Using a Reverse Mortgage as a Retirement Savings Tool

As you approach retirement, you’ll want a defined plan in place to ensure have enough money saved. It’s not too late to consider a reverse mortgage.

Are you comfortable with your investment strategies? Are you prepared to live on a budget? Have you saved enough? It’s not too late to make changes. Let’s explore strategies you (may) have at your disposal and see how easily they partner with a reverse mortgage.

  • Delay Social Security
    This is a great way to extend retirement funds. Mathematically waiting until your full retirement age (66 for many of us, 67 if you were born in 1960 or later) to take your Social Security benefits results in a benefit amount that is about 30% higher than if you start taking benefits at age 62. Waiting until age 70 results in a benefit that is about another 32% higher. Is delaying access to that money as easy as it sounds? It can be if you take advantage of a reverse mortgage, which can provide you with monthly income. This way your immediate need for access to cash is taken care of and your Social Security benefits can continue growing.
  • Be mortgage-free
    Whether it’s something you achieve over time or something you take care of before leaving the workforce, eliminating mortgage payments can provide extra monthly income that really makes a difference. If you expect to carry a mortgage into retirement, but prefer an option to pay it off faster, you’ll want to consider a reverse mortgage. You can use your equity to make your mortgage payments or to receive a lump sum that will pay off your mortgage balance.
  • Pay off high-interest debt
    Credit card interest rates are in the upper teens. In fact, as of October 2017, they’re around 16.15%. Carrying a credit card balance is an extreme disadvantage that can slowly deplete your savings. An easy way to take care of it is through a cash-out refinance, or by considering the ability to access tax-free cash through a reverse mortgage.
  • Consider downsizing
    Although tough to consider, downsizing is an effective way to add money to your savings while also eliminating the stressors of stairs (should mobility issues surface), high mortgage payments, and ongoing home maintenance. Many baby boomers sell their homes to move into condos or retirement communities. There’s less space and work to worry about. But how does a reverse mortgage come into the conversation? Well, through a reverse mortgage for purchase loan, you can receive assistance with purchasing a new home. It combines proceeds from the sale of the previous residence with reverse mortgage funds, all within a single transaction.

As you can see, a reverse mortgage does not have to be a last resort option. In fact, all of the strategies above can tie into a partnership with the reverse mortgage product.

Research finds value in reverse mortgage retirement strategies

Professor Wade Pfau published a study in the Journal of Financial Planning about opening a reverse mortgage line of credit early in retirement and then delay using it until after the investment portfolio is depleted. This strategy allows the credit line to grow over a longer period of time before it is ultimately used, providing for more income.

In another study (again with the Journal of Financial Planning), researchers Barry H. Sacks, J.D., Ph.D., and Stephen R. Sacks, Ph.D., found that coordinating a reverse mortgage with spending down liquid assets was an alternative to taking out the reverse mortgage after other assets have been depleted. They found that accessing the line of credit in years when the market has a negative return is a better option than selling assets during a market decline to meet living expenses.

Taking these research findings into consideration, you’ll see there are many ways to use a reverse mortgage to make retirement savings last longer.

As the government continues to strengthen the rules and regulations for reverse mortgages, reverse mortgages may be top of mind when retirement planning. Let’s not forget that property values and home equity continue to be on the rise. That said, reverse mortgages are certainly an option that deserves further discussion.

If you’re interested in remaining at home, mortgage free, and want to learn more about reverse mortgage benefits — give one of our salary-based mortgage experts a call.

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