Is a Reverse Mortgage Missing from Your Retirement Financing Strategy?
Since its introduction in 1961, the reverse mortgage has morphed from the loan of last resort into a valuable financing option used by more than a million households as a cornerstone of their retirement strategy.
Why? Because it offers a viable stream of funds to secure a comfortable retirement and help older Americans support the lifestyle they’ve worked so hard to achieve.
In a recent Retirement Education Network webinar, Dr. Wade Pfau Ph.D., CFA, RICP®, founder of Retirement Researcher, discussed how this type of loan works as part of a strategic plan to build a secure retirement.
Because you can’t run from risk
Explains Pfau, “You might think the goal of retirement planning is to achieve some wealth accumulation target, to make it to the top of the mountain to say, ‘Okay, I wanted to save $2 million…I reached my goal, I can successfully retire.’ But the reality is you have to safely make it down the mountain.”
To retire comfortably, you must plan to have the funds to sustain your lifestyle over the course of retirement — for however long that may be. To add to the challenge, market volatility, inflation and personal spending habits can have a huge impact on the health of your investments. Luckily, for eligible borrowers, a reverse mortgage can help mitigate many post-retirement financial risks.
With a reverse mortgage, you can incorporate home equity in many different ways:
- Tenure payment. Borrowers receive equal monthly payments for as long as they live in the home.
- Portfolio coordination. Borrowers use proceeds from the reverse mortgage to allow their portfolio to grow (by avoiding withdraws) and reduce the need to take distributions when the portfolio is down.
- Growing line of credit. Borrowers open a line of credit sooner rather than later, so they can access a bigger principal limit if and when they need it down the *road.
According to Pfau. “The tenure payment option makes it a part of reliable income. The portfolio coordination strategy makes it a part of the diversified portfolio. The growing line of credit on a home equity conversion mortgage makes it a part of reserves.”
You call the shots
One of the best features of a reverse mortgage is that you can use the funds as you wish, at your discretion. For example, Pfau says, you can:
- Pay off an existing mortgage to remove a fixed mortgage expense from your *budget. Or make home renovations that will allow you to age in place for the long haul.
- Keep your interest-bearing investments intact and growing, while leveraging the proceeds of the reverse mortgage loan as retirement funds.
- Delay Social Security benefits so you can maximize your lifetime benefit amount. For example, if you start collecting at 62, and your full retirement age is 66, you may miss out on 25% of your maximum benefit every month for as long as you live — and that adds up.
- Open a reverse mortgage line of credit early on, before you actually need it, so it can continue to increase over the years.
- Pay for in-home care or supplement long-term care insurance to fund your medical needs to age at home.
- Rather than purchasing an income annuity, use tenure payments from a reverse mortgage for retirement funds— equal monthly payments for as long as you live in the home.
Says Pfau, “You have to look at a reverse mortgage’s contribution to your overall plan. Their initial costs can be offset by gains elsewhere in the financial plan. It's more about using the reverse mortgage to help manage a retirement spending strategy.”
What’s your plan for the future?
At Reverse Mortgage Funding (RMF), we’ll help you determine if a reverse mortgage is the best tool to help finance your overall retirement plan. Give us a call today at (888) 277-1567 to schedule a free, in-person appointment with a loan specialist in your area.
This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans retire more freely, in the comfort of their own homes. As a result of our commitment to providing an extraordinary and positive customer experience, we have earned a 98% customer satisfaction rating; a 4.7-star / Excellent score on Trustpilot; 4.8 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call 888-277-1567 to speak with a licensed reverse mortgage specialist to learn about our retirement financing products and solutions.
* If part of your loan is held in a line of credit upon which you may draw, then the unused portion of the line of credit will grow in size each month. The growth rate is equal to the sum of the interest rate plus the annual mortgage insurance premium rate being charged on your loan.
* As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance and keeping your home in good condition.