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Today’s retirees can face a variety of financial hurdles on the road to retirement, but for women in particular, the challenges can be greater. “While the need to adequately plan for retirement affects men and women, old and young, the female population stands to face the biggest uphill battle compared to their male counterparts, according to a recent report: The pain is particularly severe for women who, on average, live longer than men and thus require a bigger nest egg of savings to support this longevity,” says Diane Oakley, executive director of the National Institute on Retirement Security (NIRS). 1
Compared with men, women are 80% more likely to be impoverished at age 65 or older, according to the National Institute on Retirement Security. Based on the findings from a NIRS report, female retirees face an uphill battle when it comes to adequately planning for and sustaining retirement.1
Even though the median household incomes of people aged 65 and older have grown, women have 26% less income than men, according to NIRS. 1 This gender and income gap will cause many retired women to seek alternative funding sources to support them during retirement.”
“I feel it’s imperative that we collectively provide choices to assist older adult women by sustaining financial longevity and establishing peace of mind,” said Lorraine Geraci, vice president of the training division at Finance of America Reverse (FAR).
By taking a reverse mortgage, retired female homeowners – with considerable equity – can potentially improve their retirement situation in several ways:
A reverse mortgage allows homeowners age 62 and older to convert a portion of their home equity into accessible funds and have no monthly mortgage payments.* The loan proceeds are tax-free** and can be used at the borrower’s discretion for a variety of uses.
Retirees may choose to access their home equity via a single lump sum payment (fixed rate mortgage); monthly installments, or as a line of credit.
“Financial planning research has shown that coordinated use of a reverse mortgage starting earlier in retirement outperforms waiting to open a reverse mortgage as a last resort option once all else has failed. Coordinating retirement spending from a reverse mortgage reduces strain on the investment portfolio, which helps manage the risk of having to sell assets at a loss after market downturns.”3
Retirees can draw on their reverse mortgage to supplement their retirement spending while they wait for the market to lift their investments back up. This is becoming a popular strategy for using a reverse mortgage in retirement income planning. 3
A reverse mortgage can also be used to purchase a new residence. This could be ideal for retirees who are looking to “right size” into a more manageable and affordable residence with less maintenance.
By using a HECM (Home Equity Conversion Mortgage) for Purchase (H4P) reverse mortgage, borrowers can buy a new home and have no monthly mortgage payments*—all within a single transaction. The buyer typically pays approximately half of the purchase price using their own funds, and then using the reverse mortgage loan proceeds to cover the rest.
Additionally, many older homeowners have found that H4P is a great solution which allows them to move to a warmer climate, purchase a single-story home or relocate closer to family and friends.
If you are a retired homeowner and considering how a reverse mortgage may fit into your retirement plans, contact a Finance of America Reverse mortgage professional today.
*The borrower meets all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
**Not tax advice. Consult a tax professional.
1 Kelly Kenneally, “Women 80% More Likely to be Impoverished in Retirement.” National Institute on Retirement Security, March 2012
2 Alana Stramowski, “How Reverse Mortgages Protect Women’s Retirement from Major Life Events.” http://reversemortgagedaily.com/2016/12/22/how-reverse-mortgages-protect-womens-retirement-from-major-life-events/ December 22, 2016.
3 Wade Pfau, Professor @ The American College; Principal @ McLean Asset Management, “Using Reverse Mortgages In A Responsible Retirement Income Plan,” Retirement/#Retire Well, Forbes, Feb 21, 2017. https://www.forbes.com/sites/wadepfau/2017/02/21/using-reverse-mortgages-in-a-responsible-retirement-income-plan/#73cc3bb635e5