WSJ: Reverse Mortgage Could Help Boost Retirement Income By 30%

Taking out a reverse mortgage could help increase retirees’ annual income by 30% when done in conjunction with a few other retirement planning steps, according to a recent Wall Street Journal article

The strategy comes at a time when retirement fears plague the nation, as reports indicate that few Americans truly are prepared for retirement. 

But when it comes to tapping home equity for retirement planning purposes, doing so could put an extra $7,800 to $9,700 in retirees’ pockets each year, Jonathan Clements writes in the recent WSJ article. 


In a hypothetical scenario, Clements projects the annual retirement income of a couple — a woman and a man who are both 62 years old — who own a $300,000 home with no mortgage and have $500,000 in savings. 

Using a 4% withdrawal rate, the couple’s $500,000 would generate $20,000 in first-year retirement income, and their Social Security benefits would add another $22,000, totaling an annual retirement income of roughly $42,000. 

However, if the couple would have delayed Social Security benefits, spending down their $500,000 nest egg to make up for the years they weren’t receiving benefits, purchased longevity insurance and taken out a reverse mortgage, the couple could have accumulated more than $54,000 a year.

In other words, they would have approximately 30% more income than if they simply claimed Social Security at 62 and relied on the 4% portfolio withdrawal rate. 

“Moreover, the strategy is arguably less risky, because they’re locking in various income streams that will keep paying no matter how long they live,” Clements writes. 

To read the full Wall Street Journal article, click here

Written by Emily Study

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  • Yup, buy some longevity insurance with reverse mortgage proceeds. And what is longevity insurance? A deferred annuity. Does this author understand the sensitivity of that concept? He mentions the high cost of a HECM but not of “longevity insurance.” I wonder why?

    Of course some will say: “Well then use the savings to buy the deferred annuity.” Yeah but couldn’t the argument be made that any use of HECM proceeds within a specified time of when cash was exchanged for the annuity is attributable to the purchase of that annuity?

    Deferring Social Security benefits is a tricky issue to begin with but add in reverse mortgage proceeds and it becomes even more tricky. The point where the payback goes to break-even grows.

    Then the author assumes that the earnings on savings will at least match inflation. While that will generally be true with a solid portfolio, it is questionable when looking at savings. Then there are portfolio costs and income taxes.

    Like too many of the writers their main interest is what they call retirement income even though what they are really talking about is cash inflow. Yet they completely ignore the effect of their ideas on the net estate. That is so called retirement income planning not financial planning.

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