Reverse Mortgages Compared to Other Retirement Financing Options

We've seen the headlines of financial shortfalls predicted for Social Security and Medicare. Nobody really thinks Social Security is going to totally cover the cost of retirement. A study conducted by the National Association for Variable Annuities found that running out of money is the number one fear of retirees. Add to that the desire for a more active lifestyle and the quest to fulfill lifelong travel, hobby, or other dreams, and the question of how to pay for a lengthy and fulfilling retirement is magnified even greater.

So how are we going to pay for this exciting, fulfilling stage of life called retirement? A reverse mortgage is my favorite answer. Before you consider a reverse mortgage, however, you should consider other options for financing your later life. No financial solution is one-size-fits-all.

The options for retirement financing include:

Option 1: Social Security. While payments are determined by age and earnings, most people receive $800- $1200 month, or receive as much as $2,700 per month if they were a high earner and waited until age 70 to begin collecting benefits. Most people are penalized for collecting retirement early (that is, beginning at age 62), and what Social Security considers the full retirement age continues to rise. For the tail end of the Baby Boomers, full retirement age is 67. To find out about your personal situation, visit
www.socialsecurity.gov or call 1-800-772-1213.

Option 2: Savings. Savings for retirement are usually in the form of an IRA (Individual Retirement Account), Roth IRA, or 401(k). In most instances, money can be withdrawn, without penalty, at age 59 1/2. However, these withdrawals may be taxable, and the benefits may affect the amount of your Social Security check. Simply using money in your savings account or Certificate of Deposit (CD), however, is non-taxable.

Option 3: Part-time work. This is a great way of staying active while also adding to the cash available for retirement. However, depending on your birth year and your age at retirement, you may lose part of your Social Security benefits.