#76 Using a reverse mortgage to avoid investment withdrawals
REVERSE MORTGAGE “STANDS IN” FOR PORTOFOLIO DRAWS
Given the state of the economy, you can’t help thinking you should have waited before retiring. You’d done quite a bit of careful planning in terms of arranging systematic withdrawals out of your investment accounts, but with the recent sharp increase in everyday costs, you’re afraid the system will lead to running out of money. While you’re pleased with your (thankfully) paid-off and newly remodeled home, the utility costs have escalated along with everything else.
Your investments have suffered only minor – and only recent) declines, but you’re concerned that growth in value will be, at best, modest over the next several years. Withdrawing more than the originally planned monthly amount seems risky; even the originally planned amount would put stress on the portfolio value. Meanwhile, after decades of maintaining absolutely zero credit card debt, you’ve been forced to allow some balances to carry over from previous months’ spending posing yet another reason for concern about the predicted near-term rise in interest rates.
A reverse mortgage on your home can help support your monthly income needs, either by supplementing your portfolio withdrawals or, at least in the near-term, replacing them entirely. Unlike the credit card debt you mention, you will pay no interest on un-borrowed funds in your reverse mortgage line of credit, and costs will be significantly lower than those on credit card borrowing. What’s more, unlike a regular line of credit at a bank, with a reverse mortgage line of credit, as long as you have a remaining balance, your line of credit can never be frozen or closed. In fact, the unused portion of your credit line grows, using the same rate at which the loan accrues interest!
Thankfully, as you said, you’ve been able to accumulate housing wealth. Now might be the time to let that housing wealth do the job of supplementing, or even “standing in” for your portfolio draws.