Forbes: Reverse Mortgages Help With Retirement Income “Shocks”

A reverse mortgage is among several tools that can be used to help minimize the damage caused by retirement income “shocks,” writes author John F. Wasik in a Forbes article published this week. 

These shocks might include loss of employment, needing to assist aging parents with care costs, and divorce, among others. And the odds are high that many, many people will experience a major loss of income at some point, according to findings from a recent report by the National Endowment for Financial Education. 

“People want to believe `it won’t happen to me,’ report author Prof. Teresa Ghilarducci told Forbes. “The truth is that almost no one is safe from these shocks, and low-income individuals are disproportionately affected.”

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For men aged 66 to 70, the report found, 96% had experienced at least four of these “shocks.”

But there are ways to survive a shock, Wasik writes, including the use of home equity via a reverse mortgage. 

“When retired, you may be able to get a ‘reverse’ mortgage that will pay you a monthly income — if you qualify,” the article states. “You also may be able to get a home-equity loan. But both of these options are last resorts in the event that you don’t have enough cash or retirement savings to meet your expenses.”

Other possible solutions covered in the article include looking at long-term care expenses in advance; funding 401(k) plans, other IRAs, or HSAs; and keeping some form of emergency savings at all times. 

Read the full Forbes article.

Written by Elizabeth Ecker

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    • John,

      I have strong differences on this article. Ms. Ecker did a great job of summarizing the opinion of an author who strongly believes reverse mortgages are a loan of last resort.

      So I cannot agree with your position that we should be handing out copies of this article. This was written to desperate seniors who formed much of our prior market and financial assessment generally prohibits from getting HECMs.

      Today we are trying to present HECMs as they always should have been presented as cash flow management products which can enhance the probability that retirees will not find themselves in a position of becoming desperate over the need of cash in retirement.

      HECMs cannot take the place of a poor retirement income plan but they have the potential to strengthen cash flow no matter how strong the income plan maybe.

      At least the author recognizes that events in life can endanger the income stream of retirees. What he does not realize is reverse mortgages do not provide income but they can provide cash flow. He needs to become familiar with how a product like a HECM is more likely to provide the needed cash if it is originated early in retirement rather than as a last resort.

      • Cynic,

        I did not take it that way, however, I will look at the article more closely one more time as well your comment!

        I have said all my life my friend, “I am smart enough to know that I am NOT smart enough”!

        Thanks for your comment and you make it a great Thursday for yourself.

        John Smaldone

      • >>cash flow management products which can enhance the probability that retirees will not find themselves in a position of becoming desperate over the need of cash in retirement.

        That’s an awesome way to say it … I want to memorize it.

      • Raymond,

        Thanks.

        That way of thinking comes due to an increased view of retirement planning as preparing for various types of risk. It also comes from not looking at things in terms of absolutes.

    • From the article itself: “But both of these options are last resorts in the event that you don’t have enough cash or retirement savings to meet your expenses.”

      John, as The Cynic points out below that statement along is reason enough NOT to use this article as a hand-out if you are pursuing the PRO-active (vs RE-active) borrower.

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