Why a Reverse Mortgage May be ‘Unexpected’ Source of Retirement Cash Flow

Relying on a single source of cash flow in retirement, when a senior is very likely to be reliant on a fixed income, is generally a pitfall that should be avoided for retirees. This is especially true in moments of economic shock, as many are experiencing right now due to the ongoing COVID-19 coronavirus pandemic. Because of that, finding an “unexpected” source of cash flow in retirement could be beneficial in diversifying the sources of cash a retiree has access to, and for many people one such source can be a reverse mortgage.

This is according to columnist Selena Maranjian at The Motley Fool, in a piece which recommends finding as many alternative and appealing sources of cash as possible when in retirement.

“It’s worth setting up multiple income streams for yourself in retirement, as one may grow over time while another shrinks, Maranjian writes. “For example, you might generate needed cash via a part-time job in your early retirement years, giving that up at some point.”

Among five potential sources highlighted in the column, one is a reverse mortgage, allowing a borrower to tap into their home equity.

“Another way that your home can provide unexpected retirement income is via a reverse mortgage, where you borrow money (which you can receive in the form of a monthly income stream) – using your home as collateral,” she writes. “As an added bonus, the payments you receive are often tax-free.”

There are some specific intricacies to a reverse mortgage that a senior should take into account prior to actually taking one out, and being aware of both the potential drawbacks and benefits will go a long way in finding a potentially alternative source of cash flow that is both sustainable, and which can have a positive impact on a senior’s financial situation.

“A reverse mortgage loan generally doesn’t have to be repaid until you’re no longer living in your home – such as when you die or move into a retirement home or care facility,” she writes. “At that time, it’s often paid off by selling the home. For some, that’s a big drawback, as it makes it hard or impossible to leave the home to heirs. For others, the drawbacks are well worth it. Read up on reverse mortgages, if you’re intrigued, and weigh the pros and cons.”

Other potential sources of alternative cash flow sources include dividend-paying stocks; a health savings account (HSA); using your home through renting out some of its space; or even a part-time job to help make ends meet.

Read the column at The Motley Fool.

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