How Does a Reverse Mortgage Impact Social Security and Medicare?

For many seniors, Social Security and Medicare benefits are critical parts of a secure retirement. If you’re considering taking out a reverse mortgage on your home, you might be worried about losing your benefits. Generally, getting a reverse mortgage won’t impact your eligibility for Social Security or Medicare. However, if you don’t plan ahead, it could make you ineligible for Medicaid, Supplemental Security Income (SSI), and other need-based programs. Here’s a closer look.

Program-by-Program Summary Table

Let’s get right into it: does getting a reverse mortgage impact Social Security and Medicare eligibility?

Like any other kind of loan, reverse mortgages aren’t without drawbacks. Fortunately, losing your eligibility for Medicare or Social Security generally isn’t one of them.

Medicare

Medicare is a health insurance program for Americans aged 65 and up (and some younger people with qualifying disabilities). It’s a benefit known as an “entitlement” — you are entitled to it based on your age, and your income and assets have no bearing on eligibility.

You might be concerned that even if your eligibility isn’t impacted by your reverse mortgage, your premiums and coverage may be. Good news — both are standardized and aren’t affected by your income or your assets.

Social Security

Social Security benefits (not to be confused with SSI benefits, which we’ll look at next) are paid to retirees after they’ve left the workforce.

How much you receive depends on how much you’ve paid into the system over your working life, and your current income and assets do not impact the total amount you receive per month.

In some cases, strategically taking out a reverse mortgage could actually help you maximize your Social Security benefits. While you can start collecting benefits as early as age 62, doing so can substantially reduce the total amount you collect. If you can wait until 70 to collect, you’ll receive your maximum benefit.

Some seniors have chosen to take out reverse mortgages at age 62 and live on the proceeds of the reverse mortgage until age 70. At this point, they can start drawing Social Security.

This strategy has worked for many people, but everyone’s financial situation is different. As a general rule, you should consult with a knowledgeable financial professional before making a significant, long-term financial decision like this one.

What About Medicaid and Supplemental Security Income (SSI)?

You might breathe a sigh of relief knowing that your reverse mortgage probably won’t impact your Medicare or Social Security benefits. However, if you currently have SSI or Medicaid (or you think you might rely on them in the future), you should know that these benefits could be affected.

Both Medicaid and SSI are need-based programs (as opposed to entitlements). To qualify, you must meet strict income and asset limits.

When you receive proceeds from a reverse mortgage (often in the form of a monthly payment), it’s easy to think of that money as “income.”

However, these mortgage payments are classified as “loan proceeds,” so they aren’t factored in as income when determining your eligibility for Medicaid and SSI.

Unfortunately, this doesn’t mean that your reverse mortgage will have no bearing on your eligibility.

Asset limits for these programs can be surprisingly low, and if you don’t spend the proceeds in the same month you receive them, they may be counted as assets. If you exceed the established asset limit, you could be disqualified from coverage.

This is why it’s generally unwise to receive your reverse mortgage proceeds as a lump sum if you intend to apply for (or continue receiving) SSI and/or Medicaid.

It’s often possible to receive your reverse mortgage as monthly payments and still qualify, but you should plan carefully to avoid any unfortunate surprises.

Before you can be approved for a home equity conversion loan (the most common kind of reverse mortgage), you must complete loan counseling.

Loan counseling gives you an opportunity to explore the interplay of your reverse mortgage with your eligibility for benefits, and it can also be a good time to create a financial plan to preserve eligibility.

Example Scenario — Lump Sum vs Monthly Payments

Imagine a homeowner receives a $50,000 lump sum from a reverse mortgage in January.

If they don’t spend that money during the same month, it may be counted as a countable asset in February and could push them over Medicaid or SSI limits, leading to temporary ineligibility.

Alternatively, if they receive $1,500 monthly and spend it each month on living expenses, that money isn’t treated as income or assets for Medicaid purposes, allowing them to retain their benefits

Planning Tips to Preserve Medicaid and SSI Eligibility

To preserve your Medicaid and SSI eligibility, follow these tips:

• Choose monthly payments instead of lump sums if you’re receiving or expect to receive Medicaid or SSI.
• Spend proceeds in the same month they’re received to avoid asset accumulation.
• Track balances carefully if using a line of credit. Drawing a large amount and holding it can trigger asset tests.
• Consider setting up automatic payments for medical, insurance, or housing expenses to ensure funds are used each month.
• Speak with a benefits planner or elder law attorney to structure your payout correctly.

Need Help Deciding Whether a Reverse Mortgage Is Right for You?

There’s a lot to consider before deciding on a reverse mortgage, and this isn’t a decision you should rush. Fortunately, you don’t have to decide on your own.

The South River Mortgage team has helped countless people in your position plan for financially healthy retirements, and we hope to be able to help you, too.

If you want to learn more about reverse mortgages, get an instant quote here today (totally free) to get started.  Just want to hear more about the process? Get in touch with us at 855-212-9114. Our licensed reverse mortgage experts will review your options and answer all your questions, no pressure or obligation.

Loan Counseling Importance

Reverse mortgage counseling is required by law for HECM loans, but it’s especially important if you receive Medicaid or SSI.

During counseling, you can review how different payout options might affect your eligibility and create a strategy that protects your benefits. Counselors can also refer you to local benefits planning services.

FAQs

Will getting a reverse mortgage reduce my Social Security benefits?

No. Reverse mortgage proceeds are classified as loan advances, not income, so they don’t affect the amount you receive from Social Security.

Will it affect my Medicare premiums or eligibility?

No. Medicare eligibility is based on age, not income or assets. Reverse mortgage funds have no impact.

Can a reverse mortgage make me ineligible for Medicaid?

Yes, if you receive a large lump sum and don’t spend it quickly. If the funds push you over the program’s asset limits, your eligibility may be affected.

What about SSI?

Same rules as Medicaid. Monthly payments usually don’t count against you, but unspent funds may be treated as assets.

Is there a “safe” way to structure the payouts?

Yes. Many homeowners choose monthly payments and work with benefits planners to ensure proceeds are spent in the same month they’re received.