House and money

Home Equity in Retirement

For many people already in retirement, Social Security benefits and home equity constitute their biggest assets in retirement. In recent years, professional journals have shown articles by leading experts recommending strategies using the home’s equity in producing needed income, not just as a last resort when all other sources have been extinguished. In fact, one could argue that your home equity should be creatively utilized in a retirement income plan that is sensible and tax-efficient.

Reverse mortgages have been greatly misunderstood as well. They are not to be taken cavalierly, as they are high-cost financing vehicles, but for certain people, in particular circumstances, they might make sense and should not be ignored.

For instance, what if you are retired and have Social Security, your IRA portfolio, and your home equity. Your IRA portfolio is not that big, and you have serious doubt as to how long it will last. Let’s say you expect to live for 25 years and your financial advisor thinks it will only last 15, assuming a reasonable rate of return. Your lifestyle exceeds what you can cover with your Social Security.

You open a Reverse Mortgage line of credit at the start of retirement, but you don’t use the money until the IRA portfolio runs out. This gives the retirement plan the most downside protection.

Of course, we caution against the careless use of a Reverse mortgage unless you completely understand all its features, the math, and its costs. Contact us now in order to get the most accurate information about your options.