So who wants to be a millionaire?
Not too many seniors can say they have a million dollars saved for retirement. Even fewer can say they will have $1 million 30 years into retirement.
The New Reverse Mortgage is making it a possibility for countless seniors.
Becoming a millionaire requires a coordinated strategy
Several studies have already demonstrated the potential benefits to be reaped when using a reverse mortgage as part of a coordinated retirement strategy, but one recent case study further expounds on the efficacy of the reverse mortgage line of credit.
A variety of financial planning research published within the last decade has added layers of credibility to reverse mortgages as a financial resource that can help “buffer” against volatility in investment markets, increase retirement spending and, above all, significantly improve the longevity of a retiree’s retirement income.
The crux of these strategies is to take a Reverse Mortgage early in retirement thereby accumulating a greater share of equity over time, which they can use to supplement their retirement spending and help shore up losses in their investment portfolio during years of negative market returns.
Planning forward by glancing back
In demonstrating the coordinated planning strategy, which was previously introduced by Barry and Stephen Sacks in the Journal of Financial Planning in 2012, Sacks and Lafaye establish a retiree with a $500,000 equity/bond portfolio split 50/50. Beginning in 1973, the case study examines a 30-year spending horizon, incorporating an initial 5.5% withdrawal rate increasing at a 3.5% inflation rate.
The New Reverse Mortgage the better retirement strategy
Utilizing a reverse mortgage as a last resort strategy, the retiree ends up depleting his portfolio in 1996—six years short of the 30-year retirement horizon, according to Sacks and Lafaye.
The New Reverse Mortgage to offset negative portfolio returns
On the other hand, by tapping into the reverse mortgage loan proceeds after suffering negative returns, the same retiree is able to fund their retirement for the full 30-year period. What’s more is that in this scenario, the retiree’s total portfolio value has grown in excess of $1 million after 30 years.
In this scenario the retiree is able to access his line of credit when needed because the line of credit is guaranteed to grow at 1.5% per year (appx) over the current mortgage interest rate. (Regardless of current real estate market conditions)
The New Reverse Mortgage can help get your portfolio to $1 million
“Using the simple coordinated strategy has dramatic results: they don’t run out of money,” Davison writes in a recent post on his blog, Tools for Retirement Planning. “Their estate size increases over $900,000. Rather than the portfolio exhausting in the 24th year, it lasts through the 30th year, with a $1,000,000 balance.”
The New Reverse Mortgage isn’t for everyone…but it could be!
Is the New Reverse Mortgage right for me?
If you’re still wondering if a Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.
Some of this information first appeared on reversemortgagedaily.com