My wife and I recently vacationed in Italy to celebrate her 70th birthday. We decided to stay in hotels not because we don’t like AirB&B’s or VRBO’s but because we wanted the concierge services that some hotels provide.
One of the advantages of renting a flat is that you don’t have to eat out every night. You can stay in and cook or have take-out delivered. One of the advantages of staying in a hotel is that you do eat out every night, and we did just that. I can report that the cuisine in Italy is savory, and rich and deep in flavor, especially when enhanced by good wine.
Dining out, we sometimes took advantage of the “Chef’s Menu,” a four- or five-course dinner selected by the chef for a fixed price. Typically, dinner included an antipasto, pasta dish, entrée, and dessert. I don’t typically have dessert. Instead, I prefer to have an after-dinner drink and leave the desserts to my wife. However, having dinner at a fixed price, it didn’t make sense to forego dessert since it was included in the price of the meal. I wanted to have everything I was entitled to.
Which brings me to reverse mortgages.
Determining sources of income in retirement is an essential part of retirement planning. Most retirees utilize three principal sources of income: Social Security, pensions, and savings. In addition, Medicare and supplemental health insurance can be considered a source of income in that these insurance plans will pay for most medical costs so that retirees do not have to draw upon the three principal sources of income.
As in other aspects in life, being resourceful is also advantageous in planning for retirement. One useful exercise for my wife and me was to assess whether an underutilized resource could be converted into a source of income. One such resource was the house my wife and I owned free of any mortgage and which we determined was a static investment. It produced no income yet we had a lot of money tied up in this high-value investment. So the question was how do we gain access to the monetary value of our home without being encumbered with monthly mortgage payments? For us the answer was a Home Equity Conversion Mortgage, specifically a line of credit. I have written an earlier article explaining how we are actively managing the line of credit so as to be a source of income for us.
As retirees, we are entitled to certain government-funded programs such as Social Security and Medicare. We all contribute to these programs in the form of taxes during our working lives with the knowledge that, upon retirement, we will be recipients of these benefits.
A reverse mortgage is another program available to retirees (who meet certain qualifications). Although a reverse mortgage is not funded by the government, it is guaranteed by the government, specifically, the Federal Housing Administration (FHA). A private lender, usually a bank, funds the loan. The FHA insures the loan in order to protect retirees as well as lending institutions.
There are a number of ways to structure a reverse mortgage in order to suit one’s financial needs: lump sum, annuity, or withdrawal on an as-needed basis. This flexibility allows a retiree the ability to tailor the withdrawal of proceeds to match his or her financial needs. The most flexible of all, in my opinion, is the line of credit which not only is accessible when needed but also has the benefit of increasing the amount of equity available to a retiree over time.
Like a Chef’s Menu dinner, we want everything we are entitled to, even dessert.
– Joe from Arizona, a FAR customer who is finding purpose in this new stage of his life.
* The opinions expressed in this article are those of the authors. They do not necessarily reflect the opinions or views of the Finance of America Reverse (LLC).