Laid Off at 61: Now What?
A Moneywise reader recently posed a difficult question: “I’m 61, laid off, with $103,000 in savings and a $1,800/month mortgage. How do I bridge the gap to Social Security?” Unfortunately, life has a way of upending even the most carefully crafted retirement plans. With economic uncertainty looming and predictions of a recession on the horizon, more Americans may soon find themselves in similar predicaments. The Bureau of Labor Statistics highlights a troubling reality: older workers who lose their jobs during a recession are more likely to experience negative health effects, including long-term consequences that extend beyond financial hardship. In short, being laid off late in life can take a toll—financially, emotionally, and physically. Assessing the situation Let’s break down what we know about this individual’s financial landscape: However, several crucial details remain unknown: The Challenge of Tapping Retirement Savings Moneywise advises against prematurely depleting retirement funds, warning, “If you draw down your retirement savings too early, you won’t have enough invested to earn returns.” The lost opportunity for growth could leave them with insufficient funds later in retirement, making other strategies more appealing. Exploring Solutions The most direct solution would be securing new employment. However, older workers often face challenges in re-entering the workforce, with job searches sometimes stretching beyond a year. Meanwhile, unemployment benefits offer only limited, short-term relief, with most states only paying benefits for 26 weeks. If re-employment isn’t an immediate option, what alternatives exist? Moneywise suggests considering a reverse mortgage or downsizing—options that depend heavily on home equity. Would a HECM help? For example, suppose this homeowner has a $400,000 home with only $60,000 left on the mortgage. If they qualify for a Home Equity Conversion Mortgage (HECM) at age 62, their reverse mortgage could eliminate their $1,300 monthly principal and interest payments, providing much-needed relief. Additionally, they could access a $38,000 HECM line of credit. However, this strategy alone doesn’t fully replace their lost income. The Social Security Dilemma Another tempting but potentially costly option is claiming Social Security benefits at 62. While this provides an immediate income stream, the long-term financial impact of reduced lifetime benefits can be substantial. A healthy retiree may live to regret claiming benefits too early. The Need for Professional Guidance A trusted financial advisor can provide critical guidance in situations like these. The goal isn’t just to survive the short term but to establish a sustainable, long-term financial plan. Reverse mortgage professionals should encourage clients to seek outside counsel rather than acting as de facto retirement planners. The Bottom Line A reverse mortgage can help—but it’s not a cure-all. It may provide temporary relief, but without a broader strategy to replace lost income, financial insecurity remains a primary concern. The key to navigating late-career layoffs lies in exploring multiple options, making informed decisions, and planning for long-term stability. by Shannon Hicks
Unlocking Tax Benefits with Reverse Mortgages
Robert Powell: How might you use a reverse mortgage to manage taxes in retirement? Here to talk with me about that is Don Graves. He’s the president of the Housing Wealth Institute, the author of three books on reverse mortgages, and an adjunct instructor of retirement income at the American College of Financial Services. Don, welcome. Don Graves: Thank you, Bob Powell. Good to be back with you. Powell: It’s good to have you here. I understand that you’ve written an article for Retirement Daily where you describe the seven ways that you can reduce taxes by using a reverse mortgage. Walk us through it. Graves: That’s crazy, isn’t it? Just think about that. You mention reverse mortgage at the barbecue and you know what happens, Bob? Three people dive under the table. It’s dangerous. To think about using a reverse mortgage to manage taxes in retirement—that’s got to be unheard of or at least unorthodox. But that’s one of the things, Bob, that your platform allows people like myself and the reverse mortgage to overflow into larger applications. I appreciate that. I met you through one of your organizations that specifically works with advisors on how to manage taxes and IRAs. Apparently, and you can chime in on this, most of the retirement wealth in America is being held in tax-deferred accounts. Is that correct? Powell: Yes, and many people refer to it as a ticking tax bomb. So it’s a problem. Tax Challenges in Retirement Graves: Folks within your organization are consistently saying and proving that taxes have nowhere to go but up. We hope that’s not going to be true, but it looks like it could be, unless we slash all this money we’re spending these days. But prevailing wisdom is we’ve dug ourselves a pretty big hole. In retirement, there are typically four key tax issues you’re looking at: required minimum distributions, capital gains tax, Social Security taxes, and the income-related monthly adjustment amount (IRMAA) surcharges that not a lot of people know about. You need strategies to deal with the taxes that are coming on your tax-deferred accounts. Powell: So how does someone put a reverse mortgage in use? Why is it so unique? Understanding Reverse Mortgages Graves: A reverse mortgage, by way of quick definition, is a federally insured loan for those age 62 or better. There are some proprietary products as well, but the most common is the home equity conversion mortgage. It allows retirees to borrow money without giving up ownership or coming off title, and they don’t have to make a monthly mortgage repayment. The most common use of the home equity conversion mortgage is the line of credit. A 65-year-old in an $800,000 home is able to get around $236,000 in a growing line of credit. The reverse mortgage line of credit is a growing line of credit. As you leave it in there, it’s just growing. And that’s going to become the foundation for all of these seven strategies we’ll talk about—the growing line of credit. Powell: So there are seven steps that you go through in the article. Is it worth going through them now? Seven Tax-Saving Strategies Graves: I think so. I can do them quickly, then people can read the article. 1. Supplementing Income Beyond RMDs Required minimum distributions are going to kick in at 73 or at some point, I think 75. All that money in your tax-deferred accounts, Uncle Sam says you need to start taking it and you need to start paying us. But we don’t know what Sam is going to require. What happens if you say, “Don, I know I have to take my required minimum distributions, but I need a little bit more than the RMDs.” I would say, if you can limit your RMDs to just that and anything extra, take it from some other non-taxable account, if you have one. That’s where the reverse mortgage line of credit comes in. Take your RMDs, but anything above that or beyond RMDs, take it from your reverse mortgage. That’s going to mitigate the taxes because that’s less taxes you’re going to have to pay. 2. Delaying Social Security Benefits We’ve heard that for many people, if you can defer your Social Security from age 62 to 67 or 70, it’s going to grow at around 8%. Not everybody can do that, but some people can, and it’s going to be beneficial to many. But here’s what happens: “Don, I’d like to defer Social Security. We’re in the process of deferring it so we can make that check as big as possible, but we need some money now. I don’t want to turn on the Social Security because we have a strategy, but I need money.” So they say, “I’m going to go into my taxable or tax-deferred accounts and I’m going to start drawing out some money there.” I say, “You can do that. But before you do it, you’ve got another bucket—your reverse mortgage line of credit.” So instead of taking dollars out and paying taxes on that withdrawal, use your other bucket. Now you can fund whatever income needs you have during deferral without incurring taxes on drawing this money out. 3. Avoiding IRMAA Surcharges IRMAA is the income-related monthly adjustment amount. When you get Social Security, you’re going to be paying Medicare Part B and Part D. They’re going to withhold some money. But if you have too much money coming into your Social Security, your provisional income, that amount is going to be more. In the article, there’s a retired single lady and her threshold at the time was $103,000. She was going to take some more money out that was going to push her over that threshold. That was going to cost her—two years after you do that, your Social Security gets reduced, Part B and D. We said, instead of taking the extra $20,000 or $30,000 that pushes you over and causes your Social Security to be