Kiplinger: Reverse Mortgage Can Help Borrowers ‘Survive Economic Downturns’

Instead of focusing on fears about how an investment portfolio could be affected by swings that may take place in the stock market, it may be better and more fruitful for people determining a financial course of action to instead come up with an investment strategy specifically designed to survive economic downturns. Since such downturns are virtually inevitable, this can build in some resiliency into a plan instead of causing someone to be reactive, and a reverse mortgage can be one such instrument in this kind of plan.

This is according to a column published at Kiplinger, offering advice for those at or near retirement on a possible course of action to take in difficult economic times. The economic impact of the COVID-19 coronavirus pandemic should not be overstated, and a consequence of that impact has been that the retirement plans of many Americans have been affected.

“Of course, those who made a point of planning for a financial slump – knowing it’s never a matter of if, but when a market downturn might happen – are generally in a better position than those who did not,” the article says. “This is why experienced financial advisers repeatedly (maybe even obnoxiously) urge their clients to be prepared for multiple economic crises during what is likely to be a long retirement.”

Decisions on investments should not be made hastily, the piece says, and one such strategy that can help to avoid any decision-making based on fear is by pivoting to a position of preparedness. This is also how a reverse mortgage transaction can potentially enter the fray on behalf of a client, since it’s an instrument that can help to draw on another source of cash that is insulated from investment volatility, the article says.

“[W]hy not design an investment strategy that helps you survive economic downturns, which are inevitable,” the column reads. “Start by covering your basic living expenses with guaranteed sources of retirement income (Social Security, pensions if you’ve earned them, annuities, monthly installments from a reverse mortgage) that won’t drop if the stock market crashes.”

Then, prior to the next investment decision being made, someone can estimate the portion of total retirement income that is risk-protected.

“For many people, it might be 75% or more,” the column reads. “If the protected amount is high, you likely can afford to take a calculated risk and invest in the stock market to generate the money you’ll use to cover discretionary living expenses, such as travel, hobbies and spoiling grandchildren. These are expenses you could reduce if the stock market drops. And you can ride out the ups and downs of the stock market knowing you have a reasonable long-term investment strategy.”

Other tips offered by the piece include not retiring too soon; delaying the claiming of Social Security benefit payments for as long as possible; keeping medical expenses in mind for the future; and not letting the intimidating times get to you when things are looking tough or overwhelming by networking, volunteering or tuning out noise from social media.

Read the full column at Kiplinger.

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