Will a reverse mortgage affect my Social Security or Medicare benefits?

Short answer: generally, no.

This question comes up with nearly every client of ours, usually in the first ten minutes. Here's how it works, and the one group of people who do need to be careful.

Social Security: generally no effect

Your Social Security retirement benefit is based on your work history and the age you start collecting. It isn't based on your income or your savings. And reverse mortgage money is a loan, not income.

So taking out a reverse mortgage, or drawing from one, generally doesn't change your Social Security check.

In fact, some people use a reverse mortgage to put off claiming Social Security, so their benefit grows larger. That's a planning strategy, not a fit for everyone, and it has real costs. See The Reverse Mortgage Bridge to a Bigger Social Security Check.

Medicare: generally no effect

Medicare eligibility isn't based on your income or assets. A reverse mortgage generally doesn't change it.

One related point: higher-income Medicare members can pay extra premiums based on their income from their tax return. Because reverse mortgage money generally isn't taxable income, it generally doesn't push those premiums up. If you're close to one of those income lines for other reasons, it's worth a conversation with your tax advisor.

SSI and Medicaid: this is where you need to be careful

Supplemental Security Income (SSI) and Medicaid are needs-based. They look at what you have, not just what you earn.

Here's the rule as Social Security explains it for SSI:

• Loan money isn't income.
• But money you borrow and don't spend in the month you receive it counts toward your resource limit, starting the next month.

Many state Medicaid programs use similar rules, but each state sets its own, so check with your state Medicaid agency. Reverse mortgage payments aren't counted as income, but if the money is still sitting in your account the following month, it can count as a resource. If that pushes you over your program's limit, your benefits can be affected.

And you can't simply give the money away to get under the limit. Giving away money without getting fair value back can bring a Medicaid penalty.

How people on SSI or Medicaid use a reverse mortgage carefully

• Use a line of credit and draw only what you'll spend that month.
• Avoid large lump sums you'll hold in the bank.
• Time your draws to the bills they're paying for, like home repairs or in-home care.
• Talk with a benefits professional or elder law attorney before you draw large amounts.

See Paying for In-Home Care With a Reverse Mortgage for how this plays out with care costs.

What about taxes?

Reverse mortgage money is generally not taxable income, because it's a loan. Interest added to your balance can't be deducted until it's actually paid, usually when the loan is paid off, and even then it's generally deductible only in limited cases, like when the money was used to buy, build, or substantially improve the home. Your situation may be different, so check with your tax advisor.

The bottom line

• Social Security: generally no effect.
• Medicare: generally no effect.
• SSI and Medicaid: loan money isn't income, but money you keep past the month can count against you.
• Taxes: generally not taxable income.

It's always a good idea to check with the agency that pays your benefits, and with a tax specialist, before you decide. I'm happy to set up a reverse mortgage in a way that fits your benefits. Call us at 530-888-6000.

Related questions

• I'm 62, so I can collect my Social Security benefits instead of doing a reverse mortgage?
• What's a reverse mortgage loan?
• Reverse Mortgage Pros and Cons

Sources

• Social Security Administration, SSI Spotlight on Loans: ssa.gov
• Social Security Administration, POMS SI 01120.220, Cash Loans: ssa.gov
• Washington Health Care Authority, Reverse mortgage and loans: hca.wa.gov
• IRS Publication 936, Home Mortgage Interest Deduction: irs.gov
• Consumer Financial Protection Bureau, reverse mortgages: consumerfinance.gov