Taking debt into retirement can negatively impact your lifestyle during your golden years, but taking a mortgage into retirement almost guarantees cash-flow problems later in life when medical and long-term care bills take over.
But many baby boomers are doing just that, maintaining a mortgage, credit card debt and having no stable retirement plan outside of Social Security.
Baby boomers have been dubbed the sandwich generation, paying for long-term care for their parents and college tuition for the children. They’ve burned both ends of the candle and had little money left to pay off the mortgage or fund their retirement.
But for some boomers over age 62, there may be a viable option. A Home Equity Conversion Mortgage (HECM) for purchasing a home, not just any home … your final home. No this isn’t Henry Winkler’s reverse mortgage income as seen on TV. This is a huge opportunity to purchase your retirement home, your home with perhaps half of the purchase price and no mortgage payments. There are limitations on these loans, but for most, those limitations are well within their allotted purchase price.
Many boomers take mortgages into retirement because their interest rate is so low and their cash position gives them a degree of comfort. But in retirement, it isn’t about asset accumulation or even cash liquidity; it’s about cash flow.
As an example, let’s assume you want to purchase your retirement home for $600,000 and you have the cash for it. You could use the HECM loan for seniors and pay $300,000 and live in the home the rest of your life and never have a mortgage payment. (Keep in mind you still have annual property taxes and home insurance to pay.) With the $300,000 left over, you can purchase guaranteed lifetime income with a cost-of-living rider to pay for your domestic expenses during retirement. The combination strategy can be a strong financial first step.
With no mortgage payment and your living expenses paid with an annual increasing income, you’re free to invest whatever funds you have or do some leveraged legacy planning for your charity, children or both. But this dual strategy can build a foundation of financial security, so you can enjoy your golden years like they were meant to be. Watch the video interview with popular platform speaker, author, retirement software developer and adjunct professor at the American College, Curtis Cloke, talk about having no mortgage in retirement and guaranteed income you can’t outlive.
Syndicated financial columnist Steve Savant interviews popular platform speaker, best selling author and adjunct professor Curtis Cloke. Curtis is also a leading retirement software developer and has been ranked as one of the top advisers in the country.