Among a series of major decisions anyone should make in the decade leading up to retirement is what can be done about any outstanding debt that could threaten the stability of fixed income and investment sources. One potential path through the debt navigation process could be a reverse mortgage, according to a new column published in the online edition of Entrepreneur magazine.
“Debt and retirement are not typically a desirable combination,” the column reads.”This is true even of low-interest debt like a [traditional] mortgage. And when you are on a fixed income, you definitely don’t want to have debt with varying interest rates (think adjustable-rate mortgage).”
Generally speaking, not everyone’s tolerance for debt in terms of how it could interact with a senior’s existing assets will be the same. Nevertheless, exploring all of the available option to mitigate its impact on retirement stability is extremely important, and one such tool that can assist in this is a reverse mortgage, the column describes.
Such an instrument may be a form of debt, but it is one that – for the right borrower – can actually enhance retirement stability because of the repayment structure.
“There may be situations where debt is acceptable in retirement,” the column reads. “For example, a reverse mortgage may be a good decision depending on your situation. But, as a general rule, debt reduction should be a strong priority for your final years before retirement.”
Beyond potential implementation of a reverse mortgage, there are seven other critical decisions that should be made in the decade preceding retirement, according to the column. These include laying out a general plan for your life; determining exactly what your needs will be based on assets and living situation; refocusing your assets and income on yourself and/or your spouse if supporting children; and avoiding major life changes which can be particularly disruptive in the decade preceding retirement.
Others include taking the time to find ways and strengthen savings; reining in any “adventurousness” in terms of your investment portfolio through an aim to insulate your investments from volatility; and making contingency plans should something unexpected and financially disorienting take place. Utilizing “buffer assets” can be important, which has been used to describe reverse mortgages recently due to pandemic-induced market volatility.
“Make sure to build buffers that help you weather these changes with ease,” the column reads.
“One time-tested rule of thumb is having six months of living expenses in liquid assets (some now recommend a year). And, even though it is uncomfortable, make sure your estate plan covers unanticipated situations like the untimely passing of you or your spouse.”
The more time that is taken to plan in advance, the more someone will be able to enjoy retirement more fully by minimizing unnecessary stressors that may crop up whenever possible, the column says. Including a reverse mortgage in the list of potential solutions could be illustrative of more general product acceptance as a retirement planning tool. However, recent data also indicate that seniors remain reticent to tap their home equity.