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Expenses in Retirement: What to Expect and How to Prepare 

Retirement marks a significant milestone in life, offering a chance to enjoy the fruits of your labor, pursue long-awaited dreams, and spend quality time with loved ones. However, as you transition from a regular paycheck to relying on savings and other sources such as Social Security benefits, it’s important to have a clear understanding of the expenses you’ll encounter. 

In this article, we will explore what expenses you can expect in retirement and how to financially prepare for this next chapter of life. The goal is to better prepare for the financial realities of retirement and ensure that you can enjoy this new phase of life with greater peace of mind. 

Expenses in Retirement: What to Expect 

Housing remains one of the largest expenses for retirees. According to Fidelity, housing costs can account for up to 42 percent of a retiree’s budget. This includes mortgage or rent payments, property taxes, and maintenance and repairs.  

These expenses can strain your retirement budget if you haven’t set aside a contingency fund for such events. Financial experts recommend maintaining an emergency fund specifically for home repairs and modifications to mitigate these unexpected costs. 

Many retirees opt to downsize or relocate to more affordable areas to manage these costs better.  

The ongoing responsibility of maintenance and repairs can be unpredictable. According to a report by the Society of Actuaries, major home repairs and upgrades were the most common shock that retirees say they had to face.  

Major repairs such as a roof replacement, plumbing issues, or HVAC system failures can be costly and often arise without warning.  

According to an analysis by Zillow and Thumbtack, when you add in all of the “hidden costs” that come with owning a home, the homeowners spend $14,000 per year on average. This includes costs such as mortgage payments, property taxes, insurance, HOA fees (where applicable), utilities, and home maintenance.  

When it comes to maintenance and upkeep, the average cost annually is $6,413, according to the same analysis. 

Below is a breakdown of the average costs of some of the most common repairs:   

Common Home Repairs Average Cost 
Roof Repairs   $150 to $8,000 
Roof Replacement $5,855 to $13,073 
Plumbing Repairs $175 to $450 
Exterior Paint  $3,000 
Water Heater Replacement $1,300 
Foundation Repairs $5,018 
HVAC Repairs $130 to $2,000 

The Society of Actuaries recommends that retirees “Evaluate whether current housing is affordable based on anticipated finances.” 

If you find that your housing expenses are eating up too much of your budget or you don’t have enough to cover needed repairs and upgrades, one option to consider is a reverse mortgage loan. A reverse mortgage will eliminate your monthly mortgage payment and allow you to access your home equity in the form of cash.   

Sources: 

https://www.thisoldhouse.com/roofing/reviews/cost-of-roof-repair

https://www.angi.com/articles/how-much-does-roof-replacement-cost.htm

https://www.angi.com/articles/how-much-will-plumbing-repair-cost.htm

https://www.forbes.com/home-improvement/painting/painting-house-exterior-cost

https://www.angi.com/articles/how-much-does-foundation-repair-cost.htm

https://www.angi.com/articles/how-much-does-water-heater-installation-cost.htm

https://www.angi.com/articles/how-much-hvac-repair-cost.htm

Healthcare is often the most significant and unpredictable expense in retirement.  

A 65-year-old couple will need approximately $315,000 to cover healthcare costs throughout their retirement, according to Fidelity’s 2023 Retiree Health Care Cost Estimate. For an individual, the estimated cost is $157,500.  

Fidelity’s estimate is based on an individual enrolled in traditional Medicare, which helps pay for costs such as doctor appointments, hospital stays, and other services. It also assumed the individual is enrolled in a Medicare prescription drug plan, also known as Medicare Part D.  

Fidelity says that means that the expected costs are “above and beyond what Medicare covers.” 

T. Rowe Price says that while the average cost for medical expenses throughout retirement sounds like a big number, “half of retirees with traditional Medicare (Parts A and B), a prescription drug plan (Part D), and Medigap will spend less than $900 per year on out‑of‑pocket expenses.” 

According to its findings, “Only 1 in 10 will likely spend more than $4,200 per year on out‑of‑pocket expenses. Also, it’s not necessarily true that someone spending $4,200 in out‑of‑pocket expenses this year will keep doing so for the rest of his or her life.” 

If you require in-home care, the average cost nationwide ranges from $1,950 per month to $5,720 depending on how many hours are required, according to A Place for Mom.  

To offset healthcare costs in retirement, Fidelity recommends that retirees consider a health savings account (HSA) because of the tax advantages it offers.  

Even though dental costs are a medical expense, it deserves its own section because major dental expenses are the second most common financial shock that retirees report, right after major home repairs, according to the Society of Actuaries report on Shocks and the Unexpected: An Important Factor in Retirement.  

According to the report, 24 percent of retirees reported major dental expenses as one of the financial shocks they experienced.  

“Dental expenses are frequently unexpected and uninsured,” the Society of Actuaries explains.  

According to the U.S. Centers for Medicare and Medicaid Services (CMS), “In most cases, Medicare doesn’t cover dental services like routine cleanings, fillings, tooth extractions, or items like dentures.” 

The exception is when dental treatment is required as part of another medical procedure, such as if an oral exam is required before a heart valve replacement, CMS explains.  

However, some Medicare Advantage plans, also known as Medicare Part C, will include a dental plan, but Medicare Supplement plans do not.  

If your plan does not include dental coverage, it can be purchased separately. The plans vary from those that include basic dental care to coverage for major care. Most health insurance companies that offer Medicare plans, also offer dental plans.  

Everyday expenses such as groceries, dining out, utilities, and transportation continue to be a part of your budget in retirement.  

The cost of food can vary widely. For instance, a comfortable retirement budget in Florida includes about $130 per week for groceries and $80 for dining out, according to Explore55Plus

While some costs may decrease, like commuting expenses, others might remain stable or even increase depending on your lifestyle choices.  

While inflation is starting to moderate, prices for everyday goods are still at an all-time high. For example, food prices have increased by more than 25 percent since the last election in November 2020, according to Yahoo. And gas prices have already risen by 14 percent in 2024, ABC News is reporting.  

These rising prices only serve to put additional pressure on the wallets of retirees, which can be tough, especially for those living on a fixed income.  

Keeping a close eye on these variable expenses and adjusting your budget accordingly can help maintain financial stability. 

If you’re a homeowner, tapping into your equity with a reverse mortgage in the form of monthly installments may help add a buffer to your monthly budget.  

Illustration of sun rising

Retirement is a time to enjoy hobbies, travel, and social activities. Allocating a portion of your budget to entertainment and leisure can enhance your quality of life.  

Whether it’s traveling the world, pursuing new hobbies, or spending time with family and friends, planning for these activities ensures you can enjoy your retirement to the fullest.  

For a more active lifestyle, increasing your retirement budget by about 6 percent is recommended to cover these costs, according to Fidelity.  

If your budget doesn’t allow for such costs, choose activities that won’t take as much of a financial toll such as volunteering, spending time with family, taking advantage of local events, joining a book club, or gardening.  

Be mindful of balancing these discretionary expenses with your overall financial plan to avoid overspending. 

Illustration of a family of 3, with a toddler in between their parents

Children may still need help long after they leave the home, and retirees might find themselves in a position where they need to provide financial support to family members, which can be unexpected and burdensome.  

This can include helping adult children with major expenses such as education costs, housing, or even supporting grandchildren.   

According to a Bankrate survey, 68 percent of parents with adult children step in with financial help when their children are in a pinch. To do so, the parents have had to dip into their retirement savings, emergency savings, and put off paying off debt or a specific financial goal. 

These family obligations can arise unexpectedly and require careful financial planning to ensure they don’t jeopardize your financial security. 

Financial emergencies, such as identity theft, significant investment losses, or the loss of a second income due to the passing of a spouse can also occur during retirement. These situations often require immediate financial resources and can disrupt your planned budget.  

Ensuring you have adequate insurance coverage and emergency savings in place can help mitigate the impact of these emergencies.  

It’s also wise to work with a financial advisor to develop a strategy for dealing with such contingencies. 

How to Prepare for Expenses in Retirement  

Planning for retirement is crucial to ensure a comfortable and financially secure future. With proper preparation, you can manage your expenses effectively and enjoy your golden years without financial stress. Here are some steps you can take to prepare for retirement expenses. 

Start by calculating your current monthly and annual expenses. Include housing, utilities, groceries, transportation, healthcare, insurance, entertainment, and any other regular costs. Use this as a baseline to project your future expenses. 

Consider how your expenses will change in retirement. Some costs may decrease, like commuting and work-related expenses, while others, such as healthcare and leisure activities, may increase. Factor in inflation and potential lifestyle changes.  

Estimate your Social Security benefits. You can use the Social Security Administration’s online tools to get an accurate estimate based on your earnings record and retirement age. 

Calculate the expected income from your retirement accounts, such as 401(k)s, IRAs, and pensions. Consider factors like withdrawal rates, required minimum distributions (RMDs), and tax implications. 

Include any other potential income sources, such as rental properties, part-time work, or investments.  

Create a detailed retirement budget by comparing your projected expenses with your estimated income. Identify any gaps and plan how to address them. 

Categorize your expenses into needs (essential costs like housing and healthcare) and wants (discretionary spending like travel and hobbies). Prioritize your spending to ensure essentials are covered first.  

Here are some free retirement budgeting tools that can help you get started:  

Establish an emergency fund with 6-12 months’ worth of living expenses to cover unexpected costs. This fund provides a financial cushion and prevents you from dipping into retirement savings. 

Ensure the emergency fund is easily accessible, ideally in a high-yield savings account or a money market account. 

Another option if you don’t have the means to establish an emergency fund is to tap into your home equity through a reverse mortgage. A reverse mortgage loan gives borrowers several options for accessing their equity.  

One of those options is a line of credit, which works a lot like a home equity line of credit (HELOC), in which borrowers can access the funds on an as-needed basis. One benefit of the reverse mortgage credit line is that unused funds can grow.  

Familiarize yourself with Medicare options, including Parts A, B, C, and D, and supplemental plans (Medigap).  

“Those who purchased a Medicare supplement in addition to Medicare usually had their health care bills well covered so health care costs were usually not an issue,” according to the Society of Actuaries.  

Estimate your healthcare costs based on premiums, copays, and out-of-pocket expenses. 

In addition, you may want to consider purchasing long-term care insurance to cover potential expenses for assisted living, nursing homes, or in-home care. 

Look for ways to improve your monthly cash flow by prioritizing paying off high-interest debt, such as credit cards and personal loans, before retiring. Reducing debt lowers your monthly expenses and increases your financial security. 

If you have a mortgage, explore options such as refinancing to lower your payments or paying off the mortgage if financially feasible. 

If you are heading into retirement with high-interest credit card debt and a mortgage, it may be worth exploring how a reverse mortgage loan, available only to homeowners 62 or older, may help. 

When you take out a reverse mortgage, the first thing it does is pay off your current traditional mortgage and the monthly mortgage payments that go with it. Of course, borrowers are still responsible for paying the property taxes, homeowners’ insurance, and HOA fees, if applicable.  

For the remaining equity, you have the option to receive your funds as a lump sum, monthly payments, a line of credit, or a combination of those methods. Choose the one that will work best for your situation.  

To learn more about how a reverse mortgage may help, check out our Complete Guide to Reverse Mortgages.  

 While it’s impossible to predict every expense that might arise during retirement, being aware of potential expected costs and preparing for them can help ensure financial confidence going into retirement.  

Establishing an emergency fund and maintaining flexibility in your budget are crucial steps in managing these surprises.  

By planning ahead and seeking professional advice, you can navigate these challenges and enjoy a more secure and stress-free retirement. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.   

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.  

Men’s Health Month: How to Stay Healthy After 60

June marks Men’s Health Month, a time dedicated to raising awareness about the importance of health and wellness for men of all ages.

For men over 60, maintaining a healthy lifestyle is especially important as it can significantly impact overall well-being and longevity.

