Six years into retirement, you’re only now beginning to feel the “pinch” from the increase in everyday living costs. Generally speaking, you consider yourself fortunate, able to maintain a comfortable lifestyle, pursuing your arts and theatre-related pastimes. Widowed eleven years ago, with both children financial self sufficient and living abroad, you take comfort in your circle of friends and neighbors.
From your own IRA rollover account and an investment account funded by your late wife’s insurance proceeds, you have been taking fixed monthly withdrawals. Those withdrawal amounts were calculated based on the value of the accounts years ago; fortunately, you have never succumbed to the temptation of increasing the withdrawals as the account values rose. So far, the 2022 drop in stock market value has not forced you to reduce the withdrawal amounts, but now you are being forced to reconsider.
The plan has always been to remain in your home, which you have kept in good repair and which is not only fully paid for, but, you imagine, based on sales in the neighborhood, worth tens of thousands more than it was when you retired. Still, with interest rates on the rise, a home equity line of credit seems a less than attractive solution to your need for income.
Since your plan is to remain in your home for the rest of your life, a HECM reverse mortgage set up as a line of credit might be the path for satisfying your needs. With the rise in your living expenses beginning to outpace your withdrawals from the two investment accounts, you could use withdrawals from the line of credit to augment your income, perhaps even reducing taxable withdrawals from the IRA (withdrawals from the HECM line of credit are tax free). In this way, you will be using your housing wealth (which, as you’ve noted, has most likely grown over recent months).
Unlike the case were you to take out a second forward mortgage, with the reverse mortgage you will continue to be responsible for homeowners insurance, property taxes, and upkeep expenses on your home, but no principal or interest payments will be required until you move or die.
In a way, having three sources from which to draw income allows you to “look both ways”. When your stock and bond based accounts eventually recover , you can revert to taking – and even increasing – your monthly withdrawals, reducing withdrawals from the line of credit., Important to realize is that the untapped portion of your reverse mortgage line of credit will be growing at the same rate as the interest charged on amounts you withdraw.
Looking to the future, your hope is for a stock market rally to well restore the value of your IRA and investment accounts, allowing you to adapt withdrawals to the rising costs of living. For the present, using your own housing wealth might ease the wait.