Reverse Mortgages: The Top Expert Recommendations for Using in Retirement
A retirement marks an essential transition from a regular work schedule to a flexible lifetime. While some seniors still work part-time after retirement, a majority opt to stay home and age gracefully.
However, retirement is not about signing up for a reverse mortgage or dying with huge equity locked up in your home. Instead, it involves managing your finances wisely, creating memories, and leaving a good legacy for your heirs.
Here are the top eight expert recommendations for using reverse mortgages in retirement:
1. Clear Your Current Mortgage
Housing expenses such as mortgages are the most considerable debt seniors have in retirement. However, it doesn’t make sense to deplete cash in your first and second baskets to pay for mortgages.
Experts recommend taking a reverse mortgage to settle outstanding mortgages. The strategy decreases your monthly expenses, leaving only property taxes and home insurance.
If you still pay mortgages at 63, yet have 50% worth of home equity, you may be the biggest beneficiary of a reverse mortgage.
2. Purchase a Retirement Home
Many people believe a reverse mortgage is only an ideal solution if you already have a home. On the contrary, more than 700,000 seniors use a reverse mortgage to buy a new home every year. A further 30% of the baby boomers opt for bigger, more expensive houses.
The idea is to sell your current home in pursuit of a home that will make you comfortable in your lifetime. The proceeds form part of the down payment that will help secure the new property.
To increase your buying power and reduce closing expenses, you should have a higher down payment for the new property.
Therefore, if you desire a bigger home with wider doorways and a large front yard, why not do it now? It saves you the stress of grappling with movement when too old.
3. Postpone Your Social Security
Studies show an increase in reliance on social security, with 89% of seniors aged above 65 depending on the funds for their retirement expenses.
First off, when drawing social security, you have various options. You can draw 75% of your social security at 62 years or wait until 66 to receive the whole amount. Alternatively, you can postpone the initial payment for a bulk share later. Experts recommend postponement or waiting for a total share.
Despite expert advice, 50% of retirees opt to draw social security at 62, thinking they won’t live long. Instead, they live longer and receive a lower monthly paycheck because of a rushed decision.
Here is an example of Mike and Mary, an old couple;
4. Go Slow on Retirement Assets
Your retirement baskets should have sufficient assets for a sound cash flow system. These include personal savings, IRAs, contribution plans, and stock assets.
Be sure to regulate your withdrawal frequency for good portfolio longevity. Financial advisors recommend drawing from a reverse mortgage kitty whenever there is an economic crash. The strategy builds more cash on your retirement assets for future use.
5. Save On Income Taxes
Paying your income taxes is almost inevitable if you have additional assets besides social security. You pay taxes when you draw from IRA, contribution plans, and monthly wages. The downside is that you cannot recover taxable income.
However, proceeds from a reverse mortgage come tax-free, helping retirees cut down on taxable income. You always get a tax deduction on insurance and monthly interest when you make payments on a reverse mortgage.
Because of flexible payment options, you can forego monthly payments until interest accrues so that you incur a one-time payment on the balance. Even if you don’t pay, your heirs can still secure a tax deduction when you die.
6. Invest In Life Insurance
Based on projections, more than half of retirees will require long-term care before their death. Unfortunately, there is no health care plan or Medicare policy to cater to long-term life care. Retirees will dig deep into retirement funds to make long-term care a reality.
With only 5% of retirees having life insurance, there will be a crisis. Therefore, while planning for retirement, a good portion of your budget should go into long-term care and life support insurance.
7. Have an Emergency Line of Credit
A standby equity line of credit will save the day when you least expect. Since you never know what lies ahead, the best time to have it is when you least require it. Regardless of how much money you have in your second basket, always have it ready.
8. Have Fun
It is good to have some fun in your retirement. It doesn’t make sense to work till 62, raising children, upgrading to a bigger house, then passing away without enjoying the fruits of your struggles.
A good retirement also involves using the money you acquired to explore the world and enjoy. You may buy a sporty car, go on a long cruise, or tour the world to make you happy.
Enjoying Your Retirement: Expert Recommendations
Having a fantastic retirement is about accumulating assets and using them correctly. And the best way to do it is to be a good steward.
Experts recommend several ways to enjoy your retirement: clearing your mortgage, purchasing a retirement home, postponing social security, and going slow on assets. In addition, consider saving on income taxes, have a long-term care plan, and always have fun.