How do you stay healthy after 60? What healthy habits should you prioritize at this stage in life?

We talked to five health and wellness experts to get their best tips and strategies for men over 60 looking to optimize their physical and mental health.

Whether you’re approaching this milestone or already there, it’s never too late to make positive changes for your health.

Let’s dive into the steps you can take to stay healthy and thriving after 60.

what to eat

It should be no surprise that we’re starting with diet. Maintaining a healthy diet is crucial for men over 60, as it can significantly impact overall well-being and longevity.  

Dr. Kevin Huffman, a Doctor of Osteopathic Medicine, board-certified bariatric physician, and CEO and Founder of Ambari Nutrition, highlights the broader benefits of a balanced diet.  

“One of the best things you can do for your health is eat a balanced diet full of fruits and vegetables, as well as whole grains,” Huffman said. “These give your body essential vitamins, minerals, and fiber, which can help ward off all types of chronic disease, including heart disease and diabetes.” 

And a healthy diet not only helps improve heart health but may also impact brain health. 

Huffman says that “research published in the Journal of the American Geriatrics Society (2022) suggests that a heart-healthy diet is associated with lower risk of cognitive decline.” 

Protein is another essential component of a healthy diet for older men. Evan Tunis, President of Florida Healthcare Insurance, recommends prioritizing protein intake to maintain muscle mass and strength, which can decline with age.  

“Protein is essential for maintaining muscle mass and strength, which can decline as men age. The recommended daily intake for men over 60 is about 56 grams of protein per day,” Tunis said.  

“This can be achieved through incorporating lean meats, poultry, fish, eggs, beans, nuts, and dairy products into the diet,” he added. 

In addition to food, Tunis says that it’s also important to stay hydrated. 

“As men age, their sense of thirst may decrease, leading to dehydration. It’s important for men over 60 to stay hydrated by drinking water throughout the day,” Tunis explained.  

what food to avoid

Maintaining good health is not just about what we eat but also about the foods we should avoid. 

“While the occasional transgression is fine, there are foods that are best kept as occasional treats,” Dr. Huffman explained.  

“Sugary drinks and refined carbohydrates should be kept to a minimum as they are not only calorific but also cause blood sugar spikes and can lead to a form of hunger that encourages further consumption,” he said. 

These foods can contribute to serious health issues such as hypertension, diabetes, and other chronic conditions. Processed foods often contain unhealthy trans fats and additives that can exacerbate health problems, making it essential to read labels and choose whole, natural foods whenever possible. 

“Alcohol intake should also be kept in moderation,” Huffman added. 

While moderate alcohol consumption may be acceptable for some, excessive drinking can lead to liver damage, increased blood pressure, and other health complications.  

preventative screenings

“Regular medical screenings are essential for men over 60,” emphasizes Dr. Peter Hinz, a chiropractor in Franklin, Tennessee.  

These screenings can help identify problems before they become serious, allowing for more effective management and treatment. 

“I recommend annual physical exams, blood pressure checks, and cholesterol screenings. Screenings for colon cancer, prostate cancer, and diabetes should also be on the list,” says Dr. Hinz.  

These routine checks are crucial for monitoring and maintaining overall health. High blood pressure and cholesterol can lead to heart disease, while early detection of cancers like the colon and prostate can significantly improve treatment outcomes. 

“Eye exams and hearing tests help detect age-related issues early, and bone density scans can check for osteoporosis,” Dr. Hinz adds.  

As men age, their risk for conditions like macular degeneration, glaucoma, hearing loss, and osteoporosis increases. Regular screenings can help manage these conditions and maintain quality of life. 

Dr. Kevin Huffman said that it’s important not to overlook discussions about erectile dysfunction (ED) or emotional issues.  

“Do not be shy of discussing erectile problems or emotional issues. These need to be examined and addressed early for the most favorable outcomes,” Dr. Huffman adds. 

According to Johns Hopkins Medicine, one of the first signs of coronary heart disease is ED. It has also been linked to diabetes.  

physical activity

Maintaining physical activity and improving physical strength is critical for men over 60 to support overall health and quality of life.  

Sean Klein, a certified personal trainer and Co-founder of the workout app Programme, says that “there are two essential components that should make up a physical training routine for men over 60. These are activities which maintain and/or increase muscle mass and strength and maintain or increase VO2 max.” 

As we age, our muscle mass naturally declines in a process known as sarcopenia, making resistance training crucial for men over 60.  

“Through resistance training, we can help to offset this muscle loss,” Klein explains. “There is a correlation between muscle mass and all-cause mortality, so it really is important for physical health.”  

Incorporating exercises such as weightlifting, resistance band workouts, and bodyweight exercises can significantly help maintain muscle mass and strength, reducing the risk of falls and improving overall mobility. 

The second vital component of a fitness routine for older men is maintaining VO2 max. 

VO2 max measures how much and how efficient your body is at using oxygen, according to WebMD

“This is the maximal amount of oxygen we can consume in one minute,” Klein explains. “This also diminishes as we age, but again can be offset with appropriate training.” 

Klein recommends two types of exercises that help improve VO2 max.  

“Training to improve VO2 max can be done through many different forms of cardiovascular modalities, the main two being high-intensity interval training and low-intensity steady state, also known respectively as HIIT and LISS,” Klein says.  

“HIIT involves multiple bouts of high-intensity outputs, and LISS inversely involves continuous training at a low intensity. Both are exceptional for health, and ideally, both should be built into your training routine at any age, but especially over the age of 60 if you are taking your physical health seriously,” Klein adds. 

mental health

“Prioritizing mental health is just as important as physical health,” explained Dr. Peter Hinz.  

According to WebMD, mental health issues affect one in four older adults. Those who are over 60 typically face very emotional transition periods, such as relocating, dealing with the death of a spouse, and physical challenges. Those over 60 also face social isolation and loneliness. 

The most common mental health issues of adults over 60 are depression, dementia, and anxiety, according to data from the World Health Organization.  

“Staying socially active by participating in community activities or clubs can combat loneliness and depression,” Hinz said. 

WHO recommends enhancing financial security and reducing income inequality as a key strategy to promote well-being and prevent stress among older adults.  

If financial security is a concern for you, one option available to those who are 62 and older is a reverse mortgage loan. A reverse mortgage is a unique financial product that eliminates monthly mortgage payments while also giving homeowners access to their home equity in the form of cash. Click here to learn more about how a reverse mortgage works.  

alternative therapies

Brook Paulin, CEO and Founder of Biohacker Supply, recommends exploring some alternative therapies. One in particular that she thinks would benefit men over 60 is red light therapy.  

“Red light therapy is a potent anti-aging modality for men over 60,” Paulin says. “This ingenious photobiomodulation technique rejuvenates cellular function by stimulating ATP production and reducing oxidative stress — root drivers of age-related degeneration.” 

Red light therapy is a popular skincare technology because it is supposed to help reduce wrinkles and stimulate collagen production. 

“But far beyond just superficial skincare benefits, red light’s regenerative properties permeate deep into musculoskeletal tissues. Strategically bathing areas like joints, muscles, and connective tissues in therapeutic wavelengths catalyzes accelerated healing and enhanced mobility,” Paulin explains.  

She says that many of her older clients who have used red-light therapy consistently have reported “diminished aches and improved flexibility.” 

Paulin says that red light therapy may also have some hormonal benefits.   

“Research indicates red light may increase testosterone production while optimizing adipokine profiles associated with healthy metabolic function,” she explained. “By recalibrating hormone imbalances and restoring insulin sensitivity, red light counteracts menacing age-onset conditions like low-T, obesity, and systemic inflammation.” 

And it’s also one of the more convenient and non-invasive alternative therapies available.  

sunrise

For men over 60, maintaining a healthy diet is not just about living longer — it’s about living better.  

By adopting a balanced diet rich in fruits, vegetables, whole grains, and lean proteins, men can significantly reduce their risk of chronic diseases such as heart disease, diabetes, and cognitive decline.

Staying hydrated and avoiding processed foods further enhances overall health, helping to prevent complications that can diminish the quality of life. 

Engaging regularly in physical activity contributes to better muscle maintenance, greater strength, and improved mobility, allowing men to stay active and independent as they age. 

And prioritizing mental health will help combat depression and anxiety. 

If you need assistance getting started, get help through a registered dietician for best health practices, a personal trainer to help get you set up on a workout program, and/or a counselor to help you navigate difficult transitions or mental health challenges you may be facing.   

Living longer brings the opportunity to enjoy more of life, and with that, the need for additional financial resources. A key concern of retirees is ensuring their retirement income supports them throughout their retirement years.  

If you are looking for others way to supplement your retirement income, find out how a reverse mortgage may help by grabbing our free Reverse Mortgage Guide.  

This information is provided for educational and informational purposes only and does not constitute providing medical advice or professional services. The information provided should not be used for diagnosing or treating a health problem or disease, and those seeking personal medical advice should consult with a licensed physician. Always seek the advice of your doctor or other qualified health provider regarding a medical condition. Never disregard professional medical advice or delay in seeking it because of something you have read in this article. No physician-patient relationship is created by this article or its use. Neither Mutual of Omaha Mortgage, nor its employees, nor any contributor to this article, makes any representations, express or implied, with respect to the information provided herein or to its use.

Planning for Retirement? Learn About These 8 Reverse Mortgage Benefits

Many Americans eagerly anticipate retirement as a time to enjoy leisurely activities, pursue passions, and relax after years of work. Yet, for many seniors, finding financial stability in retirement remains a pressing concern.  

Social security, pensions, and savings may not always cover rising living costs, healthcare expenses, and unforeseen financial emergencies.  

Fortunately, there is a financial solution that might be the flexible solution retired homeowners are looking for — the reverse mortgage. 

 A reverse mortgage loan is not just a financial product; it’s a strategic tool that allows senior homeowners to unlock their home’s equity, turning it into cash without the burden of monthly mortgage payments.  

This arrangement can provide a cushion of financial security and peace of mind, ensuring that retirees can enjoy their later years with less financial worry. It offers the freedom to maintain a comfortable lifestyle, with the flexibility to use the funds in various beneficial ways. 

This article explores the numerous reverse mortgage benefits, detailing how they work, who qualifies, and why they might be the lifeline many are searching for in retirement. Whether it’s staying in your cherished home, managing healthcare costs, or even helping grandchildren with college tuition, a reverse mortgage could be the key to unlocking a stress-free retirement.  

Let’s dive into the many benefits this unique lending option has to offer.  

A reverse mortgage, also known as a home equity conversion mortgage (HECM), is a specialized home loan available to homeowners aged 62 or older, allowing them to convert a portion of their home equity into cash.  

While there are other types of reverse mortgages, such as the jumbo reverse mortgage and the reverse mortgage for purchase, this is the most common type. 

Unlike a traditional home loan, which requires monthly payments to the lender, a reverse mortgage defers repayments until the borrower moves out, sells the house, or passes away.  

This financial tool is primarily designed for older homeowners who want to supplement their income without leaving their homes.    

To qualify for a reverse mortgage, at least one homeowner must be at least 62 years old, have equity built up in the home, reside in the home as their primary residence, and the home must be in good condition. In addition, they need to continue to meet their property tax, homeowners insurance, and maintenance obligations.  

Typically, the amount of money you can borrow depends on your age, the appraised home’s value, and current interest rates. 

Once a homeowner obtains a reverse mortgage, the first thing it will do is pay off the current forward mortgage, if there still is one. For the remaining equity, reverse mortgage borrowers have the option to receive their reverse mortgage payments in a variety of ways: one lump sum payment, monthly payments, a line of credit, or a combination of these methods.  

Stay in Your Home 

One of the most appealing benefits of a reverse mortgage is the ability to remain in your home. For many seniors, their home is not just their largest asset but also a cherished space filled with memories.  

One of the ways a reverse mortgage makes it easier for homeowners to stay in their homes is by eliminating monthly mortgage payments, which typically make up the largest monthly expense for most homeowners.  

