Market volatility that’s been introduced as a result of the coronavirus pandemic has been having a pronounced effect on global markets, and this could lead many people in or near retirement to react strongly and protect their retirement finances. However, experts are cautioning that taking dramatic actions in an effort to protect your investments may be highly inadvisable, and a reverse mortgage is one financial product that can help to protect retirement assets.
This is according to personal finance reporter Lorie Konish in a new column at CNBC.
Making a lot of big, bold decisions about your investments in a volatile market environment is likely something that should be avoided, according to Carolyn McClanahan, director of financial planning at Life Planning Partners in Jacksonville, Fla. in an interview with CNBC.
“I want to caution people, don’t make rash decisions when there are bad things going on in the market,” she tells Konish, instead advising that looking at strategies and resources outside the portfolio may be something worth exploring during the market’s current level of volatility. One such external factor that could help out in terms of a long-term strategy is the employment of a line of credit, which is possible through a reverse mortgage.
“Your equities are presumably in the tank, but the equity in your house is probably still OK,” says Steve Parrish, co-director of the New York Life Center for Retirement Income at the American College of Financial Services to CNBC’s Konish. “A line of credit certainly makes a lot of sense right now.”
Money from either a home equity line of credit (HELOC) or a reverse mortgage has the potential to serve as reliable fixed income, but also comes with caution due to a number of fees and necessary processing time, Parrish says. “It’s not something where you call up the bank tomorrow and get it going,” he explains.
Reverse mortgages can also cause regret for a senior if they don’t adequately understand what they’re getting into in terms of the requirements that lenders impose on reverse mortgage borrowers, according to McClanahan.
“Don’t make rash decisions; really research those,” she tells Konish. If you’re in doubt about the financial viability of engaging in a reverse mortgage as a protective measure during a volatile market, it’s worth exploring the advice of a financial adviser who charges an hourly fee, and who can help you determine if your income and spending needs necessitate a certain plan, McClanahan says.
Other financial alternatives that a retiree can consider can include short-term debt in the form of a short-term bank loan (which is far preferable to credit cards because of the difference in interest rates), cutting back on spending, and working longer, according to McClanahan and Parrish.
Read the column at CNBC.