Refinancing Versus Social Security

Those nearing retirement age may be tempted to consider retiring early, but your choices at or near this time can seriously affect your options for refinancing or cashing in on your home’s equity. Is early retirement the best choice? Depending on which options you are thinking of, the answer may vary.

CNN Money ran a finance piece that says one common financial mistake may cost some retirees thousands of dollars over the span of a typical retirement. What is the mistake? Something as simple as collecting Social Security checks too early.

According to CNN, “After decades of paying into the Social Security system, many retirees are eager to start collecting that monthly check as soon as possible. But that can be a costly mistake. While you're allowed to start claiming Social Security benefits at age 62, holding off for several years can add thousands of dollars to your payments over a lifetime.”

Why does this affect your retirement options? “…because you don't qualify for all of your earned benefits until you reach ‘full retirement age,’ which is 66 for most Baby Boomers and 67 for those born in 1960 or later.”

Why would you start collecting Social Security early? There are plenty of motivations—if your choice is based on financial need, you may find that considering a home loan refinance, home equity loan, or even a reverse mortgage such as an FHA HECM to be an option that might be preferable to collecting Social Security income early.

Those refinance loan options all depend on your financial needs and goals--the important thing to do when reviewing these options close to retirement age is to calculate how much a fixed income you’ll get with or without Social Security and do the math on refinancing. How much will it cost you per month, how does it affect your bottom line before and after retirement and/or Social Security income begins? All important things to consider.

Just how much could you lose by collecting your SSI too early? The CNN article states, “...checks claimed at age 62 are about 25% smaller than if you wait until your full retirement age. And if you wait even longer, your annual benefits will grow by another 8% for each year you wait up to age 70.”

Can anyone afford a 25% cut in SSI? It’s a very tough question to answer, but definitely one worth considering.

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