Social Security + Reverse Mortgage = Procrastinate!
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What do [tag]social security[/tag] and [tag]reverse mortgages[/tag] have in common? Both are:
1. important sources of retirement income for senior citizens
2. largely federally-run programs (recognizing there are important private reverse mortgage programs)
3. available to seniors starting at age 62
4. programs where procrastination can have a big payoff
It is this last point that is particularly interesting (and, unfortunately, often ignored). In the world of personal finance, procrastination is generally considered “bad”. Time is money. Invest early to benefit from compounding. Buy (life, disability, long-term care) insurance when you’re young and rates are low. Etc,. etc.
It’s not surprising, then, that when Americans reach 62, they’re in a hurry to reap the benefits of social security. More than 70% of seniors sign up for “early” social security benefits payable before their normal retirement age. More than 50% of both men and women take benefits at age 62 - the earliest possible age.
When Social Security Benefits Start Age Women Men 62 58.6% 53.3% 63 7.3 7.9 64 11.6 13.1 65 16.5 22.4 66 and over 5.9 3.3 Total 100.0% 100.0%
Yet taking early social security benefits carries a big cost. Early benefits are reduced 20%-40% from the normal retirement age benefit level. Another way of looking at it: for each year you can wait after turning 62, your monthly benefit will be about 8% higher…payable for the rest of your life.
This is especially troublesome because of growing longevity, rising health care costs and the very real fear that many Americans will outlive their savings in retirement.
It’s not as clear that seniors are rushing to take out reverse mortgages at 62. The average age for HUD [tag]HECM[/tag] ([tag]Home Equity Conversion Mortgage[/tag]) borrowers hovers around 75, but has trended somewhat lower in recent years - a sign that more people are taking out reverse mortgages at younger ages.
Like social security, reverse mortgages produce payment streams largely influenced by life expectancy factors. Again, procrastination will result in greater benefits. As an example, the reverse mortgage calculator at the National Reverse Mortgage Lenders Association (NRMLA) web site generates these results for a senior owning a $150,000 home free and clear:
| Sample Monthly Loan Amounts Available from Monthly Adjusting HECM - $150,000 Home Value | |
|---|---|
| 62 | $387 |
| 66 | $437 |
| 75 | $591 |
Of course, personal health, family history, and myriad other factors enter into the decision of when to apply for either social security benefits or a reverse mortgage. Still, the numbers are telling: if you can wait a few years for these programs, you’ll be better off in the long run.
Indeed, the benefits of waiting for social security are so significant that it may even pay to use a home equity line of credit to bridge the years to normal retirement age.
Article Series - social security
- Social Security + Reverse Mortgage = Procrastinate!
- Reverse Mortgages vs Delayed Social Security
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