Forbes: 5 Ways Reverse Mortgages Improve Retirement Spending

If used responsibly, reverse mortgages can help retired homeowners accomplish a variety of spending goals during their non-working years, but only if they aren’t used as a last resort option, according to a recent article published by Forbes.

The Forbes article, which was contributed by Next Avenue, a source for news, advice and information on topics curated for the age 50-plus crowd, describes five ways that reverse mortgages can be used to enhance a retirement income plan.

“There is a healthy skepticism about reverse mortgages, and that’s not necessarily bad, because people should exercise caution when utilizing debt,” the article states. “But reverse mortgages can improve retirement spending outcomes in a sensible way.”

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One such way, the article discusses, is using a reverse mortgage line of credit to aid in spending coordination with a retiree’s investment portfolio—particularly when it comes to mitigating the risk of facing negative stock market returns in the early years of retirement.

“This line of credit can be used as a buffer to protect against adverse portfolio returns early in retirement,” the article states. “You can coordinate spending between your portfolio and your reverse mortgage based on what the market environment dictates.”

Another strategic use for reverse mortgages concerns retirees who roll over their traditional IRAs or 401(k)s to Roth IRAs. When this happens, retirees pay taxes upfront to create a tax-free income source for the future.

“By systematically taking distributions from the traditional IRA, you can spread out the tax consequences and possibly save significant taxes in the long run,” the article states.

While there is the challenge of coming up with the necessary upfront cash to pay these taxes, a reverse mortgage can provide another source of cash flow in the event that after-tax investment or cash accounts become limited.

See which other reverse mortgage strategies available to retirees by reading the full Forbes article here.

Written by Jason Oliva

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  • This article demonstrates the questionable quality of the education provided to those holding RICP. For example, the CFP states: ” Unlike a traditional mortgage, payback is optional. But you do need to make timely payments of property taxes and homeowners insurance.” Later he states: “(Remember: payback of interest and principal is optional.)”

    The author never presents that a reverse mortgage will be due and payable and must be paid. These statements are typical of those who see this mortgage as a government benefit program rather than a mortgage. It seems the author believes that even proprietary reverse mortgages have no balance due payment.

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