A reverse mortgage ensures that they can continue living in their home as long as they comply with the loan terms.  

This can also provide emotional and psychological stability, which is crucial as one ages. 

No Monthly Mortgage Payments* 

While one of the perks of being able to tap into your home equity with a reverse mortgage is having the bank give you money that you can use to supplement your income or for whatever need you have, a reverse mortgage also offers the perk of eliminating monthly mortgage payments.  

This aspect of reverse mortgages can dramatically ease the financial burden on retirees, who often live on fixed incomes.  

Eliminating a monthly mortgage payment can free up funds for other essential expenses, such as healthcare, emergencies, and daily living costs. 

Supplement Retirement Income 

Retirees may find that their retirement income—whether from savings, a pension, or Social Security benefits—is insufficient to cover their daily expenses or maintain their lifestyle.  

A reverse mortgage provides a steady stream of income that can supplement these sources.  

For those looking to supplement their retirement income with a reverse mortgage, opting to receive reverse mortgage proceeds as monthly installments may be a good solution.  

This additional cash flow can make a significant difference in the quality of life during retirement years. 

Help in a Market Decline 

During economic downturns or when investments perform poorly, a reverse mortgage can be a financial lifeline.  

Instead of having to sell investments at a loss during a market decline, seniors can use a reverse mortgage to provide the funds needed until the market recovers.  

“Reverse mortgages can help sidestep this risk by providing an alternative source of retirement spending after market declines, creating more opportunity for the portfolio to recover,” says retirement expert Dr. Wade Pfau.  

This strategy can protect their long-term investment portfolio and provide peace of mind. 

Flexible Disbursement 

Reverse mortgages are highly flexible in how funds can be disbursed to the borrower.  

You can choose to receive payments as a lump sum, regular monthly payments, or a line of credit that you can tap into as needed. Revere mortgage borrowers can also combine these methods, making it customizable for a variety of financial needs.  

For example, if you are looking for a large sum of money to cover home renovations or another major expense, a lump sum may be ideal. For those looking for additional funds to cover monthly expenses, monthly installments may be the right choice. And for those who want additional money on hand for a rainy-day fund or for unexpected expenses, a line of credit may make a good choice.  

Flexible Uses 

The funds from a reverse mortgage can be used for virtually any purpose. There are no rules about how the money received must be used or must not be used.  

Whether it’s funding a grandchild’s education, covering medical expenses, or even taking a dream vacation, there are no restrictions on how the money can be spent.  

This unrestricted access gives homeowners the ability to make financial decisions that best suit their personal needs. 

Tax-Free Funds 

One significant advantage of a reverse mortgage is that the money received is tax-free. Reverse mortgage funds aren’t classified as taxable income because the money is considered loan proceeds and not income.  

This tax-free nature of the disbursements can provide more usable income when compared to taxable alternatives. 

That being said, a reverse mortgage, just like a traditional mortgage, comes with interest and fees that get added to the loan balance.  

Protections 

The federal government backs reverse mortgages through the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD).  

This means that HECM loans come with several protections for borrowers. Here are some of the protections you can expect with a reverse mortgage:  

  • Non-Recourse Loan: Reverse mortgages are “non-recourse” loans, which means if the loan amount exceeds the value of your home at the time of repayment, neither the borrower nor their heirs are responsible for paying the difference, according to HUD
  • Counseling Requirement: Before obtaining a reverse mortgage, borrowers are required to undergo counseling with a HUD-approved counseling agency. This ensures that borrowers fully understand the risks and responsibilities associated with a reverse mortgage. 
  • Non-Borrowing Spouse Protections: In some cases, a spouse may be deemed a “non-borrowing spouse.” But the good news is that non-borrowing spouses are protected from being forced out of their homes if the borrowing spouse passes away or moves out for other reasons, provided certain conditions are met. 
  • Cap on Interest Rates: For adjustable-rate reverse mortgages, there are caps on how much the interest rate can change per period and over the life of the loan, providing some predictability and protection against rapidly increasing rates, according to HUD

Reverse mortgages can offer various benefits for the right borrower. From staying in your home without monthly mortgage payments to supplementing retirement income, these tools provide a myriad of financial solutions that can help seniors maintain their independence and financial security.  

However, prospective borrowers should consult with their financial advisors to understand the implications of a reverse mortgage and ensure it is the right strategy for their situation. It is recommended that potential borrowers involve family members who may be affected in the conversation. 

If you are ready to move forward, get started today by filling out this form or finding a reverse mortgage specialist in your area.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

The Complete Guide to Reverse Mortgages

Homeowners who are near or in retirement often find themselves in need of additional funds. Whether they’re looking to increase their monthly income, cover a large project such as a home renovation, or have a line of credit they can draw from in case of emergency, accessing extra cash can be a challenge. 

It’s not uncommon for older homeowners to have a large amount of their net worth tied up in the equity in their home.    

This money can be accessed through products such as a Home Equity Loan or Home Equity Line of Credit (HELOC), but both options will need to be paid back in the form of monthly installments.   

Retired homeowners may not be able to afford that or simply don’t want the additional costs in retirement.   

A reverse mortgage is another option for accessing equity in a home. Not only does it eliminate any monthly mortgage payments, but it also gives homeowners a handful of options for how they would like to receive the cash.   

This complete guide to reverse mortgages will walk you through everything you need to know about this unique financial tool.   

Chapter 1: What is a Reverse Mortgage?

In this section, we cover all the basics of a reverse mortgage. This includes what it is, how it works, the rules and requirements, and more.

reverse mortgage basics

What is a Reverse Mortgage?  

A reverse mortgage loan is a safe and secure financial product that allows homeowners who are 62 years of age or older a way to access the equity in their homes without taking on additional monthly payments.  

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). We offer this type of reverse mortgage here at Mutual of Omaha Mortgage.  

The HECM reverse mortgage is a loan just like a traditional mortgage, but instead of making monthly payments to a lender, it allows seniors to receive payments from the lender in the form of a lump sum, a line of credit, monthly payments, or a combination of the three. 

The variety of ways that reverse mortgage funds can be disbursed means that it can help homeowners in various situations and with various needs. It is not a one-size-fits-all solution.  

For example, it may provide a way for seniors to afford to retire in place, but it may also simply allow seniors to have additional financial freedom in retirement by providing them with funds to pay off credit card debt or make home renovations without having to tap into savings.    

Let’s learn more about how a reverse mortgage loan works.

How Does a Reverse Mortgage Work?

A reverse mortgage loan converts a portion of your home’s equity into funds paid directly to you.

The amount of money you receive is based on the age of the youngest borrower, the market value of the home, and current interest rates. The total amount that borrowers receive from a HECM reverse mortgage typically ranges from 40 percent to 60 percent of the home’s value.

The FHA puts a lending limit each year on how much lenders can loan to reverse mortgage borrowers. The lending limit for 2024 is $1,149,825.

The older the homeowner, the higher the value of the home, and the lower the interest rate, the more you will be able to receive. Our reverse mortgage advisors will be able to provide you with more specifics about your individual situation.

The loan amount is also able to increase over time if your loan has a variable interest rate. The variable rate also gives you more options for how you may receive your money. Some of those options include:

  • Monthly payments as long as at least one of the borrowers continues to live in the home
  • Monthly payments for a fixed number of months
  • A line of credit
  • A line of credit combined with monthly payments
  • A lump sum disbursement combined with monthly payments
  • A lump sum disbursement combined with a line of credit
  • By comparison, if you choose a fixed interest rate, you will only be able to receive your funds in a one-time lump sum payment.

Mutual of Omaha Mortgage also offers a jumbo loan called the HomeSafe Reverse Mortgage that allows homeowners to access significantly more equity, for those who may qualify for more.

Homeowners are still required to pay property taxes, homeowner’s insurance, any homeowners association (HOA) fees (if you have them), and any costs necessary for maintaining the home.

Reverse Mortgage Requirements and Rules  

Not everyone can take out a reverse mortgage. Before applying, you should know about some basic reverse mortgage requirements.   

In order to obtain and keep a reverse mortgage, the borrowers must agree to the following obligations:  

  • To keep the home in good repair (as defined by the Federal Housing Administration, or FHA)  
  • To pay property taxes   
  • To pay homeowner’s insurance  
  • To live in the property as their primary residence  

Compared to a traditional mortgage, income, employment, or good credit are not required to be approved for a reverse mortgage.   

How to Qualify for a Reverse Mortgage   

In order to qualify for a reverse mortgage, borrowers must meet some very specific requirements:  

  • At least one of the borrowers must be 62 years old or older 
  • The property must be their primary residence 
  • The home must have substantial equity built up 
  • The property must be a single-family residence, an FHA-approved condominium, a townhouse, a manufactured home that meets certain requirements, or a two to four-unit property in which the borrowers occupy one of the units.   
  • The home needs to be in good condition 
  • The borrowers will need to show that they can continue to pay the property taxes, homeowners’ insurance, HOA fees, and maintenance costs.  

If you have questions about whether you qualify, the best way to get all your questions answered is to talk to one of our reverse mortgage specialists by going here 

Reverse Mortgage Types  

There are three types of reverse mortgages: 

  • Home Equity Conversion Mortgage (HECM). The HECM reverse mortgage is the most common type of reverse mortgage offered by lenders. HECM loans are also federally insured mortgages. These reverse mortgage loans have an FHA lending limit of $1,149,825 for 2024. 
  • Proprietary Reverse Mortgage. Many lenders will also offer proprietary reverse mortgages for those who have homes that are worth more than the FHA lending limit. These are typically jumbo loans that go by unique names. At Mutual of Omaha Mortgage, we offer the HomeSafe Reverse Mortgage, which allows homeowners to borrow up to $4 million.  
  • Single-Purpose Reverse Mortgage. Homeowners obtain single-purpose reverse mortgages through state and local governments. In some cases, these loans are also offered through non-profit organizations. They may only be used for a single purpose that is lender-approved. Typically, a single-purpose reverse mortgage is used toward property taxes, home insurance premiums, home repairs, and renovations.  

Most reverse mortgage lenders will offer the following reverse mortgages:   

  • HECM Reverse Mortgage. This is the standard reverse mortgage product that is insured by the FHA. It pays off the current mortgage and gives homeowners cash as monthly payments, a lump sum, and/or a line of credit.   
  • HECM for Purchase. A HECM for Purchase allows homeowners to use a reverse mortgage to buy a new home. This is a good option for homeowners who are looking to relocate and want the benefits of a reverse mortgage.   
  • Jumbo Reverse Mortgage. If homeowners want or need more cash than what they are able to obtain through a traditional reverse mortgage, another option is a jumbo reverse mortgage.  

An FHA-insured loan protects borrowers if the lender goes out of business or if the home’s value is not enough to cover the loan when it comes time to sell.   

Get Your Free Reverse Mortgage Guidebook Here!

Chapter 2: How to Use a Reverse Mortgage

Now that you know the reverse mortgage basics, find out how much you might be able to get from a reverse mortgage, and what you can use a reverse mortgage for. 

how a reverse mortgage can be used

How Much Money Do You Get from a Reverse Mortgage?  

The reverse mortgage loan amount that you can expect to receive is based on several factors, including:   

  • The home value is based on a current home appraisal   
  • Current interest rates  
  • The age of the borrower(s)  
  • The type of reverse mortgage  

The FHA puts a lending limit on reverse mortgages. The current lending limit for an FHA-insured loan in 2024 is $1,149,825.   

You can borrow beyond the FHA limit through lenders that offer jumbo loans that are not FHA-insured. At Mutual of Omaha Mortgage, this is known as our HomeSafe Reverse Mortgage.  

A HECM calculator may provide homeowners with more specific numbers of what they might receive from a reverse mortgage.     

Want to learn more? Click here to find out more about how much you can get from a reverse mortgage.

What Can a Reverse Mortgage be Used For?  

