Reverse Mortgages: the “Misunderstood” Financial Tool That Could Rescue Your Retirement
There’s a crisis looming in America when it comes to retirement. No doubt you’ve read the articles and heard the news stories about this oncoming tidal wave of challenges for retirees, especially aging boomers. We’ve written about this issue several times on the AgingOptions Blog. As baby boomers retire – now at the rate of about 10,000 every day – they simply don’t have enough money set aside. “Many of them,” say the experts, “are woefully underfunded for their future retirement needs.”
So is it possible that one of the most misunderstood financial tools in America could be the very thing that saves retirement for a growing number of aging boomers? According to this article from Yahoo News, reprinted from US News & World Report, the answer is a definite yes. And what is this mystery tool? It’s none other than the reverse mortgage, which one expert, Jamie Hopkins, professor of finance at the John E. Simon School of Business, calls “one of the most misunderstood financial products in existence.”
The Yahoo News article points out, as most people know, that reverse mortgages (known as Home Equity Conversion Mortgages, or HECMs) have gotten a “bad rap” over the past decade or two because of the way these instruments were designed and marketed when they first appeared. Reverse mortgages were associated with late night television ads featuring endorsements by aging celebrities – and the earlier ones also carried far less protection for borrowers and their families. Horror stories of spouses left out in the cold – literally – because of reverse mortgages gone bad were frequent features on the news. As a result, many financial planners were skeptical of the HECM at best.
But that was in a much different time. Unbeknownst to many uninformed Americans who still view these financial instruments with unwarranted disdain and suspicion, the reverse mortgage has changed dramatically in recent years, with a host of new regulations and safeguards. As a result, says the article, “Reverse mortgages are now gaining a lot of attention as a viable option for retirement income.” Most of the skeptics have now become enthusiastic advocates. One expert quoted in the Yahoo News article stated flatly, “Reverse mortgages deserve a second look today.”
This fresh new look at the HECM couldn’t come at a better time for retiring boomers, the majority of whom are moving into their “golden years” with far fewer resources than they’ll need in the future. This lack of savings is compounded by an anticipated longer lifespan, which means today’s boomers will probably be facing an increasing number of age-related health issues. According to Professor Hopkins, “This retirement income shortfall is nothing less than a crisis facing the United States.” But the crisis could be averted for many by the power of a reverse mortgage which will allow homeowners to stay securely in their homes while tapping into the largest single “cash reserve” most of them possess – their home equity.
How might an HECM benefit a retiree? There are several ways. One popular option is to take out a line of credit, which allows the homeowner to supplement his or her income when needed. Not only is this a protected source of ready funds, but the available credit amount grows the longer the HECM is in force. Another option is to use the proceeds from the reverse mortgage to pay off the original loan, leaving a retiree with no house payment – a saving which would make a dramatic difference in retirement lifestyle for most of us.
Some retirees use income from their reverse mortgage to allow them to delay claiming Social Security benefits, a tactic which can boost monthly payments by more than 30% if, for instance, a retiree can hold off until age 70 instead of drawing benefits at 66. Other retirees have found that drawing on their HECM during times when the stock market is down and the value of their stock-based assets is depressed gives those balances time to recover. The HECM provides an excellent cushion, protecting retirees from having to sell when prices are low.
So we encourage you to read the Yahoo News article for yourself. You can also search the AgingOptions Blog for past articles on reverse mortgages. But without a doubt the most important step you can take is to talk with an expert to get all your questions answered and to find out if a reverse mortgage is right for you. We are well acquainted with several highly qualified professionals in the reverse mortgage field, including regular radio guest Laura Kiel, and can recommend them with complete confidence. Don’t let your preconceived notions and other people’s opinions keep you from discovering the power of a reverse mortgage! You just may find, as others are discovering, that a Home Equity Conversion Mortgage could save your retirement.
When it comes to all aspects of retirement planning, we at AgingOptions stand ready to assist you with a full range of strategic services designed to help you enjoy a secure and fruitful retirement. Our approach, called LifePlanning, encompasses all aspects of retirement – finances, medical care, housing options, legal protection and family communications – weaving these into a well-crafted plan that protects your assets while helping you avoid becoming a burden to those you love. To learn more about this powerful approach to planning for your future, join us – without obligation or cost – at a future LifePlanning Seminar. You’ll find all current dates, times and seminar locations here on our Upcoming Events tab. You can register there, or contact us during the week, and we’ll gladly assist you.
(originally reported at http://finance.yahoo.com)