Investments Going Backwards? Put Your Mortgage in Reverse, Too
According to USA Today, if your retirement account had $500,000 invested in the average stock mutual fund at the beginning of 2008, it lost $170,000--courtesy of the worst year for funds since Lipper began tracking them in 1959.
You Can't Get Blood from a Turnip: Replenishing Retirement Funds
Those young enough to ride out the debacle are lucky; but if you have to sell when prices are at their lowest it won't be pretty. And frantically unloading shrunken stocks and buying CDs won't cut it either. Retirement strategist Bill Losey of CNBC's On the Money states that "Locking in losses and moving to low-yielding alternatives during a market down turn can lengthen the time needed to recoup your IRA." For example, a portfolio down 30% will take 18 years to recover if invested in all cash (2% return assumed), while it would only take 3.7 years to recover with a riskier stock portfolio returning 10%.
So the key to rapid recovery is to buy more while stocks are cheap. But while experts are advising people to "invest more" to top up retirement portfolios, you might not be in a position to do that. So how can retirees blindsided by nose-diving investments avoid selling in a down market, and perhaps even replenish those diminished funds?
Reversing the Trend with a Home Equity Conversion Mortgage
One silver lining in all this economic black cloudiness is that short-term interest rates are incredibly low. And the rates on home equity conversion mortgages (HECMs), or reverse mortgage loans, are down there, too. A typical LIBOR-based HECM with a 2.75% margin would carry a rate of 4% today. So if you're 62 or better, you can pull equity out of your home to top up retirement funds--and take advantage of the stock market's eventual recovery.
Seniors can also get their money in monthly installments or even a line of credit if they prefer--with a line of credit, you only pay interest on the money you use. A reverse mortgage could allow you to ride out the recession in style and live the life you deserve--without exchanging your home for cheaper digs, paying real estate agent commissions, closing costs, and incurring the hassles of purchasing a new place and moving.
Find a Happy Ending with a Reverse Mortgage
A study by AARP found that 90% of seniors who took out reverse mortgages were glad they did. They relieved financial worries. They received cash that won't have to be repaid as long as they occupy their homes. HECMs are regulated by the US Department of Housing and Urban Development (HUD) so their fees are limited by law. New legislation has increased the amounts that can be borrowed, and the balance owed can never exceed the value of the property; the borrowers' heirs won't ever owe the banks a dime. So if you think some extra cash could help you live happily ever after, look into reverse mortgages. A lot of seniors are very glad they did.
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