As the saying goes, “What goes up, must come down.” That’s especially true when it comes to financial markets. The reality is that no matter how much planning you’ve done to prepare yourself for retirement, market volatility is inevitable.
In your earlier investing years — 20s, 30s, 40s, and even 50s — market volatility was pretty easy to shrug off. Retirement was years away, giving your portfolio enough time to recover.
But now as you near or enter retirement, time is no longer on your side. Without a regular paycheck to rely on, you need to ensure that you’ll have enough money in cash and assets to last until the market recovers. Fortunately, your investments aren’t the only resource you can draw on.
How Can Home Equity Help During Market Uncertainty?
Today, homeowners age 62 and older hold a record $14.92 trillion in home equity.¹ That means your home may be one of your most valuable financial resources in retirement — and a reverse mortgage is one way to put it to work.
A reverse mortgage allows older homeowners to tap into a portion of their home equity to use as they wish. So when the market goes down — or inflation rises and prices climb — you have a source of cash flow that doesn’t depend on your investment portfolio.
And here’s the best part: reverse mortgages require no monthly mortgage payments as long as you meet your loan obligations, like paying property taxes and homeowners insurance and maintaining your home. The loan doesn’t have to be repaid until a maturity event occurs, such as when the last remaining borrower no longer lives in the home.
But the benefits go beyond your monthly budget. In recent years, financial experts have published research showing how using a reverse mortgage strategically can help your retirement portfolio weather market volatility. One key benefit is reducing what’s known as sequence of returns risk: the risk of having to sell investments while the market is down, which can shrink your savings faster than expected. A reverse mortgage can even help you delay claiming Social Security benefits, so you can receive the maximum benefit possible.2
And the benefits don’t stop with your portfolio. Reverse mortgage funds give you the flexibility to cover what matters most.
How Can You Use Reverse Mortgage Funds?
The good news is that reverse mortgage funds are yours to use however you wish. Whatever your retirement goals, you decide how to put your money to work.
Meet everyday expenses
Keep up with the rising cost of living, from groceries and gas to gifts and travel. Reverse mortgage proceeds can also help cover recurring expenses like property taxes and homeowners insurance.
Consolidate Debt
With no monthly mortgage payments required,3 you can redirect the money you’d otherwise spend on a mortgage payment toward other priorities, like paying down high-interest credit cards, medical bills or other debt.
Manage healthcare costs
According to Fidelity, a 65-year-old can expect to spend $185,500 on health care during retirement — and that doesn’t include long-term care.4 Funds from a reverse mortgage can help you keep up with these rising costs, so you can get the care you need without draining your savings.
Fund Home Modifications or Improvements
If your goal is to “age in place” and stay in your home as long as possible, your house will likely need some updates along the way. Reverse mortgage funds can help with projects big and small to keep you safe and comfortable, from a new roof or bathroom remodel to fresh paint or new light fixtures.
Be Prepared for the Unexpected
Life doesn’t always go as planned. Reverse mortgage funds can help you stay on solid financial footing when an unexpected bill comes up. Having a “rainy day fund” can provide valuable peace of mind.
How Does a Reverse Mortgage Line of Credit Work?
A reverse mortgage line of credit is especially useful for many of the needs we’ve covered, particularly unexpected expenses.While you can receive reverse mortgage funds as a lump sum or as monthly payments, a line of credit lets you draw funds only when you need them.5 Even better: the unused portion of your line of credit grows over time, so the amount available to you can increase the longer it goes untouched.6
That makes a line of credit a valuable financial safety net. It can help you handle surprise expenses, cover long-term care should the need arise, or bridge the gap during a down market so you don’t have to sell investments at a loss. By setting one up early in retirement, before you need it, you’ll have an additional source of funds that doesn’t depend on the stock market. It gives you peace of mind today and financial protection for the future.
Is a Reverse Mortgage Right for Your Financial Plan?
Market ups and downs are a part of retirement, but they don’t have to derail your plans. A reverse mortgage can give you a way to access your home equity on your terms, whether you need help with everyday expenses, want to protect your portfolio or are planning ahead for the unexpected. And with no monthly mortgage payments required,3 you’ll have more flexibility to enjoy the life you’ve worked so hard for, no matter what the market is doing.
Every retirement is different, and the right approach depends on your goals, your home and your overall financial picture.
Want to learn more? Talk to a Longbridge Reverse Mortgage Consultant today to see how a reverse mortgage could fit into your financial plan.
FAQs:
- Can a reverse mortgage help if the stock market drops?
Yes, it can. A reverse mortgage gives you a source of funds that comes from your home, not your investment portfolio. So when the market dips, you can cover expenses without selling investments while their value is down, which gives your portfolio time to recover. A financial advisor can help provide advice regarding your specific situation.
- When should you get a reverse mortgage?
Many homeowners get a reverse mortgage early in retirement, before they need it. And with the reverse mortgage line of credit option,5 the unused portion can grow over time,6 so opening it sooner may mean more funds are available later. That makes it a financial safety net that’s ready when you are.
- Does a reverse mortgage affect Social Security?
Generally, no. Reverse mortgage proceeds are loan funds, not income, so they are income tax-free and don’t affect your Social Security or Medicare benefits.2 Some needs-based programs, such as Medicaid or SSI, may treat funds differently, so talk with a benefits specialist or financial advisor before making a decision.
- Do you have to make monthly payments on a reverse mortgage?
No. With a reverse mortgage, monthly mortgage payments are optional.3 That frees up money in your budget you’d otherwise put toward a mortgage payment.