Economic uncertainty is a reality for many Americans today, as the impact from turmoil in the banking system and the likelihood of a recession spreads. And, this uncertainty may hit retirees disproportionately harder due to many seniors living on fixed incomes.
But while managing economic uncertainty without a paycheck can be challenging, a reverse mortgage is one of many factors that could play a role in easing the stress, retirement expert Steve Vernon writes in a recent article for Forbes.
Many retirees have their money tied up in investments, and protecting against losses from stock market fluctuations is one goal retirees should accomplish, Vernon said.
One potential fix is to wait to take Social Security benefits until age 70, according to Vernon, as this increases the monthly benefit payment.
Annuities are also an option, but for those who are not interested in annuities, there are other options as well, Vernon notes in the column.
“In that case, they can build a bond ladder that provides regular cash flow for a specified period,” Vernon said. “Since my friend is in her late 70s, she could build a bond or CD ladder that would most likely deliver regular cashflow for the rest of her life. Laddering her investments also helps protect against volatile interest rates.”
The downside to this is a potentially reduced cash flow compared to a low-cost income annuity, according to Vernon.
And, there is another option: a reverse mortgage.
“A more recent strategy could also be a tenure payment from a reverse mortgage, which can deliver a fixed monthly income,” Vernon said. “Another possibility is to use a line-of-credit reverse mortgage to draw upon when the stock market is down, leaving invested assets time to bounce back.”
Vernon has made clear his general hesitancy in regard to reverse mortgage, but has also outlined their potential uses in certain use cases and for certain retirees.
“I do want to educate people to dispel the myths that are out there, and then just consider the real factors [about] whether it will work for you or not,” Vernon said in 2019. “There are people who dismiss them out of hand, and then there are people who think they’re the greatest thing since sliced bread. For me, it’s in between those two.”
