Reverse Mortgages Can Defend Against the Coming Retirement Crisis

Today’s working Americans face a brewing retirement crisis, but luckily there are ways to minimize the risk of falling short. One solution: tapping home equity via a reverse mortgage, a recent report suggests. 

About half of working-age households are at risk of being unable to maintain their pre-retirement standards of living, but fortunately, the tools to fix the problem are at hand, says a Center for Retirement Research at Boston College brief “Falling Short: The Coming Retirement Crisis and What to Do About It.”

“Many households have a little-recognized asset that they could turn to for income in retirement — the equity in their home,” writes Alicia Munnell, director of the Center and the Peter F. Drucker Professor of Management Sciences in Boston College’s Carroll School of Management.


While retirees have generally thought their home equity as more of an emergency reserve rather than a potential source of retirement income, the challenge today of ensuring retirement security has made this traditional view a luxury that many can no longer afford. 

For households that do not have enough from Social Security and their 401(k) assets, Munnell suggests they should consider tapping their home equity by either downsizing or taking a reverse mortgage. 

Downsizing can provide extra funds that can be used to generate retirement income, while also cutting expenses for utilities and property taxes. 

On the other hand, a reverse mortgage allows retires to access their home equity if they prefer to remain in their home. Munnell also notes that recent policy changes by the Department of Housing and Urban Development “have strengthened the agency’s HECM program, which is the dominant vehicle for reverse mortgages.”

“Americans need to recognize that their home equity can make a big difference to their retirement security,” Munnell writes.

Getting more people to tap home equity is just one facet of the three-prong solution policymakers must heed to help more Americans better prepare themselves for retirement, the report suggests.

Other policy steps include promoting a message of working longer to delay retirement and ensure financial security once work ends, and addressing shortcomings in Social Security and 401(k)s.

“The retirement income landscape has been changing in a way that systematically threatens the retirement security of millions of Americans,” Munnell writes. “Federal policymakers could take the lead in ushering the necessary changes that will promote longer worklives, more saving, and the use of home equity. There is no time to waste, so let’s get started.”

View the Center for Retirement Research brief.

Written by Jason Oliva

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  • I, for one, was disappointed by Dr. Munnell’s decision to join the Board of Longbridge Investments, LLC from the standpoint of that professional association ‘tainting’ the perception of both CRR and her as being objective commentators on “The Retirement Crisis” and the role reverse mortgages can play in it.


      I agree with you. This means that Ms. Munnell is in no longer an independent voice on the value of HECMs.

      (The opinions expressed in the reply are not necessarily those of RMS or its affiliates.)

  • Good article Jason. I agree with what you say. There are also many other reasons for getting a reverse mortgage but as a financial planning tool for retirement still ranks up there on the top.

    We find that seniors who have good retirement income as well as a great deal of equity in their home are using the reverse mortgage for other things. Some are using that equity for the long awaited vacations, buying that dream boat or recreational vehicle.

    Those that have high price homes with little to no debt on their property are using that equity to buy a second home. We also are finding that those who want to leave their children an inheritance are taking out a reverse mortgage and giving the children the cash today so they can use it while the parents are still alive. This way the parents get to see the children enjoy their inheritance and help them with certain investments for their retirement.

    One of the greatest rewards are that none of the funds taken are taxable!

    There are so many reasons why to take out a reverse mortgage in this changing world of ours. The HECM loan is not a need based loan anymore. Sure, it will still be for those that are in dire need of the reverse mortgage, to pay off debts or satisfy their existing mortgage on their home so they can have those mortgage payments turn into additional monthly income.

    I could go on and on about what can be done with a reverse mortgage but I think I covered enough to drive the point home. “Go in reverse to enjoy what is ahead”!

    John A. Smaldone

    • John,

      We agree on much but on some points, I must disagree. The reasons you list for seniors using HECM proceeds does not make them prudent or wise. They are just what they are, what seniors are using HECM proceeds for.

      Even using HECM proceeds for financial planning purposes does not make such use prudent. If the plan is prudent and has been arrived at based on cash flow coming from a HECM, then using proceeds in the manner provided for under the plan is prudent.

      But what drove this reply was the final prepositional phrase in the following statement: “Sure, it will still be for those that are in dire need of the reverse mortgage, to pay off debts or satisfy their existing mortgage on their home so they can have those mortgage payments turn into additional monthly income.”

      If one pays off a mortgage, no income automatically results. What results are no monthly required mortgage payments for that mortgage which is the same as less monthly required cash outflow. Income does not increase but cash flow will (assuming the monthly mortgage payments were being made before the HECM was closed.)

      What we also need to put in front of the senior is that paying off a mortgage means higher cash flow for a limited period of time, that is, until the mortgage would otherwise be paid off. So if the mortgage would be paid off in three months, improved cash flow will only exist for three months since the cash flow would have gone up anyway after the existing mortgage was paid in full in three months. If the existing mortgage would not paid off for 20 years, then the increased cash flow is far more effective if that cash flow is better off not being consumed in mortgage payments.

      Some say I do not love the HECM story but what I enjoy is seeing seniors gaining real and prudent cash flow improvement from the wise use of a HECM, particularly adjustable rate HECMs.

      One of my favorite statements about HECMs is: “A HECM is a great loan of last resort but a HECM is far more than that. Don’t short yourself when considering getting a HECM.”

      (The opinions expressed are not necessarily that of RMS or its affiliates.)

  • Jason,
    Good article and subject matter. But I am of the belief that every homeowner 62yrs or older needs to look at what a reverse mortgage can do for them. Now I am not saying every 62yr old needs to take out a reverse, but they need to understand what a reverse can do for them and they make the decision to go forward or not. Maybe they wait until they are older or not at all. But everyone who owners a home and is 63yrs old needs to understand their RM options.
    The product has been modified to a point that it should be considered a financial retirement tool, not just another mortgage loan.

    • RM Guy,

      While a HECM has always been a financial retirement tool, it is and remains first and foremost a nonrecourse mortgage.

      How is the HECM so different from its past that it is NOW more of a financial retirement tool than in the past?

      (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

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