Retirement can come with a host of unanticipated risks, but a reverse mortgage can serve as a tool to manage those risks when used responsibly. This is according to writers Julie Iannuzzi and Justin Ho in a new article posted to TheStreet.
“To be sure, no one product or strategy can manage or mitigate all the risks that you may face in retirement,” the duo writes. “But a reverse mortgage can be used to manage many of the risks one might face in retirement.”
A reverse mortgage panel at TheStreet’s recent Retirement, Taxes & Income Strategies Symposium held in New York City featured Steve Resch, VP of retirement strategies at Finance of America Reverse discussing ways in which the reverse mortgage product can bolster a senior’s financial security in retirement.
“I honestly think that that’s one of the best uses of reverse mortgages, to actually help mitigate those risks,” Resch said on the panel.
Resch elaborated on this point in a discussion with TheStreet’s Robert Powell after the panel’s conclusion.
“If your investments are not performing the way you anticipate them doing, why would you sell out your investments if you need cash flow when you could have an alternative income source? That would be using home equity as [that] alternative income,” Resch says. “So, we can mitigate risk using home equity and that sequence of returns risk, using home equity for that.”
Long-term care expenses can also be financed through the proceeds of a reverse mortgage, along with the potential to fund unexpected expenses that a retiree may not have sufficiently planned for, Resch describes.
“A lot of people may have long-term care plans in place, but we don’t know if that’s going to be sufficient or enough for them down the road,” he says. “So, having an available access to home equity to mitigate that risk is, in my opinion, better than having to draw excess funds from their portfolio to fund that risk. So, long-term care events, sequence of returns, then there’s also simply unexpected expenses.”
There are also some various “dos and don’ts” that Resch offers for his own clients who are considering taking a reverse mortgage.
“[I tell my clients] to not really put [a reverse mortgage] in place unless it’s with a home that [they] intend to stay in,” he says. “If [they’re] only going to be in that home another five, six years […] don’t put a reverse in place now, because it really is a long-term planning tool for someone who wants to age in place in that home.”
A new term concerning relocation, “rightsizing,” emphasizes that seniors will either upsize or downsize their home in older age based on what their individual means and needs are, Resch describes.
For more, read the article and watch the recorded video interview with Resch at TheStreet.