The Deepest and Most Emotional Concern
It’s no secret that reverse mortgages have had a rough start. I believe the ultimate reason for this is not that reverse mortgages were fundamentally different in the past, and that the HECM of today is “not your grandfather’s reverse mortgage”. Clearly, there have been meaningful updates to the HECM’s features and protections over the years, but it is still conceptually the same thing. And it’s still the most underappreciated financial tool I’ve seen in 19 years of financial planning, so selling it like it’s different now than in years past – a strategy I see a lot in the industry – is not working. I believe the problem is that thinking of debt as a useful tool, which it very much can be, will always challenge people’s intuitions. This is the fight the reverse mortgage industry needs to address. Here’s an example that illustrates what I mean. Imagine a 75-year-old couple planning to celebrate their 50th anniversary with kids and grandkids. They plan a big and memorable trip, and they budget $50,000. They distribute the $50,000 they need from a $500,000 brokerage account to cover the cost. That account is now $450,000. Assuming this trip is affordable for them, does anyone fault the couple for taking this trip to celebrate the legacy they built? I sure hope not. If that’s not a worthy use of investments at that point in life, what is? They take the trip, and everyone has a fantastic time. Over the next decade, the entire family mentions it often with fond memories. They have no regrets. Let’s say over that same decade, the remaining $450k brokerage account doubled (this is 7.2% annualized, which is not unreasonable) to $900,000. Indisputably, they are less wealthy 10 years later to the tune of $100,000, for having gone on the trip. If they’d left the $50,000 in the account instead of celebrating their anniversary, the account would have become worth $1M. Is this clearly true? Yes. Should we always avoid spending money for this reason? Of course not. It’s just something we must consider when we spend money. And this concept is always relevant, not just in retirement. To Spend or Not to Spend… Here’s where it gets interesting. What if they’d borrowed the money instead? Whether it’s with a reverse mortgage or some other loan tool isn’t relevant here – it’s the “loan” that causes our intuitions to scream. In this alternate scenario, they borrow the money and never make a payment on the balance, allowing it to increase. Most loans don’t work this way, but such a thing is possible with a reverse mortgage. And what if that balance over those same 10 years accrues at 7.2% (also reasonable) from $50,000 to $100,000? This $100,000 debt balance makes us all squirm. It just feels different than the first scenario where the trip was paid for by selling the assets, right? It’s debt! There’s interest! The bank took $100,000 of my equity even though I only borrowed $50,000. They’re stealing my home equity! But fundamentally and importantly, from a net wealth perspective, it isn’t different than selling the assets and giving up the future growth. The balance sheet doesn’t care. Yes, by borrowing the money 10 years ago, they now have a $100,000 liability. However, they kept their investments intact, which are $100,000 larger than if they’d sold them 10 years ago. This concept is so fundamental in grasping the value of reverse mortgages that I refer to it as “The Most Important Thing”. On a side note, notice that nothing taxable has happened by borrowing against an asset, whereas selling investments often comes with tax consequences. This concept is precisely why almost all permanent life insurance policies have loan features built right into them. It’s a brilliantly simple way to save significant money on taxes. Let’s get back to our couple who celebrated their 50th wedding anniversary. Let’s examine their financial situation ten years later at age 85. Their $1M home has a reverse mortgage with a $100,000 balance. Is this a problem? An emotional one, probably. Most people would feel like they’d made a terrible mistake by borrowing $50,000 when ten years later they owe $100,000. But as strong as those emotions are likely to be, the problem is only emotional. They have $900,000 of home equity. And the investment portfolio is $100,000 larger (plus the tax savings inherent in this strategy) because they didn’t touch it for the anniversary bash a decade ago. The strategy of borrowing against assets rather than selling them is one that wealthy families and businesses have been using for hundreds of years. Their planners and accountants understand this basic concept and employ it regularly. And, with no small effort from well-meaning financiers, actuaries, and accountants, it’s been made readily available for the masses through reverse mortgages, and we tend to look down our noses at it like it’s somehow beneath us because it’s “debt”. So, in my experience, the strongest headwind HECMs face is the public’s misunderstanding of this fundamental issue. Debt, like fire, is a powerful tool. Yes, it can be destructive if not understood and respected, but it can also add tremendous benefits to our lives. In fact, nearly all the trillions of dollars in wealth that exists as home equity would not be possible without the use of debt somewhere along the way. That’s strong evidence that debt can be, and quite often is, used constructively. In a nutshell, a HECM simply makes home equity liquid. Yes, there’s interest involved, but that’s fundamentally the same thing as selling portions of investments and missing out on the future growth. Again, your balance sheet doesn’t care. It’s how money works and has worked nearly since its inception. We must address this more competently and more regularly. Once financial planners and the public become comfortable with this concept, the HECM then sells itself. It makes an illiquid asset (equity in your residence) liquid, and when it is seen this
