Significant changes by the government in 2013-2015 removed the issues people had with reverse mortgages that led to a less-than-stellar reputation. The changes which resolved those issues prompted a new look at the product, its advantages and benefits.
The boomer generation is reaching peak numbers of those arriving at the doorstep of retirement. However, many are delaying leaving the work force, and working late into their 60s and 70s. For a large number of Boomers, their plans for retirement didn’t pan out.
The economic recession decimated many retirement accounts. Interest rates on their savings have been near 0%, definitely not a growing proposition. The stock crash left many risk averse to a repeat. Rather than enjoying the fruit of their labor, they struggle just to get back to where they were 10 years ago.
Those willing to take the plunge into retirement, often face the decision to tap into social security at age 62, and draw much less monthly than if they could wait till 65, 67, or even 70. Monthly benefits increase by 30%, and more if you can wait.
Many retirees are faced with a smaller retirement portfolio growing at a slower rate. The rate of withdrawal (how much taken each month) from a retirement account to allow it to last the number of years expected, likely must decrease. Or, they have to plan on the funds running out sooner. Neither is a good proposition.
A frugal, often muted existence replaces one of a hoped-for-life with enough resources to enjoy retirement.
There is a solution!
Many Boomers own their home, and even if not fully paid off, have lots of equity. It is becoming increasingly popular for Boomers to use the equity in their home to help make up the difference in retirement.
The equity be accessed with a reverse mortgage, eliminating the current mortgage payment. In addition, they can age in place for as long as either spouse is living in the home.
Imagine how having the mortgage payment back in the monthly budget can help stretch retirement dollars! Of course, property taxes and insurance must be paid, but is only a fraction of the previous mortgage payment.
In addition to paying off the mortgage, there is often enough equity to have a line of credit. Some of the funds can be accessed at closing, and the remainder a year later. All the funds are tax free. Whatever is in the line of credit is also growing, earning interest at approximately 5% – again, tax free.
If there was enough equity to receive a $200,000 line of credit growing at 5%, one could add an additional $10,000 to their annual income, and never touch the principal.
The line of credit can be used by a retiree to fund, or supplement the first few years of retirement until they maximize their social security benefit and retirement funds. Retirement funds can grow a few more years, and hopefully, see a rise in the rate of return, as well.
Another strategy is to alternate between using the retirement funds, or line of credit depending on which is more advantageous. If the retirement account is getting low rates of return, don’t tap into the principal, use the line of credit instead. Keep the retirement account intact extending its life.
These are just a few of the smart, successful strategies Boomers are beginning to use to extend, and enjoy their retirement.
If you have questions and want to find out if a reverse mortgage is a good fit for you, as well as the options it may provide, contact me for a free consultation.
BOB MUNI NMLS # 719030 Sr. Loan Officer / Reverse Mortgage Specialist
