If Congress enacts these reforms reverse mortgages could go mainstream. Here’s why.
Two U.S. Senators are sponsoring a bill that touches the dreaded third rail of politics. Semafor News reports a bipartisan group led by Senators. Angus King, I-Maine, and Bill Cassidy, R-La. are considering gradually raising the retirement age to about 70 as part of their discussions to overhaul Social Security, Semafor has learned from two people briefed on their efforts.
If such reforms were to come to pass those who had planned on drawing Social Security benefits at younger ages below 70 may have to look to their home’s value as a source of cash flow. Of course, this is not how anyone would want to see the widespread acceptance of reverse mortgages, but then again, necessity is the mother of innovation, and future retirees may have to get creative to secure a decent retirement.
Increasing the minimum age at which one may begin drawing benefits is not the only proposal on the table. Other options include…
[read more]
…revamping the formula that presently calculates monthly benefits based on a worker’s average earnings over 35 years to one that’s calculated on the actual number of years one is actually working and contributing to Social Security.
Both Senators King and Cassidy told Semafor, “there are no cuts for Americans currently receiving benefits in our plan”. What’s not said is just as important. Ultimately any postponement of Social Security eligibility or recasting the benefit formulas means most Americans in the future will receive less money during their lifetime. The Congressional Budget Office reports if Congress fails to enact needed reforms for the fund that Social Security benefits would be reduced by approximately 20% beginning in 2032.
Any future reduction of benefits or increases to the retirement age could create a perfect storm- one that could force millions to look to what is typically their largest asset, their home.
Columnist Joseph Zeballos-Roig observes that any increase of the retirement age is likely a non-starter with Congressional Democrats who are more likely to support a Social Security tax on annual earnings above the current $160,000 cap. Regardless, our nation as a whole, elected officials and citizens alike, have a serious spending problem. And that applies to both parties. Until the federal government’s largesse with taxpayers’ dollars in discretionary spending is diminished, mandatory budget items such as Social Security and Medicare will be targeted for cuts or new sources of revenue. And with entitlements accounting for nearly one-third of U.S. federal spending citizens of all ages will want to stand up and take notice.
In the short term we can expect the usual, for Congress to kick the proverbial can down the road. After all, who wants to lose their seat for backing such reforms? Let the next guy or gal do it. However, at some point, Social Security benefits will have to either be reduced or postponed, neither of which is painless. When reforms eventually come to pass they likely will serve as a driving force for millions of older Americans to look to their home’s value as a potential stop-gap in their retirement income planning.
How do you think older Americans would respond if Social Security benefits were cut? Comment below and share your thoughts.
Additional Reading:
A bipartisan group of Senators is talking about raising the retirement age on Social Security
[/read]
2 Comments
Analysis that does not include seniors who rent or live in facilities where housing units are not available for ownership seems to leave out a significant portion of the senior population. The legislation being presented is the tired old formula for delaying real Social Security (and indirectly Medicare/Medicaid) reforms. Remember many hard working Americans have been priced out of the housing market.
As the population gains life expectancy in the near term, simply increasing the retirement age seems futile at some point since the longer we seem to live, the lower our productiveness becomes in our latter working years. Numbers alone do not focus on the increased man hours needed for the oldest working Americans to produce the same quality production they did just a decade before. Old age results in a slowing down process.
As to allowing more compensation to be subject to FICA and MI taxes, that happens automatically each year. What most of the proposals seem to focus on is keeping the same basic concepts in place but doubling the current cap (or completely eliminating the current concepts by eliminating the cap). This would make wages far more expensive to the highest earners than it is today without providing any new benefits to those earners. What would seem much fairer is simply increasing income tax rates on taxable income above say $400,000 by some percentage.
The nation needs an open debate on this subject.
With the current rate of HECM endorsements not reaching even a 30% rate of their all time peak in fiscal 2009 through almost 6 months of this fiscal year, mainstream status seems a little over the top. It also seems far fetched for decades after passage of such a bill unless existing Social Security Retirement Benefit recipients have their benefits lowered.