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Retirement Planning > Retirement Investing

Reverse mortgages still gaining traction

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As current and future retirees look for more ways to finance a comfortable retirement, reverse mortgages are gaining more time in the spotlight. No less a Hollywood icon than James Garner can be seen on TV speaking out in favor of reverse mortgages. Despite the original Bret Maverick’s endorsement and advertising from a host of companies, the federally insured loans have failed to gain a wide audience … yet.

Research from the Fidelity Research Institute shows that only one in eight current retirees has considered using home equity as a retirement financing vehicle. Nearly 80 percent say they have no plans to do so. But, among those who have yet to retire, only 59 percent say they are confident they won’t have to tap into home equity in retirement. As reverse mortgages gain more exposure and the baby boomers retire in larger numbers, reverse mortgages may become a more prevalent strategy.

The Fidelity Research Institute found that reverse mortgages and other homeequity strategies work in certain situations, but it encourages retirees and pre-retirees to consider factors such as the following when thinking about the use of residential real estate in their retirement plans:

  • Americans shouldn’t count on home equity as a significant retirement funding source.
  • Downturns in real estate are cyclical and recurring, and they can inflict severe damage on a retirement plan that relies too heavily on home equity.
  • Historically, investment returns on residential real estate have been lower than on stocks and bonds.
  • Over-investing in a home can absorb resources that could earn higher marginal returns if invested elsewhere.
  • The emotional aspects of homeownership can present significant barriers to the use of home equity.
  • Decisions on precisely how to tap home equity require careful analysis and the financial and emotional tradeoffs change as retirees age.

As costs fall and perceptions change, implementing a strategy that utilizes home equity will become easier.

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