Can a Reverse Mortgage Help Preserve My Retirement Savings?

Yes, a reverse mortgage can help preserve your retirement savings by reducing the need to draw down your nest egg for everyday expenses, debt payments, or big purchases. It taps your home equity instead, letting you stretch your savings further into retirement without adding monthly mortgage payments. This can be a game-changer if you’re worried about outliving your savings or want to keep a financial cushion intact. Here’s how it works, with options to stay put or relocate.

How It Preserves Savings

• • Replaces Withdrawals: Instead of pulling from your 401(k) or IRA for bills, repairs, or healthcare, you use home equity via a lump sum, monthly payments, or credit line—leaving your savings to grow or sit as a safety net.
  • Eliminates Mortgage Payments: If you’ve got an existing mortgage, a reverse mortgage can pay it off, freeing up cash flow so you don’t dip into retirement funds to cover it.
  • Funds a Move: An HECM for Purchase lets you sell your home, buy a new one (maybe cheaper or better suited), and pocket leftovers—boosting savings without draining them upfront.

Mechanics

• • Eligibility: You’re 62+, own your home (or have a low mortgage), and it’s your primary residence. Taxes, insurance, and upkeep stay your responsibility.
  • Amount: Depends on your age, home value, and rates—more equity and older age mean more funds.
  • Repayment: No monthly payback; the loan’s settled when you sell, move out, or pass away, typically via the home’s sale, not your savings.

Savings Protection in Action

• • Debt or Expenses: Pay off a $20,000 credit card or $50,000 in medical bills without touching your IRA.
  • Income Supplement: Take $1,000/month from a reverse mortgage instead of your $500,000 nest egg, delaying withdrawals so it earns interest longer.
  • Downsizing: Sell a $400,000 home, buy a $250,000 one with an HECM, and bank $150,000—padding savings instead of spending it.

Quick Example

• • You’re 70, with a $350,000 paid-off home and $300,000 in retirement savings. You need $2,000/month to live, but Social Security only gives $1,500. Without a reverse mortgage, you’d pull $500/month from savings—$6,000/year, shrinking it fast. With a $175,000 reverse mortgage as a credit line, you draw $500/month instead. After 10 years, your savings stay at $300,000 (plus interest), while the loan’s $90,000—preserving your nest egg.

Does It Fit?

• • It’s a savings-saver if you’ve got equity to spare and want to delay drawing off of your retirement accounts. It’s not about growing wealth but stretching what you’ve got.

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts