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Better Retirement Income Efficiency with Reverse Mortgages

How prepared are you for your retirement? If you want a comfortable retirement, chances are you’d be racking up your fixed costs which can lead to a higher probability of exposing yourself to sequence risks because you’ll surely be withdrawing more from your remaining assets. By withdrawing from a reverse mortgage instead of your remaining saved assets in the bank whenever the need strikes, you can mitigate some aspects of sequence risk – but only when you know what you’re doing.

Retirement Income Strategies

The best strategy you can use to manage your retirement income is to improve your spending efficiency. You should aim for being able to spend more while still being able to preserve a larger legacy and to do this, you’ll most probably need to know how to use your HECM line of credit. How so? The strategic use of an HECM LOC can help preserve your assets while allowing you to sustain a higher spending level (higher spending level = more comfortable life).

One of the strategies goes against conventional wisdom – that of preserving housing wealth until you pass away or only using it as a last resort. The strategy involves obtaining an HECM reverse mortgage when you’ve just retired and then carefully spending from the available credit. This is supposed to help you markedly improve your ability to sustain your retirement income strategies.

Using your home equity in a strategic manner can help you have a better life as seen from various researches conducted in recent years. Not only that, but the benefits of mitigating sequence risks far outweighs the compounding growth of the loan balance and upfront costs.

How true is this?

The research actually showed that the people who used the alternative strategy (use their home equity for reverse mortgage) actually ended up having a larger net worth as compared to those whose strategy is to go with conventional wisdom (saving the home for last). Yes, even with spending from their home equity, those who went for the reverse mortgage option did end up having a larger financial asset after 30 years of retirement.

Reverse Mortgage and Retirement

Before anything else, this article is not meant to encourage anyone to take a reverse mortgage. This is merely for informational purposes and to let retirees know that they have more options for a better life by being financially savvy. The research we mentioned was published in the Journal of Financial Planning’s February 2012 issue via the article “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income.” In the article, the Sacks brothers (the two brilliant minds) further stated that they simply wanted the elderly to see their homes and their lives’ investments as something more and can be enjoyed if used properly.

Want to know more about how a reverse mortgage work and how you can use it to your advantage? Chat with your Toronto mortgage brokers for an obligation-free initial consultation today! Contact us via phone or via the form on the website and we’ll surely get back to you as soon as we can!

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