Annuities, reverse mortgages or Social Security: Which retirement tool works best for seniors?

CBS News

5 days ago

Retirement looks different today than it did a generation ago. With today's longer life expectancies, rising living costs, sticky inflation and ongoing concerns about stock market volatility, many seniors are reevaluating how to structure their retirement plans. And that, in turn, is leading to some big questions about what tools seniors should use to ensure they can cover their expenses in retirement while also safeguarding their financial futures.
For some, Social Security benefits offer a predictable monthly foundation, but that money is generally not enough to cover all retirement costs and keep pace with rising expenses. Others are turning to annuities for lifetime income or tapping their home equity with reverse mortgages. Each option has its own pros and cons, though, and choosing one over another isn't always straightforward. What works for one retiree may not suit another.
So, how do you know which route is right for you? Here's what to know about each option — and how to determine which retirement tools fit best into your overall financial picture.
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When it comes to choosing between annuities, reverse mortgages and Social Security benefits, there may not be a single "best" solution that works for every retiree. After all, everyone's financial capabilities and needs differ during retirement. However, there is likely a strategy that makes the most sense based on your assets, risk tolerance and needs. Let's break down who each may benefit most.
Most retirees rely on Social Security to some degree. It's predictable, inflation-adjusted, and lasts for life. But with the average monthly benefit sitting at just under $2,000 in 2025, it's rarely enough on its own to cover the wide range of expenses that most retirees face. In other words, it's a good fit as a foundational income source, but it's also one that usually needs to be supplemented by savings or other tools.
That said, if you time your Social Security benefits claim correctly, it can positively and significantly impact the size of your monthly check. Delaying your Social Security benefits until age 70, for example, boosts your payment by as much as 8% per year past full retirement age.
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If you're worried about outliving your savings or losing income in a downturn, annuities can offer peace of mind. These insurance products provide a guaranteed stream of income for a set period or even for life, essentially acting like a personal pension.
There are numerous annuity types to choose from. Fixed annuities are particularly popular with risk-averse seniors since they provide predictable payouts. Variable annuities, while more complex, offer market exposure with some protection features. If you're going to buy in, though, you should keep in mind that annuity fees can be high, and access to funds is limited once you commit. But for those looking to fill gaps between Social Security and expenses, annuities can provide valuable stability.
A reverse mortgage allows homeowners aged 62 and older to convert a portion of their home equity into tax-free cash without selling or moving, meaning that this option can offer critical financial relief to seniors when cash flow is tight. As a result, reverse mortgages tend to work best for house-rich, cash-poor seniors who have significant equity in their homes, plan to stay there long-term and don't mind reducing their estate's value.
However, it's important to note that while reverse mortgages can be a good option for certain retirees, they also come with upfront costs and interest that accrues over time. And, because the loan must be repaid when the borrower moves or dies, this option is generally not ideal for those planning to move soon or who want to leave their home to heirs.
Learn more about how a reverse mortgage could benefit you in retirement.
The key to a solid retirement plan typically isn't choosing just one option. It's blending them in a way that meets your lifestyle and income needs. That's because annuities, reverse mortgages and Social Security each offer unique benefits, and combining them can create a more resilient financial strategy.
It may help to think of Social Security as your baseline income, annuities as your safety net and a reverse mortgage as a potential backup if you need extra support later. The right mix for you will depend heavily on your assets, health, family situation and whether you want to leave an inheritance.
Before deciding, you may want to consider speaking with a financial advisor who can walk you through your options in the context of your broader retirement goals. They can help you stress test different income streams and prepare for healthcare costs, inflation and other long-term considerations.
There's no single "right" retirement income solution that will work for everyone, but there is a right strategy for you. Whether you lean on annuities, tap your home equity through a reverse mortgage or build around Social Security benefits, the best approach is often a balanced one. So, start by assessing your needs, risk tolerance and goals to try and determine how you can maximize your resources. With careful planning, you can create a retirement plan that offers both security and flexibility.