Planning For Your Retirement

Just 20 years ago, people’s idea of retirement was to stop working entirely one day, and then begin a life that belongs entirely to them. The fantasy could be to travel, look after the grandkids or spend time on hobbies that have been neglected. There was a decided pattern to achieve this. People work hard, save as much as they can for decades, so they can have enough money to last for as many years as possible. Unfortunately, due to inflation, changes in the workplace, and even the kind of jobs that people do, retirement does not always work out that way.

In the past, people lived shorter lives, but thanks to advances in medical technology, global life expectancy has increased. This also means that the retirement period has increased. In America currently, the full retirement age (FRA) for receiving Social Security benefits starts at 66 for people born in 1943 and increases by two months each successive year. In the past, the retirement period would range anything from the single-digit to 15 years, but now it could go up to 20 or more years.

Retirement planning is a big subject on its own and knowledge and education about it is both necessary and important. Surveys have shown that not only are older Americans increasingly likely to have debt, their level of indebtedness has grown rapidly relative to their wealth. The driver here, however, is not mortgage debt or other home loans but consumer debt, which includes credit card balances and medical debt among other items. Here are some indicators of whether it’s time to consider retirement:

  • Own or partially own a roof over your head
  • Are free of debt obligations or able to finance existing debts
  • Have adequate health insurance cover for medical expenses
  • Have enough savings or passive income to pay for your retirement lifestyle

Leveraging The Family Home
Ultimately, what decides retirement is not age, but money. We are accumulators, all of us. Yet, not many of the things we want when we are young have value when we are older. One of the most important things that most of us do invest in, when we are younger, is a house. A house is also one of the biggest investments most of us will ever make in our lives, whether as a single person or a couple. Owning a house however, is not a simple business and comes with many issues that need to be handled. These range from maintenance costs or repair bills, to real estate or property taxes, to insurance costs — the same matters that you need to handle even after you have fully paid for and own the house.

As we age and move closer to retirement, whatever age we decide or plan for it to be in, the house we have paid for or are still paying for can be useful as a factor in our retirement plans. If you live in America, you have the option of a reverse mortgage. Homeowners have to be at least 62 years old and to have considerable equity in their homes. A reverse mortgage can be used to eliminate a traditional mortgage and free up cash flow for the homeowner. By borrowing against their equity, seniors can gain access to cash for cost-of-living expenses, which includes keeping up payments for property taxes, maintenance, and insurance for the house, after they’ve run out of savings or other sources of income.

Understanding Reverse Mortgages
There are three types of reverse mortgages: single-purpose reverse mortgages provided by non-profits and state and local governments, Home Equity Conversion Mortgages (HECMs) backed by the US Department of Housing and Urban Development, and proprietary reverse mortgages from private lenders.

A reverse mortgage may sound simple and attractive but it can be complicated and seniors really need to take the time to look at the pros and cons of reverse mortgages before signing on the dotted line. If you have other savings or insurances or even a side hustle that you can tap on for expenses, a reverse mortgage might be something you want to leave on the backburner. A reverse mortgage would also not be advisable if you have a house that you want to leave to your kids or your kids would like to live in the family home. That said, reverse mortgages have proven a very useful tool in the toolbox of retirement funding for many seniors, and are becoming increasingly popular. Do your research, and choose what works best for you.