Taking out a reverse mortgage could help increase retirees’ annual income by 30% when done in conjunction with a few other retirement planning steps, according to a recent Wall Street Journal article.
The strategy comes at a time when retirement fears plague the nation, as reports indicate that few Americans truly are prepared for retirement.
But when it comes to tapping home equity for retirement planning purposes, doing so could put an extra $7,800 to $9,700 in retirees’ pockets each year, Jonathan Clements writes in the recent WSJ article.
In a hypothetical scenario, Clements projects the annual retirement income of a couple — a woman and a man who are both 62 years old — who own a $300,000 home with no mortgage and have $500,000 in savings.
Using a 4% withdrawal rate, the couple’s $500,000 would generate $20,000 in first-year retirement income, and their Social Security benefits would add another $22,000, totaling an annual retirement income of roughly $42,000.
However, if the couple would have delayed Social Security benefits, spending down their $500,000 nest egg to make up for the years they weren’t receiving benefits, purchased longevity insurance and taken out a reverse mortgage, the couple could have accumulated more than $54,000 a year.
In other words, they would have approximately 30% more income than if they simply claimed Social Security at 62 and relied on the 4% portfolio withdrawal rate.
“Moreover, the strategy is arguably less risky, because they’re locking in various income streams that will keep paying no matter how long they live,” Clements writes.
To read the full Wall Street Journal article, click here.