Is it smart to tap home equity to delay Social Security?
NEW YORK – Dec. 3, 2018 – Consumers between the ages of 62 and 70 can earn up to 8 percent more in Social Security for each year they delay taking disbursements. As a result, some homeowners in this age bracket are borrowing against their properties' equity to fund daily living expenses and push off taking Social Security benefits, notably through a reverse mortgage. Some lenders even tout this tactic as a smart move for retirees.
However, the Consumer Financial Protection Bureau (CFPB) says that the costs and risks of this financial strategy are too great. The CFPB says the cost of a reverse mortgage tends to exceed its lifetime benefits and withdrawing home equity could limit a person's options when moving or experiencing a financial setback.
"A reverse mortgage loan can help some older homeowners meet financial needs but can also jeopardize their retirement if not used carefully," says former CFPB Director Richard Cordray. "For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain."
But other financial experts disagree. They say it's a more plausible option than people may think. Jamie Hopkins, co-director of the American College's New York Life Center for Retirement Income, wrote in a past column for Forbes that the CFPB's conclusion is wrong.
"The CFPB's analysis, misrepresentations and inaccurate conclusions fail to provide a comprehensive review of potential benefits of Social Security deferral and proper use of home equity," Hopkins wrote. "Instead, the report unleashed an overly broad and inaccurate censure that could hamper meaningful discussion."
Tom Dickson, an adviser at Reverse Mortgage Funding, told HousingWire that the organization still considers this a strategy for some retirees.
"We found that while financial advisers are interested in the idea, they have a very, very, very difficult time persuading their clients to defer their benefit," Dickson says. "It's certainly a solid idea. It's just that in the marketplace, it's not one that advisers have had a lot of success with in terms of client adoption."
Source: "Should You Use Home Equity to Delay Social Security?" HousingWire (Oct. 12, 2018)
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