MortgageReverse

Reverse Mortgage Line of Credit: A ‘Powerful’ Retirement Tool

The line of credit feature on a reverse mortgage has garnered considerable attention lately for its usage as part of a coordinated retirement planning strategy. And for many people, a reverse mortgage line of credit can be ‘the most powerful tool,’ according to a recent The Dallas Morning News column.

A reverse mortgage line of credit can be especially valuable for retirees who own a nice house and don’t have any debts, but aren’t satisfied with their savings as they approach retirement, says syndicated columnist Scott Burns, who is also a principal of the Plano, Texas-based investment firm AssetBuilder, Inc.

“Indeed, if you are looking for a big lever, a reverse mortgage line of credit will be the most powerful tool available for many people,” Burns writes in The Dallas Morning News column.

With the help of ESPlanner, a financial planning software for individuals and financial planners, Burns provides several scenarios of fictitious couples and how a reverse mortgage line of credit can bolster their consumption in retirement.

In one scenario, an already retired couple, ages 76 and 77, has a home worth $443,000; savings of $150,000; and $2,000 per month in Social Security benefits. If they decide to “do nothing,” Burns says they will have $30,300 a year in constant purchasing power for the rest of their lives. 

“But if they take out a reverse mortgage line of credit, their lifetime consumption will rise to $45,700 a year in constant purchasing power,” Burns writes. “That’s a 50.8 percent increase in the money they can spend on daily living.”

In another scenario, Burns notes a couple that recently lost their jobs before they retired. The couple, aged 65 and 67, has $2,000 per month in Social Security benefits; only $70,000 in savings; and own a home worth $200,000.

“If they do nothing, their lifetime consumption will be $20,000 a year in constant purchasing power,” Burns writes. “But if they take out a reverse mortgage line of credit, their lifetime annual consumption will be $25,900 a year. That’s a 29.5 percent increase.”

In a previous column, Burns wrote about what he calls “the thinness of wealth,” specifically about how 80% of all households have more money in home equity than they do in their combined financial assets and retirement accounts.

“Think about that—80 percent,” Burns writes. “It tells us that whether it is a reverse mortgage, downsizing, right-sizing, renting or living in a trailer, our shelter decisions will make the difference between retirement squeeze and retirement comfort.”

Read The Dallas Morning News column.

Written by Jason Oliva

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