Social Security Program Changes, Effects on Reverse Mortgage Borrowers

This year, the Social Security program will be seeing its largest cost of living adjustment (COLA) in seven years, with beneficiaries receiving an additional 2.8 percent to their benefit payout. The result of the COLA for the average individual retired Social Security beneficiary is expected to be a monthly benefit jump from $1,422 to $1,461, and the estimated monthly increase will be $39, or $468 a year according to AARP.

Additional program changes include an increase in the earning limits for seniors between the ages of 62 and 67, an increase to the maximum amount of earnings subject to the Social Security tax, and a rise in both work credit earnings and supplemental security income for the disabled.

Most reverse mortgage originators seem to agree that the COLA makes for a welcome adjustment to their clients’ pocket books, but may not have an abundance of effect in terms of their continuing need for the product.

“If used wisely, this COLA will benefit people in a positive way. And, really, it’s never going to be enough, let’s face it. But, it’s a step in the right direction, and a needed step, too,” says Sue Milligan, Certified Reverse Mortgage Professional (CRMP) with Bank of England in Metairie, La.

Still, while Milligan sees the COLA as a welcome adjustment for both her clients and members of her own family, she doesn’t see the adjustment as affecting potential borrowers’ needs for a reverse mortgage all that much.

“The reverse mortgage is a great need in itself, and this small cost of living adjustment is definitely not going to save someone from losing a home or paying their mandatory obligations like insurance and taxes,” she told RMD. “It won’t be enough money to pay off an existing mortgage. Those are still needs that people have every single day, like through a medical expense.”

Since Social Security can oftentimes be the only source of income for a segment of seniors, there are some concerns that borrowers could have to face beyond just incorporating the COLA into their benefits.

“Clients who are still working and taking benefits will have to worry about tax changes,” said Lynn Wertzler, CRMP at Greenleaf Financial in Portland, Ore. “I don’t typically want to be in a position where I’m providing guidance on Social Security issues, but I’ll point out what someone’s options are and encourage them to get in touch with their local Social Security office.”

“Clients will have to have some residual income left at the end of the month, and this COLA will help them meet that residual income requirement,” added Mike Peerless, Reverse Mortgage Director at Holland FInancial Services in Ormond Beach, Fla. “It’ll be a positive thing going forward this year.”

In the end, while this year’s COLA is generally seen as positive for the program’s beneficiaries, there are still a lot of expenses affecting seniors, which maintains the reverse mortgage product’s viability as a tool to help make ends meet.

“The three most common needs for the reverse is paying off a traditional mortgage, medical expenditures, and everyday living needs,” Milligan said. “That cost of living adjustment is not going to satisfy all of those. So, the reverse mortgage can still be a necessary tool for someone to complete their overall retirement strategy.”

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