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The Best Strategies For Your Retirement to Protect Your Wealth Through the Worst Economy Ever
First we’ll look at where we’ve been in the past and then we’ll look into the future and find some strategies we can implement to protect our assets for the future. If you are over 80 you are one of the few people who know in detail what happens when you experience major depression, even if you were young at the time, you may have heard stories from your parents or relatives. .
The Depression hit in 1929 when the entire US economy collapsed, causing many wealthy people and some not so wealthy people to end their lives because they had no protection. The key to survival is to have a fail safe program that will protect against total failure. The difference between 1929 and today is that every aspect of today’s economic depression is worldwide. issues; Then there are hundreds of crores of people in the world. Most people today do not realize that most of their wealth is in the biggest investment they have ever made and that is their home.
Yes a home is and is for most people the biggest investment of their life! Home and equity in the US that is sitting unused is estimated at more than 2 trillion dollars; Only for people over 62 years of age and growing faster than any other segment in the country today. This is true even though home prices across the country have been falling for the past 5 or so years.
You see, equity in your home means you’re rich unless you work to solve a problem for yourself, a fact that most people don’t understand. If you have $200,000 or more in equity in your home, or even less, you are House Rich and Cash Poor! Realize that owning a home and owning it doesn’t mean you don’t have any payments that your equity can do for you unless you have the cash to do things that will increase your cash flow or extend your life. Many years without stress. Here’s the problem, you have a net worth of $200,000 or whatever, but a situation arises in your life that if you don’t have the cash to deal with the problem, you have the net worth but you can’t spend it. Invest to solve your problem or increase your wealth.
So let’s see some strategies!
Increasing your income tax free
To maintain the standard of living, some older homeowners are starting to convert home equity into monthly income. This approach is a relatively new concept that has gained momentum with the development of reverse mortgages. Financial professionals are also beginning to explore various options to use home equity and increase annual income. The foundation of retirement security is traditionally compared to a three-legged stool consisting of savings, pensions, and Social Security.
Recent economic trends suggest that this traditional approach is becoming less effective. The savings rate among Americans has fallen significantly since the 1980s—hitting its lowest level since the Great Depression in 2004—though it has been trending upward recently. Adding to these cash shortfalls is the decline of defined benefit plans, leaving many Americans facing a future with less guaranteed income in retirement.
As the cost of living continues to rise, many older Americans find it difficult to make ends meet. Researchers estimate that nearly 78% of elderly households do not have enough resources to survive their retirement years. Baby boomers are concerned about increasing their standard of living. Older workers who expect inadequate retirement income, or a less reliable source of income, such as a defined benefit plan, are more likely to use home equity for retirement expenses.
Increasing monthly annual retirement income means deferring Social Security payments. Retirees receive a smaller monthly benefit at age 62 and progressively larger benefits each month they defer until age 70. Elderly widows may benefit the most, as deferrals will increase the expected value of their monthly survivor benefits. People nearing retirement may continue to work to supplement their monthly payments, as well as those of their spouses and other dependents. However, this option can be difficult for workers in physically demanding occupations and workers limited by health issues. To help workers who expect to live longer and who need to retire before age 70, some financial professionals are recommending a term home-equity loan or reverse mortgage to cover day-to-day expenses for a few years until they qualify for maximum Social Security benefits. .
Another option for older homeowners to ensure retirement income is to purchase a “longevity” annuity with their savings and tap a small amount of home equity to cover the financial gap until they start receiving their annuity payments. Longevity annuities require smaller investments than immediate annuities because they usually don’t start payouts until after age 80 or 85. This approach may be attractive to older Americans who worry that buying an immediate annuity will cost them money for unexpected expenses or leaving a bequest. Consumers should carefully examine the fees associated with longevity annuities as they can be expensive.
This option is the least stressful and safest of the three, requires the least on your part, and is the easiest to complete. You can get the best of both worlds by using your home equity and not using available savings or other tools. Let’s look back a few decades and see what has become available that was never before available to many people especially seniors over 62 years of age. As they age, people are increasingly likely to have costly health problems disrupt their family budgets. When they cannot pay their monthly loan, they can lose their home.
A recent study found that at the end of 2007, more than 684,000 homeowners age 50 and older were delinquent in mortgage payments or foreclosure. A reverse mortgage allows older homeowners to defer monthly mortgage payments on a traditional home loan. Borrowers (or their heirs) do not have to repay the loan until the last borrower dies, moves out permanently or is vacated for a period of 12 months. About 46% of reverse mortgage borrowers surveyed by the organization paid off their regular mortgages this way. Some are transferring their existing home loan to meet the requirement that the reverse mortgage be in primary lien status. Anecdotal evidence suggests that an increasing number of older homeowners are taking out these types of loans specifically to avoid the need to make monthly mortgage payments.
Using home equity to manage debt became popular after the Tax Reform Act of 1986 phased out the interest deduction on credit cards, auto loans and most other types of consumer debt while preserving tax deductions for some home loans. Since then, borrowers have shifted from installment plans to tax-advantaged mortgages and home-equity loans to pay for big purchases like cars and appliances. Easier access to credit also provides low-income households with more liquidity to purchase the goods and services they need to stay at home.
Using home equity to manage consumer debt can increase a person’s standard of living. But if this resource is not used wisely, it can become a source of financial insecurity. Older homeowners often take on large amounts of debt without considering the potential impact of these loans on their long-term retirement security. Using a reverse mortgage to defer loan payments can also be risky. Borrowers who use debt financing early in their retirement may have little home equity later in life. As long as borrowers live in their home, they continue to accrue interest on the loan balance. Those who have lived in their home for several years may find that they have very little equity left in their home after paying off the loan.
This can be problematic for older adults who need to move into an assisted living facility or other supportive setting as they become frail and require care. Without adequate funding, some may have to turn to Medicaid to pay for long-term care.
Having a reverse mortgage in place and setting it up is a way to think about things that may or may not happen in the future. The flexibility in mortgages gives you options unlike anywhere else. You control the amount and timing, and you can change it as circumstances change. Additionally; It gives you the freedom to decide what, when, and how you can receive income or payments, and unlike most programs that depend on how you choose to receive, you can never save money no matter what happens in the future. You will never have to return anything in your life after all this happens when you are gone and no longer living in your home as your primary residence.
A reverse mortgage is very versatile in every way, from choosing how the interest accrues over time, to an adjustable fixed rate. You can also choose how you will receive the money all at once or over a period of time or for life. Not to mention that the amount set aside for the future adds up over time. This option is a built in equity line of credit! This part is only available when using an adjustable rate program, but it’s the part that gives you the most flexibility to actually edge against inflation.
Any financial expert would agree that in our later years we need maximum security with maximum flexibility and this is what a reverse mortgage can and will do for millions of seniors. So don’t look at a reverse mortgage as just another mortgage, it’s an ultimate program that can do more to protect your future while providing for today. And then adjust as your own personal situation changes, and one thing you can count on is that your financial situation will change. Not if it will be when.
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