For many seniors the deep-rooted idea was that choosing a reverse mortgage should only be a last resort option to fund monthly income after all other resources have been exhausted. Let's take a deeper look at some of the opportunities that can be afforded to senior homeowners and research of well-respected professionals in regard to reverse mortgages being used as forethought rather than an afterthought.
Reverse mortgages can help senior homeowners achieve many different purposes. You can use them to restore retirement funds that lost value in recent years of massive losses, plan for future health care expenses, provide economic security, eliminate a mortgage payment to improve current monthly cash flow, avoid tapping into retirement accounts too soon or before maturity or required withdrawals, or even buy a new home while keeping a nest egg and avoid mortgage payments. The way you choose to accept your funds depends on your long term plans for the proceeds and purpose of the reverse mortgage loan. Recently two known financial planning experts wrote an article in the Journal of Financial Planning regarding the use of a reverse mortgage as part of a long term planning tool and utilizing a an equity line reverse mortgage as a first line of action over a last resort action.
"Barry H. Sacks, and Stephen R. Sacks, both Ph.D.'s research concluded that against conventional wisdom that through a combination of a retirement portfolio and reverse mortgage equity line withdrawals that the cash flow survival rate was higher than if used as a last resort and provided a higher net worth after a 30 year period"
Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income
Repositioning Assets with Purpose
1. Increase Retirement Reserves
According to urban.org the amount of seniors age 65 and over will rise from about 13 percent in 2008 to 20 percent by 2040. The recession dealt a heavy blow to retirement accounts, leaving many older adults worried about their retirement security. Seniors will need options for substituting these retirement plans. Millions upon millions of them are approaching retirement age and they have been promised that the social Security is going to take care of them. The exception is that the money simply will not be there for their retirement years. These boomers should start considering other options now before they find themselves at retirement with a federal debt in the trillion's. A few statistics explain the dire circumstances they face:
· Every day over 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every day for the next 19 years.
· 35% of Americans at present over the age of 65 rely almost entirely on Social Security payments alone.
· Most Baby Boomers do not have a pension plan because they have becoming extinct over the past 30 years
· According to a recent A survey of Baby Boomers, 40 percent of them plan to work "until they drop".
Scott Thill The Retirement Nightmare: Half of Americans Have Less Than $2,000 Banked for Their Golden Years
2. Pay for Long Term Care and HealthCare
Social Security, Medicare, and Medicaid outlays, inflated by soaring health care costs and growing numbers of retirees, will squeeze out funding for other government services. Entitlement programs could dissolve an estimated 75-80 percent of all federal tax dollars by 2040.
3. Purchasing Investment Properties
No limitations on how the money is used. Real Estate could be a good return on the money invested at today's low rates; Real estate is still one of the best returns on your money.
1. Purchase a 2nd Home or Downsize
Seniors could use the reverse mortgage proceeds to purchase a 2nd home and keep a large portion of reserves intact, additionally they could avoid having a mortgage payment on the first home. A good example would be for what some refer to as "snowbirds". Downsizing is another option to consider, use the proceeds from a sale of primary residence, then purchase a smaller more manageable home with a reverse mortgage allowing them to keep a larger portion of the sale proceeds as reserves and avoid any future mortgage payments on new home.
HECM Saver Gains Popularity with Financial Planners
Harold Evensky author of The New Wealth Management states:
"It looks like this is going to be an immensely powerful tool,"
Resources such as reverse mortgages resolve the problem that his cash-flow reserve approach often requires clients to keep money in low-interest accounts. A reverse mortgage, even if it is not drawn down, can reduce the amount of cash that is invested in that way.
Adviser Perspectives New Rules for Wealth Management
How A Credit Line Reverse Mortgage can be an Effective Tool for funding these Opportunities
Even if you don't absolutely need the funds today consider this interesting fact. Conceivably the most powerful HECM lure is that its credit line grows larger over time. This means that after closing on a reverse mortgage credit line the amount of cash available to you continues to produce returns at the current interest rate until you withdraw all of it, simultaneously your home equity and home value should normally continue to grow as well. Another feature is that any reverse finance cost rolled into the loan could essentially be washed out. The options could be endless and if you were afforded the ability to allow the money to grow for say 10 years before extracting it your estate could be left intact and the reverse accomplishing all that you wanted it to.