The Consumer Financial Protection Bureau made waves a few weeks back by advisingagainst using reverse mortgages to delay Social Security payments, a relatively new strategy gaining traction in the financial-planning industry.
Multiple sources weighed in on the potential flaws with the CFPB’s reasoning, and last week blogger and Home Equity Conversion Mortgage advocate Jack Guttentag threw his opinion into the fray.
“CFPB has performed a public service by raising this issue,” Guttentag wrote on his blog, the Mortgage Professor. “In evaluating it, however, it makes the same fundamental mistake that I made, which is to formulate the same advice for everyone.”
He goes on to explain how certain borrowers could benefit from the Social Security delay strategy, laying out the hypothetical scenario of a 62-year-old with a $450,000 nest egg and a home worth $300,000. With a reverse mortgage, the senior could receive about $4,000 per month, along with $910 in Social Security benefits if taken at age 62, or $1,300 per month if taken at age 67.
Guttentag and colleague Allan Redstone then projected the senior’s total estate value over time for both scenarios, noting that they remained higher for the early draw at ages 70, 75, and 80, becoming equal at 85. Then, at age 90, the borrower who delayed until 67 had the higher estate value.
“If this borrower intends to remain in her house indefinitely, she should delay taking Social Security until she reaches 67,” Guttentag concludes. “If she expects to move out of the house, she should take Social Security at 62.”
He goes on to caution that no two seniors will face the same exact retirement circumstances, and thus each potential borrower should analyze his or her situation carefully before making a decision.