3 ways to avoid dipping into Social Security early
The following strategies could help you avoid the early Social Security filing trap. For many Americans, Social Security is a financial lifeline during retirement, but it’s also one that pays out higher amounts if you can wait longer to claim it. Yet despite this built-in incentive, a surprising number of people still file early. According to recent data, more Americans are now claiming Social Security benefits at age 62, the earliest possible age, a decision that can lock in significantly smaller monthly checks for life. Case in point? Your monthly payments increase by about 8% for every year you delay benefits past your full retirement age until age 70. That type of guaranteed return is hard to beat, especially in today’s market, so why do people claim their Social Security benefits early? In many cases, it’s out of necessity. Things like job loss, rising living costs or unexpected emergencies can push retirees-to-be into relying on Social Security sooner than they’d planned, especially if they’re behind on their retirement savings and investing goals. And in today’s uncertain economic climate, with inflation remaining sticky and housing costs still high, those types of pressures aren’t letting up. However, there are ways you can reduce the chances of needing to dip into Social Security earlier than planned. By using these tools, you can buy yourself more time and lock in a larger monthly benefit down the road. Invest in the right annuity One of the most effective ways to bridge the income gap before claiming Social Security is investing in an immediate or deferred income annuity. Think of an annuity as creating your own personal pension. When buying one, you make either a lump sum payment or series of payments to an insurance company, and in return, they guarantee you monthly income for life or a specified period. The beauty of this strategy lies in timing and tax efficiency. If you purchase a deferred annuity in your early 60s, you can set it to begin payments at age 65 or 67, creating a bridge until you’re ready to claim Social Security at 70. This approach is particularly powerful because annuity payments are partially tax-free, as you’re getting back some of your own principal. And, delaying Social Security means your eventual benefits will be significantly higher and potentially push you into a lower tax bracket overall. Note, though, that annuities can differ vastly from one option to the next, so it’s important to do your research and choose the type and payout structure that aligns with your timeline, risk tolerance and other retirement income sources. Working with a financial advisor or annuity expert who understands the nuances of annuity products can help you find the right option to support your Social Security strategy. Supplement your income with a reverse mortgage loan If you’re a homeowner aged 62 or older who has a substantial amount of home equity, a reverse mortgage could give you the financial breathing room you need to delay tapping your Social Security benefits. With a reverse mortgage, you borrow against the equity you’ve built in your home and receive the funds as a lump sum, monthly payments, a line of credit or a combination of these options. Taking out a line of credit via a reverse mortgage is often most strategic because unused credit actually grows over time, giving you an expanding financial safety net. And, unlike traditional home equity loans, your reverse mortgage loan proceeds don’t have to be repaid until you sell the home, move out or die. There are also federal protections in place so you’ll never owe more than the home is worth, even if the market shifts. So, when used strategically, a reverse mortgage can be an efficient way to lock down a retirement income source, especially if your home has appreciated in value and you want to stay in place. That said, reverse mortgages aren’t the right solution for everyone. They come with fees, reduce your home equity and can complicate things for your heirs. But for retirees who want to stay in their homes and avoid filing for Social Security before they’re eligible for the maximum benefits, they’re worth considering, particularly as home prices stay high or continue to climb in many markets. Maximize contributions to your tax-advantaged retirement accounts If you’re 50 or older, you can make catch-up contributions that significantly boost your retirement savings. The strategy involves front-loading these accounts in your late 50s and early 60s, and then using systematic withdrawals to fund your lifestyle while your Social Security benefits grow. While maximizing contributions to 401(k)s, IRAs, and health savings accounts (HSAs) in your final working years requires advanced planning, it can be incredibly powerful, as you can use these funds strategically in early retirement. For example, you might withdraw from traditional IRAs and 401(k)s first while paying ordinary income tax and then transition to Roth accounts before finally claiming maximized Social Security benefits. This