Using a Reverse Mortgage as a Financial Planning Tool
People are living longer — long enough to outlive their retirement savings. In fact, 52 percent of households are at risk of not having enough to maintain their standard of living in retirement. So what can we do to avoid running out of money in our golden years? Expert researchers suggestreverse mortgages could be the answer for retirees who find themselves lacking enough savings to last for decades. Here are some ways retirees can use a reverse mortgage to help them plan for their futures.
Pay off an existing mortgage to reduce monthly expenditures. A reverse mortgage can provide enough money to pay off an existing mortgage in a single payment, eliminating monthly payments and increasing your monthly cash flow.
Delay Social Security payments. Don’t sign up for payments at the minimum age. Benefit payments are reduced by 20%-30% if you take early distribution instead of waiting until full retirement age. A reverse mortgage can give retirees financial freedom so they can wait longer to draw on Social Security, thus increasing their payments later on.
Fund future long-term care or income needs. Homeowners may be able to use a Home Equity Conversion Mortgage (HECM) line of credit to help fund costs like long-term care insurance, in-home care or adult day care costs, and home modifications to make the house more accessible for those aging in place.
Manage taxes. Because the proceeds from a reverse mortgage is not considered income, it is not taxed. Retirees can reduce their tax liability by drawing on a reverse mortgage instead of other taxable income sources.
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Postpone drawing down retirement assets, giving assets time to grow. A reverse mortgage can give retired homeowners the gift of time. The longer they can put off receiving benefits, the longer those benefits have to increase.
Protect your portfolio performance in a down market. Including a reverse mortgage in a retirement plan may help homeowners protect their portfolios by reducing the negative effects of poor returns on other retirement investments by providing a line of credit to use.
Access a low cost, non-cancellable, growing line of credit. A reverse mortgage line of credit is non-cancellable because of a reduction in home value due to market turmoil. And, the unused line of credit grows at a compound rate which means the line of credit available to you can increase over the years.
Receive annuity-style payments using your home’s equity. Having a predictable income stream is important for most retirees. With a reverse mortgage, borrowers have the option of receiving funds in annuity-style payments which provides for peace of mind and a dependable financial structure.
Replace cash reserves. It can take one accident or health crisis to reduce someone’s cash reserve unexpectedly. A reverse mortgage can give borrowers an opportunity to replenish their cash reserve.
It’s never too early to start planning for retirement. These are just a few of the advantages a reverse mortgage can provide. Individuals and couples should consult with a financial planner to see how home equity, including reverse mortgages, can be a part of their financial planning options.
If you’d like to speak with one of our reverse mortgage specialists, feel free to call us toll free at (855) 367-4326.