According to banking-industry estimates, roughly 600,000 Americans over the age of 62 currently have a reverse mortgage – essentially, a loan that converts their home equity into a line of credit that doesn’t have to be repaid until they move out, sell the home or die. In most cases, such loans are a sign that the borrower is in dire straits, with no other means to cover expenses. But as Kelly Greene writes this week in The Wall Street Journal, some financial advisers think that even relatively affluent retirees could benefit from reverse mortgages—using them as an income stream that could help them lower their tax bills or avoid ill-timed sales of other investments.
The strategies that Greene describes fall into two main categories. The first involves using reverse mortgages as a cash cushion when stock or bond markets are depressed. Retirees whose income strategies involve regularly scheduled liquidations of parts of their portfolios can take a disproportionate hit if they have to sell during a down market, as many found out the hard way during the 2008-09 crash; falling back on a reverse mortgage could help them maintain a steady cash flow without selling assets at a discount.
The other strategy involves using a reverse mortgage to avoid rising into a higher tax bracket. Withdrawals from traditional IRAs are taxable, but tapping a home for income could allow some retirees to make smaller withdrawals; it could also keep their taxable income below the threshold at which Uncle Sam takes a bite out of Social Security benefits. (One counter-intuitive approach that an adviser describes to Greene: using a reverse mortgage to make payments on one’s mortgage, to avoid withdrawing nest-egg money for that purpose.)
Most large banks no longer offer reverse mortgages, and consumer advocates have accused some brokers in the field of fraud and high-pressure sales tactics; as Greene notes, anyone pursuing these strategies should tread carefully and skeptically.
Source: http://blogs.marketwatch.com/encore/2013/08/19/retirees-get-creative-with-reverse-mortgages/?mod=MW_latest_news
The strategies that Greene describes fall into two main categories. The first involves using reverse mortgages as a cash cushion when stock or bond markets are depressed. Retirees whose income strategies involve regularly scheduled liquidations of parts of their portfolios can take a disproportionate hit if they have to sell during a down market, as many found out the hard way during the 2008-09 crash; falling back on a reverse mortgage could help them maintain a steady cash flow without selling assets at a discount.
The other strategy involves using a reverse mortgage to avoid rising into a higher tax bracket. Withdrawals from traditional IRAs are taxable, but tapping a home for income could allow some retirees to make smaller withdrawals; it could also keep their taxable income below the threshold at which Uncle Sam takes a bite out of Social Security benefits. (One counter-intuitive approach that an adviser describes to Greene: using a reverse mortgage to make payments on one’s mortgage, to avoid withdrawing nest-egg money for that purpose.)
Most large banks no longer offer reverse mortgages, and consumer advocates have accused some brokers in the field of fraud and high-pressure sales tactics; as Greene notes, anyone pursuing these strategies should tread carefully and skeptically.
Source: http://blogs.marketwatch.com/encore/2013/08/19/retirees-get-creative-with-reverse-mortgages/?mod=MW_latest_news
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