Popular Federal Programs for Seniors During Retirement

Social Security, Medicare & Home Equity Conversion Mortgage

Social Security Benefits inception was in 1935 during FDR’s term as President. It was one the government’s responses to the Great Depression. The key debate on Social Security back then was whether the benefits should be “doled out” or pay as you go insurance approach. Self-financing was the centerpiece of the original concept. Social Security benefits generate lifetime income to retirees starting as early as age 62. Originally there was no taxation on Social Security benefits. Now there’s a means testing income threshold that taxes benefits on a two-tier system. And with the exception of Roth IRA distributions, Reverse Mortgage income, Cash Value Life Insurance and Health Savings Accounts, all other income is included in the provisional income test to determine Social Security benefit taxation.

Medicare Health Coverage was enacted in 1965 under LBJ for seniors age 65 and older. Knowing the basic benefits of Medicare Parts A and B can save you time and create fewer headaches in the future. Operated by the federal government, Medicare is available to qualifying individuals age 65+ and consists of three main parts: Part A, Hospital Insurance and Part B, Medical Insurance. Part D is the prescription drug program. With Part A Hospital Insurance, you usually don’t pay a premium because you or your spouse already paid for it throughout their payroll taxes when they were working. Part A helps cover inpatient care in hospitals, including critical access hospitals and skilled nursing facilities (not custodial or long-term care). It also helps cover hospice care and some home health care, but beneficiaries must meet certain conditions to get these benefits. With Part B Medical Insurance, most people pay a monthly premium. Part B helps cover doctors’ services, outpatient care and some other medical services that Part A doesn't cover.

Home Equity Conversion Mortgage program was enacted in 1988 by Ronald Reagan. There are many HECM strategies Tax-Free Income, Mortgage Payment Elimination and an Appreciating Equity Line of Credit, just to name a few.

Reverse mortgage is an alternative use of your home equity for tax-free income. In a traditional mortgage, you make payments to the lending institution. In a reverse mortgage, the institution makes loan payments to you. Loans on an existing mortgage are not classified as income while you maintain the mortgage.

A home purchase mortgage is another alternative use of your home equity where you can buy a home for around half its sale value not to exceed the maximum claim amount. The main stipulation here is you need around 50 percent cash down to secure the entire transaction. You have a government-insured mortgage, but no mortgage payment. An equity line of credit is an additional alternative use of your home’s equity, where the line of credit grows separate from your home’s market value.

All three government programs are designed to support seniors in their retirement years and deliver a quality of life to older Americans.