creates a tax-efficient withdrawal sequence that can extend your money significantly. For 2025, you can contribute up to $31,000 to a 401(k) and $8,000 to an IRA when including catch-up contributions at or after age 50. HSAs are particularly valuable because they’re triple tax-advantaged and can be used for any purpose after age 65, though it’s worth noting that non-medical withdrawals are taxed as ordinary income. The bottom line Delaying Social Security isn’t always easy, and while it may be tempting to claim Social Security as soon as you’re eligible, especially when money is tight or retirement feels just out of reach, doing so often means settling for smaller monthly checks that can stretch thin over time. Fortunately, with some smart planning, you can give yourself the flexibility to wait, whether that means investing in the right annuity, tapping into home equity through a reverse mortgage or focusing heavily on your tax-advantaged retirement accounts. By utilizing one or more of these strategies, you’ll be in a stronger position to make the most of your benefits and your retirement. Angelica Leicht
4 reverse mortgage questions seniors should be asking themselves now.
News last week that inflation rose in June, following a previous increase in May, was likely not the development millions of Americans were hoping for. In recent years, inflation has spiked the cost of numerous items, making it more difficult to make ends meet. This has been an even greater problem for seniors, many of whom are reliant upon limited funds to pay their bills. With Social Security and retirement funds finite, then, many of these seniors may be contemplating alternative funding sources right now. A reverse mortgage may be at the top of their list. With a reverse mortgage, homeowners age 62 and older can receive payments from their accumulated home equity. Either via a lump sum or monthly payments drawn from the home, funds here will only need to be repaid in the event of a sale of the home or if the homeowner dies. So it’s naturally tempting to explore this unique funding source in the economic climate of 2025. Before getting started now, though, seniors would be well-served by preparing the answers to a series of important reverse mortgage questions. Below, we’ll analyze four timely questions worth considering. 4 reverse mortgage questions seniors should be asking themselves now Here are four reverse mortgage questions seniors may want to start thinking about the answers to right now: Is it the smartest way to borrow home equity right now? There are myriad ways to borrow home equity now, ranging from reverse mortgages to home equity loans to home equity lines of credit (HELOCs). Some homeowners may even benefit from a cash-out refinance. And with interest rates on home equity loans and HELOCs much lower than personal loans and credit cards, now may be the ideal time to borrow equity that way instead of using a reverse mortgage. Start, then, by exploring all of your potential home equity borrowing options to determine if a reverse mortgage is truly the smartest way to borrow your hard-earned equity now. Can I adequately get by with Social Security and other funds? Concerns over recent Social Security overpayments, clawbacks and insolvency are all pertinent right now and it’s understandable if homeowners feel like they need an additional funding source, of which a reverse mortgage can easily provide. But your home is likely your most prized financial asset and borrowing from it should always be done judiciously, especially now. So, ask yourself if you can adequately get by with Social Security and your other retirement funds instead. If you can’t, a reverse mortgage makes sense. But if you’re just looking for an alternative income stream that you don’t truly need, it may not. What are my financial goals for my beneficiaries? If you were planning to pass your paid-off home to your beneficiaries after your death, then a reverse mortgage can alter those plans. Since funds here will need to be repaid once the homeowner has died, there may be little or nothing left to pass on to beneficiaries, many of whom may be depending on that money in today’s inflationary and high-rate climate. Re-evaluate your financial goals for your beneficiaries, then, before pursuing your reverse mortgage options. You may find that there are ways to protect a portion of your assets for your beneficiaries while still securing a new income stream for yourself simultaneously. Which payment type makes the most sense? If you ultimately do settle on a reverse mortgage as your optimal recourse now, then you’ll need to determine how you want to get paid. With a reverse mortgage, you can receive funds in a lump sum, via monthly payments and potentially even as a revolving credit line similar to a credit card or HELOC. Which payment strategy makes the most sense for your needs and goals? This question will be specific to the homeowner in question, but it’s worth contemplating the answer now so you’re better prepared when it comes time to complete the formal paperwork. The bottom line A reverse mortgage could be the precise financial tool seniors require in today’s unpredictable but still difficult financial landscape. By taking the time to think through the answers to these four questions, these seniors can better determine if this is truly the right move for their financial situation now or if they’re better served by exploring alternatives or, in some instances, keeping their current financial strategy the same. By Matt Richardson
