Only 47% of Homeowners 55 to 64 Feel Financially Secure About Retirement. Tapping Home Equity Won’t Count Against Social Security’s Earnings Limit

Picture a 63-year-old homeowner. We’ll call him Dan. His house holds most of what he owns, his retirement accounts are thin, and he works part time as he tries to decide whether to claim Social Security early.

Dan isn’t alone in feeling uncertain about retirement. An October 19 survey from Longbridge Financial, a reverse mortgage lender, found that just 47% of homeowners ages 55 to 64 felt confident about their financial security in retirement, compared with 66% of those 75 and older. The divide was even wider depending on where homeowners held most of their wealth. Only 30% of those whose wealth was tied up primarily in home equity felt secure, compared with 72% whose wealth was mostly in savings and investments.

Dan wonders whether borrowing against his house would count as income and cost him Social Security benefits if he claims early. Fortunately, the earnings test makes an important distinction between money he earns and money he borrows.

What Social Security’s Earnings Test Counts

Claim Social Security early and keep working, and your paycheck could 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) all year. The limit rises to $25,560 in 2027. Once you reach FRA, the earnings test ends, and Social Security recalculates your benefit to account for months when payments were withheld.

What matters is the definition of earnings. Social Security’s booklet How Work Affects Your Benefits, its plain-language guide for people who work while collecting, says the agency counts only wages if you work for someone else and only net self-employment earnings if you work for yourself. The same guide excludes investment earnings, interest, pensions, annuities and capital gains.

So for Dan, the only thing that can trigger withholding is his part-time paycheck.

Why Borrowed Home Equity Stays Outside the Test

Money borrowed against a house falls outside both of those categories because a loan is debt, and debt generates no wages and no self-employment income. Borrowing against his home won’t trigger the earnings test, but Dan still has to qualify for a loan. His equity, income and existing debts will help determine what he can borrow. He has three main options:

• Home equity loan: a lump sum with fixed monthly payments that start right away.
• Home equity line of credit: a flexible credit line he can draw from as needed. Some allow interest-only payments at first, but payments can jump when principal repayment begins.
• Reverse mortgage: most commonly the federally insured Home Equity Conversion Mortgage, which turns part of his equity into cash without monthly mortgage payments. He keeps title to the home throughout the loan.

That gives Dan another option to consider. Home equity could help cover expenses while he decides when to claim Social Security. But borrowing money just to keep his wages below the earnings limit could leave him worse off. Extra work can still put more money in his pocket, even if Social Security withholds some benefits temporarily.

Costs and Rules That Come With Borrowing

Every option carries interest and fees, and the debt eventually has to be repaid. A home equity loan or credit line also adds monthly payments to a budget that’s already tight. And whichever route Dan takes, he’s putting his house on the line.

A federally insured reverse mortgage comes with its own requirements. Dan must be at least 62, live in the house as his main residence and have enough equity to qualify. If he still owes money on his existing mortgage, that debt must be paid off at closing, potentially using some of the new loan. He’ll also need to meet with a HUD-approved housing counselor before signing.

With a reverse mortgage, the balance grows as interest and fees pile up. That leaves Dan with less equity if he eventually sells the house or needs money for something else. Repayment generally comes when he sells, permanently moves out or dies, although special protections may apply to a surviving spouse. Falling behind on property taxes, insurance or upkeep can also bring the bill due sooner.

Consider the Loan Against Simply Waiting to Claim

For Dan, the key comparison is whether borrowing lets him wait on Social Security. Each year he delays, up to age 70, raises his monthly check for good, and every annual cost-of-living adjustment (COLA) then builds on that larger base for life.

The two decisions also come with different ways out. Dan can pay off a loan, although he won’t recover the interest and fees he’s already paid. Social Security gives him one chance to withdraw an early claim within 12 months of when his benefits first began, provided he repays what he received. After that window closes, he can still suspend benefits at full retirement age to build a bigger check.

Borrowing to delay Social Security sounds appealing, but a bigger monthly benefit doesn’t automatically mean coming out ahead. Reverse mortgages tend to carry interest and fees that can eat into the financial advantage of waiting. For Dan, the real question isn’t simply how much more Social Security would pay him each month. It’s how much that larger check would actually cost him to secure.

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