I’m writing about a trend I see with my reverse mortgage clients and that was echoed in the recent WSJ article below: The reverse mortgage credit line being utilized as a valuable tool in an overall retirement plan strategy: to have it on standby when the stock market takes wild swings like it has the last few weeks, to supplant monthly income from the credit line and halt portfolio draws when it makes sense to halt portfolio draws for a period of time while the market has time to stabilize and recover. This use of the RM credit line as a safety net buffer keeps clients’ retirement life style uninterrupted with a sudden reduction in stream of income.
Once thought of as a “loan of last resort”, increasing numbers of savvy financial planners are encouraging seniors to establish a standby reverse mortgage line of credit as a hedge against the market swings such as we saw last week. Reverse Mortgage Daily expanded upon the WSJ article and I’ve included it here for your review:
(If you would like to skip the article and go directly to information on my Grass Valley, CA reverse mortgage office, and services I offer here locally to Nevada County please click on this link: http://www.SierraFoothillsReverse.com. As Nevada County’s ONLY office specializing exclusively in reverse mortgages, I bring to the table 7 years of RM experience and over 400 successfully navigated and closed reverse mortgage loans)
WSJ: Reverse Mortgages Can Help Buffer Against Market Swings
Reverse mortgages have a place in the conversation about retirement and market swings, prompted by the recent global selloff resulting from Chinese currency pressures. At least, that’s the message presented by Prof. Wade Pfau, of American College of Financial Services in Bryn Mawr, Pa., who was interviewed by the Wall Street Journal this week.
Buying into market dips may be prudent for young investors, WSJ’s Money Beat blog notes, but for those approaching—or already in—retirement, the same rules do not apply.
“That’s not merely because stocks can take years to recover from losses and you have fewer years left as you age,” columnist Jason Zweig writes. “The problem is what retirement researchers call ‘sequence risk.’ The order in which stocks earn good or bad returns can matter—a lot.”
If they rely solely on stock withdrawals, retirees can be forced to sell their investments during market downturns, which can take a toll on the value of their assets.
That’s where a reverse mortgage could come in for some, Pfau tells the WSJ.
“Another possibility, [he says], is to consider taking out a line of credit under the Home Equity Conversion Mortgage program guaranteed by the federal government, using it only during periods when the value of your stock portfolio is declining,” the article writes.
The strategy is one that some financial planners have recommended as a “standby” strategy to weather market swings.
“This way, you reserve the right to borrow against your home at reasonably competitive rates,” WSJ writes. “But you would draw on the money only at times when you would otherwise have to lock in losses on your stock portfolio.”
Written by Elizabeth Ecker http://www.reversemortgagedaily.com
Comments by Shawna McDonald, Loan Officer, NMLS 271335 Sierra Foothills Reverse Mortgage of Beautiful downtown Grass Valley: 412 E. Main Street, Grass Valley, 530-497-3010