How the money from a HECM loan is used is entirely up to the homeowner. However, here are some common ways homeowners have used their reverse mortgage proceeds:   

  • Pay off debt  
  • Pay monthly bills  
  • Pay medical bills  
  • Create a financial safety net  
  • Make home renovations  
  • Help loved ones  
  • Extend retirement assets  
  • Take vacations  

Click here to learn more about what reverse mortgage funds can be used for.

Reverse Mortgage for Purchase 

Qualifying homeowners may also be able to use a reverse mortgage to purchase a new home. This is known as a reverse mortgage for purchase or HECM for purchase. 

While some older homeowners want to retire in place, there is also a large share that wants to relocate in retirement. They may want to upsize, downsize, move to be closer to family, or move to a warmer climate. A HECM for purchase gives them that option without having to take on monthly mortgage payments. 

This is how it works: 

  • The homeowners will sell their current home. 
  • The money they receive from the sale of that home will be used to make a large down payment (typically 50% to 60%) on the new home. 
  • The remaining balance will be financed with a reverse mortgage. 

Can You Use a Reverse Mortgage as a Retirement Tool? 

A reverse mortgage used to be viewed as a financial product to turn to as a last resort, but that is no longer the case. Retirement planning experts are now recommending that older homeowners start looking at adding a reverse mortgage to their retirement portfolios earlier rather than later. 

Here are some reasons to consider adding a reverse mortgage to your retirement portfolio: 

  • Retirees are able to increase their cash flow by eliminating monthly mortgage payments. 
  • A reverse mortgage can serve as a source of funds during an economic downturn so that retirees aren’t accessing their retirement investments when they are at a low. This is especially important now as we are experiencing record inflation.
  • If reverse mortgage borrowers opt to receive their funds as a line of credit, the money can be used to cover unplanned expenses. 

Want to learn more? Click here to learn more about whether or not a reverse mortgage is a good idea.

Chapter 3: Reverse Mortgage Costs and Fees 

Learn all about the costs and fees you can expect to pay as part of a reverse mortgage. 

reverse mortgage costs and fees

What are the Costs, Rates, and Fees of a Reverse Mortgage?  

Interest Rates  

There are two types of interest rates homeowners can expect with a reverse mortgage:   

  • Fixed-rate mortgage. With a fixed-rate reverse mortgage, the interest rate will be the same throughout the life of the loan.   
  • A variable-rate or adjustable-rate mortgage. A variable rate reverse mortgage has a change of up to 2% that happens periodically. However, the rate can never go up more than 5% over the starting rate due to a lifetime cap.   

If a borrower decides to receive the funds from the loan as a lump sum payment, the loan will have a fixed rate.   

If the money is received as monthly payments or a line of credit or some sort of combination of a lump sum, monthly payments, and a line of credit, the loan will have an adjustable rate.   

Reverse mortgage interest rates work differently compared to traditional mortgages. For example, with a regular mortgage, your credit score will impact your interest rate. This is not the case with a reverse mortgage. With a reverse mortgage, your credit score neither affects your interest rate nor your ability to qualify for a reverse mortgage.   

Costs and Fees  

Just like traditional mortgages, reverse mortgages do come with costs and fees. These will vary with each lender, but these are the costs and fees homeowners can expect to pay:   

  • Origination fees. These fees are paid to the lender, and they cannot be more than $6,000.  
  • Closing costs. These costs are typically paid to third-party vendors and include fees for the following purposes: appraisals, recording fees, title searches, credit checks, surveys, mortgage taxes, inspections, and others.   
  • Mortgage insurance premiums. These are charged when the loan is initiated and annually throughout the life of the loan. These charges go to the FHA, and they ensure that the homeowners receive their loan advances. It also helps make up the difference at the end of the loan to make sure the homeowner does not have to pay more than the property value. The annual premium is 0.5% of the loan’s balance.  
  • Servicing fees. These fees are charged by the lender for servicing the loan. These fees cover the costs of sending monthly statements, distributing funds, and ensuring that the loan requirements are met throughout the life of the loan.   

The fees and costs can be paid upfront or can be covered by the loan.   

Homeowners must also continue to pay the costs necessary for maintaining the home, since the title remains in the homeowner’s name. These include property taxes, insurance, utilities, repairs, and anything else necessary to maintain the home.   

Click here to learn more about reverse mortgage costs and fees.

Reverse Mortgage Terms  

Traditional mortgages typically come with 15-to-30-year terms in which borrowers must repay the loan. With a reverse mortgage, there is no set term length.  

Reverse mortgage loans do not have to be repaid until the homeowner leaves the home permanently, whether it’s because he or she decides to sell the home, or the homeowner becomes deceased. 

Get Your Free Reverse Mortgage Guidebook Here!

Chapter 4: Reverse Mortgage Application Process 

Applying for a reverse mortgage is a unique process. In this section, we will cover all the steps you can expect when applying for a reverse mortgage. 

reverse mortgage application process

What is the Reverse Mortgage Application Process?   

The first thing to note about the reverse mortgage application process is that it is not fast. Obtaining the cash from a reverse mortgage can take up to 45 days.   

While the exact process may vary from lender to lender, here’s a general rundown of the reverse mortgage loan process that a borrower can expect: 

  • Step 1: Talk to a reverse mortgage advisor. In this step, homeowners will connect with a reverse mortgage professional for an initial discussion. They may receive an estimate of what they can get with a reverse mortgage. 
  • Step 2: Meet with an independent counselor. This is a required step in order to officially file an application. Homeowners must meet with a third-party HUD-approved counselor who is not associated with the mortgage lender. 
  • Step 3: Submit the application. In this step, the homeowners will complete the application and sign disclosures with the assistance of the reverse mortgage broker. 
  • Step 4: Home appraisal. The home must undergo an appraisal to assess the condition and value of the home. 
  • Step 5: Processing. In this step, the homeowners wait while the loan file is submitted for processing and underwriting. The reverse mortgage broker may come back to the homeowner with questions from the underwriter. 
  • Step 6: Closing. Once the documents are processed and approved, a closing date will be scheduled to sign all necessary documents. 
  • Step 7: Receive funds. After three business days, the funds will be released in the manner the homeowner chose when filing the application: a lump sum, a line of credit, monthly payments, or a combination of the three. 

Right to Cancel  

Homeowners can cancel a reverse mortgage at any time during the application and processing phase without facing penalties. This includes three business days after the closing documents are signed.   

In order to cancel a reverse mortgage, it must be done in writing. The written request must also be sent by certified mail, and a return receipt needs to be requested.   

After the cancellation request is made, the lender must return any money paid by the homeowners within 20 days.   

It is recommended that homeowners keep all relevant documents and communications in case the cancellation is contested. 

Click here to learn more about how to apply for a reverse mortgage.

Chapter 5: Reverse Mortgage Pros and Cons 

In this section, we dive into the pros and cons of a reverse mortgage. Understanding the pros and cons is also key to knowing if the reverse mortgage product is the right choice for you. 

reverse mortgage pros and cons

What are the Pros and Cons of a Reverse Mortgage?  

Before applying for a reverse mortgage, homeowners should thoroughly weigh the pros and cons. Below are some of the pros and cons of a reverse mortgage.  

Pros 

  • Homeowners can retire in place 
  • Homeowners are able to increase their cash flow in retirement 
  • Homeowners are able to eliminate mortgage payments 
  • Homeowners have several options for receiving funds 
  • The reverse mortgage funds can be used at the homeowner’s discretion 
  • Homeowners are able to receive other sources of income in addition to the reverse mortgage 

Cons 

  • Homeowners are unable to leave their homes free and clear to their heirs 
  • Homeowners must continue to pay taxes, insurance, and maintain the home 
  • Reverse mortgages typically come with high fees and closing costs 
  • The balance of the loan increases over time 
Get Your Free Reverse Mortgage Guidebook Here!

Chapter 6: Reverse Mortgage FAQs 

In this section, we cover some common questions homeowners have about reverse mortgages. 

reverse mortgage questions

Are Reverse Mortgage Payments Taxable?  

The money received from a reverse mortgage is not taxable. Because the money received from a reverse mortgage is a “loan advance” and not income, it is not taxed.  

How Do You Pay Off a Reverse Mortgage?  

Unlike traditional mortgages, a reverse mortgage is not paid by making monthly mortgage payments.   

Most reverse mortgages are paid off when the home is sold. The money made from selling the home is used to pay the loan balance.   

Borrowers are allowed to make early payments without penalty if they want, but it is not required.   

Who Owns the Home? 

One common misconception about reverse mortgages is that the bank owns the home, but this is not the case.  

The title continues to remain in the name of the borrower. In addition, the borrowers are still responsible for maintaining the home, paying the property taxes, paying for homeowners insurance, and any other costs such as utility expenses. 

What Happens to a Reverse Mortgage When You Die?  

One of the most common questions about a reverse mortgage is what happens to the reverse mortgage after a homeowner dies. If a homeowner with a reverse mortgage dies before selling the home, the heirs of the estate have two options:  

  • Option One: They can sell the home, repay the loan balance, and keep any of the remaining equity.  
  • Option Two: They can keep the home by repaying the loan, possibly by refinancing it into a new mortgage.  

Because of the reverse mortgage’s non-recourse feature, the homeowners or their heirs will never owe more than 95% of the home’s appraised value, even if the balance of the loan exceeds this amount. This means that if the home appraises for less than the loan balance, 95% of that amount is all that needs to be repaid.  

Are Heirs Responsible for Reverse Mortgage Debt?  

The children or heirs of homeowners with a reverse mortgage are still able to inherit the house in the same way they would with a house with a traditional mortgage.   

The decision that heirs will have to make is how to pay off the reverse mortgage loan. Typically, heirs will sell the home to pay back the lender. Any leftover money will go to the homeowner’s estate.   

Because reverse mortgages have what is known as “non-recourse protection,” heirs will never have to pay the lender more than the value of the home.   

Is a Reverse Mortgage a Scam?  

While a reverse mortgage is a legitimate financial product, unfortunately, there are scammers out there trying to take advantage of eligible homeowners.   

First, it’s good to be aware of some of the common scams out there that homeowners may run into:   

  • VA Scams. Some scammers try to pose as workers for the Department of Veterans Affairs (VA). One way to know this is a scam is that the VA does not offer reverse mortgages. Some mortgage lenders offer special discounts for military members, but this does not mean the VA has any connection with the lender or the loan.   
  • Contractor Scams. Homeowners should avoid contractors who try to pressure them into getting a reverse mortgage to pay for home repairs.   
  • High-pressure sales tactics. Reverse mortgage brokers are there to educate and answer any questions that homeowners may have about HECM loans. Homeowners should avoid brokers that make them feel pressured into taking out the loan as well as how to spend the money, especially if the broker wants the homeowner to put the money into another financial product the broker will benefit from.   

Second, another way to avoid a reverse mortgage scam is to ensure you are working with a reverse mortgage lender who has a good reputation among its customers and unbiased third-party review business review platforms such as the Better Business Bureau.   

Chapter 7: Is a Reverse Mortgage Right for You? 

If you meet all the requirements and you’re starting to see how a reverse mortgage may be the right option for you, the next step is to talk to one of our reverse mortgage specialists. 

people figuring out if a reverse mortgage is the right choice

A reverse mortgage is not the right choice for everyone, but it may be a good option for those who are near or in retirement and find themselves in one or more of the following situations:   

  • You have significant equity in your home, and you want to remain in the home for at least five years. 
  • You don’t have enough retirement savings and need additional retirement income. 
  • You will be able to continue to pay the property taxes, insurance, and other costs necessary for maintaining the home.  
  • You want to have additional funds on hand that you can use toward unplanned expenses.  
  • You are living on a fixed income such as Social Security and need to supplement your income.  
  • Your home needs major upgrades or renovations. 
  • You simply want more peace of mind.  

And there may be many other reasons why homeowners may decide to pursue a reverse mortgage. Your reason for wanting a reverse mortgage is unique to you.  

