When you hit retirement age, one thing you don’t want to have to worry about is keeping a steady income to support yourself, but unfortunately, that’s the exactly the number one thing many retirees are stuck worrying about. No matter how much you plan and save for retirement, there’s a good chance you’re going to face unpredictable expenses and volatile markets, and unless you’re fabulously wealthy, there are likely to come times when you’re stretched thin. You may have heard of reverse mortgages as a way to take advantage of equity in your home to provide yourself with cash or a line of credit, and many people will warn you that reverse mortgages are a last-ditch solution only to be used by people in dire straits. While it’s true that reverse mortgages can be an effective way to secure a regular cash flow when you’re out of other options, they aren’t just for desperate situations. With careful planning and strategic thinking, you can use a reverse mortgage to safeguard your investments and get yourself into a more advantageous financial position.
Protect your assets
One problem many retired people have to face is being forced to make withdrawals from their investment portfolio when the stock market is in decline. Rather than eat those losses, you can use a credit line from a reverse mortgage to provide you with an income through times like these, giving your investments a chance to recover and leaving them untouched until you can withdraw them at a more favorable time.
Delay Social Security benefits
The longer you wait to start collecting on the Social Security benefits you’re entitled to, the more money you’ll end up receiving every month. If you wait until age 70 to collect, you can receive 132% of your benefits, and that can add up to a whole lot of money if you live long enough to enjoy it—and you’re planning on sticking around for a long time, right? Using a reverse mortgage to provide you with an alternate source of monthly income until you hit your 70th birthday can make it painless to wait out those few additional years.
Fund emergency expenses
It’s not much fun thinking about all the things that can go wrong during your retirement, but odds are pretty good that something unexpected and costly is going to hit you at some point. Medical expenses, especially as we get older, are an especially common source of financial woes for people who’ve otherwise been responsible with their money and careful about saving. There’s also the chance that if you live long enough, you might end up needing in-home care, and that can get expensive. One benefit of reverse mortgage credit lines is that they grow over time, so if you have one and reserve it for use in emergency situations, you can end up with a lot of money to draw from if you reach the point of needing costly health care or assistance with daily living.
Pay off debts
You’ve probably heard that you need to own your home completely free and clear to get a reverse mortgage, but you can still get one if there’s a small enough balance remaining on your existing mortgage that you can use the funds from the reverse mortgage to pay it off. This means that you can use a reverse mortgage to wipe out what’s left of your home loan and stop paying monthly mortgage payments. You can also use a lump sum withdrawal from a reverse mortgage to pay off consumer debts with high interest rates. Since reverse mortgage approval doesn’t factor in your credit rating, this can be an effective way to pull yourself out of a debt spiral.
Now, before you get too deep into planning out how to leverage a reverse mortgage, make sure you’re qualified to get one! You have to be at least 62 years old to qualify, and you’ll need to attend a mandatory financial counseling session. You’ll also need to consider all the other factors involved in having a reverse mortgage, like the implications it’ll have on your children or grandchildren who end up inheriting your property. It’s also very important to find a trustworthy lending institution to work with, not just any reverse mortgage company with commercials on afternoon cable television. However, if you’ve done your homework and determined that a reverse mortgage is a smart decision for your circumstances, you can prepare yourself to use it creatively to keep your other investment assets safe and maintain a comfortable and financially secure future for yourself.