Did you know that 36 percent of baby boomers plan to retire almost exclusively on Social Security? This 2014 statistic by the latest Transamerica Study on Retirement is actually more frightening than it seems. In the 2007 study, 26 percent of baby boomers planned to use Social Security as the basis for their retirement. Fixed income dependence appears to be on the rise.
There are benefits to fixed income, of course. Social Security provides a safety net, and annuity payments provide security for the long term. Unfortunately, the fixed income can’t do it all. While monthly payments provide a steady income with cost-of-living adjustments, they can’t bridge the gap when an emergency strikes. It can be challenging for your client to find a large lump sum if he is relying almost exclusively on steady, fixed income.
Fortunately, there are several ways to turn fixed income payments into emergency cash. You and your client will need to find the best solution based on the time frame, amount needed and fixed income and assets into lump sums.
It can be challenging to part with assets and many of your clients will balk at the idea of selling off special items in order to raise cash. They may be holding real estate that they inherited from their own parents or perhaps a special boat or motorcycle that represents some of their freedom in retirement.
When it comes down to it, however, selling a camper you use once per year to raise money for medical bills or major housing repairs just makes sense. Sometimes selling big items makes the most sense – you obviously will make more selling the car nobody drives – but you can make quite a bit selling smaller items as well.
Many retirees are sitting on treasure troves of collectibles and antiques. Encourage your clients to have an estate sale or find a few carefully chosen items to sell through the classified or a local auction house. Old jewelry and watches alone may raise thousands of dollars.
If there are no physical assets to sell, it may be that your client can sell some of his fixed income. There are firms that encourage retirees to sell pensions, and that may wind up being in your client’s best interest once you sit down to crunch the numbers and look at other long-term options for income.
You might also look at settlements and current annuities. Selling the annuity or settlement to cover the emergency costs might be a safe solution, particularly if you reinvest the remainder of the lump sum payout for continued income streams. Selling only part of a settlement has the same end results as well – some cash in hand and more in a continued income stream.
Lump sum from reverse mortgages
For many retirees, the home is the biggest asset. It doesn’t make sense to sell the house outright unless this is part of a bigger retirement strategy such as moving into a new community. But if your clients are scrambling for a large amount of cash and they own their home, a reverse mortgage may present a solution.
With a reverse mortgage, your client sells his home back to the bank in exchange for a lump sum payout, a line of credit or an annuity. The homeowner stays in his home, and the loan is paid off when the home is sold.
Since it’s possible to take out a reverse mortgage only one time, your client should plan this move very carefully. It is advisable to take out only the minimum amount needed for the current emergency and then leave the remainder of the funds available as a line of credit for any future needs.