The Best Strategies For Your Retirement to Protect Your Wealth Through the Worst Economy Ever
Posted by Tim Robbins
First let’s look at where we have been in the past and then we will look into the future and get some strategies that you can implement to protect your assets for the future. If you are over the age of 80 you are one of the few people that know what happen in detail when the great depression hit even though you would have been a baby at the time, you must have heard stories from your mom and dad or relatives.
The depression hit in 1929 when the entire US economy clasped, which cause many wealthy people and some not so wealthy people to end their lives because they did not have protection in place. The key to surviving is having a fail safe program in place that will protect from total failure. The difference from 1929 and today is that every aspect of today’s economic melt down is it is worldwide. The issues; there are hundreds of millions of more people in the world then there was then. Most people today do not realize nor do they think that most of their wealth is in the single largest investment that they ever made and that is their home.
Yes the home is and was for most people the single largest investment of their life! The home in the US and the equity that is just sitting around untapped is estimate at well over 2 Trillion dollars; just for people over the age of 62 and growing faster than any other segment in the country today. This is true even though the values of homes around the country have been declining over the last 5 or so years.
You see most people do not understand that fact that equity in your home does not mean you are wealthy unless it is working for you to solve a problem for you. If you have $200,000 or more equity in your home or even a lot less you are what is called House Rich and Cash Poor! Understand that having a home that is yours and owning out right just means you have no payments it does not mean that your equity can do anything for you unless you have cash to make things happen to will either grow your cash flow or maintain your life for many years without stress. Here lies the problem, you have what is called a net worth of $200,000 or what ever, but if a situation in your life appears if you don’t have the cash to fix the problem you still have a net worth but you cannot spend it to fix your problem or invest it to increase your wealth.
So now let’s look at some strategies!
Strategy # 1
Increasing your Income Tax Free
To maintain a standard of living, some older homeowners are starting to convert home equity to 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 different options for using home equity to increase and annuitized income. The foundation for retirement security has traditionally likened to a three-legged stool consisting of savings, pensions, and Social Security.
Recent financial trends suggest that this conventional approach is becoming less effective. The savings rate among Americans has declined significantly since the 1980s-reaching its lowest level in 2004 since the Great Depression-although it recently turned upward. Compounding these cash shortfalls is the decline of defined benefit plans, which leaves many Americans facing a future with less guaranteed retirement income.
As the cost of living continues to rise, many older Americans find it hard to make ends meet. Researchers estimate that nearly 78% of all older adult households do not have sufficient resources to sustain them through their retirement years. Baby Boomers are also concerned about being able to maintain their standard of living as they grow older. Older workers who expect inadequate retirement income, or a less reliable source of income, such as a defined benefit plan, are more likely to plan to use home equity to pay for retirement expenses.
To increase monthly annuitized retirement income is to defer Social Security payments. Retirees receive a reduced monthly benefit at age 62 and progressively larger benefits for each month they postpone benefits up to age 70. Elderly widows could see the greatest benefit, since deferral would increase the expected value of their monthly survivor benefits. To maximize their monthly payments, as well as that of their spouses and other dependents, people near retirement could continue working. However, this option may be difficult for workers in physically demanding occupations, and those who are limited by health problems. To help workers who anticipate a long life, and who must retire before age 70, some financial professionals are recommending a term home-equity loan or reverse mortgage to help pay for everyday expenses for a few years until they are eligible for maximum Social Security benefits.
Another option for older homeowners to ensure retirement income would be to buy a “longevity” annuity with their savings, and tap small amounts of home equity to fill financial gaps until they start to receive their annuity payments. Longevity annuities require a smaller investment than an immediate annuity because they usually do not begin payouts until after age 80 or 85. This approach could be attractive to older americans who worry that purchasing an immediate annuity will leave them little cash to pay for unexpected expenses or to leave a bequest. Consumers should carefully examine the fees associated with longevity annuities, since they can be expensive.
