Older Americans Now Hold a Record $15.34 Trillion in Home Equity, and a Retiree Could Access $50,000 Without Raising Social Security Taxes

Quick Read

• Americans age 62 and older now hold a record $15.34 trillion in home equity, leaving many asset-rich but cash-poor and forced to weigh difficult tax choices.

• With a $50,000 IRA withdrawal, combined income can rise from $25,000 to $75,000, which can make as much as 85% of Social Security benefits taxable.

• Reverse mortgage proceeds are treated by the IRS as loan money, so Social Security stays untaxed. Still, interest and fees can grow large enough to offset the tax benefit.

Americans 62 and older hold a record $15.34 trillion in home equity, according to a HousingWire report citing the National Reverse Mortgage Lenders Association. The total has moved above $15 trillion for the first time, underscoring how much wealth older homeowners have built into their properties.

Many of those homeowners are rich in home value but short on cash. Consider a 70-year-old unmarried man with $500,000 in home equity, $2,500 a month in Social Security, and a traditional IRA.

He also has about $10,000 a year in other taxable income and needs $50,000 for repairs and everyday expenses. He could either pull the money from his IRA or borrow against his house. Both options would provide cash, but the tax outcome could be very different.

How a $50,000 IRA Withdrawal Can Make Social Security Taxable

The IRS begins with what is known as combined income: other income, including tax-exempt interest, plus half of Social Security benefits. For single filers, benefits begin to be taxed above $25,000, and as much as 85% can be taxed above $34,000.

Married couples filing jointly use thresholds of $32,000 and $44,000.

In this example, the retiree receives $30,000 a year in benefits, so half of that amount is $15,000. Add his other income, and combined income reaches $25,000, right at the threshold. None of his Social Security is taxed.

If he then withdraws $50,000 from the IRA, combined income climbs to $75,000, and $25,500 of his benefits becomes taxable, hitting the full 85% limit.

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That withdrawal adds $75,500 to his income before deductions: $50,000 from the IRA plus $25,500 in taxable Social Security. That does not mean he would owe taxes on the full $75,500. It means a single withdrawal has pushed far more of his retirement income into the federal tax base.

Why Reverse Mortgage Money Usually Avoids the Tax Return

Money from a reverse mortgage is borrowed money, and the IRS treats it as loan proceeds rather than taxable income. If he takes $50,000 through a Home Equity Conversion Mortgage, the federally insured reverse mortgage available to homeowners 62 and older, his combined income remains $25,000. His Social Security stays untaxed, and his taxable income does not change.

The IRA withdrawal also keeps him under the $109,000 income level used for Medicare premium surcharges in 2026. That figure can change from year to year, and Medicare generally uses income from two years earlier when setting the extra charge.

Costs That Can Eat Into the Benefit

A reverse mortgage does not require monthly payments, but interest and fees are added to the loan balance each month, causing the balance to grow. As the loan grows, home equity shrinks. Costs can include interest, mortgage insurance, other fees, origination charges, and servicing charges.

The homeowner must also continue paying property taxes and homeowners insurance, live in the home as a primary residence, and keep it in good condition. The loan becomes due when the borrower no longer lives there, usually because of death, sale of the home, or a permanent move.

Who Benefits Most, and Who Should Recheck the Math

This strategy tends to fit homeowners age 62 or older who have substantial equity, limited liquid savings, and a large taxable IRA withdrawal to consider. It is a weaker fit for someone likely to move into assisted living within a few years, because upfront costs would be spread over a short period. It is also a poor fit for anyone who wants to leave the house to heirs with minimal debt attached.

Another option is to spread IRA withdrawals across tax years, which can sometimes reduce the total tax bill. In this case, taking $25,000 in each of two years would still make part of Social Security taxable in both years, but smaller withdrawals could keep more income in lower brackets. Actual savings would depend on deductions and other income in each year. The Social Security tax torpedo is one of several IRS rules that can quietly reduce retirement savings. Run your own numbers before assuming splitting withdrawals is the better move.

Checks Before Tapping $50,000

1. Use the Social Security taxation worksheet in the Form 1040 instructions, or have a tax preparer do it, so you know the actual federal tax cost of the IRA withdrawal.

2. Request full written cost disclosures from reverse mortgage lenders, including origination fees, mortgage insurance, servicing charges, and the interest rate.

3. Confirm eligibility and complete the required counseling with a HUD-approved counselor. The counseling certificate remains valid for 180 calendar days.

4. Compare the total borrowing costs over the years you expect to remain in the home with the one-time tax bill from the IRA withdrawal.

Keeping Social Security out of taxable income can be a real advantage, but that does not automatically make a reverse mortgage the cheaper option. The hardest mistake to reverse is borrowing against the house to avoid a tax bill that turns out to be smaller than the interest and fees. Filing status, other income, and how long you plan to stay in the home can all change the outcome. Compare your own numbers carefully before choosing.

Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio

If you’ve saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)