Before making this decision, it is recommended that you talk to your family members and financial advisor.  

If you are ready to get the process started, go here to be connected to one of our top-rated reverse mortgage specialists.  

Is Mutual of Omaha Mortgage right for you? Don’t take our word for it. Check out these Mutual of Omaha Reverse Mortgage Reviews to see what our customers are saying.

How to Minimize Taxes in Retirement  

When workers enter retirement, one of the biggest concerns is whether or not their retirement savings will be enough to last them throughout their retirement. This makes managing cash flow in your golden years vitally important.

One factor to consider is how to minimize taxes in retirement. Without employing some key strategies, taxes can quickly eat into your retirement savings.

How much of an impact can taxes have on your retirement income? Is it even something you should be worried about? Are there ways to save on taxes in retirement or at least minimize your tax burden? What are the best strategies?

These are some of the questions we will aim to answer in this article about the best retirement tax planning strategies and more.

Before discussing the various tax-saving strategies, it’s important to understand the taxable and non-taxable income you may receive in retirement.

Taxable Income Sources

Here are some of the most common taxable income sources you may receive in retirement:

  • Pension plans. A pension plan is a retirement plan that an employer sponsors. The plan is funded by contributions from the employer, employee, or both. When an employee retires, the pension plan provides a regular income stream to the retiree. Pension plans are taxable in retirement because the contributions made by the employer and employee were not taxed when they were made. Therefore, when the retiree receives income from the pension plan, they have to pay taxes on it.
  • Traditional 401(k) distributions. Traditional 401(k) distributions refer to the money you withdraw from your 401(k) retirement savings account established by your employer. When you contribute to a traditional 401(k), the money deposited is made pre-tax like a pension plan. When you withdraw the money during retirement, it is considered taxable income because you did not pay taxes on the contributions when you made them. This means that you will have to pay income taxes on the amount of money you take out of your traditional 401(k) account, which can impact the amount of money you receive in retirement.
  • Traditional IRA distributions. Similar to a traditional 401(k), a Traditional IRA (Individual Retirement Account) is a type of retirement savings account allowing you to contribute pre-tax dollars. Your contributions to the account and any earnings and gains grow tax-free until you withdraw the money during retirement. However, when you withdraw money from a Traditional IRA in retirement, it is considered taxable income because you did not pay taxes on the contributions when you made them. This means that you will have to pay income taxes on the money you take out of your Traditional IRA account.
  • Rental income from real estate investments. Rental income from real estate investments refers to the income received by an individual from renting out a property that they own. It can include rent payments from residential or commercial properties. This rental income is taxable because it is a form of earned income.
  • Capital gains from the sale of investments. Capital gains refer to the profit made on the sale of an investment, such as stocks, bonds, or real estate. Capital gains are taxable because they are considered a form of income.
  • Annuity payments. Annuities grow tax-deferred, but you will be required to pay taxes on any money you withdraw or receive from them. The amount you will pay in taxes depends on the type, fund source, and purpose of the annuity. For annuities purchased with post-tax dollars, you will only pay taxes on any earnings incurred.
  • Part-time work or self-employment income. Part-time work or self-employment income is taxable because it is considered a form of earned income.
  • Social Security benefits. If your income exceeds a certain threshold. Whether or not your Social Security benefits are taxable depends on your income level. Some of your Social Security income may be subject to federal income tax if your income exceeds a certain threshold. According to the Social Security Administration (SSA), taxes must be paid on Social Security benefits if an individual’s combined income is more than $25,000 per year or $32,000 for those who file a joint return.

Non-Taxable Income Sources

Non-taxable income sources in retirement can include:

  • Roth IRA Distributions. Contributions to a Roth IRA are made from after-tax income. This means that when it comes time to withdraw from this account in retirement, the income will be tax-free.
  • Roth 401(k) Distributions. Similar to a Roth IRA, if you contribute to a Roth 401(k) account, your retirement withdrawals will be tax-free since the contributions come from after-tax dollars.
  • Life Insurance Proceeds. If you receive a death benefit payout from a life insurance policy, it is typically not taxable, according to the Internal Revenue Service (IRS). One exception is if you have an insurance product that earns interest, you will pay taxes on any earned interest. Consult your tax accountant about other possible exceptions.
  • Gifts and inheritances. Any gifts or inheritances you receive from family members or friends are typically not taxable, although there may be some exceptions.
  • Municipal bonds. Interest earned on certain municipal bonds is typically not taxed federally, although you may have to pay state taxes. According to Schwab, even though interest earned on municipal bonds may not be subject to federal income taxes, it may be subject to other types of taxes.
  • Some Social Security benefits. As explained above, depending on your income level, some or all of your Social Security benefits may be tax-free.
  • Health savings account (HSA) withdrawals. If you use funds from an HSA to pay for qualified medical expenses, the withdrawals are typically tax-free.
taxable income sources
non-taxble income sources
Taxable Income SourcesNon-Taxable Income Sources
Pension PlansRoth IRA and Roth 401(k) Distributions
Traditional IRAs and 401(k)sLife insurance proceeds
Rental IncomeGifts and inheritances
Sold InvestmentsMunicipal bonds
Annuity EarningsSocial Security benefits
(depending on income level)
Part-Time WorkHealth Savings Accounts (HSAs)
Social Security Benefits
(depending on income level)

Choose a Roth IRA over a Traditional IRA or Do a Conversion

While a traditional IRA gives you tax savings during your working years, a Roth IRA will provide you with tax-free income in your retirement years.

“Keep your savings in a Roth IRA so you can enjoy tax-free growth and withdrawals in retirement,” said Ann Martin, Director of Operations of CreditDonkey.

If you already have a traditional IRA or 401(k), Certified Financial Planner Kenny Jung recommends converting it to a Roth IRA or Roth 401(k), also known as a Roth conversion.

“Converting a traditional IRA to a Roth IRA can be strategic, particularly in years when your income is lower,” Jung explained. “This move requires paying taxes on the converted amount at your current income tax rate, but future withdrawals from the Roth IRA would be tax-free.”

Use a Health Savings Account (HSA)

Put money in a health savings account (HSA) for your medical expenses.

“HSAs are triple-tax advantaged: contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are also tax-free,” Jung said.

“After age 65, funds can be used for any purpose without penalty, though non-medical withdrawals are subject to income tax,” he added.

Use Strategic Withdrawal Strategies

There are several withdrawal strategies you can use for withdrawing your retirement funds.

This is a category worth exploring to determine the strategy that will work best for your situation.

The first withdrawal strategy we will cover is considered the conventional wisdom among financial planners and retirement experts. In this strategy, you would withdraw money from your retirement accounts in the following order:

  • Taxable accounts. This includes the following types of accounts: checking, savings, brokerage accounts, and employee stock plans.
  • Tax-deferred accounts. This includes traditional IRAs and 401(k)s.
  • No tax accounts. This includes Roth IRAs and Roth 401(k)s.

Debra Greenberg, an investment expert with Bank of America, told Merrill Lynch that it might be wise to hold off on tapping into such individual retirement accounts while allowing them to continue to grow.

“If you’re not accessing your retirement funds, they’re still growing tax-deferred,” Greenberg said.

However, there are some alternative strategies.

For example, financial planner Devin Carroll recommends factoring in the tax implications of how much money you withdraw by aiming for an average tax rate of about 12 percent throughout your retirement.

“Instead of just taking from one bucket until it’s empty and moving onto the next bucket, we’re going to solve for an average tax rate,” Carroll explained on his YouTube channel. Once you reach the 12 percent tax rate, you will supplement any additional needs by withdrawing from your Roth accounts.

To demonstrate how this would work, he uses an example of a couple with the following accounts and Social Security payments:

  • IRA: $1 million
  • Brokerage Account: $400,000
  • Social Security for Spouse 1: $3,300 per month
  • Social Security for Spouse 2: $1,650 per month

Carroll says they will pay approximately $300,000 in taxes throughout their retirement if they follow the conventional withdrawal strategy. If they follow this alternative approach, the tax burden is closer to $150,000.

It is recommended that you seek guidance from a financial advisor or tax professional to help you develop a financial plan that will work best for your individual situation.

Tap Into Your Home Equity

One way to access tax-free funds in retirement is to tap into your home equity. This might be especially beneficial if a large share of your wealth is tied up in your home.

Since money received from a home equity loan, a home equity line of credit (HELOC), and a reverse mortgage is from a loan, it is not considered income and is not taxable. One advantage to using a reverse mortgage loan is that it will pay off your current mortgage if you still have one, and it does not require monthly mortgage payments* to pay it back. This can eliminate what is typically the largest bill for most homeowners.

You also have several options for receiving the funds: a lump sum payment, monthly installments, and a line of credit.

Retirement expert Dr. Wade Pfau says that using a reverse mortgage earlier in retirement may be advantageous rather than waiting until you’re in a desperate situation.

“First, coordinating retirement spending from a reverse mortgage reduces strain on the investment portfolio, which helps manage the risk of selling assets at a loss after market downturns. Reverse mortgages can help sidestep this risk by providing an alternative source of retirement spending [sic.] (loan proceeds) after market declines, creating more opportunity for the portfolio to recover,” Pfau explains.

“The second potential benefit of opening the reverse mortgage early—especially when interest rates are low—is that the principal limit (the overall eligible amount consisting of any loan balance and remaining line of credit) that you can borrow from will continue to grow throughout retirement,” he adds.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.

At what age do you stop paying taxes on retirement income?

There is no specific age at which individuals stop paying taxes on retirement income altogether. Tax obligations on retirement income depend on the sources of that income and the tax laws in effect at any given time rather than the taxpayer’s age.

How can I reduce my taxable income while supporting charitable efforts?

One way to reduce your taxable income in retirement is to support charitable efforts. One effective method is to make charitable donations directly from your IRA through a Qualified Charitable Distribution (QCD).

The IRS allows you to make a qualified distribution to a charity by transferring up to $100,000 annually for individuals or $200,000 for couples directly to a qualified charity from your IRA, bypassing your taxable income and thus lowering your overall tax liability. This approach is particularly attractive because it can also count towards your Required Minimum Distributions (RMDs) once you reach the age where RMDs are mandatory.

What is the Required Minimum Distribution, and How Does it Affect Your Taxes?

The Required Minimum Distribution (RMD) is a mandatory annual withdrawal that individuals must start taking from their retirement accounts, including traditional IRAs, 401(k)s, and other tax-deferred retirement plans, typically starting at age 73 (as per current IRS rules). The RMD age increased from 72 to 73 in 2023 as dictated by the SECURE Act passed in 2022.

RMDs are significant for tax planning because the withdrawn amounts are taxable as ordinary income in the year they are taken. This can increase your annual taxable income and push you into a higher tax bracket, affecting your overall tax liability.

Failing to take an RMD incurs a steep penalty, amounting to 50 percent of the amount required to be withdrawn. Retirees must manage these distributions carefully to optimize their tax situation.

Note that there is no RMD for a Roth account, until the death of the account owner, according to the IRS.

What are some tax-saving moves to make before I am required to take distributions?

Before you’re required to take distributions, such as Required Minimum Distributions (RMDs), from retirement accounts, several tax-saving strategies may be advantageous.

Consider converting at least part of your traditional IRA or 401(k) to a Roth IRA account, where distributions are tax-free. However, the conversion itself is taxable in the year it occurs. This move can be particularly strategic in years when your income is lower, potentially reducing the tax impact.

Additionally, investing in HSAs, if eligible, offers triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses, which can be a valuable tool in retirement.

Does it make a difference what state you live in?

If moving is an option, look for a state that won’t add an additional tax burden to your federal income taxes. Here are the 13 states that won’t tax your retirement income because they don’t have income taxes:

  • Alaska
  • Florida
  • Illinois
  • Iowa
  • Mississippi
  • Nevada
  • Pennsylvania
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

Learn more about states that won’t tax retirement income here.

