If you have read my blog before, then you know I am a big fan of incorporating some of your home equity into your overall retirement plan. Part of the reason that I believe this so strongly is because it has been mathematically proven that by using home equity as part of an orchestrated retirement strategy, you will have more money to use in retirement, you will be more financially secure, less financially dependent on family, and you will have less stress when it comes to your finances. Don’t we all want this?
In addition to the math and all of the reasons that I just mentioned, I also believe that the numbers are simply different today compared to 10, 20, 30 and 40 plus years ago. Think about this, how much was your parent’s home worth when they were your age? Was their home worth $1M or $500K? Probably not, I bet you it was not even worth half that. Many of us feel it is important to provide an inheritance to the next generation. Historically seniors have used their home as part of their inheritance/ legacy planning. The typical “retirement plan” was to spend down retirement funds, stocks, bonds, mutual funds, cash, etc., when you retire and to not touch the home equity…the house was going to be left to the kids as their inheritance. When home prices were $75K, $100K, $150K or even $200K and there were 2, 3 or 4 kids, that was a pretty nice inheritance for the kids.
Today most home’s in Colorado are worth over $500K while many homes are worth close to $1M or more! Given the significant increase in home values, home equity accounts for almost half of retirees total net worth, depending on age, according to the Federal Reserve Bank of Philadelphia. With home prices doubling, tripling and quadrupling over the last 15-30 years, that has produced over $11.6 Trillion of senior home equity in our country. This is producing a much larger inheritance for the kids these days, but at whose expense? Was the goal to leave $11 Trillion to the next generation?
Let me ask you a few questions. Are you skipping out on vacations or weekend trips with your friends or loved ones? Are you mowing your own lawn in the summer because you “can’t afford to pay someone”? Are you dealing with deferred maintenance in your home because you “can’t afford to get it fixed”? Are you living on a fixed income like social security or a pension and cutting monthly expenses to make ends meet? Are you feeling pinched financially and yet you are planning to leave all of your home equity which is hundreds of thousands of dollars to your kids? You are not alone…many people are second guessing if they in fact want to leave that much money behind for their heirs…especially if they can safely access some of their home equity and spend some of their hard earned equity on living expenses, home improvement projects, vacations and even gifting to their heirs or non-profits.
The new reverse mortgage is better, safer, and more flexible than the old days. The reverse mortgage today allows you to access a portion of the equity in your home based on your home’s value, current interest rates, and the age of the youngest borrower. The percentage you can access typically ranges from 30-60% of your home’s value. You can access your equity using 3 different strategies: a lump sum, a monthly payment, or a line of credit. You can also use a combination of any or all of the these 3 strategies. You are only charged interest on the amount of money that you take out and you are not required to make any monthly mortgage payments as long as you live in the house, pay your property taxes, and maintain homeowner’s insurance. The interest is deferred until you decide to pay the loan back, you sell the home, if you no longer live in the home as your primary residence or after the last borrower permanently leaves the home (moves into an assisted living facility as an example or passes away).
So, how much money do you think is appropriate to leave to your heirs?
