Using Home Equity as a Buffer Asset in Retirement
Did you know that millionaires have about 25% of their wealth in cash? It can be a smart strategy to offset any economic downturns. But what about the rest of us?
If you’re not familiar with the term buffer asset, it’s an asset that’s largely unrelated to your investment portfolio or the stock market.
Buffer assets commonly include a whole life insurance policy or a sizeable amount of cash. But Dr. Wade Pfau, RICP Curriculum Director and Professor of Retirement Income at the American College for Financial Services, points to another buffer asset — tapping into home equity with a reverse mortgage loan.
Because the risk is always there
For many older homeowners, your most sizeable asset is your home. In fact, homeowners age 62 and older collectively have $9.2 trillion in home equity wealth. Monetizing that wealth can be an effective strategy to create a buffer asset of income tax-free money† to help live a more comfortable retirement.
But isn’t a reverse mortgage considered a loan of last resort?
According to Christian Mills, NMLS # 1608842, Financial Planner Channel Leader and a Reverse Mortgage Specialist at Reverse Mortgage Funding LLC (RMF), “The HECM loan value available to use this year is $970,800. That’s just shy of a million dollars. This is certainly not necessarily a loan for people who are down on their luck.”
A reverse mortgage loan can potentially save you from selling investments at a loss to pay for expenses. You can use your home equity to cover the costs of living while allowing your nest egg to grow.
Says Dr. Pfau, “You have to look at how a reverse mortgage integrates into your financial plan and specifically how it helps preserve the investment portfolio through managing sequence of returns risk. The strategic use of a reverse mortgage can improve retirement sustainability.”
How big a buffer do you need?
For qualified borrowers, your home equity can be accessed as a lump sum, monthly payments or a standby line of credit ‡. Keep in mind, you must also fulfill your loan obligations, including living in the home as your principal residence, paying property taxes and insurance, and maintaining basic home upkeep.
The proceeds from a reverse mortgage can also be used as as source of spending while the market is down — to supplement your income, pay everyday expenses, make home renovations, cover home healthcare costs and more.
At RMF, our loan specialists are available to discuss the possibilities and share the benefits of this smart retirement tool. Call us today at (888) 277-1567 to set up an appointment.
This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans live the retirement lifestyles that they imagined and deserve, 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 4.5-star / Excellent score on Trustpilot; 4.5 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call (888) 277-1567 to speak with one of our experienced reverse mortgage specialists to learn about our retirement financing products and solutions.
†Not tax advice. Consult a tax professional.
‡Borrowers who elect a fixed rate loan will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages.