Decades ago, when our parents were working and raising a family, they looked at retirement as the true golden years. It would be a time when they stopped working and lived off the fruits of their savings and investments. Retirement planners used a three-legged-stool strategy back then. The make up of this stool was Social Security, employer-sponsored retirement plans, and personal savings. But somewhere between their retirement and now this stool became unbalanced – and now today’s retirees are needing to compensate for it. But how?
First, it’s important to remember that these three components of retirement are still an integral part of retirement success, which is why it should be considered how they can be best utilized as well as protected. But it’s also important to consider what else has changed – things like life expectancy, a more active retirement, and a move toward non-traditional and even extravagant retirement goals. Why not have it all? And what are the options to achieve it?
Part-Time Work: It’s not uncommon for retirees to utilize a phased retirement strategy, where they can work and begin receiving benefits. In addition to the obvious point of this – additional income – working can help to delay Social Security benefits, as well as keep older people engaged in the community.
Reverse Mortgage: For those with substantial equity in their homes, a reverse mortgage can be an excellent way to balance out that stool analogy with a fourth leg, or simply get the boost retirees need to live that extravagant retirement life they’ve been dreaming of. Funds are available via a line of credit, monthly installments, a lump sum, and even to purchase home (or a combination). Because the income is not taxed, it can be used strategically with investments, or used to delay Social Security benefits. Another common function is a stand-by strategy that taps the line of credit now, but only uses it during bear markets to protect investments. These FHA backed reverse mortgages do not incur any mortgage or loan payments, although borrowers must keep up with homeowner’s insurance, property taxes, and other associated costs. In addition to living mortgage payment free, they can actually eliminate any existing mortgage or HELOC payments, and the loan is not payable until the last borrower passes away or permanently leaves the home.
Downsizing and HELOC’s: When considering how to make ends meet during retirement, downsizing is often part of the conversation. Selling the home and moving to smaller one, then using any additional equity as a retirement funding source. For anyone considering this, I’d suggest looking at the details of a Reverse Mortgage for Purchase prior to making a final decision. A Reverse Mortgage for Purchase option can allow buyers to get more house for their money, while still having cash to stash away for retirement.
A Home Equity Line of Credit (HELOC) is another common solution. When going this route versus a reverse mortgage, ensure the new monthly payment will not cause damage down the road if other needs arise, like medical care.
Reverse mortgages certainly won’t be right for everyone, but for many they can be used creatively to aid in funding today’s retirement that is so different than what we are used to.
Janice Cohen is a HECM Reverse Mortgage Specialist serving the North Hollywood, Sunland, Tujunga, Burbank, Glendale, La Crescenta, Montrose and many more areas of southern California. Click here to contact Janice and learn if reverse mortgage is right for you.