Maintaining enough income in retirement is an ongoing issue for many American seniors, and finding effective methods to maintain or bolster senior finances becomes a major concern. One such proven way to boost retirement income is by employing a reverse mortgage, particularly since it requires no monthly payments. This is according to financial columnist Selena Maranjian in a piece at the Motley Fool.
“Having sufficient income in retirement is critical, yet many people worry that they won’t have enough. Only 71% of retirees expect their savings and income to last until the end of their life, while a mere 42% of pre-retirees expect theirs to, per a 2019 report by the Alliance for Lifetime Income,” she says. “Fortunately, there are some ways to boost your retirement income — via actions you can take now or later.”
While not as conventional as some of the other proposed methods, a reverse mortgage is an option that has the potential to work for seniors who find themselves in specific situations, Maranjian writes.
“[A reverse mortgage] involves getting a loan with your home as collateral, often receiving the money in monthly (tax-free) installments,” she says. “The loan won’t have to be repaid until you’re no longer living in the home – such as when you die or move into a retirement home or care facility – and it’s generally paid off by selling the home. There are pros and cons to consider, though.”
One of the possible cons to consider is that a home cannot be left to the heirs unless they can pay the reverse mortgage off, she says. This is why it’s best to consult a financial professional before actually getting one, Maranjian writes.
Other “proven” methods for bolstering retirement income include working longer; keep working part-time while in retirement; setting up regular income via annuities; saving more money; investing more in dividend-paying stocks; borrowing against a life insurance policy; and delaying Social Security benefits.
While Maranjian is correct in describing loan proceeds as “tax-free,” describing a reverse mortgage in its entirety that way is ill-advised. While loan proceeds are tax-free, there are various other taxes and fees associated with getting a reverse mortgage, according to Jim McMinn, lead sales trainer of learning and development at Finance of America Reverse (FAR) in a November 2019 panel at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville.
“When you’re getting a reverse mortgage, there could be taxes associated with that. We’ve got property taxes, recording taxes, intangible taxes, the list goes on,” he said in the presentation. “So, when we look at that, we have to specify which portion of the loan is actually tax-free.”
Read the story at the Motley Fool.