3 moves seniors should consider with inflation still high
With a report released earlier in April showing inflation rising yet again and the prospect of interest rate cuts low for the Federal Reserve’s next meeting, many Americans may find themselves looking for ways to boost their bottom line. This is particularly true for seniors, many of whom may be heavily reliant upon Social Security and retirement savings. For this demographic, in particular, it’s important to explore alternative ways to both protect their existing money — and improve their potential income flow. Fortunately, there are multiple ways to accomplish both goals right now. Below, we’ll break down three moves seniors should consider with inflation still high. 3 moves seniors should consider with inflation still high Here are some moves seniors should investigate as they continue to cope with the high cost of inflation. Invest in gold Gold has historically been a smart and effective way to hedge against inflation and diversify your portfolio, two features that make the precious metal particularly attractive right now. Gold can help offset the negative influence of inflation thanks to a value that tends to remain steady or even rise during such economic periods. And that’s been the case in recent weeks as the price of the metal has surged to record highs. But the diversification it can offer is also key, particularly for seniors with portfolios largely made up of volatile stocks and bonds. In this case, gold can help balance the performance of those assets, offering another layer of protection that’s especially valuable now. Consider a reverse mortgage If inflation and higher borrowing costs have dramatically affected your available cash, homeowners 62 and older should consider turning to a reverse mortgage. This loan, based on your home’s appraised value at the time of application, will only need to be paid back if you sell the property or die. And, while it may not be ideal to tap into your existing equity, particularly if you were planning on leaving it to loved ones following your death, it’s still preferential to going further into debt. For many seniors, it can be a smart way to supplement limited retirement income right now. Review bank accounts The inflation rate last month was 3.5%. The average interest rate on a regular savings account right now is 0.46%. So if you’re keeping your funds in a regular account, you’re losing money and not keeping pace with inflation. As such, it’s important to periodically review your bank accounts for opportunities to further grow your savings. High-yield savings accounts, for example, operate the same way regular savings accounts do, but with an exponentially higher interest rate (up to 6% for some accounts right now). Certificates of deposit (CDs), meanwhile, may come with even higher rates, although they will require savers to lock their money away for an extended period of time. Either account option, however, is generally preferable to the minimal rate you’re likely earning with a regular account now. The bottom line While high inflation and elevated interest rates can be problematic for seniors, there are ways to effectively offset some of the negative ramifications. By investing in gold, for example, seniors can better hedge against inflation and diversify their portfolios. Reverse mortgages, meantime, offer an alternative income source with less baggage than other home equity borrowing options do. And by opening high interest-earning accounts like high-yield savings and CD accounts now, savers can earn significant sums of money simply by switching their savings strategies. As is the case with all financial decisions, however, it’s critical to carefully consider each of these moves in order to improve the chances of financial success. By Matt Richardson
Unlock Your Home Equity: Modern Reverse Mortgages for Retirement Planning
Not just for emergencies anymore, in this series our expert explores how reverse mortgages can boost your retirement income and financial security. Remember that iconic marketing campaign from the 70s that proclaimed orange juice “isn’t just for breakfast anymore?” Well, reverse mortgages are experiencing a similar renaissance! The journey began in 1961 when Nelson Haynes of Deering Savings & Loan in Portland, Maine, pioneered the first reverse mortgage for Nellie Young. This innovative loan aimed to support the widowed wife of his high school football coach, allowing her to stay in her home after her husband’s passing. Fast forward to the 2020s, and the reverse mortgage landscape has undergone a significant transformation. Consider the retired CEO with $5 million in savings and a $4.5 million home. He leveraged a reverse mortgage to establish a multi-million-dollar tax-free wealth transfer strategy. This approach not only protects his existing assets from premature erosion but also safeguards his heirs’ inheritance without impacting his current cash flow. The evolution is remarkable. Reverse mortgages have shifted from being merely a financial lifeline for the “house-rich, cash-poor” widow to a versatile equity release strategy with diverse applications. As a consumer or investor doing your own research on reverse mortgages, the coming months will be crucial for uncovering the full potential of this tool. We’ll dive deep into the strategic uses of modern reverse mortgages for retirement income