Only 47% of Homeowners Ages 55 to 64 Feel Secure About Retirement. Home Equity Loans Don’t Count Toward Social Security’s Earnings Cap

Dan is 63, short on cash but rich in home equity, and working part time while he tries to decide whether borrowing against his house could affect his Social Security benefits. The answer depends on a distinction many people approaching retirement may not realize exists.

Picture a 63-year-old homeowner. Let’s call him Dan. Most of his wealth is tied up in his house, his retirement savings are modest, and he is working part time while weighing whether to claim Social Security early.

Dan is far from the only person feeling uneasy about retirement. A survey released on October 19 by reverse mortgage lender Longbridge Financial found that just 47% of homeowners ages 55 to 64 felt confident about their financial security in retirement, compared with 66% of homeowners age 75 and older. The gap was even sharper depending on where most of their wealth sat. Only 30% of respondents whose wealth was mainly in home equity said they felt secure, versus 72% of those whose wealth was concentrated in savings and investments.

Dan worries that borrowing against his home might be treated as income and reduce his Social Security if he files early. Luckily, the earnings test draws a clear line between money earned and money borrowed.

If you claim Social Security early and continue working, your wages can affect your benefits. In 2026, the agency withholds $1 for every $2 earned above $24,480 for people who remain below full retirement age (FRA) for the entire year. That limit increases to $25,560 in 2027. Once you reach FRA, the earnings test no longer applies, and Social Security recalculates your benefit to make up for months when payments were withheld.

The key issue is how Social Security defines earnings. Its booklet How Work Affects Your Benefits says that, for people collecting benefits while still working, the agency counts only wages from an employer or net self-employment income. It does not count investment income, interest, pensions, annuities or capital gains.

For Dan, that means his part-time paycheck is the only thing that could trigger withholding.

Why Borrowed Home Equity Does Not Count in the Test

Money borrowed against a home is excluded because a loan is debt, not wages or self-employment income. Taking out a loan against his house will not trigger Social Security’s earnings test, although Dan still has to qualify for the financing. Lenders will look at his equity, income and existing debts to determine how much he can borrow. He has three main choices:

• Home equity loan: a lump sum with fixed monthly payments that begin immediately.
• Home equity line of credit: a flexible borrowing option he can use as needed. Some plans allow interest-only payments at first, though payments can rise when principal repayment starts.
• Reverse mortgage: most often the federally insured Home Equity Conversion Mortgage, which converts part of his equity into cash without monthly mortgage payments. He keeps title to the home during the loan.

That gives Dan another path to consider. Home equity could help cover expenses while he decides when to claim Social Security. Still, borrowing simply to keep his wages under the earnings limit could leave him worse off. Working more may put extra money in his pocket even if Social Security temporarily withholds part of his benefit.

The Costs and Conditions of Borrowing

Each option comes with interest and fees, and the debt must eventually be repaid. A home equity loan or line of credit also adds monthly payments to an already tight budget. In every case, Dan is putting his house at risk.

A federally insured reverse mortgage has its own rules. Dan must be at least 62, live in the home as his primary residence and have enough equity to qualify. If he still has an existing mortgage, that loan must be paid off at closing, possibly using part of the new proceeds. He also must meet with a HUD-approved housing counselor before signing.

With a reverse mortgage, the balance rises as interest and fees accumulate. That means Dan will have less equity left if he later sells the house or needs the money for something else. Repayment usually comes due when he sells, permanently moves out or dies, although a surviving spouse may have certain protections. Falling behind on property taxes, insurance or home maintenance can also make the loan due sooner.

Compare the Loan With Simply Delaying Social Security

For Dan, the central question is whether borrowing would allow him to wait longer to claim Social Security. Every year he delays, up to age 70, permanently increases his monthly benefit, and future annual cost-of-living adjustments (COLAs) are applied to that larger base for life.

The two choices also differ in how they end. Dan can pay off a loan, though he cannot recover the interest and fees already paid. Social Security offers one opportunity to withdraw an early claim within 12 months of first receiving benefits, as long as he repays what he collected. After that, he can still suspend benefits at full retirement age to build a larger check.

Borrowing to delay Social Security may sound attractive, but a bigger monthly benefit does not automatically mean better finances overall. Reverse mortgages often come with interest and fees that can erode the advantage of waiting. For Dan, the real issue is not just how much more Social Security would pay each month, but how much it would cost to secure that larger benefit.