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
3 ways a reverse mortgage can supplement your Social Security
Retirement planning has become increasingly complex as Americans face longer lifespans, rising healthcare costs and concerns about Social Security’s long-term sustainability. While Social Security remains a cornerstone of retirement income for most Americans, the average monthly benefit, which is currently $1,976, often falls short of covering all living expenses. As a result, many retirees find themselves in a financial squeeze, including those who are “house rich but cash poor” – meaning those who are sitting on a significant amount of home equity but struggling with monthly cash flow. For decades, the conventional wisdom regarding homeownership was simple: Pay off your mortgage before retirement and live debt-free in your golden years. However, this approach can leave retirees with substantial wealth tied up in their homes while facing monthly budget constraints, especially in today’s inflationary environment, where the prices of essentials are growing. And, the irony of that is stark. You might own a $400,000 home outright but still worry about affording groceries or prescription medications on a fixed income. This is where reverse mortgages enter the conversation as a potential game-changer. With a reverse mortgage, retirees have the option to convert their home’s equity into usable income while continuing to live in the home. For homeowners aged 62 and older, this can bridge the gap between Social Security benefits and the lifestyle they want to maintain in retirement. But how does that actually work? 3 ways a reverse mortgage can supplement your Social Security If your finances are stretched thin during retirement, here’s how opting for a reverse mortgage can help supplement the money from your Social Security benefits: By turning your home equity into a monthly income stream One option retirees have when taking out a reverse mortgage is to receive regular monthly payments rather than a lump sum loan or a line of credit they can draw from. By opting for monthly payments, retirees are essentially able to turn part of their home equity into a steady cash flow, much like creating a second paycheck with their home’s equity. For retirees who are relying solely on Social Security, this can provide much-needed breathing room in the budget. For example, you might use the extra income to cover everyday expenses like food, gas and utility bills or even to enjoy small luxuries like travel or hobbies that make retirement more fulfilling. And, unlike a traditional mortgage or home equity loan, you won’t be required to make monthly repayments on the money you receive from your reverse mortgage loan. As long as you stay in your home, keep up with property taxes and insurance, and maintain the property, repayment isn’t due until you move out, sell the home or die. By allowing you to access cash for health care and unexpected costs Major medical issues tend to become more common and more expensive as we age, and as a result, medical expenses are one of the biggest financial challenges retirees face. While Medicare and Medicare supplemental insurance can help offset those expenses, it doesn’t cover everything, and when you’re reliant primarily on your Social Security benefits, all it takes is an unexpected hospital visit or prescription drug bill to throw off your budget. A reverse mortgage can help by giving you access to a lump sum of cash or a line of credit you can tap when needed for these types of costs. This can be especially valuable for covering out-of-pocket long-term care costs, in-home care or home modifications, like installing a stairlift or walk-in shower, that make it easier to age in place. Having these funds available could also help you avoid draining your retirement savings or turning to high-rate credit cards when surprise medical expenses pop up. By allowing you to delay Social Security and claim bigger benefits If you haven’t yet started collecting Social Security, using a reverse mortgage could allow you to delay claiming your benefits. For every year you postpone Social Security past your full retirement age (up to age 70), your benefits increase by approximately 8%. So, if you’re 62 or older and considering early retirement, you could use reverse mortgage payments to cover living expenses while letting your Social Security benefits grow. This strategy can result in significantly higher lifetime Social Security payments, potentially allowing you to collect 30% to 40% more than if you claimed your benefits at 62. This strategy isn’t for everyone, of course, but it could make sense if you want to lock in a higher Social Security payment for the rest of your life — and you’re in good health and expect to live well into your 80s or beyond. The bottom line A reverse mortgage can be a powerful way to supplement Social Security income and give your retirement budget a little more flexibility. Whether you’re looking to cover essential expenses, pay for medical care or want to strategically delay claiming Social Security, tapping into your home equity might help you live more comfortably in retirement. But like any financial decision, it’s crucial to understand how a reverse mortgage works and make sure this strategy aligns with your goals before making any decision. Done thoughtfully, though, a reverse mortgage could help you make the most of both your home and your hard-earned benefits.
