A Bankrate survey last week found that 36 percent of adults are not saving for retirement. More than 25 percent of late career workers, ages 50 to 64, haven't started saving for retirement.
Many seniors stay in the workforce, either because they enjoy working or, as this study suggests, the option to retire just isn't available to them. As seniors, the opportunity to build a retirement portfolio is largely gone. While the ability to save may still exist, the opportunity of having years of investment returns to grow retirement savings is greatly diminished.
Play the cards you've been dealt
If you find yourself in this situation, you have some options. Maximizing Social Security retirement benefits is one way to increase your retirement income. The reduction in benefits from filing for benefits when you're first eligible at age 62 is substantial. For people just turning 62, that reduction is 30 percent. As the full retirement age transitions from 66 to 67, the reduction of benefits at age 62 is 35 percent for people born on or after 1960.
Now there can be good reasons to take benefits early. One is if you're in poor health and can't continue working. The Social Security Administration explains why benefits are smaller the earlier you claim them:
As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime. If you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them. If you retire late, you will get benefits for a shorter period of time but the monthly amounts will be larger to make up for the months when you did not receive anything.
I'm a fan of workers and spouses getting expert advice in deciding when to take Social Security. There are several firms that provide this service, but the one I'm most familiar with is Social Security Solutions. With different advice packages running from $20-$250, it offers an affordable approach to making decisions that can maximize Social Security income.
So where does the timing of reverse mortgages come in to the equation? People tend to think of a reverse mortgage as a financial backstop that they'll use in late retirement if needed. This approach should minimize the capitalized interest expense on the reverse mortgage and increases the amount of money that can be borrowed. But it doesn't help seniors who could delay drawing Social Security benefits until the worker (or spouse's) full retirement age. They might consider taking out a reverse mortgage early in retirement to meet their retirement income needs until Social Security kicks in.
A reverse mortgage can be used as a standby line of credit, according to research that was presented in the 2013 Journal of Financial Planning article, "Increasing the Sustainable Withdrawal Rate Using the Standby Reverse Mortgage." But that doesn't work for the retiree who doesn't have an investment portfolio.
If work is still an option, then work trumps taking out a reverse mortgage to provide retirement income for seniors delaying Social Security until full retirement age or age 70. If work isn't an option, then comparing the income option from a reverse mortgage against the expected Social Security payouts is something to consider. Get help doing the math, and make an informed decision.
Read about how reverse mortgages entail trade-offs.
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