Reverse mortgage professionals by now are familiar with retirement calculators, those online tools that allow users to punch in a few numbers and determine what adjustments they need to make for a comfortable retirement. But one tool, hosted by the Financial Security Project at Boston College, gives concrete numbers for how a reverse mortgage could potentially enhance their cash flow in retirement.
The interactive “Target Your Retirement” tool starts with a video introduction explaining the common ways that retirees can brighten their retirement pictures, including controlling spending, working longer to delay Social Security benefits for a higher monthly payout, and downsizing to a smaller home.
After laying out these variables, users can input data about their personal retirement scenarios, based on their age, income, home value, and pension plan, if any. Using this information, the tool produces a target monthly income, and then lets users adjust three primary variables — retirement age, savings, and home wealth — to see what steps they need to take to reach the target.
This takes the form of a visual bar graph: At the top, a green line represents the target monthly income, while Social Security and retirement savings build from the bottom. A gray gap either shrinks or grows based on the inputs, taking retirees closer to or farther away from their goals.
For home wealth, users can either select “downsize” or “reverse mortgage.” Based on RMD’s amateur experiments, the “downsize” option typically yields more monthly income gains for the hypothetical retiree, but the tool shows how a reverse mortgage can play one part of a larger retirement picture.
The tool also lets users throw a sizable monkey wrench into their retirement years by checking “market tanks” or “spouse dies.” The down market eats into the retirement savings portion of the bar graph, while the death of a spouse lowers monthly expenses and thus the retirement target — but also results in smaller Social Security payments.
Boston College’s Center for Retirement Research has frequently looked into reverse mortgages as a retirement tool, including a recent brief that explored why borrowers avoid the products.
To play around with the tool yourself — and potentially recommend it to clients and partners — visit Boston College’s Squared Away blog.
Written by Alex Spanko