3 ways seniors can supplement their Social Security now
There are multiple ways to supplement Social Security income that seniors may want to investigate right now. Recent news that Social Security’s insolvency could hit a year earlier than initially expected wasn’t exactly welcome by seniors reliant upon the funds the service provides. Combined with ongoing issues surrounding Social Security overpayments and the potential for those disbursed funds to be clawed back, seniors may find themselves in a precarious financial position this July. Retirement savings and pensions, already increasingly rare, only go so far to help make ends meet. And if the safety net Social Security has been providing is starting to deteriorate, these seniors may find themselves looking for alternative supplemental income. Fortunately, there are multiple avenues worth exploring, some of which are easily overlooked at first glance but which can still provide valuable and consistent income. Still, with financial resources limited, it makes sense for seniors to take a strategic and thorough approach before taking their next step. That starts with exploring the three sources below that could supplement their Social Security funds now. 3 ways seniors can supplement their Social Security now Here are three ways seniors could start boosting their monthly income right now: Reverse mortgages A reverse mortgage is one of the better and more effective ways to supplement your Social Security now, as the funds come directly from the house you’ve paid into. Only available for homeowners who are age 62 or older, reverse mortgages provide monthly payments to owners, deducted from their home equity. Those payments will only need to be paid back, however, when the home is sold or in the event of the death of the homeowner. Still, if you’re looking for a way to secure reliable income and don’t want to have to borrow to get it (like you would with a home equity loan), a reverse mortgage could make sense for you now. Annuities If you need reliable income, it may feel counterintuitive to spend a large portion of the money you have saved on anything extra right now. But an annuity could be worth it. In exchange for providing a lump sum of money to an annuity provider, you’ll then receive monthly payments for life in return. The higher an annuity you purchase, the greater your payments will be. But the real benefit here lies in the reliability and security an annuity provides, as it can be counted on regardless of what happens in the economy and long past your initial purchase amount has been exhausted. Personal loans Arguably the least favorable of the three options on this list, a personal loan can still help fill the financial gap that’s been recently uncovered by Social Security shortfalls. This will require taking on additional debt and interest rates here, around 12%, are markedly higher than they were at the start of the decade. But you don’t necessarily have to use all of the personal loan funds you’re provided, as they can often serve as an emergency fund where needed. And with alternatives like credit cards accompanied by interest rates just under a recent record high, this can be one of the less expensive ways to supplement your income right now. The bottom line Concerns over Social Security shortfalls may not be resolved overnight but by exploring their alternative funding sources, seniors can better determine their next steps. Reverse mortgages, annuities and personal loans can all help, perhaps to a considerable degree. So take the time to research all three right now and remember that you don’t necessarily need a large amount of money to help as just enough financing to cover any gaps left over by Social Security will likely suffice. Story by Matt Richardson
Reverse Mortgage Pros and Cons: A Balanced View
Considering a reverse mortgage? Understand the pros and cons to make the right decision for your future. Reverse Mortgage Pros and Cons It’s important to note a reverse mortgage is still a loan, and the balance will eventually be due. Key Takeaways Reverse mortgages are specialized home equity loans for homeowners age 62 and up. A reverse mortgage gets its name because instead of the homeowner making payments to a lender, the lender makes payments to the homeowner. Homeowners who take out a reverse mortgage loan can stay in their homes and don’t have to make payments on the loan until they permanently leave the home – whether they sell it, move out or pass away. Reverse Mortgage Pros Increased Security in Retirement Reverse mortgages can trade equity for cash for homeowners who have more home equity than cash. “The most typical use is to pay off existing mortgages and other debt to alleviate the burden of having to make monthly payments on those existing loans,” says Steve Irwin, president of the National