older woman being strategic in her next chess move. Similar to how you need to be strategic in how you use a reverse mortgageThe reverse mortgage is an amazing tool that can be extremely beneficial to older homeowners in a variety of ways other than what it is traditionally used for. The strategic uses of a reverse mortgage in a retirement plan can provide provide a variety of benefits and better outcomes than using the reverse mortgage as a last resort.

One of the things I hear quite often from clients is “I don’t need a reverse mortgage.” The reality is that for most people, their home represents their largest asset. It makes no sense at all for the largest asset to get ignored when putting together a retirement plan. Not using the reverse mortgage is the equivalent of saving money in a 401K plan and then never using it during retirement.

Using the reverse mortgage strategically, can provide all sorts of benefits which include:

  • Creating a source of income tax free funds.
  • Reducing the chances of running out of money.
  • Creating financial flexibility.
  • Enjoyment of retirement.
  • Reducing taxable events.
  • Potentially leaving a larger estate / inheritance.
  • Creating more financial protection.
  • Being better prepared for financial shocks.
  • Having another source of income.
  • Reduce financial strains on the retirement income portfolio.
  • And so much more.

The reverse mortgage is not just a needs based product. Just because that’s how people use the reverse mortgage does not mean that is the way it should be used. The reality is that being strategic with how you use it, can provide significantly more benefit to you and your heirs.

Here Are the 17 Most Common
Strategic Uses of a Reverse Mortgage

Get a Reverse Mortgage and Keep Making Payment – If you currently have a mortgage, making the switch to a reverse mortgage and continuing to make payments creates significant financial flexibility during retirement. It also creates a growing source of funds you can tap into at some point in the future for an additional income source and to weather the storm of financial shocks. This one of the easiest and most powerful strategic uses of a reverse mortgage.

Back Up Line of Credit – If you own your home free and clear. Setting up a back up line of credit can be a smart move. One of the great feature of the reverse mortgage line of credit is that the funds actually grow. They grow at the current interest rate plus .5%. In other words, you have access to growing source income tax free funds you can access at anytime for any purpose.

This strategy has been shown to be one of the best ways to not only reduce the chances of running out of money during retirement. But it can also help mitigate financial shocks and sequence of return risks during retirement. 

Take Advantage of Your Go-Go Years – Often times when people hit retirement, they end up doing nothing for fear of running out of money. Or their retirement plan does not provide enough income for them to travel, snow bird or do the things they want. See how you can enjoy your retirement now before health issues or disabilities keep you from truly experiencing the joy and experiences of retirement. As George Bernard Shaw states “Youth is wasted on the young.”

Self Insuring for Long Term Care Needs – Long term care could be either in-home care or care at an assisted living or memory care facility. You have a 70% chance of needing some sort of long term care and support service. The costs of these services can be very expensive and often times family will foot all or a large portion of the costs. And long term care insurance, assuming you qualify, can also be very expense. See how to use the reverse mortgage to be prepared financially for long term care needs arise.

Gifting with a Warm Hand – Many people would rather gift funds to their family early versus leaving it all as an inheritance in order to experience the joy of giving and to help their family. This could be to help your family pay off debt, buy a home, or pay for college. A reverse mortgage could be a better way to gift funds than drawing from a retirement account which would likely come with tax consequences and even jeopardize the stability of your retirement income. See why the reverse mortgage may be a better option when gifting.

Managing Your Retirement Investments – There has been a significant amount of research from various universities and academics showing the power of a coordinated spend down strategy. This strategy shows the power using the reverse mortgage to manage your investment portfolio and draws to not only reduce your chances of running out of money, but the possibility of leaving a larger estate.

Lower Your Chances of Running Out of Money – If you are drawing to heavily from your retirement accounts to make a mortgage payment, pay credit cards or other debt. Or you’re just drawing more to live comfortably. The strategic use of a reverse mortgage can not only reduce your chances of running out of money, but extend the life of your retirement plan.

Downsizing to Increase Liquid Cash – Wanting to downsize? Think paying cash for your next home is the right move? Using a reverse mortgage to purchase your next home can help you retain more liquid cash instead of tying it all up in the new home. Or you can set up a large line of credit as a backup source of funds.

Upsizing Without Wiping Out Retirement Funds – Wanting to move into a larger home or move to a more expensive area? See why using the reverse mortgage to purchase you next home can keep more money in your pocket and keep more money in your retirement accounts without taking on monthly payments.

Creating Cash Flow With Multi-Family Property – Want extra cash flow every month? You can use a reverse mortgage to purchase a duplex, triplex or four plex, live in one of the units and rent out the rest for additional income every month.

Spend More While Living in the Constraints of Your Retirement Plan – If you are finding your current retirement plan restrictive and it’s not allowing you to live the retirement life you want. A reverse mortgage can provide additional cash flow, increase your monthly budget, and allow you to live the retirement life you want with out jeopardizing your current retirement plan.

Protect a Spouse Financially – Sure, you may not need a reverse mortgage now. But what happens when either you or your spouse passes away and household income is lost. Will the remaining spouse be able to afford living in the home and continue to pay monthly bills and debt? Or will they be under financial strain or even be forced to sell the home? The reverse mortgage can put the remaining spouse in a stronger and safer financial position when you’re gone. There are two ways to set up this strategy.

How to Be Prepared for Financial Shocks – Health care, long term care, home maintenance and even support of adult children can be financially devastating and destroy even the best retirement plans. A reverse mortgage can be an excellent source of income tax free funds versus taking large draws from your retirement plan and potentially paying  a large amount of taxes.

Paying for Large Expenses – Wanting to buy a second home, RV or boat? Want to remodel your home? A reverse mortgage could be a great way to pay for any large expenses when compared to taking on monthly payments for new loans or drawing taxable funds from your retirement accounts.

Dealing With Divorce During Retirement – Not only is divorce emotionally devastating, but it can also be financially devastating. Often times instead of assets being divided equally, they are often times lopsided one way or another, For example, one spouse may keep the family home, while the other gets all of the retirement account.

While this may be a fair spit from a financial standpoint. It is still lopsided. One spouse go their half of their assets in the form of an illiquid asset. The other spouse got the their half in liquid assets. Through the use of the reverse mortgage, both spouses can end up in an equitable as well as more financially secure position.

Delay Claiming Social Security – While most people like the idea of delaying Social Security in order to maximize the payout. Very few people actually follow through with this idea. The reasons vary, but usually it’s because they can’t afford to retire and not take Social Security or they could afford to retire but they would be drawing to heavily from their retirement accounts which often times increases their chances of running out of money.

Pay For Health Care and Health Insurance Until Medicare Kicks In – Health insurance can be ridiculously expensive. And going without health insurance can bury you in medical debt. A reverse mortgage could help you bridge the gap financially by providing the funds to pay for health insurance until Medicare coverage kicks in.

The number of strategic uses of a reverse mortgage are only limited by your imagination. What I just outlined above are some of the more common ways that you can use a reverse mortgage as part of an overall retirement plan.

If you have questions, would like to see how much you qualify for, how the reverse mortgage might fit into your retirement plan and even see various outcomes through forecasting, give me a call today and let’s talk about your situation.