As more and more people face financial shortfalls that will force them to delay retirement, new strategies are needed to support our aging workforce.
According to Kurt Czarnowski, a former Communications Director for the Social Security Administration, Social Security was never intended to be the sole source of retirement income for anyone. However, recent findings from the 17th Annual Transamerica Retirement Survey revealed that 70% of all American workers expect to rely on this government benefit as the mainstay of their retirement income.
The reality is that retirement income cannot rely on these benefits alone. Nevertheless, with a basic understanding of how Social Security payments are determined and some advance planning, Social Security payments can be increased by as much as 32% by simply deferring the starting date of receiving benefits.
Effects of Claiming Early or Deferring Benefits
Currently, the Full Retirement Age to receive 100% of the promised benefits is 66. However, reduced benefits could be started as soon as age 62 (earliest), or higher benefits would be available if the start date is delayed until age 70 (latest).
Adjustments By Age
| Claiming Age626364656667686970 | (Full retirement age) | % of Full Retirement Age (66)75%80%87%93%100%108%116%124%132% |
The decision to start receiving benefits is vital as the monthly payments and other benefits are set for life. This can make a significant difference; not only to the lifetime income one will receive, but to the ongoing benefits a spouse and/or dependents will be eligible for during one’s lifetime and at the claimant’s death. For example, if one is eligible to receive $2,000 per month at full retirement age (FRA), consider the payment differences at the extremes.
| Claiming Age626670 | % FRA75%100%132% | Monthly$1,500$2,000$2,640 | Annual$18,000$24,000$31,680 |
Clearly, the differences can be substantial, but the need for immediate cash flow often drives the decision to begin receiving lower benefits earlier – at the expense of higher income for life later. In many cases the income gap might be eased with some basic planning to achieve a greater long term effect.
Solutions to Fund the Gap
Basically, there are three strategies that could provide the cash flow needed to fill the gap while Social Security benefits are being deferred. Depending on individual circumstances one or more of these procedures could make it possible and practical.
- Continue working longer
- Withdrawals from financial wealth (savings)
- Withdrawals from housing wealth (home equity)
Reverse Mortgages Provide Unique Advantages
Using a reverse mortgage to tap home equity may provide an optimal solution due to its unique structure and U.S. Government guarantees. Designed exclusively for the special needs of senior homeowners, reverse mortgage funding can close the income gap. Consider some of the attributes:
- Tapping home equity wealth avoids depleting financial assets, without selling or giving up ownership of the house.
- Monthly distributions of a specified amount and duration can be scheduled for automatic delivery, and the terms can be changed at any time.
- No monthly payments from borrower(s) are required for the life of the loan.
- Distributions are received income tax free.
- Credit line growth is guaranteed (compounds monthly) at the same rate charged on borrowed funds.
- Credit line cannot be cancelled or frozen by lender for loans in good standing.
- Provides a hedge against interest rate increases and potential decline of property value.
- Non-recourse Note: neither the borrower(s) nor their heirs have any personal liability. Loan repayment can never be greater than the property value at the time of repayment. If the property is sold, any value in excess of the loan balance goes to the homeowner(s) or heirs.
The decision when and how to receive Social Security benefits is important and could have a profound effect on lifetime retirement income and related government benefits. Depending on how complex individual circumstances are, Social Security planning can be complicated and it’s recommended to obtain guidance from a qualified financial professional. So too are considerations to utilize home equity, especially for seniors. Each situation is different and requires thoughtful consideration of financial circumstances, near and longer term objectives, and personal preferences.If you would like assistance evaluating your situation and possible solutions, you are welcome to contact us for a free analysis and consultation. Please contact us below, or give us a call.
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