Social Security is still the largest source of retirement income for the majority of people in the country, but for most, that monthly check is not enough. Tapping into home equity is not often considered as a planning strategy in retirement, but it could be a tremendous help for some retirees.
The use of a reverse mortgage is one way homeowners can effectively tap into the equity they have built in their home and, for many, the strategy is hiding in plain sight, according to a recent article by The American College of Financial Services.
Few people consider monitoring their housing wealth, yet home equity is often between 60% and 70% of their net worth, the article explains. As a result, a discussion of the housing asset is a vital component in careful retirement income planning.
“The asset is hiding in plain sight. It’s an asset that retirees have been saving for via regular mortgage payments throughout their lives, but is virtually invisible when clients enter the decumulation phase,” Shelly Giordano, chair of the Funding Longevity Task Force at the American College of Financial Services, said in the article. “For much of middle America, it is like trying to retire on just 35%, or less, of their accumulated wealth.”
Advisors need to be more aware of the reverse mortgage product in order to effectively inform their clients about it. But advisors also should be aware of the many abuses of the reverse mortgage product that have gone on in the past and that unfortunately still go on today.
The article also points on the advantages of each use of the reverse mortgage product, like the lump sum payment and the reverse mortgage line of credit. The type of disbursement option a borrower chooses can vary greatly depending on the borrower’s own personal situation as well as his or her long term financial goals.
“We’re saying it should be part of the conversation,” Giordano said in the article, stating the best way for an advisor to learn the intricacies of a reverse mortgage is to pursue infer a specific client.
“Once you see how it works for one client, the rest will be easy,” she added.
Read the full article from The American College of Financial Services.
Written by Alana Stramowski