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#38 Using A Reverse Mortgage for Income Planning


David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

In a recent article, Dan Moisand, CFP® notes that predictions about “safe withdrawal rates” in retirement planning are flawed, because they are typically based on the assumption that spending habits will remain level over decades…

Looking back, of all the decisions you needed to make when planning your retirement a couple of years ago, the most challenging for you as a couple was figuring out how much money you’d be spending each year. You no doubt started the process by projecting you’d need 70% or perhaps even 80% of what you were used to bringing home while still employed full time. Then, like most of your friends, you set up a 4% withdrawal plan out of your investment assets, since you’d always been told that was the “safe” way to go.

In the beginning, your plan seemed to be working just fine; in fact, so far you haven’t needed to tap your resources for more than the planned monthly distribution. Your spending patterns haven’t dramatically changed. What’s more, due to the pandemic, you’ve cut back on some of the travel you’d planned. You’re in the habit of rebalancing the asset mix in your portfolio a couple of times each year. Despite all these measures, you can foresee a problem. Inthe event some big expense presented itself, your entire plan could be thrown “off balance”. (Dan Moisand agrees, saying “What can stress a client’s finances is a shock event.”)

There is an alternative. Used as a line of credit from which you can draw as needed for any “shock events”, a federally insured reverse mortgage might provide just the retirement income “cushioning” needed. Any “draws” you take from that line of credit will be tax free. Meanwhile, as long as your regular plan of investment withdrawals is working, your reverse mortgage money will remain in “the account”, growing tax free at the same rate as the current interest plus ½% mortgage insurance premium.

Almost every retirement withdrawal system involves a steady, predicted spending pattern. Problem is, reality is seldom stays in lockstep with predictions. With a reverse mortgage, rather than predict, you can create a reliable backup PLAN.

Not intended as tax advice. Consult a tax specialist.