Bloomberg: With pressure on retirees, cash draw sources are a key concern

The story at Bloomberg makes mention of a reverse mortgage as a potential path forward for retirees seeking financial stability

The stock market is challenged, inflation has brought higher costs of living and the threat of a new recession is looming. Because of these realities, where seniors get their cash from while either in or preparing for retirement becomes a key concern to manage. This is according to a story published recently at Bloomberg.

“The turmoil is hitting at a time when many Americans already faced a serious shortfall in retirement savings, making it even more difficult to plan for the future,” the story reads. “It’s a reminder that having a strategy to draw down assets later in life can really pay off. If you don’t already have a plan in place to guard against needing to sell stocks in a downturn, here are some ideas to explore.”

One such strategy is for seniors to tap after-tax dollars before cash that has yet to be taxed, with the reasoning being reliant on avoiding an income tax bill on cash that is withdrawn from tax-deferred accounts including Individual Retirement Accounts (IRAs). If cash from an IRA is withdrawn before someone reaches the age of 59-and-a-half, there is a 10% penalty.

Taxes may be difficult to avoid in some scenarios, however, the article explains.

“If you’re selling stocks at a gain, you’ll pay capital gains tax, which tops out at 20% for stocks held more than a year,” it reads. “If you sell at a loss, you can use $3,000 to offset gains you may have taken during the year (and if your loss tops $3,000 you can carry the rest over for future years). If you have no gains, you can offset up to $3,000 of ordinary income to reduce your tax bill.”

Delaying Social Security payments can also be a feasible strategy for some seniors, since waiting until age 70 will yield a beneficiary the biggest inflation-adjusted benefit. Portfolio triage is another concept worthy of exploration, where someone would tap other resources like short-term bonds or other cash alternatives prior to selling stocks, it reads.

Yet another option? Tapping home equity.

“If a big home expense or dental bill hits and you don’t want to liquidate stocks, a home equity line of credit (HELOC) or a reverse mortgage — also called a home equity conversion mortgage, or HECM — is an option,” the column reads.

One financial advisor that spoke to Bloomberg for the story says that a HECM could be a better option than a HELOC in certain circumstances.

“There are upfront costs and the loan balance typically uses a floating interest rate, but the loan never has to be paid back, closing costs can be rolled into the HECM, and it can serve as a source of income throughout retirement,” said George Gagliardi of Coromandel Wealth Management in Lexington, Mass.

Read the story at Bloomberg, subscription required.

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