Making a decision about the best way to minimize taxes in retirement will depend on the types of retirement accounts and assets that you have. The good news is that there are several strategies that you can employ.

To determine what makes sense for your individual situation, it is recommended that you consult your financial advisor or tax accountant.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Sources:

https://www.annuity.org/annuities/taxation https://faq.ssa.gov/en-us/Topic/article/KA-02471

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds

https://www.ml.com/articles/taxes-in-retirement.html https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

https://www.irs.gov/newsroom/qualified-charitable-distributions-allow-eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity

Is a Reverse Mortgage a Good Idea?

There’s a lot of conflicting information out there about reverse mortgages. You don’t have to look very far before you run into warnings about “reverse mortgage scams” that may lead you to believe that a reverse mortgage is a financial product you should avoid.

The Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a federally-backed loan. It is a legitimate financial product designed to allow older homeowners a way to access the equity in their homes without monthly mortgage payments. Unfortunately, that doesn’t stop scammers from trying to take advantage of vulnerable Americans.

The truth is that a reverse mortgage isn’t right for everyone, but for those who are facing specific challenges or who have certain needs, it may be the solution they’ve been looking for to help increase cash flow in retirement.

In this article, we will discuss when a reverse mortgage is a good idea and when it isn’t.

Let’s dive in.

A Reverse Mortgage Explained

Before discussing whether or not a reverse mortgage is a good idea, we first need to know what it is.   

A HECM reverse mortgage is the most common type of reverse mortgage. It is a type of home loan available only to homeowners who are 62 years of age or older and have significant equity in their homes. The home must also be the homeowner’s primary residence and in good condition. Reverse mortgages cannot be obtained for a vacation home or investment property.  

It provides a way for homeowners to tap into their equity without having to take on additional monthly mortgage payments. When a homeowner takes out a reverse mortgage loan, it pays off the current traditional mortgage. 

The home still belongs to the borrowers, not the bank, which means that homeowners are still required to pay property taxes, homeowners insurance, and maintain the home.  

For any remaining equity, borrowers have the option of receiving their funds as a lump sum payment, monthly payments, a line of credit, or a combination of the three.   

The amount of money that a reverse mortgage borrower can receive is based on the age of the youngest borrower, the home’s value, and the current interest rate.  

There are no limitations on how the reverse mortgage proceeds can or can’t be used. Some common uses of reverse mortgage funds include supplementing monthly income, funding major home projects such as home improvements and renovations, paying off credit card debt and personal loans, and as a backup source of funds to cover unplanned expenses.    

A reverse mortgage may also be used to purchase a new home. This is known as a reverse mortgage for purchase or HECM for Purchase.   

A reverse mortgage is paid back when the homeowner decides to sell, the home is no longer the homeowner’s primary residence, or the homeowner passes away.   

A HECM reverse mortgage is regulated by the U.S. Department of Housing and Urban Development (HUD) and insured by the Federal Housing Administration (FHA).  

When is a Reverse Mortgage a Good Idea 

Reverse mortgages used to be viewed as a last resort to pursue when retired homeowners needed additional cash, but this is no longer the case, The New York Times said in a report in 2022. 

A reverse mortgage is now seen as a potential solution for a variety of needs and situations, including the following:  

  • When you plan to retire in place. A reverse mortgage makes it easier for those heading into retirement to be able to retire in place. While retirement communities abound throughout the country in states such as Florida, Arizona, and elsewhere, a study from the Center for Retirement Research found that most retired Americans stay in the same homes where they lived in their early 50s.    
  • When you need to supplement your income. If homeowners find that Social Security payments and other sources of retirement income aren’t enough to meet their financial needs, they may look for other ways to supplement their income. Many older homeowners have a large share of their wealth tied up in their homes. According to the Center for Retirement Research, “Home equity is the largest store of savings for most households entering retirement.” A reverse mortgage is a type of home loan that is uniquely designed for those in their golden years to access that equity.   
  • When you need added protection. A study conducted every three years by the Federal Reserve found that most Americans are not saving enough for retirement. The study found that Americans from age 55 to 64 have a median retirement savings of $134,000. While this is a decent amount of money, it’s not enough to cover all the expected costs in retirement. For those who find themselves in this situation, a reverse mortgage may be the solution they need to offset costs.     
  • Preserve savings and cash reserves. Some Americans are starting to turn to reverse mortgages as a way to preserve their savings and cash reserves. Virginia woman Marjorie Fox told The New York Times that she decided to take out a reverse mortgage for exactly this reason — she wanted to prepare for the unexpected, so she decided to receive her reverse mortgage funds as a line of credit.     
  • Protect investment portfolios. The stock market goes up and down, which affects 401(k)s and other investments. If the stock market takes a downturn when it’s time to retire, a homeowner could use a reverse mortgage to supplement their income while they wait for the market to recover before they pull out their investments. 
  • Delay claiming Social Security benefits. Social Security benefits go up a small percentage for each month retirees delay claiming their benefits. A reverse mortgage could be used to supplement income until Social Security beneficiaries are ready to claim their benefits. Homeowners can take out a reverse mortgage at age 62. However, they can delay taking Social Security benefits until age 70.
  • Pay large medical bills and credit card debt. For Americans heading into retirement with a large amount of credit card debt or medical bills, a reverse mortgage could also be used to pay off this debt. 

There are other ways to access your equity without taking out a reverse mortgage, such as a Home Equity Loan, a Home Equity Line of Credit (HELOC), cash-out refinancing, or selling the home.

However, a home equity loan, a HELOC, and a cash-out refi will all require monthly payments to pay them back, which can be difficult in retirement, especially if the homeowners are living on a fixed income. One of the reasons a reverse mortgage works so well for those in retirement is that it is not paid back with monthly payments.    

Watch the video below to learn how a reverse mortgage can help protect your retirement savings, especially during a bear market.

When a Reverse Mortgage is Not a Good Idea 

While there are times in which a reverse mortgage is a good idea, this is not the case for everyone. 

Here are some situations in which a reverse mortgage may not be the right choice:  

  • If you plan to move. While a reverse mortgage can be used to purchase a new home, it may not be best to get a reverse mortgage on your current home if you plan to move soon. Reverse mortgages are typically recommended for those who expect to stay in their homes for at least five years.    
  • If you want to leave your home to your children. You can still leave a home with a reverse mortgage to your family, but because a reverse mortgage uses up a large portion of your equity, it may make it more difficult for your children or heirs to keep your home after you pass away. After you pass, your heirs will be given the option to sell the home and keep the proceeds or keep the home. The good news is that a reverse mortgage is a non-recourse loan, which means they will never owe more than the loan balance or the home’s value, whichever is less, according to HUD.  
  • If you can’t afford to maintain the home and other costs. Reverse mortgage borrowers are still required to pay the property taxes, the homeowner’s insurance, any dues such as HOA fees, and home maintenance costs. While a reverse mortgage can offset these costs, if you think you will struggle to cover these costs, then a reverse mortgage may not be the way to go. Most reverse mortgage lenders will assess your financial health to make sure you are able to meet all reverse mortgage requirements before moving forward with the application.     

Reverse Mortgage Protections 

Because there are scammers out there, the federal government has established several added protections to give reverse mortgage borrowers additional peace of mind. Some of those protections include the following: 

  • Third-party counseling. Before homeowners can submit an application for a reverse mortgage, they must first complete a counseling session with a third-party counselor who is approved by HUD. The counselor will ensure that potential borrowers understand what a reverse mortgage is, how it works, as well as potential alternatives. This is an added layer of protection to make sure that homeowners understand the product and do not fall prey to would-be scammers.    
  • Non-recourse loan. A HECM reverse mortgage is a non-recourse loan. This means that you will never owe more than what the home is worth or the value of the home, whichever is lower. This protects homeowners if the housing market is in a decline, and the loan is more than the home’s market value.  
  • Right to cancel. Homeowners have the right to cancel a reverse mortgage at any time during the application process including three business days after signing closing documents. 
  • First-year principal limit. When homeowners take out a reverse mortgage as a lump sum, they may only take out 60 percent of the loan amount during the first year. This is to ensure that your money lasts longer.
  • Non-borrowing spouses. There are also protections for non-borrowing spouses in the event that the borrower leaves the home for more than 12 months. This may happen if he or she goes to live in a long-term healthcare facility or the borrower passes away while the non-borrowing spouse is still living in the home.  

The Bottom Line 

Taking out a reverse mortgage loan is a major decision.  

A reverse mortgage is a financial tool that can provide a financial lifeline in retirement. It enables individuals to supplement income, manage unexpected expenses, or even delay Social Security benefits for a more favorable payout. 

However, the decision to pursue a reverse mortgage should not be taken lightly. It is not a one-size-fits-all solution and may not be suitable for everyone.  

It is always recommended that you discuss any major financial decisions with your financial advisor and family members who may be affected.  

If you have more questions about a reverse mortgage, our experienced reverse mortgage specialists are wealth of information.  

Get started by filling out the form here or go here to find a reverse mortgage specialist in your area. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

11 Expenses You No Longer Need in Retirement

As you prepare for retirement, one of the questions you will want to answer is: How much money or income do you really need for this stage of life?  

Even if you have a decent nest egg, your income may not be what it was during your working years. But the good news is that your expenses won’t be what they were either.  

The transition into retirement often prompts a reassessment of needs, from transportation to housing and more.  

Here are some expenses you may be able to cut or at least significantly reduce in retirement. 

One of the first expenses that retirees can cut from their budgets is the cost of commuting to and from work.  

“After retirement, daily commuting expenses are drastically reduced, as you no longer need to travel to work,” said Jonathan Feniak, General Counsel at LLC Attorney

The cost of commuting is often a significant yet often overlooked portion of a worker’s budget. These costs encompass not just the obvious expenses like fuel or public transportation fares but also extend to wear and tear on personal vehicles, periodic maintenance, toll fees, and even the occasional parking charges for those driving to work. 

According to a study by Clever Real Estate, commuters in the United States spend an average of $8,466 on their commute each year, which comes out to about 19 percent of their annual salary.  

For public transit users, the expense might include monthly passes or daily fares, which can add up significantly over time.  

Upon retirement, these expenses can largely disappear from one’s budget, presenting an opportunity for reallocating funds towards other interests or savings. 

Commuting costs aren’t the only expenses that end when you stop working.  

“There are also plenty of expenses we face when working we don’t really notice, like extra clothing costs for work attire, makeup, lunches out, coffee runs, pet care, and even rent or mortgage costs if your work keeps you close to an expensive area,” said David Ciccarelli, the CEO & Founder of the vacation rental platform Lake and a graduate of Harvard Business School. 

Professional attire and grooming, for instance, can take a considerable slice of the budget. Suits, dress shoes, accessories, and the costs associated with maintaining such a wardrobe (dry cleaning, alterations, etc.) can add up. 

As retirees transition from their working lives, the cessation of these work-related expenses presents an opportunity not just for financial savings but for a reevaluation of lifestyle choices and priorities.  

The funds previously allocated to professional necessities can now be redirected towards fulfilling personal aspirations, contributing to a richer, more satisfying phase of life. 

For many working couples, maintaining two vehicles was a necessity, accommodating differing work schedules, work locations, and other commitments.  

However, as the daily grind gives way to a more relaxed retirement lifestyle, the need for multiple vehicles can diminish significantly, presenting an opportunity for substantial financial savings and lifestyle simplification. 

The costs associated with keeping an additional car go beyond the initial purchase price or monthly payments. To keep a car, you also must pay for insurance premiums, registration fees, regular maintenance, repairs, and fuel. 

According to MoneyGeek.com, Americans spend an average of $10,728 on their cars each year, which comes out to almost $900 per month. 

In retirement, when income typically shifts from salaries to fixed retirement savings and pensions, reducing unnecessary expenses becomes even more crucial. 

