Increase Social Security By Working More???

I was asked this question the other day on my Youtube Channel:

“Where is YOUR income going to come from once YOU retire?”

I think the question was more a challenge rather one of curiosity because of the previous comments. But I proceeded to answer as I do here:

“I plan on having three sources of income in retirement:
1. Social Security
2. Reverse Mortgage
3. Roth Distributions (If needed)

And in that order.”

Then I asked the commentator if anything looked odd by my scenario. And as surely as the sun rises in the east, he/she said, “Reverse mortgage??? No thanks!”

What I was hoping the commentator would say looked odd was that my income combination of Reverse Mortgage, Social Security and Roth will be…TAX FREE!

You pay no tax on ANY of those individual income sources. Which means when they are combined together you still pay NO TAX.

But, as always, that wonderful aspect of my 3 bucket income plan gets overlooked because of the fear of reverse mortgages. Which is too bad because reverse mortgages should play a role in every retirement plan, especially if you are retiring WITH a mortgage in the first place!

According to the Federal Reserve Board’s “Survey of Consumer Finances” 45% of households between the age of 65-74 carry a mortgage. The AVERAGE value of those mortgages was $117k! (I don’t know what the median value was though. But let’s say it’s $100k for simplicity. That’s still a big debt to carry.)

Nearly a quarter of households age 75 or above carry a mortgage and that average debt is still $91k.

The rule of thumb is that it costs $500 a month in payments for every $100k in mortgage debt one has. So, for a 75 year old retiree with a $91k mortgage that is around $500k a month going out the door, each and every month.

The average household in retirement spends around $3800 a month…total. Thus that mortgage payment is a large, if not THE largest percentage of your outgoing cash flow. In fact, the article just cited looks at BLS statistics which claims the average retiree spends $1,322 a month on housing, or one third of their income is consumed by housing costs.

So, what’s the single easiest way to eliminate your mortgage without liquidating assets to do so??? Get a reverse mortgage! Use your equity to help fund your retirement. It’s literally that simple. And if fact, it gets even easier when you realize spending equity means NOT spending investments.

Thus, if leaving assets to your heirs is important would you rather leave a house that appreciates potentially at 3% a year, or investments that MAY appreciate double that?

If you’re not concerned about leaving any assets then the reverse mortgage is even better because you are literally spending down your net worth and will NEVER have to pay it back!.

I think Dave Ramsey and others really hurt people with their misguided takes on reverse mortgages. Dave Ramsey said explicitly they are ‘scams.” That level of ignorance from a well-respected commentator simply boggles my mind. (I did a video here where I tore into Dave’s mis-representation of reverse mortgages.)

Now, I am not here to sell you on reverse mortgages. Whatever works best for you is fine with me. But I am here to tell you that you should educate yourself on them before you simply dismiss them outright.

Here is the best book you can read on reverse mortgages. Wade Pfau is one of my favorite financial planning academics. And his book simply opened my eyes to the value a reverse mortgage can have for retirees. I imagine with will do the same for you as well.

How does Social Security actually work? Do you know? Are you going to rely on Social Security for a significant amount of your retirement income?

If so, dont’ you think it would be a good idea to understand how Social Security works?

In this video we’re going to show you just that.

So, first, let me ask you. Is it better to have earned $10556 in 1978 or $48,642 today when it comes to your Social Security payment?

They’re the SAME THING! Social Security indexes (inflates) previous years income based on a standard average income for any given year. Thus, a $10,556 salary in 1978 gets an indexed rate of 4.608 which is equivalent to you making $48,642 this year.

What does that mean exactly? Simple. If you are looking at your statement and seeing this pittance of salary numbers reported from many years past, don’t fret. It’s going to be much better than you realize once the indexing is factored.

I don’t think they actually show you the indexing on your statement either. Only the actual, REAL dollars they taxed you on. Thus your statement can be very, very misleading.

And that’s too bad, because that lack of correct information could lead people to work longer just to “increase” their benefits when in fact tney aren’t really increasing their benefits by that much, if at all.

Here we share with you 3 scenarios. 1. you stop working after 20 years averaging $48k of taxable income.

2. You stop working 25 years of $48k of taxable income.

3. You stop working after 25 years of $48k income and the last 5 years of $100k income.

What do you think the difference in Social Security benefits will be???

Trust me, it’s not what you think. But you’ve gotta watch the video to find out! 🙂

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