As you are likely aware, inflation rates have risen to the highest levels in decades. Inflation is when the price of goods and services rises, causing the dollar’s purchasing power to drop. Essentially, your money doesn’t go as far. While this hurts everyone, it is particularly painful for retirees, as many are living on fixed incomes that rely on a strict budget. When inflation occurs, the expected costs of all sorts of items and services increase, and many budgets cannot account for this. Ultimately, retirees end up having to reassess their expenses and finances and explore various resources at their disposal to better weather inflation. In today’s blog, Family Home Loan Texas provides helpful tips to assist seniors in accounting for their money not going as far as they had planned.
Delay Retirement, If Possible
If you are nearing retirement, it might be in your best interest to hold off a little bit. We know that this can feel defeating; after all, you’ve been working towards retirement your entire career. However, delaying your retirement for just a year can immensely benefit you. Additionally, it is also advisable to increase your savings by 1% for the next two years and to reduce your planned retirement spending by 3%. If you are of retirement age but not 70, you can also ask Social Security to delay your benefit payments if you have not started or you can pause your benefits. Each year you delay until you are 70, Social Security increases your payout by approximately 8%. Similarly, you can pause your payments. When you take this route, you will earn retirement credits, which will help you when you are 70, allowing you to receive more benefits. Of course, not everyone can swing this, but if you can, it can help. Moreover, Social Security is inflation-proof, so when you delay, you will insulate more income from inflation.
Check-In On Your Retirement Accounts
If you aren’t quite through working, be sure you are maximizing your retirement accounts like a 401(k), traditional & Roth IRA, Pensions, and Thrift Saving Plans. Many companies offer matching for these accounts, so try to maximize your payments. When you do, more money will be going in. Moreover, these accounts typically have significant tax benefits that can help you save. By the time you do retire, your nest egg will be larger, helping you weather increasing inflation.
Understand Tax Credits And Deductions
While many seniors are at a disadvantage during a period of major inflation, they do have the benefit of more tax credits and deductions being available to them. These frequently offset major medical costs, and these expenses also rise with inflation. For example, if you itemize your healthcare deduction, you could see tax benefits for not only your own medical expenses but also your spouse’s and dependents’. Some of the more common credits include health care credits, homeowner credits, and education credits. Again, these are major costs that only become worse in periods like these. Deductions include health care deductions, itemized deductions, and investment-related deductions. By educating yourself on your available options, you increase the chance of saving money with taxes.
Take Advantage Of Home Equity With A Reverse Mortgage
As your fixed income and budget are complicated during periods of inflation, many seniors are turning to reverse mortgages to help them free up more spendable funds. A reverse mortgage, also known as a HECM, is a loan in which you leverage your home equity to receive money from a lender. As the name suggests, instead of making a monthly mortgage payment, they pay you. It is available for those 62 or older and can only be taken out on your primary residence. There are several ways to receive your money: as a lump sum, regular payments, and a line of credit. While everyone has different needs and expenses, a line of credit is beneficial when there is inflation. Higher interest rates will increase your line of credit more rapidly than if they are lower. When this grows, individuals with a reverse mortgage have access to more money, allowing them to have spendable funds as the power of the dollar decreases.
Additionally, while you are tapping into your home equity to receive your money, you still retain the title to your house, and you can live there for as long as you like. Notably, you do not have to pay the money back — including interest — until you stop living in the home — your primary residence. This means that you can spend the rest of your life in the house while still receiving money. You will also live more comfortably because not only are you having more flexibility during a period of inflation, but also any funds you receive are considered non-taxable income, meaning that the money you get is truly yours, in full.
Contact Us To Learn More
Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about a reverse mortgage loan and to receive a free, no-commitment consultation.