Reverse mortgage loans are a great financial tool for planning retirement income. There are 5 ways a reverse mortgage loan can be made use of to let you save for your retirement.
Delay In Benefits Of Social Security:
After the retirement, a loan from reverse mortgage is established. It is drawn out each year to offer a retirement income until it gets exhausted. Thus it allows the retired individual’s investment portfolio like a plan of 401k more time period to grow. Withdrawals are also made from the portfolio. Such a strategy also allows a retiree in delaying any access to benefits related to social security. Thus their monthly payments are increased later in life.
Financial advisors recommend their clients to delay their social security benefits claim for as long as they can, till 70 years of age. This makes the benefits roughly increased 6-8% each year for delaying claims between 62-70 years. You can claim social security benefits at the age of 62, but it will leave you a time span of eight year without any fixed source of income from non-portfolio. In such a scenario, setting a reverse mortgage along with term pay-out that will last for eight years is an excellent idea.
Spending Accordingly With The Portfolio:
If retirees make withdrawals from the investment portfolios, there lies a risk of enduring duration of negative returns from the stock market very early during the retirement. They require to make use of their portfolio to finance their living expenses, so retired people may be forced to sell off their investments during such inconvenient period.
But reverse mortgage can aid in balancing this risk as they come with a feature known as the standby line of credit. It depends on some factors like mortgage size, individual’s age during loan origination as well as interest rates. An individual with a home worth $500,000 that is mortgage free cab acquire a reverse mortgage line of credit that is almost worth half of his home equity or nearly $250000. During early retirement, this line of credit should be used as buffer in order to protect against any adverse portfolio returns.
So coordinate spending between the portfolio and the reverse mortgage on the basis of the market scenario. When you will make use of the line of credit, the balance of the reverse mortgage will increase. You can select to pay this mortgage any time you want, but it happens mostly when the returns of your portfolio are positive.
Safety From Investment Decline:
Establish a reverse mortgage at the start of your retirement to aid in reducing the risk associated with investment portfolio. A loan from reverse mortgage will supplement any monthly income during the decline of portfolio due to corrections in the market or recessions.
If you draw out your investment during bad time this will lead to a high chance of getting them exhausted during the time of retirement. A reverse mortgage loan will let you preserve the investment portfolio for a long time during your retirement.
Funding For Tax Payments:
Retired individuals who have a tendency of rolling out the traditional IRAs or may be 401k to Roth IRAs will be benefitted by reverse mortgage. You will be paying taxes upfront in order to create future income that is tax free. These Roth IRA conversions are a great option for those who have retired but are not aged 70 ½ years. This is the age when IRS needed least distributions start.
By taking distributions systematically from traditional IRA, paying some taxes as well as converting the proceeds to a Roth IRA, you will be able to spread out the consequences of tax and also possibly save some taxes in this long run. The only challenge that you will face while this strategy execution is that keeping upfront cash to make tax payments. This is when the need of a reverse mortgage comes. After-tax investment as well as cash accounts can be limited but you can make use of this in come from reverse mortgage.
Proper Care Of Sudden Spending Requirements:
In your retirement, you can run into any unexpected expense. Your health can become worse. A close one from your family may require financial support. Long-term care may be required for any illness or injury. If you have access to reverse mortgage line of credit, a huge difference can be observed in such cases.
For cost of long-term care, a reverse mortgage is most appropriate to make payment for any in-home care rather than care at a nursing home. This is because you will not be allowed to let your reverse mortgage stay open if you are admitted to a nursing home for a year or more. It can also aid in covering all or at least a portion of your insurance premiums for long-term care.
A reverse mortgage will never close your property tax or home insurance payments. But it will allow the seniors to plan.