planning, illustrating their varied applications and demonstrating their value in a comprehensive retirement strategy. This series will equip you with the knowledge to determine how a reverse mortgage could enhance your financial planning and provide peace of mind in your retirement years. Understanding Reverse Mortgages Leveraging home equity in retirement is a well-established concept. For decades, reverse mortgages have been used as a solution for retirees whose savings might not fully cover their longevity. Today, around twenty countries, including the United States, provide various forms of senior equity release programs, commonly known as reverse mortgages. Particularly in the U.S., where an impressive 87% of retirees own their homes, these financial tools have become an increasingly viable option for tapping into this substantial asset to enhance financial security during retirement. At their core, reverse mortgages help homeowners aged 62 and above convert a portion of their home equity into accessible funds. With the introduction of jumbo reverse mortgage programs, homeowners with higher home values can also benefit, starting at age 55. Eligibility typically includes most single-family homes, specific multi-unit properties, some condominiums, and certain manufactured homes, while cooperative apartments remain excluded. The amount of available funds hinges on various factors, including your age, home value, existing property balances, current interest rates, and chosen product terms. Repayment is initiated when the last borrower permanently leaves the residence; whether due to passing away, relocating, or selling the home. At this juncture, borrowers or heirs have the option to repay the loan and accrued interest or sell the home to settle the debt. Any remaining equity after settling the loan remains with the borrower or heirs. A significant advantage of reverse mortgages is the absence of monthly mortgage payments. Unlike traditional mortgages, borrowers are not obligated to make monthly payments, thereby freeing up cash flow for other expenses. Moreover, borrowers enjoy flexibility in accessing funds. They can choose a lump sum, a line of credit, or a combination of both, providing them with access to funds as needed. Crucially, borrowers retain ownership of their home and can continue living there for as long as they wish, as long as they meet program requirements such as paying property-related charges like taxes, insurance, and HOA fees. Today’s Reverse Mortgage Transition Today’s reverse mortgages have broadened their appeal, providing flexibility and financial benefits that speak to the needs of a wider array of retirees and homeowners. This change marks a substantial shift in the reverse mortgage landscape, transitioning from a niche resource to a widely adopted tool among retirees globally. This evolution is fueled by three pivotal changes: shifts in borrower profiles, growing public acceptance, and proactive utilization. Let’s explore the key changes that have shaped the modern reverse mortgage landscape. Borrower Profiles One of the most notable shifts has been in the borrower profile evolution. Economic shifts, generational changes, and shifts in retirement planning have broadened the typical reverse mortgage borrower profile. “Constrained Borrowers,” faced with limited retirement savings, view reverse mortgages as a lifeline to maintain their standard of living. “Concerned Borrowers” seek stability and security to address unexpected expenses like medical bills or long-term care needs. “Cautious Borrowers,” despite having existing retirement plans, explore reverse mortgages to strengthen their financial safety net. “Comfortable Borrowers” leverage reverse mortgages to optimize their retirement income, freeing up cash for travel, hobbies, or supporting loved ones. Lastly, “Carefree Borrowers,” though financially stable, may still use a reverse mortgage for tax benefits or estate planning advantages. Public and Academic Acceptance of Reverse Mortgages The perception of reverse mortgages has shifted dramatically from skepticism to broad acceptance, positioning them as a reputable component of retirement planning. This change is largely due to endorsements from prominent financial experts and rigorous academic research, enhancing their credibility. Expert Endorsements: Respected financial experts such as Dr. Wade Pfau, Ed Slott, Tom Hegna, and Dr. Harold Evensky have publicly supported the use of reverse mortgages. Their endorsements focus on how these tools can enhance retirement income planning and provide effective risk management solutions, lending significant weight to the growing acceptance of reverse mortgages. Academic Research and Integration: Leading academic institutions, including The American College of Financial Services, MIT, and Texas Tech University, have not only studied reverse mortgages but have also incorporated them into their financial planning curricula. This integration into academic settings highlights the strategic importance of reverse mortgages in managing retirement finances. Insights from Research Publications: The value of reverse mortgages is further underscored by research featured in respected academic journals. These publications highlight the strategic benefits and versatility of reverse mortgages, particularly in the realm of retirement planning. Notable examples include “Standby Reverse Mortgages: