Reducing Retirement Risk with Home Equity
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Home equity is a powerful risk management tool that many higher net-worth individuals and their advisors are starting to explore.
Historically, financial professionals ignored home equity in retirement planning for a simple reason – there was no effective way to access it. Not long ago, the only ways to exploit home equity were to sell the home or refinance it and take on a monthly payment obligation.
Also, pensions were once thought of as the cornerstone of an effective retirement plan, not home equity or assets. But retirement planning has shifted to be more asset-based. Seniors hold nearly $10 trillion in home equity according to the National Reverse Mortgage Lenders Association. In addition, today’s reverse mortgage solutions make including home equity in a comprehensive retirement plan an attractive option.
With reverse mortgages, homeowners can tap into the equity they’ve accrued, up to $4 million in income-tax-free proceeds. That gives them unprecedented access to funds that would otherwise lay dormant. These monies can serve as an excellent hedge against property value and investment portfolio risk – risks that could disrupt a retirement plan. In addition to hedging, home equity can provide a flexible option to cover long-term care expenses, taxes, and other unexpected events. These funds can be accessed without impacting the household budget since no monthly payments are required. This access to capital can provide liquidity, options and flexibility to a financial plan that might not otherwise be available.