Social security is the giant elephant in the room that nobody really likes to talk about, as it generates a rash of strong opinions. Should the minimum age to start collecting be raised? Should the payroll cap be raised? Should social security be expanded? Reduced? All of these big-ticket questions can cause some pretty heated arguments, and luckily, we are not going to get involved in trying to answer any of them. The one thing that everyone can agree upon is that social security should not be the only source of income to fund your retirement.
The average check that one could assume to get monthly if they decided to draw from Social Security at 62 would be approximately $1,200. That jumps to around $2,400 if the retiree decides to start their draw at 66. In both cases, this is just to augment other resources. Be it a 401k, savings, or other investments. This also could mean that you will have to pay taxes on social security in some instances.
If you take social security when it is first available, you are in essence taking a job for less than the standard minimum wage. Now, some people can sustain themselves with a good amount of financial discipline to live within those boundaries; but if any kind of emergency comes up, that amount of money is quickly depleted. This is one reason there should be other income or other assets available to help mitigate any costs that arise.
Many seniors look at their pension or 401k and think that is enough. Or, if they know it is not enough, they scramble to get payday loans, which is a vicious cycle that is almost impossible to get out of. Or, they start increasing credit card debt that they must pay back – also creating a cycle that is difficult to pull themselves out of. What many seniors do not know is that a reverse mortgage is a solid option and should be explored to add to a retirement portfolio.
By tapping into your home’s equity, you can free up much-needed funds during your retirement. If you own your home free and clear, one option is to take out a line of credit, which will grow year over year. You do not need to take any funds out unless you want to, so if your 401k/pension plus social security is good enough, you will still have a safety net in case anything goes awry.
If you do have a mortgage, the reverse mortgage will pay off the mortgage. This allows you to keep the money you would normally spend on the mortgage in your pocket, allowing you to use those funds however you see fit. If you go with the credit line as listed above, you can also pay into that credit line by paying what you normally would have on a mortgage, or even less, which will increase the credit line even faster.
Social security will evolve over time, but what it will evolve into will not change the fact that it should not be used as the only source of income in retirement. It is generally accepted that social security is nice, but should in no way be considered the primary income after you have retired.