There is a growing awareness in this country that we are running full speed toward a retirement funding crisis of unprecedented proportions. Somewhere amidst the collapse of the housing market and the two most recent bear market cycles for stocks, many Americans started awakening to the reality that their retirement dreams are at odds with their financial preparedness. In fact, the National Institute on Retirement Security estimates that the retirement funding shortfall in the country could be as high as $14 trillion.

There are many factors converging that are raising this retirement red flag. First, more Americans today are reaching retirement than at any other time in U.S. history. And those who are now reaching retirement are expected to live longer than ever. Adding to the crisis, today’s retirees were given great flexibility in how (and if) they contributed to a retirement plan and how those funds were invested. As a result, we have millions of American workers nearing or in retirement who are not going to be able to maintain their current standard of living without some radical changes in thinking.

Here are some of the dire facts: A recent AARP article stated that there are 18.3 million households with people aged 45-64 with no retirement savings. According to the Federal Reserve, the average pre-retiree household (with individuals aged 55-64) with a qualified plan has saved just $100,000. The National Institute on Retirement Security reports that two-thirds of working households with individuals between 55-64 years old have set aside less than a year’s worth of their annual income. The result, as stated by the Boston College Center for Retirement Research, is that more than half of all retirees are at risk of not maintaining their standard of living in retirement.

Given the relatively low savings rates today, it should not be any surprise that two-thirds of retirees get most of their retirement income from Social Security. According to the Social Security Administration, the average retiree is only receiving $1,230 in monthly benefits.

Try to imagine being in a position of living off of an income of $1,230 per month, with perhaps an additional savings equal to one year’s income, and needing that money to see you through the rest of your life. That’s the reality for millions of Americans today.

Clearly, there is going to have to be some rethinking about how and when people retire and how they pay for it when they do. Until recently, you would only rarely hear home equity mentioned as part of the retirement planning solution. Home equity accounts for a huge proportion of personal wealth. Yet, for some reason, tapping into home equity has been relegated to “last resort” scenarios, when discussed at all. Fortunately, we are starting to see a greater consensus and acknowledgement that home equity release products are, and should be, part of the conversation.

As reverse mortgage professionals, we know we have a great financial planning product with much more potential than is currently being utilized. But how do we articulate these benefits to those outside of the industry? For starters, we need to know our products inside out. We also need to be comfortable with, and conversant in, the many ways that a reverse mortgage loan can be custom-tailored to solve the needs of individual borrowers. Reverse mortgage practitioners do not need to be financial planners, accountants or attorneys. But we do need to be experts in our product and ready to explain the many ways it can be utilized as part of an overall retirement plan.

Every borrower comes to you with a unique set of needs. Reverse mortgages are a very flexible financial planning tool that can be customized to maximize the benefit to each individual borrower. There really is no limit to the number of ways the HECM program can be adapted for this purpose. What I want to do is give some examples and share some concepts that are being used today in a retirement and income-planning context. This is not anywhere near an exhaustive listing. Rather, these are just a few of the more common ways that a reverse mortgage is used as part of a retirement plan. My hope is that this article will serve as an inspiration and will spur further thinking and conversation around the many ways that a reverse mortgage can be used to help retirees lead a more fulfilling retirement.

Guaranteed Cash Flow for Life

Cash flow is very important for retirees on a fixed retirement income. For the same reason that many retirees invest in an immediate annuity—guaranteed cash flow for life—so, too, will retirees find that a monthly check from their HECM mortgage will provide the same sort of comfort. Remember our average retiree, living off of $1,230 a month from Social Security and a small nest egg? For this individual, adding even a few hundred dollars a month to his or her cash flow will be life-changing. Of course, in many cases, borrowers will have some debts to pay off. Retiring debt also increases cash flow, so the net effect is the same. This is not a new concept, but if we want our product to be taken seriously as a planning tool, we need to talk more about a guaranteed cash flow that one cannot outlive.

HECM Line of Credit

Though still off the highs of a few years back, Equifax and Moody’s both reported that HELOC originations in this country are bouncing back. Meanwhile, the HECM Line of Credit is much more flexible and offers many more benefits to a retiree than a HELOC. HELOCs are callable, they don’t grow, they are not insured and they are not life term. HELOCs also cannot be converted into a term or tenure monthly payment. Though reliable figures on the size of the HELOC market are hard to come by, I think it is safe to say that the market is large and that we should be targeting it. Aside from the potential to tap into the HELOC market, the growing HECM LOC stands on its own as a unique and valuable financial planning tool. As an industry, we should continue to advocate for increased use of this option.

HECM for Purchase

The HECM for Purchase option has been available for five years. However, most real estate agents have not been trained on the program. Meanwhile, Del Webb, the largest builder of retirement homes, released a survey showing that 41 percent of people between 50-60 years of age said they are likely or very likely to move at some point in the future. That works out to more than 1 million older adult households moving each year. Imagine if we could tap into 10 percent of that market. The message in a conversation about retirement and income planning is that the HECM for Purchase product can be used to downsize. In many cases, retirees can relocate into smaller, newer and less expensive homes.

Less money spent on upkeep, taxes and utilities means greater monthly cash flow. One other advantage not to be overlooked: For those who are planning on paying cash for a new home, the HECM for Purchase option frees up some of that money, which can be used to fund longevity. As we are coming to learn, Americans want to age in place. And aging in place is far less expensive than assisted living facilities. From multiple perspectives, the HECM for Purchase program is an ideal retirement planning tool.

In my opinion, the industry has not done a great job of highlighting the many ways that a reverse mortgage can be used as a retirement planning vehicle. My hope and belief is that as more people establish payment plan loans, grow lines of credit, or downsize using a HECM for Purchase loan, these in turn will help raise the product’s profile. We can and should continue to reinforce the product as a legitimate, mainstream retirement income planning tool, rather than as a “last resort” loan option.