Whether it is the ability to contort your body into the “downward dog” at yoga class or having financial flexibility to help you be successful in retirement. Flexibility is the key to life. While the health discussion is for another blog, I want to focus on the financial yoga.
As you approach retirement, it is critical to understand, evaluate, and prepare for the things that can knock you off course. While you may have a clear vision of yourself in retirement relaxing by a lake with your grandkids, touring the country by RV, or spending your days on a golf course, there will likely be unexpected things that pop up and put those goals in jeopardy. Unforeseen health expenses, large repair bills, or a pandemic induced economic downturn. Without flexibility in your financial plan, you could find yourself in a situation that could jeopardize your long-term plans.
At WealthCharter, we use several different tools to help our clients maintain flexibility in retirement, but today’s blog is about the reverse mortgage. A reverse mortgage is a tool available to those age 62 or older that own their home outright and occupy the home as their primary residence. With a reverse mortgage, you remain the owner of your home and you retain title to it. The lender is going to provide you with a line of credit, monthly payment, or lump sum payment, based on the value of your home, your age, and the current interest rate. This is a loan that you don’t have to make payments on and will be repaid when the last surviving borrower dies, sells the home, or leaves it for more than 12 months due to illness. When the home is sold, if that sale price is more that than the loan amount, your beneficiaries will receive the excess. If the sale price is less than the loan amount, they do not make up the shortfall and if they want to keep the house, they can refinance the property or pay off the loan with other assets.
The reverse mortgage allows you to draw money out whenever you need it which could be ideal during a stock market downturn – providing an alternative source of cash and enabling you to avoid selling investments at an inopportune time. It also can provide cash to purchase that big-ticket item that you “have” to have but did not have in your financial plan. All distributions are tax-free, so you won’t impact your Social Security or Medicare benefits.
The costs associated with a reverse mortgage are similar to what you would encounter refinancing your home. You should talk to multiple lenders to ensure you are getting the best deal on costs and interest rates and to ensure you are working with a lender that is familiar with these loans.
While it is important to keep working on your favorite yoga poses (mine is shavasana – look it up) it is equally important to be building flexibility into your retirement plan. At WealthCharter Retirement Planning we have been helping clients do just that for over 20 years and we look forward to talking with you.