A reverse mortgage has the potential to help retirees weather unexpected or emergency expenses in retirement, and should be seen as a viable path that can help certain seniors make ends meet. This is according to a story written by Robert Powell, the editor of TheStreet’s Retirement Daily in a new column published at USA Today.
In order to get ahead of unexpected expenses, it’s important to evaluate and manage risks to your finances, put a plan into place for such occurrences, and to have an emergency fund that you can draw from in the event of some kind of unexpected occurrence. One such way to establish an emergency fund that is insulated from outside market activity could be in the establishment of a reverse mortgage or home equity line of credit, Powell writes.
“According to JPMorgan Chase, families ages 65-plus with income less than $29,000 need a little bit more than $2,300 set aside while those with income greater than $95,000 need a little bit more than $13,000,” Powell says. “A middle-income family meanwhile would need about $5,000 to cover ‘concurrent adverse income and spending shocks.’”
Specifically in terms of how to establish the emergency fund, the recommendation for a reverse mortgage comes from Keith Whitcomb, director of analytics at financial services firm Perspective Partners based in Fairport, N.Y. For homeowners, the ability to draw on the equity in your home in this way can help provide a reliable source of backup funding, he says.
“Having the HECM as a source of backup funding may be a good ‘insurance policy’ to have available for just this sort of event,” he tells Powell.
In terms of a HELOC, that recommendation comes from Dana Anspach, CFP and CEO of investment planning firm Sensible Money. For homeowners, having the ability to tap into your home’s equity can be a stable source of income, making a HELOC an obvious choice because of the ease that accompanies establishing them she says.
“They are typically easy to set up and interest rates are low,” she tells Powell. “Then you can be strategic about how to withdraw funds from other places in a tax-efficient way to pay it off.”
Other options that might be able to help a senior meet unexpected expenses in a pinch can include tapping the cash value of a health savings account, or longer term options that are uniquely suited to address concerns related to medical finances.
“You also may be able to negotiate a reduction in your bill […] As a result, you could effectively reduce the debt and lengthen out the payments to better fit your retirement budget,” Whitcomb tells Powell.
Read the article at USA Today.