Why a reverse mortgage makes sense for seniors this July
A reverse mortgage isn’t available for every homeowner. Typically, you’ll need to be age 62 or older to qualify (55 in some situations), leaving this option available mostly for senior homeowners. But if you meet the age requirements and some other criteria, this unique funding source could be worth exploring, particularly in the unique economic landscape of July 2025. With a reverse mortgage, lenders will pay homeowners out of their accumulated home equity, either in a lump sum or via monthly payments. This money will only need to be repaid in the event of the death of the homeowner or if the home in question is sold. Otherwise, homeowners can comfortably rely on these payments being made back to them, providing a much-needed financial cushion right now. And while the benefits of a reverse mortgage can often be timeless and applicable in a variety of scenarios, there are some timely reasons why it can be particularly beneficial for seniors this July. Below, we’ll examine three of those reasons. Why a reverse mortgage makes sense for seniors this July Not sure if a reverse mortgage could be the right move for your finances this July? Here’s why it could be: It can fill in the gaps left by Social Security Whether you’re currently dealing with issues related to Social Security overpayments and clawbacks or are simply concerned about the system running out of funding in the future, a reverse mortgage can adequately fill the gaps left by Social Security each month. This additional monthly income stream can be the difference between covering all of your bills and expenses or not. With a reverse mortgage, you won’t need to cut as many corners or try to squeeze as much as you can out of retirement funds and Social Security. And with inflation rising again in June and rates on loans and borrowing products remaining elevated, an additional income stream is particularly helpful to have this July. It won’t require monthly repayments in today’s high-rate climate Unlike a home equity loan, which also uses the home as a funding source, homeowners won’t be responsible for making monthly repayments right after the funds are disbursed. They won’t be required to make repayments at all, as equity taken with a reverse mortgage will simply be replenished upon the sale of the home. This is a major advantage this July, as it eliminates the stress (and calculations) required when calculating interest rates and repayments on items like home equity loans and home equity lines of credit (HELOCs). Qualifying may be easier compared to alternative funding sources The average home equity amount sits over $300,000 right now, and if you’re a senior living in a paid-off home, you may find yourself with even more money to borrow from. Qualifying, then, could be easier compared to trying to secure a six-figure credit card line or a $100,000 personal loan, for example. Lenders can easily determine your home’s worth and, thus, the amount you can secure with a reverse mortgage. And a simple qualification is always beneficial, but especially this July when the need for additional funds, thanks to inflation, interest rates and stock market uncertainty, is elevated. The bottom line A reverse mortgage isn’t a one-size-fits-all solution for seniors, but the benefits of pursuing one can be broadly applicable in the economic climate of July 2025. With the ability to fill in gaps left over from Social Security payments, no concerns over repayments (and interest rates) in today’s elevated rate climate and relative ease of qualification compared to alternative funding sources, a reverse mortgage could be the solution to your financial problems both this month and in the future.
Wade Pfau: Four Ways To Beat Sequence Risk
Bumpy markets are no fun for anyone, but for clients about to retire or who are recently retired, volatility can be downright terrifying. That’s because market drops right before or early in someone’s retirement make it difficult for them to make up the returns later—a phenomenon called “sequence of returns” risk. “We’re really vulnerable to market returns around the retirement date—in the years leading up to retirement and then especially in the early years of retirement,” said Wade Pfau, a Dallas-based retirement specialist who spoke about sequence risk strategies in a webinar on Wednesday. “It’s not just the average return over your retirement that’s going to determine the success or failure of the plan. It’s the order that the returns come,” he said. “Bad returns early on balanced by good returns later on can’t help you. If you get good returns early on, balanced by bad returns later on, you’re smooth sailing.” One of the problems for these investors is that they want to avoid selling assets at a loss, yet retirees taking distributions have to sell assets in every market. There are three aspects of sequence risk particularly difficult to address, he said. The first is that there’s no way to predict when those poor returns will come. The second is that sequence risk can’t be managed through diversification—it needs its own intentional strategy. And the third is that simple withdrawal strategies—say, taking 5% every year for the historical average return—will fail at some point. “Even if the average return is right over a long period, markets are volatile, and that volatility is going to have an impact on you,” he said. Pfau suggested advisors consider four very different techniques—all of which can accomplish the goal of protecting clients from sequence risk. One is to spend conservatively. The second is to use a flexible spending strategy. The third is to reduce portfolio volatility. And the fourth is to use a buffer asset during periods of poor returns. Spending ConservativelyWhile penny-pinching frugality is no retiree’s idea of a good time, Pfau was adamant that small adjustments can do the trick here. He said that to do this efficiently, retirees can delay Social Security until they are age 70 and build a bridge to cover their spending between the day they retire and the day they start collecting. He shared the hypothetical case of a single client who wants to retire at age 62. The client has $866,000 in retirement assets and an annual spending goal of $60,000, adjusted for inflation. The client’s two income sources would be the retirement assets and Social Security. By taking the Social Security benefit at age 62, this client gets $21,000 a year, and is also pulling $39,000 a year from investments to meet spending goals (a 4.5% withdrawal rate). If the client delays Social Security to 70, they’d get $37,200 and would have to take just $22,800 from investments, a 3.89% withdrawal rate. The trick would be getting through those eight years between the date of retirement at 62 and the date of taking Social Security benefits at 70—and doing so in a way that sidesteps sequence risk. “Their solution’s not going to be to take $60,000 a year straight up from their total return diversified investment portfolio, which would amplify sequence risk,” Pfau said. Instead, the client could find ways around the risk by using something like Treasury Inflation-Protected Securities (TIPS), which are U.S. Treasury bonds that provide inflation adjustments. An eight-year bond ladder would give the client $37,000 per year (adjusted for inflation) to match the missing Social Security benefit until it kicks in when the client turns 70. The result is a portfolio with greater longevity. If the client takes Social Security at age 62 and pulls from his or her investment portfolio to make up the $60,000 over eight years, this would deplete the client’s assets in 19, leaving the client with just the $21,000 from Social Security to live on after that. But when the Social Security benefit is delayed, the client’s assets would deplete after 25 years, and they’d have a much larger benefit at the end. “They still run out their portfolio, but it’s not the same. Not only does the portfolio last seven years longer, but Social Security is going to give them $37,200 a year plus inflation,” Pfau said. “They still get a much higher spending amount for the remainder of their retirement.” Flexible Spending StrategiesThe second approach is the flexible spending strategy. Here, retirees spend more in market upturns and less in market downturns. That way they can avoid selling as many assets at a loss. “This is the complete opposite of the 4% rule idea, which is just about how much you spend in the initial year, and then you adjust that amount for inflation,” Pfau said. That amount is a fixed dollar amount every year (say, $40,000 every year if you have started with a $1 million portfolio), plus the inflation adjustment. Instead, what if a client spent 6% (or 8%) of whatever is in their portfolio for each year, whether the portfolio had gone up or down? “We’re going to call that the constant percentage strategy. And that’s the exact opposite of the constant amount strategy. You spend a constant percentage of what’s left, and you don’t worry about what amount that is,” Pfau said. If the markets do well and the portfolio is up, the client can spend more. If markets do poorly, the client is using the same percentage of a smaller pie and spends less. “You never run out of money with a constant percentage strategy, even with a 10% annual distribution rate,” Pfau said. The only problem, he continued, is that spending amounts can vary dramatically, dropping as much as 60% in a very down market. Because of this, Pfau said he doesn’t advocate a pure constant percentage strategy. Instead, he said flexible spending strategies should be a compromise between the extreme of 4% of the