Among a series of six smart financial moves someone can make if they have found themselves laid off before planning to retire is the consideration of a reverse mortgage, among other steps that near-retirees can take.
These other steps can include delaying the taking of Social Security, tapping existing investments, expanding a job search to encompass part-time and “gig” work, cutting expenses and applying for now-expanded unemployment benefits. This is according to Money.com finance columnist Ingrid Case.
“If you’ve owned your house for a long time, you probably have substantial equity in it,” Case writes. “People who are 62 or older can tap that equity in the form of a reverse mortgage. Instead of you making monthly payments to the bank, the bank pays you: a lump sum, monthly payments, or a line of credit that you tap only when you need it.”
A borrower can pay off the loan after they move out or when they die, though some people have opted to pay it off before then, Case writes, citing Denver-based financial planner Kristi Sullivan. Still, borrowers should be fully aware of the upfront costs associated with the product class.
“Closing costs and interest rates are typically higher than for standard home loans […] and you’ll need to show enough income to pay for property tax, insurance, and home maintenance.”
Other potential cons should be known well before a senior enters into a reverse mortgage transaction, Case writes.
“What’s more, families often find themselves having to sell the home if the older adult needs to move to a care facility,” she says. “It’s important to understand the potential drawbacks of taking out a reverse mortgage.”
Delaying the taking of Social Security benefits is also a key step that a senior can take in order to maximize the amount of incoming cash they’ll have access to in retirement, she says.
“There’s a good reason to wait: your payment will be about 7.5% less for every year you get early payments, and about 8% more for every year you wait past full retirement age, up to age 70.”
Those who file at 62 will get between a quarter and a third less in monthly payments than they would had they waited until full retirement age, around 66 or 67 years old depending on the beneficiary’s birth year.
“Hold out past your full retirement age, and your monthly check gets fatter, all the way up to a bonus of between a quarter and a third more if you wait until age 70 to claim benefits,” she says.
Read the article at Money.com.