Moving Ahead through Retirement

Imagine that you are about to retire. Your health is good, you have no debts, your Social Security benefits are about to kick in and between that, your pension and your savings, you’ll be able to make it through each month. Unfortunately, “just making it” pretty much describes the next several decades of your life.

What are your options?

If you’d like to maximize your resources by 25 – 50 percent for the rest of your life, a Reverse Mortgage may be your best bet. A Reverse Mortgage provides you with a line of credit or monthly payments that boost your retirement income.  A Reverse Mortgage is a type of loan that allows you to borrow against the equity that you hold in your house while affording you the ability to continue to live in your house.

Recent research has shown that reverse mortgages are powerful tools for senior income planning. Until now, however, objective assessments of the impact of a reverse mortgage have been lacking.

Assessment

Objective studies have shown that taking out a Reverse Mortgage has a significant impact on a senior citizen’s retirement planning. In particular, selecting the line of credit draw option seems to afford the biggest lever for optimizing retirement savings and income.

Examples

In one mark-up, Jacob and Marta Richards, who are both in their late 70s, have $2000 in monthly Social Security benefits. They have $150,000 in savings and a house that’s worth $443,000. At their present situation they can budget for $30,300 in yearly income – enough to pay their taxes, Medicare premiums and house expenses and live simply. However they won’t have enough for the “extras” such as travel or home repairs.

At the present status of 3% inflation, they can take out a Reverse Mortgage line of credit and anticipate an extra $15,000 a year in purchasing power. That’s a 50.8 percent increase in real income. On the one hand, the income that they receive from their Reverse Mortgage isn’t taxable. They will have to remember that, by taking out a Reverse Mortgage, they will be building a debt against their home equity, so the amount of home equity that they will have at death will be dependent on future real estate appreciation.

In another scenario, Ralph and Maria Sanchez, aged  67 and 65, have the same $2,000 a month in Social Security benefits but only $70,000 in savings. Their house is worth $200,000. Presently they can count on $20,000 a year in income. If they take out a reverse mortgage line of credit, they can look forward to an extra $6000 in income each year, a 29.5 percent increase. It’s smaller than the increase for the Richards but is still meaningful to their budget.

The Big Picture

How do these examples help you prepare for your retirement? They demonstrate that your home equity can make a big difference in the kind of life you have during your retirement years. According to statistics, 80 percent of all households have more money in home equity than they have in combined financial assets and retirement accounts. It can make the difference between retirement squeeze and retirement comfort.