Is Using Equity to Delay Social Security a Good Strategy?
October 15, 2018
Consumers between the ages of 62 and 70 can earn up to 8 percent more in Social Security for every year they delay taking disbursements. Therefore, some homeowners in this age bracket are borrowing against their properties' equity to fund their daily living expenses, hoping to push off taking Social Security benefits—a tactic some lenders even tout for retirees. But the Consumer Financial Protection Bureau warns that the costs and risks of such a 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,” according to 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.”
However, some financial experts 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.”
Updated: March 18, 2019