This choice will depend on individual needs and preferences. If you are unsure if this is a move you want to make, give it a test run for a week or two before making a permanent decision.  

As individuals transition into retirement, the question of housing takes on new significance. 

For many, the dream is to enter retirement with a paid-off mortgage, getting rid of what is typically one of the largest monthly expenses.  

“If you’ve managed to pay off your mortgage by the time you retire, this can be one of the most substantial reductions in your monthly financial obligations,” says Dennis Shirshikov, head of growth at GoSummer.com and former Professor of Economics at City University of New York.  

But what if you’re going into retirement with a mortgage? What options do you have? 

Here are some options for reducing or cutting this expense from your monthly budget: 

For many retirees, downsizing to a smaller home can offer numerous benefits and savings. A smaller space often means lower utility costs, less maintenance, and potentially lower property taxes.  

“Moving to a smaller house or a less expensive area can reduce costs related to mortgage, property taxes, and maintenance,” says Feniak. 

For those with equity in a larger family home, selling and moving to a smaller property can free up significant capital to bolster retirement savings or fund other retirement activities. 

Retirement also offers the freedom to relocate without the constraints of job locations or school districts.  

Some retirees may choose to move to areas with a lower cost of living to stretch their retirement savings further. 

Many prefer to stay in their current home in the community they know and love.  

If you want to stay in your current home but you still have a mortgage, one option to consider is a reverse mortgage loan.  

A reverse mortgage pays off and replaces your current mortgage, and it does not require monthly mortgage payments to pay it back if you live in the home full-time and meet certain criteria.  

A reverse mortgage also allows borrowers to receive additional funds as a lump sum, monthly installments, or a line of credit.  

A reverse mortgage can also be used to purchase a new home for those who want to downsize or relocate.  

Choosing the right housing in retirement is about finding the right balance between comfort, convenience, and cost.  

Another expense you may be able to cut is life insurance.  

Life insurance is primarily designed to provide financial protection for dependents in the event of the policyholder’s untimely death and may not serve the same purpose for retirees as it did during their working years. 

Many retirees may find that the financial obligations life insurance was initially intended to cover no longer apply. 

“If the primary purpose of your life insurance was to replace income or pay off debts that are no longer concerns, maintaining those policies might not be necessary,” explains economist Dennis Shirshikov. 

The decision to cut life insurance will depend on a variety of factors.  

First, if retirement savings are sufficient to support a surviving spouse or other dependents, the need for life insurance might be significantly reduced or even eliminated. 

Second, the type of life insurance policy you have can also influence the decision to keep it or let it go in retirement. For example, if you have a term life insurance policy that provides coverage for a specified period, it may simply expire if it is still in effect as you approach retirement.  

However, if you have a whole life insurance policy or another type of permanent life insurance, it can accumulate cash value over time, presenting retirees with options like cashing out the policy, converting it to an annuity for steady income, or maintaining it for the death benefit. 

Third, you will want to consider the cost. Life insurance premiums can be notably high as one ages, making it potentially cost prohibitive for those on a fixed income. 

For many individuals, the years leading up to retirement involve juggling work with the considerable financial demands of raising children, including childcare, which can be one of the most substantial household expenses. 

As retirees enter this new chapter, the direct costs associated with raising children — such as daycare fees, after-school programs, sports, and other extracurricular activities — typically fade away.  

As children age, this typically also means driver training, vehicles, car insurance, college, and more. 

These expenses can range widely depending on location and the number of children, but they invariably contribute to a significant portion of a family’s budget.  

Eliminating these costs in retirement can free up substantial financial resources, providing more flexibility in budgeting for other priorities. 

The transition into retirement often brings about a notable shift in tax obligations, with many retirees finding themselves in a lower tax bracket than they were in their working years.  

This reduction in taxable income stems from moving from salary-based earnings to income sources like Social Security benefits, pensions, withdrawals from retirement accounts, and potential investment income.  

Understanding how these changes affect tax liabilities and employing strategies to minimize taxes can significantly enhance financial security in retirement. 

Strategically planning withdrawals from retirement accounts can help manage tax liabilities.  

For example, knowing when to tap into taxable and tax-deferred accounts can significantly affect tax outcomes. Roth IRA withdrawals, for instance, are tax-free in retirement because the contributions are made from after-tax income, while withdrawals from traditional IRAs and 401(k)s are taxed at current income tax rates. 

If you are looking to relocate, it’s also worth looking for a state that doesn’t tax retirement income or Social Security benefits.  

“A retired homeowner can also facilitate the senior freeze tax, which lets senior Americans postpone their property taxes until death,” according to Ethan Keller, president of Dominion. “Texas allows this special tax break, and retirees of 65 and older with a limited income can take this advantage for their primary residence.” 

Several jobs and careers require continuing educational training for professionals to keep their licenses in that field and stay up to date on industry advancements. This includes doctors, lawyers, pilots, nurses, teachers, and many in the financial sector.  

“In most cases, retirees no longer need to invest in professional development or further education,” says attorney Jonathan Feniak. 

Continuing education for professionals usually entails registration fees, travel expenses to conferences or seminars, and sometimes membership dues for professional organizations. These activities can be costly, often running into thousands of dollars annually, depending on the industry.  

In retirement, these costs are no longer required, freeing up funds for other uses or savings. 

When you are working, one expense you likely have is saving for retirement. In retirement, the shift moves from saving to using those retirement savings. 

The typical recommendation is that individuals save 10 to 15 percent of their income.  

For example, if an individual was contributing 15 percent of a $60,000 annual salary to a retirement plan, they would be setting aside $9,000 per year. Upon retiring and stopping these contributions, that $9,000 per year stays in their pocket. 

The new priority once you hit retirement is no longer saving but carefully managing your cash flow and coming up with a withdrawal strategy that won’t cause you to deplete your retirement savings prematurely.  

A financial advisor can help you understand the best withdrawal strategy to make sure that your retirement savings last. 

One of the upsides to retiring is that you will have more time to travel than you did during your working years. Because of this, you may assume you will be spending more money on travel, but this is not necessarily the case.  

“As retirees do not have a work schedule, they can travel during off-peak seasons, benefiting from lower airfares and hotel rates,” explained financial advisor Ethan Richardson. 

“A strategic travel plan can result in significant savings and a more enjoyable travel experience,” Richardson added.  

When you are working, especially if you still have children at home, that means that you are restricted to traveling during school breaks as well as other timing restrictions you may have because of your job.  

To get an idea of how much you can save in travel, GOBankingRates says you can save 40 to 60 percent if you travel to the Caribbean or Mexico from June through November. 

Want to travel to Europe? Airfare and hotels are also significantly lower in the winter than in the summer, according to GOBankingRates. 

When you are working, there are simply more opportunities to spend money eating out, getting cocktails with co-workers after work, or picking up the much-needed afternoon cup of coffee.   

For example, if a worker spends $10 each workday on lunch, this amounts to $50 per week or about $200 per month.  

At the end of a long workday, you may feel more tempted to pick up dinner than cook at home.  

“With more time to plan and prepare meals at home, retirees often find they spend less on dining out and convenience food,” says economist Dennis Shirshikov. 

“The shift towards home-cooked meals can lead to both healthier eating habits and savings,” he added.  

The savings from buying groceries and cooking meals at home compared to eating out can be substantial. 

Retirement presents several opportunities for cutting costs as you transition from your working life to enjoying your golden years.  

These potential cost savings should make monthly budgets significantly more manageable even if you are living on a fixed income.  

By carefully reallocating resources that were once dedicated to these now unnecessary expenses, retirees can enhance their financial stability and focus on personal enrichment and enjoyment in their later years.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Reverse Mortgage vs HELOC: Which is the Best Option for Accessing Equity?

Purchasing a home is one of the best investments you can make, and as the value of your home increases, you can use that growing wealth without having to sell the home.

Two popular options for accessing that equity are a reverse mortgage and a Home Equity Line of Credit (HELOC).

But which one is right for you? In this article, we explore these two products, how they work, and scenarios in which one may be a better choice than the other.

Reverse Mortgage Basics

A reverse mortgage is a type of loan that differs significantly from a traditional mortgage. 

A Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, is a loan option designed to help homeowners convert their home equity into cash. When taking out a HECM reverse mortgage, the existing mortgage will be paid off in full, so you no longer need to make regular monthly payments on your original loan.  

A reverse mortgage enables homeowners to convert the remaining loan balance into cash. The funds can be received in several ways, such as a lump sum payment, equal monthly payments, or a reverse mortgage line of credit. Alternatively, you can opt for a combination of these options.  

A reverse mortgage loan is paid back when the home is sold, when the home is no longer used as the primary residence of the homeowner, or when the last homeowner passes away.  

Reverse Mortgage Requirements 

In order to qualify for a reverse mortgage, you must meet certain criteria, including the following: 

  • Applicants must be at least 62 years of age or older  
  • The property must be the primary residence. This means that a reverse mortgage cannot be obtained for a secondary property such as a vacation home or investment property.
  • The home must have significant equity  
  • The property needs to be in good condition  

Before homeowners can officially apply for a reverse mortgage, they must first complete a counseling session with an approved counselor from the U.S. Department of Housing and Urban Development (HUD). This counseling session helps to ensure that homeowners understand all the risks and benefits involved with a reverse mortgage and can make an informed decision.  

 After the reverse mortgage loan closes and you start receiving your funds, reverse mortgage borrowers must continue to maintain the home, pay the necessary property taxes, homeowners insurance, and any other required fees, such as HOA fees.  

Learn more about the reverse mortgage requirements by checking out this FREE reverse mortgage information kit.

Reasons to Choose a Reverse Mortgage 

One of the reasons a reverse mortgage is such an attractive option is the flexibility it offers. 

Unlike other financial products, there is not a single way to receive funds from a reverse mortgage. Instead, various options are available, such as a lump sum, monthly installments, or a HECM line of credit. These options can also be combined to better meet your unique needs. 

There are also no rules about how reverse mortgage proceeds have to be used. However, here are some common ways a reverse mortgage is used:

  • In Your Retirement Portfolio. If you’re nearing or already in retirement and lack the necessary savings to maintain your desired lifestyle but happen to own your home, a reverse mortgage may be worth considering as part of your retirement portfolio. 
  • Unplanned Expenses. If you don’t have adequate funds for emergency expenses, you may consider taking out a reverse mortgage and receiving the proceeds as a line of credit. This will ensure that your funds are available should an unexpected expense arise.   
  • Supplement a Fixed Income. If you are living on a fixed income, then a reverse mortgage can provide additional monthly income. With a reverse mortgage loan, you have the option of choosing to receive the funds in the form of monthly payments, which can help make ends meet.  
  • Upgrade Your Home. If you don’t have the savings to cover the costs of major renovations to your home in retirement, a reverse mortgage could help you make them. Furthermore, these upgrades can potentially increase the value of your home. Receiving a lump sum from a reverse mortgage could provide much-needed financial assistance for such projects.  
  • Travel. If you’ve taken care of all your monthly expenses, updated your home to create a comfortable living environment, and saved up an emergency fund, you can use the extra funds from a reverse mortgage to travel more often and visit friends and family. 
  • Purchase a New Home. While a reverse mortgage is a popular option for those who want to retire in place, it can also be used to purchase a new home. This may be ideal for those who are looking to upsize or downsize or simply want to move to be closer to family. This is known as a reverse mortgage for purchase. It works by combining a large down payment from the sale of a previous home with a reverse mortgage. The advantage of pursuing this option is that older homeowners can relocate without the burden of monthly mortgage payments.

If you’re considering a reverse mortgage, it’s important to be aware that obtaining a reverse mortgage can be a lengthy process. Therefore, if you decide this is an option you want to pursue, it may be prudent to move forward as soon as possible.  

If you decide that a reverse mortgage isn’t the right choice for you, you can cancel your loan at any time — even up to three days after closing.  

What is a Home Equity Line of Credit? 

