4 Ways to Alleviate Financial Concerns in Retirement
“A short practice you do every day is better than a long practice you keep putting off to tomorrow." –Kelly McGonigal
Do you feel like you fell behind in your retirement savings plan? You are not alone. According to a 2017 study by the Stanford Center on Longevity, 27% of baby boomers were just getting started or fell behind on saving for retirement, while 5% felt lost and confused about making retirement work. With so many soon-to-be retirees facing a crisis with retirement savings, Cynthia Kee is here to help homeowners brace for retirement by harnessing their largest asset…their home.
To qualify for a reverse mortgage, you must be 62 years or older and be a US citizen or permanent resident. As part of the application process, you must receive counseling from an approved agency. You must also maintain the home and pay for all property charges (such as tax and insurance), as well as occupy the home as your primary residence.
1) INCOME CONCERNS
Many retirees are in a situation where they need to begin supplementing income while trying to delay the start of social security benefits to try to maximize payments later in retirement. Many financial planners recommend clients delay claiming social security benefits for as long as possible, up to age 70. That’s because benefits increase up to 8% per year for delaying claiming between ages 62 and 70.
Reverse mortgage proceeds can provide an additional monthly income stream that can bridge the income gap while waiting to start social security benefits. Essentially, tenure payments from a reverse may supplement monthly needs until social security benefits reach their max.
2) RETIREMENT PORTFOLIO CONCERNS
In an unpredictable economy, retirees must decide when and how to start withdrawing from portfolio investments and traditional pension benefits (when available) while avoiding the sequence of returns risks.
When planning a retirement portfolio distribution strategy, you should consider using a reverse mortgage line of credit as an alternative funding source. By doing so, you can take annual distributions from the portfolio in any year that investment returns are positive and the portfolio value after distribution will be greater than the original. Then you can leverage distributions for the reverse mortgage line of credit in any year that investment returns are negative and/or the portfolio value after distribution will be less than the original.
3) MEDICAL & LONG-TERM CARE CONCERNS
Medical spending accounted for 41% of the average $1,115 monthly social security benefits in 2013, says the Kaiser Family Foundation. Steve Vernon, Research Scholar from Stanford Center on Longevity, goes further to say that “health is a big concern for retirees. Thirty-seven percent of people age 50 and older believe they will need long-term care. Most likely twice that number will eventually require care.” It’s hard to tell whether your medical bills will skyrocket or if you will need long-term care, but even if you are in good health you cannot predict accidents or illnesses. The best time to plan for medical expenses and long-term care needs is before you need it.
If you are in a good spot financially, consider funding a life insurance policy with a long-term care benefit rider. To cover these costs, many retirees are using a reverse mortgage line of credit. This option is back-up to cover unexpected health care costs. Unlike insurance policies, there is no premium associated with the reverse mortgage, other than initial closing costs. The reverse also provides an increasing benefit as the unused line of credit grows. It is a great option if the borrower does not qualify for traditional insurance products.
4) HOUSING CONCERNS
Many retirees are finding that their houses don’t fit their needs any longer and are wondering if they should remain in the existing home or move to a more suitable home. Perhaps their house is too large or maybe their family relocated after moving out of the house. With a limited retirement income, relocating can be a difficult process. Instead of having to sell their existing home and then worry about buying a new home, a reverse mortgage for purchase can handle the move in a single transaction.
With a traditional reverse mortgage, the lender offers a homeowner a percentage of the home’s value that can be used as needed. With a reverse mortgage for purchase, HECM for Purchase, however, those reverse mortgage funds are applied to a new home’s sales price. Depending on the age of the youngest participant, the lender is generally able to contribute 40% to 65% of the purchase price. Essentially using a reverse allows retirees to spend less money out of pocket on the new home and preserve more of their savings.
CONSULT WITH PROFESSIONALS
Financial advisors and planners are trained specialists who help retirees with investments and financial planning, including retirement planning. They develop strategies for converting assets into income, which includes the use of home equity.
Just like your 401K, IRA, or annuities, home equity is a powerful financial tool that can greatly enhance your retirement funding plan. If you need a recommendation or have questions about your retirement options please constant Cynthia to discuss your options.