Reverse Mortgages Get Second Look Due to Puny Social Security Raises

Social Security benefits will be increased in January 2009 for 50 million people. The increase will be 5.8 percent and will be the largest increase since 1982 when Social Security benefits increased 7.4 percent. The 2009 increase will be more than double the raise that retirees received in 2008, which was 2.3 percent.

At first blush that sounds exciting, until you realize that what that equates to for the average retiree is a paltry $63.00 per month. Yearly benefit changes are based upon the amount the Consumer Price Index (PCI) increases from July through September from one year to the next. Unfortunately, the problem with using the CPI is that most consumers do not believe that the CPI accurately reflects the prices they are paying for crucial necessities like energy, food or medical care. This disbelief is particularly strong among those living on a fixed income.

Some argue that if the Producer Price Index (PPI) was used for the measurement for Social Security benefits increases, it would be more reflective of the "real world" for retirees. The PPI measures wholesale inflation. (Wholesale inflation tends to lead retail inflation.) The Producer Price Index (PPI) in June of 2008 set a 27 year record with a 9.2 percent increase in inflation over a twelve month period. The last time inflation was this high was the same year that Treasury yields exceeded 15%, and 30 year mortgage rates exceeded 16%.

Retirees Battered on Several Fronts

$63.00 extra per month seems woefully inadequate for millions of retirees that have been battered on several fronts this year. Not only have they seen huge increases in energy and food costs, but many have been assaulted by reeling stock market declines as well as plummeting home values.

The Congressional Budget Office estimated that Americans' retirement plans have lost as much as $2 Trillion over the last 15 months, which represents more than 20 percent of their value, due to the upheaval on Wall Street. Real estate prices have dropped nationally by 20.29 percent. In some of the previously "hot" markets, like California, Nevada, Arizona and Florida the decreases have been even more severe.

More Are Turning To Reverse Mortgages For Help

Retirees worried about their decimated savings and stock market assets are turning in greater numbers to the idea of using a reverse mortgage to stabilize their cash flow and supplement retirement income. Luckily, the greater demand for reverse mortgage loans coincides with new regulations for FHA insured HECM reverse mortgages. The HECM reverse mortgage loan now has a higher National loan limit of $417,000. This is up from the previous loan limits that ranged from $200,160 to a high of $362,790 depending on what county the property was located in. Not only does the single National loan limit simplify the product but it allows approximately 30 percent more seniors to qualify and others to be eligible for even more money than they would have been with the lower loan limits.

If you are one of the many retirees that feel a personal disconnect between what the government says the inflation rate is and what your "real world" experiences are everytime you go to the grocery store, the gas station or pay your utility or medical bills, then don't feel alone. The indexes that have been chosen are by design and unfortunately, will never be reflective of the "real world." Even with the conservative index that the government pegs the increase in benefits to, the system is still on target for insolvency by the end of 2011.

It is essential that we all take charge of our own destiny in retirement. If you thought you planned well and are now realizing that you could be short on money and long on time, you may have to take a look at tapping into home equity even though you thought you would never have to touch it and it would be left in your estate for your heirs.

Home equity does not have to be a sacred cow, never to be tapped into. Most adult children would rather see their parents live comfortably during retirement rather than sacrifice lifestyle in order to leave them a home that they don't want or need.