Reverse Mortgage Lenders Association. “A reverse mortgage can provide supplementary cash flows or create a standby cash reserve to potentially cover health care costs, major purchases, lifestyle enhancements, in-home care or in-home modifications so those borrowers can effectively age in place.” Maximum Flexibility for Many Needs You can choose to take your loan proceeds as a lump sum, monthly payments for a specific term, monthly payments for as long as you remain in the home or as a line of credit to protect you from financial emergencies. You can even combine these options for a truly custom loan. Stay in Your Home Your home may be the most valuable thing you own and your biggest source of wealth. But not everyone wants to sell their home and move in order to cash out. With a reverse mortgage, you can stay in your home as long as you like, and you may even be able to use reverse mortgage income to pay for in-home care instead of moving to a facility. Tax-Free Income Reverse mortgage payouts are not considered income by the IRS. So even if it feels like you’re getting income each month, you won’t be taxed on it. No Minimum Credit Score or Income Requirement Underwriting guidelines for reverse mortgages are not nearly as strict as those for traditional mortgages or home equity loans. Mainly, reverse mortgage lenders want to be sure that you’ll pay your property taxes and homeowners insurance premiums and that you won’t incur tax liens on the home. Even shaky borrowers may qualify for a reverse mortgage by allowing some of their loan proceeds to be held back and used for property-related expenses. Nonrecourse Loan Reverse borrowers can choose to receive monthly payments for life (or as long as they live in their home). And they’re not required to make payments on the mortgage balance, so it grows over time. But no matter how much they owe, borrowers cannot be required to repay more than the property is worth. Neither can their heirs. There are several ways you or your heirs can pay off a reverse mortgage balance: What this means is you won’t outlive your reverse mortgage income if you receive payments for life. Cons of Reverse Mortgages Balance Increases Over Time “The balance of a reverse mortgage increases over time as interest and fees accumulate,” says Valerie Saunders, president of the National Association of Mortgage Brokers. “This growing debt can significantly reduce the homeowner’s equity in the property in some cases. As the loan balance increases, the amount of equity left in the home decreases, potentially leaving less for heirs. Heirs may need to sell the home to repay the loan.” More Expensive Like other mortgages, reverse mortgages come with loan fees and closing costs. However, the charges for reverse mortgages are generally higher than those of traditional home loans – in part because they require mortgage insurance and because their balance grows over time. Can Impact Eligibility for Low-Income Programs Programs like Medicaid and Supplemental Security Income require your income and/or savings to be under certain thresholds. You might accidentally exceed those limits if you take your loans proceeds the wrong way and push your bank account balances too high. Foreclosure Is Possible Reverse mortgage foreclosure may be on the table. If you leave home for more than 12 months for health or lifestyle reasons, your lender may decide that you’re not using the home as a primary residence and accelerate your loan – meaning you have to pay it off and can no longer draw income from it. Your lender may also start foreclosure proceedings if you fail to pay property taxes, keep up your homeowners insurance or maintain the property in good condition. When Is a Reverse Mortgage a Good Idea? Reverse mortgages aren’t for everyone, but they can be useful in the right circumstances. A reverse mortgage might make sense if you: Before you apply for a reverse mortgage, make sure you understand the costs and have considered alternatives. A U.S. Department of Housing and Urban Development counselor can offer insight and help you make sense of a reverse mortgage’s terms. Also consider discussing your plans with any family members who may be affected by your decision. When Is a Reverse Mortgage Wrong for You? Up-front reverse mortgage costs are not small, so you want to avoid borrowing with one if it’s not a good long-term solution. A reverse mortgage might be a bad idea if: If you decide to move closer to your grandchildren, leave the country or go into assisted living, you’ll have to repay the reverse mortgage. You might be better off renting your home out while you’re gone and using the income to fund your travel or facility fees. Reverse Mortgage Alternatives If you’re not sure a reverse mortgage is right for you, consider these alternatives: If you decide to proceed with a reverse mortgage, carefully review the loan terms, including payout options and repayment rules. Plan
