Reverse Mortgages: A Smart Retirement Planning Move

Many Financial Planners who used to dismiss the idea of a reverse mortgages, are now taking a closer look. Pete Woodring, Founding Partner at Cypress Partners comments:

I've since reconsidered my bias against reverse mortgages and now view them as a viable tool in the context of a holistic retirement income plan...

 


He goes on to list the following reasons for his change in attitude:

  • FHA rule changes have reduced costs and therefore lowered the risk to borrowers
  • With all of the risk factors facing retirees who don't have a company pension or retirement plan, it would be foolish not to consider one of their largest stores of wealth (their home) as part of retirement income plan.
  • Significant research shows that reverse mortgages, used responsibly, can increase both the length of time a retirement plan can last and the estate left to heirs.

 

The article points out some of the financial benefits of a reverse mortgage over other investments:

  • Funds drawn as income are tax free and accrued interest is tax deductible when paid off (usually when home is sold)
  • Reverse Mortgage Lines of Credit (LOC) are superior to traditional Lines of Credit in that the available limit increases every year based on interest rate (regardless of property value). the longer it remains unused, the more is available to the retiree. However, funds can be drawn and repaid just like a traditional line of credit.
  • Prolonged stock market decline can force a retiree to live on lower income than expected, or to sell stocks to make up the decline in income. A reverse mortgage LOC can be used to sustain income until the market returns without having to sell stocks at a loss.
  • Proceeds from a reverse mortgage can be used to pay taxes to move funds from a 401K or traditional IRA to a Roth IRA. Then, funds withdrawn from the Roth IRA are not taxable and do not increase the tax liability or bracket of the senior.
  • Long term care has become very expensive and can drain a life savings. Long term care insurance is a way to protect assets for heirs, but is often prohibitive due to expensive premiums. Reverse mortgage funds can be used to pay for long term care insurance without affecting retirement income.

For these reasons and many others, financial planners are taking a fresh look at the new reverse mortgage. When used properly, in context of a complete overall plan, a reverse mortgage can be a very flexible and valuable planning tool.

To read the entire Kiplinger article: http://www.kiplinger.com/article/real-estate/T040-C032-S014-why-reverse-mortgages-are-worth-a-look.html