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 Asset Builder, 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.

by Jason Oliva, reversemortgagedaily.com