There are multiple income streams that seniors can have during retirement. These can include pensions, dividend-yielding stocks, IRAs, 401ks and more. But one of the most overlooked income source? The home.
Buying a home is usually the largest single purchase someone makes in their lifetime – which also makes it the most valuable asset they own. Yet, most people are content to let that equity sit around until they die, eventually transferring to a friend or relative. Why not convert that equity into cash?
Not only can you simplify the inheritance process for everyone, but you can also gain access to a deeper income pool to pull from while you’re still alive. In an era where seniors are feeling more and more financially restricted during retirement, this kind of asset-boost is invaluable.
Interested in how you or your retired loved ones can make this happen? Read on to find out.
What’s a Reverse Mortgage?
A reverse mortgage uses the existing equity in your home to provide a stable annuity to you and your spouse while you continue to live in the home. The more equity you have in your house, the bigger reverse mortgage you can qualify for.
How a Reverse Mortgage Can Change Your Retirement?
A reverse mortgage can be used for a variety of reasons. Reverse mortgage specialist with Finance of America Reverse, LLC Scott Zmikly said many retirees use the equity from a reverse mortgage for other investments, in order to maximize their money.
“That’s how the rich stay rich,” Zmikly said. “They use the assets they have.”
This financial feedback loop is a pretty easy concept to understand, but can get complicated in practice. If it’s a strategy you’re interested in, you may need to consult a financial planner or adviser who can best show you how to amplify the funds you receive.
If you already have enough money to live on comfortably, a reverse mortgage can provide funds to improve your lifestyle. You can use a reverse mortgage to travel, spoil grandchildren or indulge in hobbies.
A reverse mortgage can be the difference between a restrictive retirement and one filled with adventure. It can also allow you to leave a larger inheritance for your family or a charity you support. Even if you feel relatively safe and provided-for with the nest egg you’ve built, a little extra padding will only enhance your financial confidence and soothe any worries in the back of your mind.
Another perk that reverse mortgages offer is the ability to stay away from credit cards and other forms of debt. The less you can rely on those forms of income, the better off you’ll be in retirement. It can also provide a buffer during emergencies and times of stress, when you might be tempted to use debt to stay afloat.
Zmikly said reverse mortgages allow seniors to avoid tapping their investments, which is especially important in the case of another recession or downturn. This makes them a great safety net for retirees during bad times.
“Mathematically it’s proven that when the market is down, the more you’re drawing from (your investments), the more you’re losing,” he said.
To determine how a reverse mortgage can change your life, try consulting a financial planner or reverse mortgage expert. A holistic planner will be able to give you an idea of what retirement currently looks like for you and how the cash from a reverse mortgage may affect your life.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
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