As seniors continue to grapple with higher living costs associated with the national rise in inflation, some may consider exploring alternative options to stabilize their retirements. Since home equity and reverse mortgages are often not mainstream considerations under such circumstances, one financial planner thinks that they could be a difference-maker for the right person.
This is according to a column about the current retirement climate and how it’s being affected by inflation, published this week at MarketWatch.
Jason Branning, a certified financial planner with Branning Wealth Management in Ridgeland, Miss. who spoke to MarketWatch, specifically cites the Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgage (HECM) product as a potential help for seniors needing to narrowly manage their finances.
“HECMs offer retirees who own their homes the ability to tap into home equity if they need it,” he told MarketWatch. “By installing a HECM expanding line of credit, the non-recourse loan line grows over time. Higher interest rates will increase the line of credit more rapidly than when rates are low or stagnant. This expanding line of credit can help with inflationary pressures by allowing homeowners to access liquidity if inflation is persistently higher and long-lasting. In this case, a retiree may need another source of stable income to draw from in the future.”
The broader discussion of the story includes how “personal” inflation may differ from the broader economic figures, and other potential tactics that can be employed to bring retirement costs under control.
“[Financial planners] emphasized planning and understanding personalized inflation rates, while also suggesting tactical solutions like bolstering savings and tapping home equity, or delaying retirement, Social Security benefits, and big expenses,” the column reads. “One thing they all agreed on is that, in 2022, one of the best new ideas in retirement is to take inflation seriously and develop a comprehensive strategy for the rise in prices.”
The current financial climate makes this moment a “daunting” one in which to retire according to Branning.
One of the things worthy of consideration is what Branning calls a “personal inflation rate,” or how rising costs might affect someone specifically depending on what they are choosing to spend their money on.
“One thing retirees should consider is that their personal inflation can differ from headline [consumer price index (CPI)],” he told the outlet. “Each retiree has their own personal annual inflation factor that may materially differ from the calculated CPI.”
One example he cited was around the price fluctuation for car purchases. In March 2022, the purchase of a new car cost about 12% more than it had in the prior 12 months, the outlet writes, but the March 2022 CPI annual increase was 8.5%. That figure included a 35% increase for used cars and 12% for new cars, the story explained.
“But a retiree’s personal inflation may be lower by 1% to 3% than headline CPI depending on retiree spending,” Branning said.
Read the story at MarketWatch.