As the stock market shows more regular signs of increased volatility due to ongoing concerns related to the COVID-19 pandemic and inflation, older Americans who are active in the market might find that a tool like a reverse mortgage could present some stability, and a potentially calming influence for those nerves in specific situations. This is according to Steve Vernon, president of Rest-of-Life Communications and former consulting research scholar in the financial security division at Stanford University’s Center on Longevity.
“For most retirees, there’s a good chance you’ll experience a few more stock market dips and crashes during your retirement years,” Vernon writers in a new column at Forbes. “The trouble is, nobody has reliably predicted when the stock market will drop or crash. As a result, you’ll want to develop investment and draw-down strategies that help you ride out future stock market drops, even without knowing when they might occur.”
One such strategy involves “building a base of guaranteed income,” and a reverse mortgage is one such financial tool that can help provide additional cash flow to meet that goal, Vernon says.
“Examples of guaranteed income include Social Security benefits, pensions, annuities, bond ladders, and tenure payments from reverse mortgages,” he explains. “If you haven’t already started your Social Security benefits, one of the best steps you can take is to develop a careful delay strategy to maximize this valuable benefit.”
Another tactic is the reverse mortgage product itself, specifically a line of credit, he says.
“This is a variation on the ‘cushion’ idea, but instead of using the funds set aside in your cushion, you’d plan to tap the line of credit to pay for some of your living expenses during a stock market crash,” he says. “You’d also stop making withdrawals from your stock investments until they’ve recovered from the market drop.”
Vernon has spoken with RMD on a few occasions to relate his journey toward understanding reverse mortgages more fully, previously saying that the product category should not be dismissed out of hand nor universally accepted.
“I do want to educate people to dispel the myths that are out there, and then just consider the real factors [about] whether it will work for you or not,” he told RMD in 2019. “There are people who dismiss them out of hand, and then there are people who think they’re the greatest thing since sliced bread. For me, it’s in-between those two.”
For financial advisors, this means exploring any tool of viability to introduce more stability into a client’s finances. If that includes a reverse mortgage, it should not be off the table of consideration, he explained.
“I would say [advisors] should be discussing all the tools that are open to the client, just as a trusted advisor, and giving them the pros and cons,” Vernon said in 2019. “I think a financial advisor is in a position to be that person who just helps the clients think through what might work for them. I see the numbers, and you have lots of people approaching their retirement years with inadequate savings, and many of them have more wealth in their home than in their 401K.”
Read the new column by Vernon at Forbes.
