Reverse mortgages will play a critical role for retirement planning in the coming years as many retirees look to recoup their savings that took a hit during the Great Recession, according to a recent study published in the Journal of Financial Planning.
The recent economic downturn has weakened the traditional retirement assets for many retirees—Social Security benefits, pensions and personal savings—suggests the study “Retirement Trends, Current Monetary Policy, and the Reverse Mortgage Market.”
Because of this, “identifying and using alternative sources of retirement income has become critical for current and future retirees,” write the study’s authors David W. Johnson, Ph.D, and Zamira S. Simkins, Ph.D.
But where these three legs of the traditional retirement “stool” have been negatively impacted in recent years, reverse mortgages could help provide the added support retirees need to supplement their portfolios.
The study outlines reverse mortgage basics, including qualifications and recent program changes to the Home Equity Conversion Mortgage (HECM) program, as well as several cash flow scenarios.
The study also describes how current economic conditions and actions taken by the Federal Reserve have impacted the savings of many of the nation’s senior population, and how these circumstances have increased the potential of reverse mortgages in retirement planning.
“The recent housing market crash has had a negative impact on the reverse mortgage market, but the current expansionary monetary policy may create new opportunities,” write Johnson and Simkins. “In the long term, reverse mortgages likely will become a significantly more important part of retirement planning.”
While reverse mortgages may have caught a bad rap in years past, perceptions may start turning around as more people use them to supplement their retirement savings, rather than as tools for last resort.
“Current and future retirees need to re-examine their views and consider including a reverse mortgage as a part of their retirement plan,” the authors conclude.
Written by Jason Oliva