Should My Parents Take Out a Reverse Mortgage?

Middle aged adults may be reaching a point in their life where they have children preparing to leave the house.  In turn, they may also have parents ready to retire or recently retired.  Sometimes parents retire because they reach a certain age - for instance when they are eligible for Social Security or their pension.  Regardless of how these retirees arrived at retirement, if your parents are part of that crowd, it’s definitely important to have “the talk” with them.  I know it can be uncomfortable, but an honest conversation about their financial planning is definitely the responsible thing to do.

It’s not uncommon for recent retirees to have simply done some back-of-the-napkin math to plan for retirement.  They know their income, figure they don’t spend very much or have many expenses, and that’s about it.  However, there are a lot of factors that should be considered when financially planning for retirement.  Luckily, even if your parents are already retired, it’s never too late to start.

Here’s a some items for consideration:

• A complete financial review of income, expenses, and any recurring debt.  Things like fixed monthly expenses and/or recurring debt are important to identify and compare with the income sources each month.  This will be a good start to determine if there’s enough money to pay the bills.  The opposite side of the coin is if there’s too much cash on-hand that’s not earning interest.  This creates an opportunity to put money to work in a variety of ways.
• Have a cash flow plan.  Many times, retirees think they have enough money to cover their retirement plans, but once they retire, they learn that’s not always the case.  Of course, there are also other factors that impact cash flow like inflation or life expectancy that are important to review.  One area that can be overlooked is current assets like a house.  Once your parents retire, they may own their home outright or have a significant amount of equity.  Using the equity in their home to help with cash flow can be achieved with a Home Equity Conversion Mortgage (HECM) - the most common type of reverse mortgage available.  These loans may provide the supplemental cash flow needed to help fund retirement or offset expenses that are now realized.
• Review any existing investments.  Often when adults begin working, they set their investment strategies in their portfolios to ‘aggressive’ and never change it.  It’s important to figure out where on the spectrum investments may be and adjust accordingly.  
• Make more frequent adjustments (or create) estate plans.  If things like a living trust were created decades ago, it’s a good idea to ensure that those named in the plan are still the right people.

These are just tip of the iceberg items to begin thinking about or discussing.  If your parents are now retired and a little unsure about their finances - or their cash flow options - it’s a good idea to meet with a Certified Financial Planner.  They can help with things like establishing a net worth, a full review of income and expenses, and how to adjust investments.  

If your parents have already done so, and they are thinking about a HECM, the team at Equity Access Group can help them learn more about a reverse mortgage.