Retirees can use the proceeds from a reverse mortgage to supplement their cash flows and prolong their portfolio. By using the proceeds from a reverse mortgage, retirees can avoid drawing from their investments during a market downturn1 or taking on more portfolio risk to make up for any investing shortfalls. This can help to ensure that retirees have enough money to live comfortably throughout their retirement years. Further, by supplementing cash flows with a reverse mortgage, a retiree can reduce the distribution rate of the retirement portfolio, giving that portfolio more longevity and opportunity for growth. In addition, strategically using the reverse mortgage proceeds can minimize the tax burden by keeping taxable income under certain thresholds.
According to a new article at Kiplinger Personal Finance, many financial planners believe tapping home equity in retirement or just before makes sense if done wisely for the right reasons. Your home’s equity might be the lifeline you need to avoid drawing from your investments during a market downturn or taking on more portfolio risk to make up for any investing shortfalls.
Recent data shows that homeowners aged 65 and older have unprecedented amounts of equity in their principal residences.Utilizing this asset strategically can and should be a critical component in savvy planning and management of retirement assets.
While a reverse mortgage can provide a steady influx of cash, it is ultimately a loan that needs to be repaid. If borrowers sell their home, the reverse mortgage must be paid in full immediately.
In summary, a reverse mortgage can be a viable option for seniors looking to supplement their retirement income. By using the proceeds from a reverse mortgage, retirees can avoid drawing from their investments during a market downturn or taking on more portfolio risk to make up for any investment shortfalls. A reverse mortgage can also be a key factor in increasing the longevity of other investment assets. It is important to work with a competent professional and understand the risks associated with a reverse mortgage before making any decisions.
1See Sequence of Returns Risk.
