A Reverse Mortgage Line of Can Maximize Your Social Security Income
A Home Equity Conversation (Reverse) Mortgage may provide financial resources you’ll need to defer claiming social security benefits until age 70, and, in turn, create far more liquidity than you imagined.
Getting the most out of Social Security requires at least one spouse to claim retirement benefits between ages 68 and 70. Yet many cannot afford to delay a claim.
HECM Social Security Strategy Example:
For illustrative purposes only: Jim and Susan are both 61 years old. Their SS benefits at age 66 are $2,400 (Jim) and $1,200 (Susan). Their life expectancies are normal (82 and 86 years old). If both claim SS at age 62, they will leave $185,000 (adjusted for inflation) on the table. If they live to age 90, they have lost $300,000 in benefit. All because they made their claims early.
Yet Jim and Susan need an additional $1,000 each month in income now to meet their needs. They own their home, valued at $350,000. How can they use a reverse mortgage to claim that $1,000, keep their home, and defer SS claims to maximize its long-term benefit?
This example will illustrate how a HECM Line of Credit can create a $1,047,796 cash benefit to Jim and Susan while living in the comfort of their current home.
Understanding This Illustration
Jim and Susan needed $1,000 per month ($12,000 annually) to offset income deficiencies. To save from tapping Social Security benefits early, they could save an estimated $186,000 in Social Security income if they lived to age 86. If they lived to age 90 they could save an estimated $300,000 in benefit.
Using a HECM Line of Credit, they setup an automatic Term payment that pays them $1,000 at the beginning of each month, for eight years. These payouts require no repayment while living in the home. By drawing $12,000 each year through age 69, they will still have at least $183,922 left in their growing line of credit by age 70. Now they are 70 and ready to claim full Social Security benefits. They’ll stop drawing funds from their HECM line of credit so it continues to grow.
By age 86, they will have enjoyed an estimated $185,000 more in SS cash benefit while living because they used their home to generate the income in their early years. Although they have a loan balance of $324,641 at this age, that amount has no effect on them because they do not make payments on it and retain their home ownership. Had they not used a HECM Line to generate the income in the first 8 years, they would have lost the estimated $185,000 in Social Security living benefit.
If they live to age 91, they will have enjoyed an additional $300,000 in total Social Security benefit. However, they now also have $651,796 available to tap from their HECM line of credit – all tax free and without any repayment.
What This Means to Jim and Susan
Jim and Susan were able to live comfortably in their home starting at age 62, without worry. And they were able to tap $300,000 more in Social Security benefits they earned by working their entire lives because their home generated the income to them instead.
Now, they are 91. They’ve lived a great lifestyle. They’ve been able to help family when they needed it. They slept well, and had access to money for emergencies. Now they feel it’s time to downsize, live with children, or in an assisted living center.
Seeing the Big Picture Benefit of the HECM
Referring to the previous table, note that Jim and Susan have a $651,796 available line of credit. Their home is only worth $633,977. So they decide to withdraw that amount before they downsize. Here is how this works and how they benefit:
How This Scenario Affects Their Heirs
Jim and Susan’s children enjoy a benefit they never thought possible. Their parents had an additional $300,000 in income while living that they could use to maintain their home, their lifestyle, medical needs, and even help the children in times of need. In addition the $651,796 withdrawn before they move out gives their parents adequate monies to get the care they need until they pass away. They may will this to their children if they choose. The heirs benefit from far more than had Jim and Susan never done a HECM.
If you ever wonder about the the purpose of Mortgage Insurance Premiums (MIP), here’s your best reason to appreciate it. The MIP paid by you and thousands of others has just insured any losses on your home. This protects the fund and YOU. The balance owed is the lesser of 95% of the value of the home or the loan balance. This means that if the home appraises for $500,000 when they leave, they will only owe $500,000, even though they withdrew $770,908. The proceeds from the sale of the home is all that is required to pay the loan in full.
Maximize Your Benefits Starting Today
Every client has a different story and many questions. We’ve just illustrated the power of a HECM Loan to maximize Social Security benefits. Now let us take time to listen to you, answer your questions, then map the right HECM strategy for your lifestyle. We work closely with you, your financial planner, and children to generate the best scenarios that apply to you.
Call (855) 202-0846 or Schedule a Consultation. No Fees. No Obligation.