How a HECM May Help Retirement Shortfalls

Reaching a financially secure retirement in today’s economy can be challenging. Many couples imagined they could rely on their 401(K) savings and along with a spouse’s retirement portfolio, they hoped to be able to delay claiming Social Security until they can could maximize benefits.

According to the Motley Fool’s columnist Dan Caplinger, “The Average American Faces a $25,326 Retirement Shortfall. The biggest financial challenge workers face is how to make sure they save enough during their careers to cover their expected expenses in retirement.”1

The cost of healthcare in retirement can create major financial strife. Health issues cause some folks to have to retire early and begin taking Social Security sooner than expected to help pay for unexpected healthcare costs.

“About a quarter of recent retirees say their Social Security payment is less than they expected. And an even larger group — one third — say health problems are interfering with their retirement. Healthcare costs tend to rise at a rate much higher than general inflation — while retirees receive only modest, inflation-based bumps in their annual Social Security payments. An average 66-year-old couple retiring this year will require 59% of their Social Security benefits to cover their total health care costs in retirement, according to Health View Services, a Danvers, Mass.-based company that provides retirement health care cost data and tools to financial advisors.”2

Running out of finances in retirement – especially due to early retirement and healthcare costs – can cause retirees to wonder how they will be able to comfortably support themselves.  And, a last resort that most retired couples do not wish to rely upon is to ask their children for help.

The Reverse Mortgage to the Rescue

A potential solution for homeowners, age 62 or older, with sufficient equity is to tap their equity with a HECM (Home Equity Conversion Mortgage).  Eligible borrowers can pay off an existing mortgage and have no monthly mortgage payments.* With a reverse mortgage, borrowers may receive proceeds on a monthly or as-needed basis.

Proceeds from a reverse mortgage could mean that retirees no longer have to worry about making ends meet. They can tap into a credit line when they need extra cash flow, and still keep some of their savings invested. It may not be the exact retirement they had planned, but for some people, it’s a very viable and satisfying solution.

It is suggested that homeowners thinking about a reverse mortgage should consider discussing this option with their adult children.  Many children see it as a very positive solution for their parents to help them be more financially sound and secure during their retirement years.

“While not ideal for every family, a reverse mortgage can be one way house-rich but cash-poor seniors can bring in steady monthly income. These mortgages pay seniors based upon the value of their home.”3

* The borrower must meet 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.

1 Caplinger, Dan, “The Average American Faces a $25,326 Retirement Shortfall,” The Motley Fool, February 21, 2015.  https://www.fool.com/retirement/general/2015/02/21/the-average-american-faces-a-25326-retirement-shor.aspx 

2 O”Brien, Elizabeth, “2 Huge Things People Get Wrong About Retirement,” Time.com Money, Retirement/Income, September 19, 2017, http://time.com/money/4946948/retirement-income-planning-health-disappointing/

3 LaPonsie, Maryalene, “10 Solutions to Your Retirement Fund Shortfall,” U.S. News & World Report, Personal Finance, May 13, 2016. https://money.usnews.com/money/personal-finance/articles/2016-05-13/10-solutions-to-your-retirement-fund-shortfall

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