Add a reverse mortgage to your retirement plan.

June 3, 2011

in Real Estate,Retirement,Social Security

First, I should say that I have a bias toward taking Social Security at age 70.  As I have posted before, you can’t buy a better inflation protected annuity, and the almost 8% boost each year you wait makes it almost too good to be true.  How do you cover your expenses until you turn 70?  My best advice is to keep working if you can.  Other than that, my 2nd best ideas are: 1) start withdrawals from tax deferred accounts, and 2) get a reverse mortgage on your house.  Yes, you will pay taxes on the tax deferred account withdrawals, but they will reduce the withdrawals you will be forced to take later, thereby reducing the amount of social security subject to income tax.  The reverse mortgage supplies money 100% tax free, and you can stop it as soon as you start your age 70 social security.  You never have to pay the money back, but it does remain as a lien against your house until you (and your spouse) die or sell the house.  You still own th ehouse and the bank can’t make you move.  The primary argument I hear against waiting for social security is that people want to make sure they get their money back before they die.  But if you change your mindset to think about it as longevity insurance, you can begin to see it in another light.  (Do you hurt yourself to make sure you collect your heath insurance, or crash your car to collect on your auto insurance?)  Of course, this means you will actually have to buy a house, and pay it off by the time you want to retire – but that is another blog.

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