klaus
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Jan 5, 2009, 7:36 AM
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The current economic downturn has undoubtedly created hardships for retirees, as the recent meltdown in the financial markets has essentially erased nearly a trillion dollars in value from investments held by shareholders. Those at the younger end of the spectrum, say people in their early 60s will have an opportunity to regain some of that lost wealth, as the economy cycles through its correction and returns to a sounder footing in the near future.
Retirees with indexed pensions are the lucky ones, in that their financial woes are minimized by those indexed pensions. Maybe they’ll spend a few weeks less in some sunny clime or forego that new luxury car purchase, but by and large the economy will have little effect on this group. However, those living on the proceeds of their investments are caught between a rock and hard place as the value of those investments has decreased substantially, in most cases by 35% or even more. So all of a sudden the wealth they thought they had isn’t there, which is likely making for some sleepless nights.
There are strategies that can be utilized to minimize the effects of this recession, albeit, the bursting of the real estate bubble has created difficulties in the utilization of at least one of those strategies, the reverse mortgage. If you are retired and living in a home that’s mortgage-free, then you are able to tap into some of your home’s equity to tide you over the tough times. Admittedly, the amount of money available to you has decreased, as bankers are now looking very conservatively at loans secured by real estate. But having said that, through a reverse mortgage you can still receive between 40% and 60% of your home’s appraised value in one tax free lump sum and you theoretically will never have to pay it back so long as you live in your home.
Suppose you mortgage-free home is appraised at $200,000, a reverse mortgage will enable you to get your hands on between $80,000 and $120,000. This is money that can tide you over until the markets correct themselves and regain an upward trajectory. More importantly, it will allow you to hang on to those investments without having to take the loss by selling them off. $80,000 to $120,000 in tax-free money can go a long way and a reverse mortgage can just be the vehicle that will see you through the tough times, if you manage your money prudently.
In my opinion this is a very good way of putting a reverse mortgage to work you. It enables you to maintain your lifestyle at a level to which you are accustomed, while you can give your investments and opportunity to catch their breath, so to speak.
Personally, I’ve always liked the idea of a reverse mortgage. Your heirs may not like it, but hey, given that the probate fees and taxes on your estate will likely exceed what you take out in equity through a reverse mortgage, it pretty well works out even-steven. Besides, your heirs should be able to look after themselves.
If you’re in a financial bind and wondering how to survive the next couple of years with investments that have been diminished by the recession, take heart and look into the possibility of tapping into some of your own hidden wealth. It makes sound financial sense.
Klaus Rohrich is President and Creative Director of Taylor/Rohrich Associates Inc., a marketing and advertising firm that specializes in niche marketing retirement real estate developments
http://www.maturitymarketing.com.
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