Houses on stacks of coins and calculator on dollar bills

Home prices in many markets have gone up recently.  This is leaving many retirees with sticker shock when it comes to trading up, or even trading down.

Consider Anna and Olaf who are in the process of selling their $400,000 home.  They’ll be left with net proceeds of approx. $364,000 after paying 9% in sales expenses (transfer taxes, real estate commissions, etc.).  The new house they want to purchase costs $500,000, leaving them $136,000 short.

  • Option 1: sell or liquidate $136,000 worth of investments or retirement assets. They will need to “gross up” the withdrawal for taxes if the funds are in a taxable account such as a conventional 401(k).  Assuming a 25% tax bracket, they will actually need to withdraw $181,333 from the account, pay their 25% income taxes, and walk away with net proceeds of $136,000.  Ouch!
  • Option 2: use a $136,000 Home Equity Conversion Mortgage (HECM), also known as a “reverse mortgage”. In this case, there would be no monthly mortgage payment.  Anna and Olaf could preserve their retirement assets and buy their new home without any impact on their cash flow.

Please contact me for more information or if you’d like for me to run the numbers for your situation.

Retirement Resources

Although most retirees expressed the desire to age in place, less than half had really considered any strategies to leverage their home equity as a retirement income source. Since most retirees were not set on leaving the home to their heirs, they may be open to the possibilities of using home equity as a retirement income tool to support the goal of aging in place. However, only 49 percent of the respondents had a comprehensive written retirement plan in place and many of the respondents who had financial advisors, 40 percent, did not have a comprehensive written retirement plan. A good comprehensive retirement income plan should take into account where the retiree wants to live in retirement and should also discuss home equity as either an income or legacy tool, depending on the individual client’s goals, desires, and needs. Doing some homework on the potential advantages of using home equity in retirement would benefit retirees and their advisors, especially if aging in place is the desired outcome.

Source: Net Worth Data from U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 10; Present value of Social Security benefits based on a worker with $60,000 of wages, and a same aged nonworking spouse. The worker's PIA is estimated at $1,557 (calculated using the Social Security Quick Calculator). Benefits are claimed at 66 and the worker dies at 84 and the spouse at 89. Present value was based on a 0% real rate of return (a current approximation of the risk free rate of return)

Retirement Timing


A lot of discussion about “sequencing of distributions” has been taking place recently in financial planning circles.  “Sequencing of Distributions” looks at the order in which you take distributions from your retirement account.  This matters because the order in which you take distributions has a very significant impact on how long your retirement assets will last.

Consider the two examples illustrated in the chart.  Column 1 has the same amount of distributions scheduled for the next five years, regardless of how the market performs.  Column 2 changes the amount of distributions in years 2, 3 and 4, based on the performance of the market.

A reverse mortgage line of credit can be used to supplement your income in the years where you take a reduced distribution from your retirement account.  This could preserve your assets for a longer period of time, and give you more flexibility as the market fluctuates.

Please see a financial advisor for more details on how to evaluate a better distribution sequencing strategy for your situation.  Please contact me for more details on how a reverse mortgage could help.