A Home Equity Line of Credit (HELOC) is a like a home equity loan that works more like a credit card. Borrowers can access funds up to a predetermined limit and pay them back with interest. Funds can be repaid and borrowed multiple times from the same account.  

A HELOC is a second mortgage, and your home is used as collateral for the funds. It’s important to be aware that if payments are not kept up, the property could be foreclosed on.  

HELOCs typically come with a variable interest rate. The credit limit that a homeowner is eligible for depends on the amount of equity they have in their home. However, lenders can vary in how much they are willing to loan out. The amount of money that can be borrowed is set by the lender and will usually vary from 50-80% of the appraised value.  

HELOC borrowers can access the funds allocated to them using a credit card or checks linked to their HELOC account. In most circumstances, the draw period of a HELOC lasts for 10 years.  

Homeowners are responsible for making monthly interest payments on the money borrowed from the HELOC. Interest is only incurred on the funds that are used.  

After the 10-year draw period is complete, borrowers must begin repaying the outstanding balance. Typically, this repayment period lasts for 10 to 20 years, but homeowners may also start repaying the principal balance before the full 10-year draw period is over.  

A HELOC is a flexible and convenient borrowing option that can be used for a variety of purposes, such as paying for home improvements, paying off debt, paying for college, or paying for unplanned expenses. 

HELOC Requirements: How You Qualify 

A HELOC is more accessible than a reverse mortgage since it does not have an age requirement. However, homeowners must still meet certain qualifications in order to qualify for this type of loan. 

The exact requirements and terms can differ between lenders. However, here are the minimum requirements you will likely need to meet: 

  • Equity. A HELOC typically requires a minimum of 15% equity in the home, though 20% is preferred. This value will be determined through an appraisal during the application process.  Ensuring sufficient equity is important to establishing the amount available for a HELOC loan. 
  • Debt-to-Income Ratio. A HELOC typically requires a debt-to-income ratio of 50% or less. This ratio is calculated by adding together your total monthly debt payments, then dividing that amount by your monthly income. 
  • Credit Score. To qualify for the best HELOC rates, it is recommended to have a credit score of 720 or more. A minimum credit score of 620 may still be accepted, but higher scores will likely result in better terms and conditions. 
  • Payment History. Having a track record of timely payments can raise your chances of being approved for a HELOC. 

Reasons to Choose a HELOC 

A HELOC is an ideal option for homeowners who require financial flexibility over a specified period and can make timely interest payments.  

It is an excellent choice for homeowners who anticipate needing to make multiple withdrawals over time to cover a range of projects or expenses. Its flexibility makes it well suited to those who aren’t sure how much they will need in order to reach their goals.  

A HELOC will also be a better choice for those looking to tap into the equity on a vacation home or investment property where they don’t live full-time since these types of properties do not qualify for a reverse mortgage.  

Home equity lines of credit also tend to come with lower interest rates when compared to reverse mortgages.  

However, borrowers must also consider their ability to repay the HELOC once the draw period has ended.  

How to Decide Between a Reverse Mortgage and a HELOC 

There are several factors to consider when deciding whether a reverse mortgage or a HELOC is a better option, including the following:  

  • Age. Reverse mortgages are available to older homeowners and can be an option if you have significant equity in your home. A HELOC is available to homeowners regardless of age. 
  • Financial Goals. Consider why you need the funds. A reverse mortgage may be suitable for long-term income supplementation in retirement, while a HELOC might be better for short-term financial needs or specific projects. 
  • Repayment Ability. If you can manage monthly payments, a HELOC might be more appropriate. If you want to eliminate monthly payments, a reverse mortgage could be a better fit. 
  • Future Plans. If you plan to stay in your home for the foreseeable future, a reverse mortgage might be more appealing. If you anticipate moving or selling your home in the near future, a HELOC may be more advantageous. 
  • Reverse Mortgage Line of Credit Compared to HELOC. If you qualify for both a reverse mortgage and a HELOC, there are two key differences that may help with your decision. First, the reverse mortgage line of credit will never require monthly payments to pay it back. Second, while both options only accrue interest on the money received, if you have a reverse mortgage, the unused balance on the line of credit will grow.  

Ultimately, the decision should be based on a thorough assessment of your financial situation, personal needs, and personal goals. It is always recommended to discuss your options with a financial advisor and family members who may be affected by your decision. 

Want to learn more about how a reverse mortgage works? Grab our free reverse mortgage guide here.  

Want to talk to a reverse mortgage specialist in your area? Find a reverse mortgage advisor here.

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Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

How Do You Pay Back a Reverse Mortgage?

One of the most attractive features of a reverse mortgage loan is that it does not require monthly mortgage payments to pay it back. This can help free up a significant amount of cash for retirees who may be struggling to make ends meet.  

But a reverse mortgage is a loan, which means it will need to be paid back at some point. If you are exploring reverse mortgages, it’s important to understand how this aspect of them works.  

In this article, we’ll explore the intricacies of reverse mortgages, pinpointing when repayment is required, and explore the various options available to borrowers and their families.  

Whether you’re considering a reverse mortgage, currently have one or are an heir to a property with a reverse mortgage loan, our goal is to equip you with the knowledge to navigate the repayment process with confidence. 

The most common type of reverse mortgage is the home equity conversion mortgage (HECM), which is backed by the federal government through the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).  

A HECM reverse mortgage is a special type of home loan designed for homeowners aged 62 and older. It allows them to access equity in their homes without the requirement of making monthly payments.  

Instead of the borrower paying the lender, the roles are reversed, and the lender makes payments to the borrower based on the equity they have in their home, similar to a home equity loan or home equity line of credit (HELOC).   

A reverse mortgage provides reverse mortgage proceeds in the form of monthly installments, a line of credit, or a lump sum that can be used for covering living expenses, medical bills, home repairs and upgrades, or supplementing retirement income. 

The amount a homeowner can borrow depends on several factors, including the home’s value, the borrower’s age, and current interest rates. The older the borrower and the more valuable the home, typically the larger the available loan amount. 

While borrowers are not required to make monthly mortgage payments, they must keep up with property taxes, homeowners’ insurance, and keep the home in good condition. 

The property in question must also be the borrower’s primary residence. This means they need to live in their home most of the year, and the property needs to remain their primary residence throughout the life of the loan.  

There are certain events that can trigger the reverse mortgage balance to be repaid. Understanding these triggers is essential for borrowers and their family members to plan appropriately and avoid any surprises.  

Here are the primary circumstances under which a reverse mortgage becomes due: 

  • Sale of the Home. If the borrower decides to sell the home, the reverse mortgage must be paid off as part of the sale process. The proceeds from the sale are typically used to repay the loan balance, with any remaining equity going to the borrower. 
  • Permanent Move or Relocation. A reverse mortgage requires the borrower to maintain the property as their principal residence. If the borrower moves out permanently, for example, to a long-term care facility or another residence, the loan becomes due. Generally, 12 consecutive months of non-occupancy is considered a permanent move. 
  • Failure to Meet Loan Obligations. Borrowers are required to pay property taxes, maintain homeowners’ insurance, and keep the property in good condition. Failure to meet these obligations can lead to the loan becoming due. 
  • Borrower’s Passing. The death of the last remaining borrower is a common trigger for the repayment of a reverse mortgage. Upon their passing, the loan balance becomes due, and heirs or estate executors must address the repayment. 

When the time comes to repay a reverse mortgage, borrowers have several strategies at their disposal.  

Here are the primary avenues for repaying a reverse mortgage: 

  • Repayment from Other Assets. The loan can be repaid using funds from the borrower’s estate or other assets, preserving the home for heirs. 
  • Sale of the Property. The home can be sold, and the proceeds used to repay the loan.  
  • Refinancing the Loan. In some cases, the reverse mortgage can be refinanced into a traditional mortgage. 
  • Deed in Lieu of Foreclosure. If the borrowers decide not to keep the property, a deed in lieu of foreclosure is an option to satisfy the loan by transferring the property to the reverse mortgage lender. 

Professional advice from financial advisors, real estate experts, and legal counsel can provide invaluable guidance during this decision-making process, ensuring that borrowers make informed choices that align with their financial goals and circumstances.  

If the last surviving borrower passes away while he or she still has a reverse mortgage, their heirs will be faced with important decisions regarding the property and the outstanding balance of the loan. Understanding their roles, rights, and options can help them navigate the repayment process more effectively. 

Immediate Actions Upon the Borrower’s Passing 

  • Notification. Heirs must promptly notify the lender of the borrower’s passing. This initiates the repayment process and starts the timeline within which actions must be taken. 
  • Evaluation of the Estate. Heirs should assess the estate’s value, including the home and any other assets, to determine the best course of action for repaying the reverse mortgage. It may be advantageous to meet with a financial advisor or family attorney to assist this step in the process.  

Options Available to Heirs 

Heirs will have the following options available to them:  

  • Keep the Property. If heirs wish to keep the home, they can choose to repay the reverse mortgage through refinancing into a regular mortgage or using other available assets.  
  • Sell the Property. Heirs may opt to sell the home to pay off the reverse mortgage. If the home’s sale price exceeds the loan balance, heirs can keep the remaining equity. 
  • Deed in Lieu of Foreclosure. In situations where neither keeping the home nor selling it is viable, heirs might consider a deed in lieu of foreclosure. This option involves handing over the property to the lender and satisfying the loan without going through a formal foreclosure process. 
  • Do Nothing. Ultimately, heirs don’t have to do anything to settle the loan. In nothing is done to pay back the loan, the lender will simply foreclose on the property. 

Decision-Making Process 

These are some recommendations that may help with deciding the best course of action for you: 

  • Consult with Professionals. Seek advice from financial advisors, estate attorneys, and real estate professionals to understand the implications of each option and to navigate the legal and financial aspects of the repayment process. 
  • Communicate with the Lender. Open and ongoing communication with the lender is essential. Lenders can provide specific details about the loan balance, deadlines for decision-making, and potential solutions tailored to the heirs’ circumstances. 
  • Consideration of Timelines. Lenders typically provide a timeline, often six to 12 months, to decide and act on the repayment of the reverse mortgage. This period allows heirs to assess their options, potentially refinance the loan, or prepare the property for sale. 
  • Legal Protections. Reverse mortgages are non-recourse loans, heirs are not personally liable for any deficit if the property’s sale does not cover the loan balance. 

Can a reverse mortgage borrower repay a reverse mortgage before it is due? 

Yes. Reverse mortgage borrowers can start paying back the loan before it is due. There is no penalty for paying back a reverse mortgage loan early.  

What if the reverse mortgage loan balance is more than what the home is worth?  

Reverse mortgages are non-recourse loans. Borrowers will never owe more than the loan balance or the home’s value, whichever is less. This means if the sale of the home does not cover the full amount of the loan, neither the borrowers nor their heirs are personally liable for the shortfall.  

[Source: HUD HECM Handbook

Are heirs obligated to pay back the reverse mortgage loan? 

No, heirs are not obligated to pay back a reverse mortgage loan. If they don’t want to keep or sell the home, they have the option of signing the deed over to the lender or doing nothing and allowing the property to go into foreclosure.  

How much time do you have to pay back a reverse mortgage? 

A reverse mortgage loan becomes due and payable as soon as a triggering event occurs. If the heirs want to sell the home, lenders typically provide six months to complete the transaction. Two 90-day extensions are typically provided if it can be demonstrated that the heirs are actively trying to sell the home.  

What happens if you don’t pay back a reverse mortgage? 

Just like with a traditional mortgage, if you don’t pay back the reverse mortgage according to the agreed terms, the lender will be forced to foreclose on the property. 

Each homeowner’s financial situation is unique. The best way to ensure that all questions you have about your situation are addressed is to talk to one of our reverse mortgage advisors.  

Many of our reverse mortgage specialists have decades of experience in the mortgage industry and have helped older homeowners solve various problems.  

Reach out today by filling out the form on this page or by using our directory to find a reverse mortgage loan officer in your area.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.