Financial strategies: How to plan for a long life
Just ten years ago, the life expectancy at age 60 was to live to see 82. Today, at age 60, it is expected that you or your spouse will live to be 90. 70 is the new 60! In just ten years, the life expectancy increased by almost ten years! With recent emphasis on wellness and preventive care, along with the current advancements in research and treatments, life expectancy will likely increase again over the next decade. Fascinating where we are headed—but are we prepared financially for that life expectancy?
It doesn’t matter how much money we have—it seems we always need more. No matter how much we save, it’s never enough to protect us against the curve balls life can throw. The cost of medical care, assisted living, life tragedies, etc. can deliver brutal blows to our financial security.
A Nobel Prize winning economist and professor of economics at MIT stated, “The reverse mortgage will be the most powerful—yet largely untapped—tool for retirees to improve their standard of living.” As we head into a longer life span, the reverse line of credit will come into play more and more over the next decade.
To illustrate this point, let’s say we have savings and retirement funds to last until age 80, if both spouses continue to live and receive social security. If we lose a spouse, then we lose the lower of the two socials between husband and wife, and must then do more with just the one income and savings.
How long will that savings last us if interest rates go up and the cost of living, with taxes and other expenses, continues to rise? If, as statistics predict, one spouse lives until age 90, the same statistics suggest that the couple will also run out of savings and retirement by age 82. What happens at that point? Does the state step in and pick up the difference?
I don’t think that math will work. It is the same with Social Security and the tables. It just does not pencil, guys.
By strategically incorporating the use of home equity with a HECM monthly tenure payout as part of this retirement plan, clients may in fact prolong the life of their portfolio, increasing their financial peace of mind.
At Cherry Creek Mortgage, there are several strategies to consider with a reverse line of credit with equity growth. If, at age 62, we open a reverse line of credit and let it grow, it grows tax free at a secured rate that is nearly three times what a bank pays today, yet has the same government security. I will argue that there is not an investment in the country that is government secured and grows taxes free interest and pays nearly 5%. The protected growth arises simply because the line has the collateral of the home which allows the growth and interest to accrue at a higher rate than any other government insured savings or secured investment.
In the reverse line of credit, you can use the funds at any time or you can let them grow and compound, creating that additional savings and retirement. If we are lucky and live a long life and our investments and savings continue to prosper, we may not need our line of credit, so it has not cost you anything. The line is there if we need it in our retirement, and if we don’t, we have not cost our heirs anything—we simply added a tremendous retirement tool.
The line of credit is our safety cushion. It is our long-term health care plan, and it is our disability insurance coverage. We can tap into it if we need it, and if we don’t, it has not cost us anything.
If you have any questions, contact your investment advisor and or registered mortgage planner. The reverse line of credit can be a tremendous strategy to incorporate into a retirement plan.
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