March-April 2021

the end of 2019, the program was providing monthly ben- efits to about 64 million people, according to the SSA. In 1983, Congress did a “big fix” to solve long-term funding problems, but observers have known since the late 1980s that more would need to be done, she says. Munnell is optimistic that national leaders will make necessary changes, perhaps not in the next couple of years but before 2034. It’s a bipartisan issue, and there simply is too much support for the program created in 1935. The maxim that Congress only reacts in a crisis could be at play. “The good thing and bad thing are that we are almost there,” Munnell says. “Everyone in Congress has someone in their district relying on the program. It should be some- thing we can do, but we certainly don’t want to wait until 2034 to have benefits cut by 20 percent.” Conceptually, Social Security is a relatively simple system: Money comes in from businesses and workers and then is paid out in benefits to retirees. At the age of 62, eligible workers can start receiving reduced benefits. An estimated 178 million workers pay into the system, according to the SSA. In 2021, employees are making a 6.2 percent contribution from their paychecks up to max- imum earnings of $142,800, and their employers must match that 6.2 percent. Self-employed workers pay both shares, or 12.4 percent. Fixes would include increasing the payroll tax or applying a broader definition of income that is taxed, Munnell suggests. The argument has been getting stronger for ensuring that full Social Security benefits remain in place because self-directed retirement plans, like the 401(k) and IRA, primarily have helped those at the top, Munnell says. “The debate has been evolving over time to one where we need to keep current Social Security benefit levels because the system outside of Social Security is so wobbly,” she says. Self-directed retirement plans are “not good for a great share of the people.” Munnell says she is a fan of home equity release ideas that could help people supplement incomes in retirement. But she thinks that reverse mortgages remain difficult to market, partly because of problems that surfaced years ago that damaged the reputation for Home Equity Conversion Mortgages (HECMs). The product could be enhanced with a name change reflecting its equity-release capabili- ties, she suggests. Reverse mortgages also can appear costly to some borrowers. “I am a really big proponent of viewing the house as a retirement asset,” she says. “But, I think reverse mortgages are a hard sell.” Munnell has been working on an idea for improving existing state property-tax-deferral programs, where peo- ple in their 60s can postpone paying property taxes until they die or move. “That would provide additional income without any of the complications or fees associated with reverse mortgages.” Regardless, financial planners and loan officers are right to view home equity as a sound source of potential cash flow for clients, Munnell confirms. “For many households in the middle of the income distribution, their house is their largest non-Social Security asset. And it’s got to be brought into the game,” she says. “We all need to talk about it. Financial planners need to drive home that the house is an asset that people could tap.” Steve Vernon, consulting research scholar at Stanford University’s Center on Longevity, says equity release pro- grams are important, even if it is simply downsizing into a smaller house where someone doesn’t have a mortgage payment. The more loan officers understand the various options beyond reverse mortgages, the better for them and their clients, suggests Vernon. “I’d like loan officers to serve more as problem solvers trying to understand what the goals are of their potential clients,” says Vernon, who is an author of numerous retirement planning guides and articles. His latest books are “Don’t Go Broke in Retirement” and “Retirement Game-Changers.” Each individual is going to have unique situations, so it is difficult to generalize, the experts point out. But some examples of using equity release would include cre- ating a line of credit to build a bridge to Social Security benefits; delaying Social Security so people can qualify for enhanced benefits; avoiding having to tap retirement accounts while markets are down; or simply shedding a mortgage payment. With proprietary loan products where Tapping Retirement continued on page 20 Steve Vernon REVERSE MORTGAGE / MARCH-APR I L 2021 19