“It’s critical for seniors to fund their longevity,” said Steven Sless, who manages the Owings Mills branch of Primary Residential Mortgage Inc. and is a certified Long-Term Care Professional well-versed in seniors’ needs.
“People need to do a financial plan to ensure they can have financial independence throughout retirement,” said Katherine Bays Armstrong, a private wealth advisor with Heritage Financial Consultants, in Hunt Valley. “I don’t know how many people realize how important that is, but it is extremely important.”
Armstrong recommended a multi-step approach to planning. The first step, she said, is to take an inventory of what you have financially, including all assets, savings and home equity.
The second step is to have a good understanding of your income sources in retirement, including such things as Social Security and pension benefits.
The third step, which many are reluctant to look at but which she said is equally important, is to estimate your expenses in retirement.
“When you think about it, it’s about income and expenses,” she said.
One potential source of income with a shaky reputation is reverse mortgages.
Reverse mortgages, which allow homeowners 62 and older to convert their home equity into cash without making monthly mortgage payments, were designed to allow older men and women to tap into what is often their biggest source of savings. But over the years, reverse mortgages have earned a bad rap.
Investopedia, a website that focuses on investing and finance education, says that while the mortgages can be a smart way to get needed cash, they also can mean spending a chunk of your equity on interest and loan fees, might make it impossible to pass your home down to heirs and could mean you outlive the mortgage proceeds.
Sless agreed that reverse mortgages are not for homeowners on a very limited income and unable even to pay their taxes and home insurance. However, he is a fierce advocate for reverse mortgages as a way for many older homeowners to plan a comfortable retirement.
“It’s not meant to be a Band-Aid-type loan,” Sless said. “It needs to be part of an overall retirement income strategy.”
Sless stressed that reverse mortgages work in a variety of ways. Homeowners can get lump-sum payments, monthly checks, a line of credit and more, and can choose to make monthly mortgage payments or not. They can be customized to fit the homeowner’s needs and financial situation.