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Reverse Mortgages Can Help Seniors Meet 100% Of Their Financial Goals

Learn How A Reverse Mortgage Can Be Used to Improve Your Clients Retirement Plan.

As a financial, tax or retirement Adviser you should be aware of how a reverse mortgage can be strategically used to help clients, age 62 or older meet 100% of their retirement income needs.

Reduce Financial Risk
Reverse mortgages have a standby line of credit feature that can help reduce the risk retirees face when making withdrawals to fund living expences from their investment portfolios during periods of negative market fluctuations. The amount of the line of credit (LOC) depends on the size of the mortgage, borrower(s) age and current interest rates.

This LOC can be used to buffer and protect against adverse portfolio returns during early retirement and can help coordinate spending between thier portfolio and reverse mortgage based on the market performance.

Strategy; use HECM proceeds to augment portfolio performance. For example, during periods of positive returns spend from the portfolio. However, when the portfolio drops by a pre-defined amount, such as 10% or 15% they can use the reverse mortgage (LOC) to help cover living expences.

Delay Using Social Security Benefits
Social security benefits increase roughly 6 to 8% per year by delaying claims between ages 62 and 70.

Social Security benefits can be claimed as early as age 62, leaving your clients with a potential eight-year window of unstable non-portfolio income. Using a reverse mortgage with an eight year term payout that lasts can provide income to replace all or a portion of the income Social Security would have provided.

Funds to Pay Taxes for Roth IRA Conversions
Reverse mortgages can help seniors who roll over traditional IRAs or 401(k)s to Roth IRAs. By paying taxes upfront they create a tax-free income source for their future.

For those who’ve retired but are not yet 70 ½, the age when IRS required minimum distributions begin, a Roth IRA conversions can be a beneficial option. By taking distributions from the IRA, paying taxes and converting the proceeds into a Roth IRA, they can spread out the tax consequences and possibly save significant taxes in the long run.

The challenge of coming up with the upfront cash to pay the taxes can be offset with reverse mortgage income.

Affects on Inheritance for Heirs
Many assume a reverse mortgage significantly reduces the amount of inheritance client can leave their heirs. It can, but depending on how it is used it can have the opposite effect.

Upfront closing costs, mortgage insurance premiums and origination fees can add up, the majority of which can be financed into the loan. Ongoing borrowing costs, could total between 4 to 5.5% annually on the mortgage balance. Interest and principal payments are optional and if maintained can have a very positive benefit on heirs inheritance amount.

Considering their home is a single, undiversified asset, using the equity to create retirement income, instead of a diversified investment portfolio of stocks, could lead to a higher overall inheritance.

With a Reverse mortgages, even if the home price drops significantly, they can keep generating retirement income. When the house eventually needs to be sold, heirs won’t be on the hook for the debt.

Back Up for Unplanned Financial Costs
The scenarios are endless when it comes to the unexpected costs associated with retirement. Having access to a reverse mortgage line of credit can have a positive impact in such cases. A reverse mortgage is better suited to pay for in-home care than nursing home care because if they’re in a nursing home for more than a year a reverse mortgage loan would become due.

Reverse mortgages can also help cover long-term care insurance premiums.