Improved investment returns and diversification only go so far. Having retirement savings is the most important thing for people building a nest egg—and most simply don’t have enough, writes a Wall Street Journal columnist this week.

Retirees will look to alternatives, WSJ writes. For some, that may mean taking out a reverse mortgage, working longer or cutting down on spending. The article cites research from the Boston College Center for Retirement Research, which indicates that taking a reverse mortgage is a viable way for many retirees to get around their lack of savings problem. 

WSJ writes: 

Many retirement investors, egged on by brokers and mutual-fund companies, put a great deal of emphasis on crafting finely tuned portfolios out of stocks, bonds and—increasingly, these days—other exotic investments.

…Far more important, says the paper from the Center for Retirement Research at Boston College, are three variables that don’t require a brokerage account: how long you work, controlling spending and tapping the value of your home.

Alicia Munnell, who heads up the retirement center, decided to write the paper after being asked to speak at a conference where the topic was that more people could use financial advice.

“My concern was that it was focused on the wrong thing,” she says. The financial industry revolves around selling investments, Ms. Munnell notes, so the advice revolves around selling those products. “The discussion is always: How much in stocks, and how much in bonds? What our paper showed is it really doesn’t matter how that money is invested.”

The study was based on real-life data. It started by looking at the percentage of income that retirees typically need to replace after they stop collecting a paycheck. That was compared with actual investments as measured by surveys conducted every other year for the past two decades. (To read the report, go to http://crr.bc.edu, click on the “working papers” tab and scroll down to April.)

The verdict: Without making any changes to their savings and investment strategies, 74% of households would fall short of their income needs at age 62, and 47% would fall short at age 67, when individuals (born in 1960 and later) become eligible for full Social Security benefits.

Next, the study asked the key question: What levers could be pulled to improve the picture?

…Lastly, the study looked at tapping home equity. The collapse of the housing bubble dented the value of many Americans’ homes. But they are still most people’s largest asset. With the help of a reverse mortgage, those falling short on retirement income at age 67 dropped all the way to 36%.

Read the original article.

Written by Elizabeth Ecker