriate government agencies to discuss your specific financial circumstances.
By improving your monthly cash flow with a reverse mortgage, you can alleviate the financial strain of living on a fixed retirement income without affecting your eligibility for Social Security benefits.3
With this in mind, it’s no surprise that more than a million Americans have already made a reverse mortgage part of their financial plan.8
Want to see if it’s right for you? See how much you can qualify for with our free quote calculator and for more information, contact the Longbridge team today.