This option is one that reduces stress and also is the safest option of the three, it requires very little on your part and is the easiest to accomplish. By utilizing the equity in your home and not using available saving or other instrument you can have the best of all worlds. Let’s look back a few decades and see what became available that had never been available before for many people especially seniors over the age of 62. As they age, people face a growing possibility that a costly health problem could disrupt their family budgets. When they cannot make their monthly loan payments, they may lose their houses.
A recent study found that by the end of 2007, more than 684,000 homeowners age 50 and older were delinquent in mortgage payments or in foreclosure. A reverse mortgage allows older homeowners to defer monthly mortgage payments on a conventional home loan. Borrowers (or their heirs) do not have to repay the loan until the last borrower dies, permanently moves out, or vacates for a period of 12 months. About 46% of reverse mortgage borrowers surveyed by orgainizations have paid off their regular mortgage in this way. Some are transferring their existing housing debt to meet the requirement that a reverse mortgage be in primary lien position. Anecdotal evidence suggests that growing numbers of older homeowners are taking out this type of loan 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 deduction for interest on credit cards, auto loans, and most other types of consumer debt while preserving tax deductions for certain home loans. Since then, borrowers have shifted from installment plans to tax-advantaged mortgages and home-equity loans to pay for major purchases such as cars and appliances. Easy access to credit also provided lower-income households with greater liquidity to purchase the goods and services that they need to continue to live at home.
Using housing wealth to manage consumer debt can enhance a person’s standard of living. But if this resource is not used wisely, it can also be a source of financial insecurity. Older homeowners often take on sizable debt without considering the potential impact of these loans on their long-term retirement security. Using a reverse mortgage to defer debt payments can also be risky. Borrowers who use loan funds early in their retirement may have little home equity later in life. Borrowers continue to accumulate interest payments on the loan balance as long as they stay in their homes. Those who continue to live in their homes for many years may find that they have little or no home equity left after they repay the loan.
This could be problematic for older adults who need to move to an assisted living facility or other supportive setting as they become frail and in need of care. Without sufficient funds, some may need to turn to Medicaid to pay for long-term care.
Having Reverse Mortgage in place and setting it up I a way that takes into consideration of things that may or may not take place in the future is what a Reverse Mortgage is all about. The flexibility within the mortgage affords you the option unlike anything else anywhere. You control the amounts and timing and you can change it as situation change. In addition; it gives you the freedom to decide what, when and how you can receive income or payments and unlike most of programs depending on how you choose to receive you can never out live the money no matter what happens in the future. You will also never in your lifetime have to pay anything back it all happens when you are gone and no longer live in your home as your primary residence.
The Reverse Mortgage is so versatile in everyway from choosing how interest charges accumulate over time meaning a fixed rate verses adjustable. You can also choose how you will receive the money either all at one time or over a specific time period or for life. Not to mention you can also have the amount that is set aside for the future grows over time. This option is the built in Equity Credit Line! This part is only available when using the adjustable rate program, but it is the one that really gives you the most flexibility for a real edge against inflation.
Any financial expert who is worth a grain of salt has to agree that in our latter years we need the maximum amount of security coupled with the maximum amount of flexibility and that is what the Reverse Mortgage can and does for millions of seniors. So don’t look at the Reverse Mortgage as just another mortgage, look at it has the ultimate program that can do more things to protect your future and provide for today at the same time all it needs is to be setup properly from the on set and then adjusted as your own personal situation changes and there is one the thing that you can count on it that your financial situation will change the is no doubt about this. It is not IF it is when.
Tim Robbins,Sr I am a senior Reverse Mortgage Specialist. My main goal is to provide the best education resources available and to always place the seniors interest first and foremost. My website is designed to give you all the available information which you can review either in print or video by visiting http://bestmortgageplans.com for all your senior resources you may need for a good life. Also contact me Toll free at 800-610-3599 for a Free Report All About Reverse Mortgages receive it via email
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