Denver Home Living Huettner Capital Fall 2018 | Page 32

5 Ways You Can Improve
Your Retirement Income
and Net Worth With
A Reverse Mortgage
M
ost people, including financial planners, view
your home as an asset of last resort. Similarly,
they view a reverse mortgage—in which older
homeowners can turn their home equity into
cash—as the option of last resort.
This traditional financial planning approach where home equity
is used only in emergencies or left to your estate is very short-
sighted because it eliminates the utility of what is usually one of
your largest assets. Coordinating your entire portfolio including
home equity creates remarkable opportunities to reduce risk,
increase the income your portfolio can support, and result in
greater legacy value of your portfolio.
The most common use of a reverse mortgage is to refinance an
existing loan at retirement to eliminate the required monthly
payment. However, there are many other strategies to incorporate
home equity in retirement planning using reverse mortgages.
Here are just a few:
1. REDUCE MONTHLY INCOME NEEDS – Even if you
own your home outright, you can use the reverse mortgage like
an annuity to create stable monthly cash flow and reduce the
amount of income you need from your other investments.
2. ESTABLISH A PERMANENT LINE OF CREDIT –
Unlike a Home Equity Line of Credit (HELOC) that is typically
limited to a 10-year draw period and can be cancelled at any
time, a reverse mortgage line of credit does not have a time limit,
it is contractually guaranteed so it cannot be cancelled as long as
you maintain the home, and it cannot be frozen unless the line
limit is fully drawn. Even better, this line of credit grows over
time as your home appreciates.
3. AVOID SELLING WHEN THE MARKET IS DOWN –
You have to pay your bills even when your investments are not
performing well. Using a reverse mortgage to reduce or eliminate
withdrawals from your portfolio during these times, especially
early in retirement, can greatly extend the income from your
portfolio years into retirement.
4. INCREASE TAX EFFICIENCY – The equity from your
home is not taxable because it is not income. This allows you to
reduce your taxes by only using taxable investments right up to
tax bracket limits and then using home equity for the remainder
of your budget.
5. CREATE AN INSURANCE POLICY FOR YOUR
HOME EQUITY – Because the line of credit grows without
ever declining, opening a line and not using it creates an
insurance policy in case your asset of last resort drops in value
when you need it. How many people could have used that during
the housing crisis?
While reverse mortgages have a reputation as a niche tool used
only by desperate homeowners who are out of options, this could
not be any further from the truth. The fact is they provide several
ways to reduce market risk and create far greater wealth for your
retirement portfolio than just letting your home equity sit there
underutilized.
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If you are thinking about using a reverse mortgage in your
retirement, be sure to look for a lender who is knowledgeable
about retirement income planning as well as alternatives to reverse
mortgages to provide you a complete picture of your options.