2021’s Meager Social Security COLA Increases Financial Strain on Retirees

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2021’s Meager Social Security COLA Increases Financial Strain on Retirees

Think about how much a couple of pizzas runs these days.

Probably about $20. As long as you don’t order extra toppings.

That’s the same amount the Social Security Administration will raise its monthly stipend for beneficiaries beginning in January 2021.

It’s the annual Cost of Living Adjustment, or COLA. And if you’re thinking it seems like a meager increase, you’re right.

Will it be enough?

Retirees might need a bigger cushion, as monthly living expenses, healthcare costs, and even food costs continue to rise.

Fortunately, there are options to bolster their financial bottom line without having to find part-time work or cutting back on their lifestyle. One of these options is a reverse mortgage.

Social Security COLA Set to Increase 1.3% for 2021

In October, the Social Security Administration announced a modest 1.3% increase in its monthly retirement benefits for beneficiaries. Previous annual increases have averaged higher, around 1.65%. Millions of retirees rely on this annual increase to keep up with rising expenses. This year’s low adjustment primarily hinges on current low inflation and the negative effect the pandemic has had on the economy.

2021 Medicare Premium Increase Tightens Retiree Finances Even More

Social Security beneficiaries might see their COLA increase reduced further thanks to the simultaneous Medicare Part B Premium increase. That increase is projected to be about $25 to $50 a month, further tightening finite retirement funds. A Hold Harmless Provision will prevent the premium increase from overtaking and eliminating the COLA benefit completely. Still, it will add financial pressure for millions of retirees who are already struggling to remain afloat as we move into the new year.

Now May Be the Time to Tap into Home Equity for Income

Retirees who need a little cushion to fund their living costs might find it in something they already have and have worked for years to build – their home’s equity. Reverse mortgages, specifically, can provide a healthy income stream separate from retirement accounts.

A reverse mortgage loan turns home equity into cash while allowing the homeowner to remain on the title and stay in their home without making monthly mortgage payments. Instead, reverse mortgage borrowers can receive tax-free income in multiple ways depending on the structure of the loan. They might receive a monthly term payout, a lump sum payment, a line of credit, or a combination of these based on what works best for their financial situation.

The loan balance becomes due when the borrower moves out or passes away. In an ideal scenario, the home is willed to heirs who can sell it at market value or more and pay back the balance.

Eligibility requirements for reverse mortgages include:

  • The youngest homeowner on the title must be at least 62 years old.
  • The home must be the borrower’s primary residence.
  • The borrower must pass a financial assessment to ensure ability to pay necessary property taxes, insurance, and upkeep

Reverse mortgages have grown in popularity as a reliable option in recent years, especially as a supplement to monthly Social Security stipends.

Reach Out for Help to Determine If a Reverse Mortgage Makes Sense for You or Your Client

If you’re wondering whether or not a reverse mortgage can help you or your client bolster income in retirement – especially in light of the modest 2021 Social Security COLA increase – give us a call. We’d love to discuss the pros and cons of the loan program and how it may be a fit for your financial situation. Contact us at (504) 833-2111 or reach out to one of our reverse mortgage specialists today.