Home equity is often considered one of the biggest assets retirees have, but many people are not taking advantage of this critical source of wealth hiding in plain sight under their roofs. For some retirees, a reverse mortgage may be worth considering in retirement, according to a recent TIME Magazine article.
The topic of reverse mortgages and their use in retirement planning recently found its way into the latest issue of TIME dated February 15, 2016. The article, written by Dan Kadlec, discusses how reverse mortgages, which were once scorned for high costs and risky full-draw loans, are now getting another look from financial planners.
“Experts now argue that this type of loan can be safe and even wise—as well as a key source of income that homeowners short on savings and planning to stay put should set up the minute they become eligible at age 62,” Kadlec writes.
For many retirees who own their homes mortgage-free, reverse mortgages could be a viable solution to helping them fund their longevity.
About 36% of owner-occupied homes are mortgage-free, and for homeowners age 65 and older, this share jumps to 65%, according to U.S. Census Bureau data referenced by Kadlec, who also notes that even amid a so-called “retirement-income crisis,” $12 trillion in home equity is lying on the table, to be used for either peace of mind or to preserve a legacy.
“This is the asset hiding under your nose,” said Shelley Giordano, chair of the Funding Longevity Task Force, a group of financial advisors who have been focused on leveraging housing wealth in retirement, in the TIME article.
While reforms in recent years such as the elimination of full-draw lump sum loans, Financial Assessment and non-borrowing spouse protections have made reverse mortgages stronger products, TIME notes that the biggest breakthrough has been financial planning research that shows the benefits of loan utilization early in retirement.
That is one reason Kyle Winkfield, a financial planner in Washington, D.C., recommends homeowners who have a potential savings shortfall obtain a reverse mortgage line of credit earlier rather than later.
“It’s better to have this and not need it than to one day need it and not have it available,” Winkfield told TIME.
By setting up a reverse mortgage line of credit, and not using it until other savings are depleted can produce stronger results nor homeowners than those who wait until other retirement funds are dry, the article suggests.
“Tapping the equity line only when stocks are down, giving your portfolio a chance to recover, has similar benefits,” Kadlec writes. “The next time a silver-haired star urges you consider a reverse mortgage, it may be a sound suggestion.”
Written by Jason Oliva