Sunday, April 21, 2013

Reverse Mortgages
(Federal Trade Commission)

With the housing market beginning to recover, tapping into home equity may once again become a larger part of retirement planning.  The article in the link above contains a good explanation of reverse mortgages from the Federal Trade Commission.

My original March 2010 article describing the general actuarial process for developing a spending budget (which is the foundation for this entire website) indicated that accumulated assets to be input into the provided spreadsheet generally would not include home equity.  That opinion was the conservative actuary in me talking.  I have recently revised the original language as follows:

If you believe that you will eventually have access to some of your home equity (as a result of downsizing to a smaller, less expensive home or apartment, or through a reverse mortgage that will pay you a lump sum or monthly payment while allowing you to remain in your home) and you want to factor the value of this future action in your spending plan, you can include an estimate of the present value of the net equity you expect to receive in the amount of accumulated savings you input in the spreadsheet. Note that doing so is less conservative than not anticipating such action and could leave you more vulnerable to future financial surprises, such as unanticipated medical or nursing home costs.