Let’s go back to 1935, to the age of Social Security. When the Social Security program began, one person out of every 20 lived long enough to collect it.
The average life expectancy was 60 years old, and the age to collect Social Security was 65.
Back then, the U.S. was largely an agricultural economy, with a majority of the people in the country farming land. This resulted in what I call the Old Retirement Paradigm:
- Buy property.
- Farm it.
- Pass it down through multiple generations.
These days, children are often leaving home and going out of town, or even a different state to work. That old-fashioned retirement paradigm works less and less in a digital economy.
In this new age, I can’t tell you how many people I work with who run out of money in retirement because life expectancy has increased so much. This has created a need to shift how we approach retirement.
Today, the majority of people live long enough to collect Social Security, which is a good thing! The problem is, there are many doing so. Now, millions of Baby Boomers are retiring and many of them have not planned adequately. The average IRA or 401K has about $90,000 in it. The average social security income is about $1,300 a month. With that combination alone, running out of money could be a distinct possibility, and many people are still trying to recover from the 2008 economic downturn.
For some, if they haven’t done anything else in terms of retirement planning, the one thing they hopefully did was purchase a house. That is because, in retirement, they may be able to supplement their Social Security and IRA or 401k with home equity.
A Home Equity Conversion Mortgage (HECM)* loan allows homeowners to borrow against the value of their homes. No repayment of the mortgage (principal or interest) is required until the borrower dies or the house is sold. It may need to be paid sooner if you no longer use the home as your principal residence, or fail to pay taxes or insurance or make needed repairs. These loans are part of the New Retirement Paradigm and can allow retirees to get the most out of their assets and help secure their children’s future.
You can get more information about HECM and other options here: https://curtismangus.com/types-of-loans/
*(1) at the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; (2) charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; (3) the loan balance grows over time and interest is charged on the outstanding balance; (4) the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; and (5) interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment.