How Reverse Mortgages Affect Social Security Benefits
Key Takeaways
- Standard Social Security retirement benefits are not affected by a reverse mortgage.
- Medicare benefits are completely unaffected.
- Supplemental Security Income (SSI) can be suspended if you hold proceeds as liquid assets.
A significant portion of retirees rely heavily on Social Security to cover their monthly living expenses. Consequently, seniors are often terrified that drawing a large sum of cash from a reverse mortgage will cause the government to slash or suspend their Social Security checks.
The answer depends entirely on which type of Social Security benefit you receive.
Standard Social Security Retirement Benefits
If you receive standard Social Security retirement benefits (based on your lifelong work history and earnings record), a reverse mortgage will have zero impact on your benefits.
Standard Social Security is an entitlement program. It is not "means-tested." This means the Social Security Administration (SSA) does not care how much money you have in the bank, how much your house is worth, or whether you take out a loan. You paid into the system, and you are entitled to your check regardless of your net worth.
Medicare Benefits
Similarly, standard Medicare (Parts A and B) is an age-based entitlement program. Taking out a reverse mortgage will not affect your eligibility for Medicare, nor will it cause you to lose your coverage.
The Exception: Supplemental Security Income (SSI)
The danger arises if you receive Supplemental Security Income (SSI).
SSI is a strictly means-tested program designed for low-income individuals. To qualify for SSI, you must have very few liquid assets (usually capped at $2,000 for an individual or $3,000 for a couple).
While the reverse mortgage loan advance itself is not considered income, if you keep that cash in your bank account past the end of the calendar month, it becomes a countable liquid asset.
If you draw $10,000 to fix a roof but leave it in your checking account when the month rolls over, the SSA will see that you have $10,000 in liquid assets. This violates the $2,000 limit, and your SSI benefits will be immediately suspended until you spend the money down.
If you rely on SSI, you must strategically manage your reverse mortgage draws, taking only exactly what you need and spending it within the same calendar month.