Is retirement really harder now?

Is retirement really harder now? Is funding retirement really harder than in years past?

In a nutshell, yes. There are many reasons this is true, but following are the three list-toppers:

First, people are living longer. When Social Security began in 1935 the average life expectancy was 61. Now, life expectancy is almost 86. Most people still work 35-40 years, so retirement savings have to last longer.

The second commonly-cited factor is the disappearance of pensions. Time was when more than 40 percent of Americans had pensions; now only 27 percent do, and that number is dropping with each passing year.

Rounding out the top three retirement issues is the rising cost of health care. The older one gets, the more complex one’s medical issues become. This means consumption of a pricey commodity goes up over time.

Many wealth managers routinely recommend traditional equity lines as a hedge against a monthly shortfall. However, with a traditional line of credit, homeowners pick up a monthly mortgage payment due once they withdraw funds. Because cash flow can be crucially important in the retirement years, a monthly mortgage payment can be a financial burden.

A reverse mortgage is a line of credit. However, it does not have a monthly repayment obligation. This means that if homeowners need a cash infusion and draw on their reverse mortgage line of credit, they do not incur a monthly payment. The loan balance is repaid when the last person on title permanently vacates the home, and the homeowners, heirs, or the estate get all remaining equity when the home is sold.

As is the case with homeownership, property taxes, homeowner’s insurance and home repairs must be kept current, and if there are condo dues or a homeowner’s association, fees must be paid on time.

The FHA-insured reverse mortgage is not exotic, mysterious, nor even particularly complex. It can, however, be a helpful financial safety net when life becomes unpredictable.

No honest lender is ever going to tell you a reverse mortgage is a universally good fit. There are homeowners for whom the time has come to sell their home and transition into other housing. Some are better served by doing a traditional home-equity line of credit (also called a “forward” line of credit). And there are those who benefit from drawing down savings.

But for homeowners who wish to stay at home and plan to leave their savings untouched as long as possible, or for those with tax, inheritance or Medicaid considerations, a reverse mortgage may be the perfect fit.

Laurie MacNaughton [NMLS 506562], President’s Club, is a freelance writer and Reverse Mortgage Consultant with Atlantic Coast Mortgage.

Story brought to you by Scott Underwood  “Alabama’s Reverse Mortgage Guy”. Call me at 205-908-2993.