Home Equity: A Bird in the Hand is Better than…
A New Conversation About Home Equity Since the onset of the COVID-19 pandemic, home values in the U.S. have surged. From 2020 to 2024, rural home prices rose by 23%, outpacing the 18% rise seen in urban areas. This shift was fueled by a “race for space” as families sought out larger homes and greener surroundings. According to the Case-Shiller National Home Price Index, overall U.S. home prices have jumped approximately 47.1% since early 2020—eclipsing even the housing booms of the 1990s and the early 2000s before the Great Recession. As a result, most homeowners have accumulated significant equity. In fact, as of Q4 2024, Americans aged 62 and older collectively held nearly $13.95 trillion in home equity. Yet, for many older adults, this has led to an uncomfortable financial position: being house-rich, but cash-poor. Others may find themselves blindsided by a financial crisis in the coming years and have little recourse without tapping into their retirement portfolio, which could reduce their monthly income. In this column, we’ll explore the upside and the often-overlooked drawbacks of rapidly appreciating home values—and how these factors are shaping financial conversations with older homeowners. The Hidden Costs of Appreciation Rising home equity may seem like a blessing, but it often comes with hidden burdens. Chief among them are increased property taxes and soaring homeowners’ insurance premiums. Take California, for example. State Farm recently imposed a 17% rate hike on homeowners’ insurance, with an additional 11% increase pending. If approved, this would result in a staggering 28% increase. For seniors on a fixed income, these mounting expenses can put pressure on budgets and force difficult decisions. Some older homeowners who own their home outright now have property tax bills that exceed their previous mortgage payments. Home Equity is Just a Number until… Home equity is not a liquid asset—it’s just a number on paper unless accessed through a refinance, home sale, or reverse mortgage. Worse yet, it can shrink overnight. In March 2025, home prices across the 20 largest U.S. metro areas dipped by 0.12%, marking the first monthly decline in over two years. While minor, this drop highlights the reality that real estate markets are cyclical. Seniors counting on their equity as a safety net may find themselves in trouble if home values decline or if they can’t qualify for a loan when they finally need access to that wealth. Tapping Equity Without the Burden One potential solution for older homeowners is a Home Equity Conversion Mortgage (HECM). As reverse mortgage professionals know, a HECM converts a portion of a borrower’s home value into cash or a growing line of credit, without required monthly mortgage payments. Of course, HECMs do have significant upfront costs, including a 2% initial mortgage insurance premium (MIP) based on the home’s appraised value, capped by the FHA’s lending limit. For a home valued at $1,209,750 or more, that cost alone can exceed $24,000. Even so, a HECM can offer significant long-term value, especially through its line of credit feature, which grows each month the funds remain unused, at a rate tied to the current note rate plus 0.5% annual MIP. The Cost of Waiting: One Example Consider this scenario: a 72-year-old homeowner with a fully paid-off home that’s worth $600,000 today. If their home value dropped by 25% in five years, that home would be worth $450,000: that’s a $150,000 ‘loss’ in equity that may never be recovered in that homeowner’s lifetime. But if that same homeowner had secured a HECM when the home was worth $600,000, they might have locked in access to a $200,000 line of credit. Over time, that unused credit line would continue to grow, regardless of future home price drops. Yes, there are costs. Let’s assume the initial loan balance (UPB) was $16,500. At an average 5% interest rate, plus the 0.5% annual MIP, in five years the loan balance would grow to about $22,000 a total increase of just over $5,200. They in essence preserved access to $150,000 in equity that they otherwise may have lost while securing a line of credit that has grown to over $250,000 over five years. The HECM: Flexibility Over Fragility Being house-rich doesn’t always make one financially secure, especially for older adults facing rising costs, uncertain markets, and limited income. While reverse mortgages aren’t for everyone, tools like the HECM can offer a powerful way to preserve access to home equity without sacrificing ownership or taking on new monthly mortgage payments. In the end, the real question isn’t whether a home is valuable, but whether its value can be used when it matters most. By: Shannon Hicks