Obtaining a HECM allows you to convert the equity in your home to cash that you can spend, improving the quality of your retirement. So, what is the main stumbling block that might hold you back from applying? Well, at the same time the HECM also reduces the equity in your home. You won’t own your home free-and-clear and, perhaps most importantly, your heirs will be left with reduced (or even nothing) in equity to inherit.
We get it — you’ve worked a long time to own your home, and leaving the maximum possible for your family is important to many people. But let’s stop for a second and talk about two key items: determining the best way for your home to be a part of your retirement plan, and redefining “inheritance.”
First, your house: what do you want to get from this asset? Chances are good that you either want to stay and age in place, or you want to sell it and buy another home that will better meet your needs as you age. As we stated in our first post on this topic, a HECM may be the single best way to help guarantee a roof over your head for the rest of your life. In addition, if your home is well-suited to aging in place and you have income from a HECM, you are far more likely to be able to have in-home care should you need it.
Which leads to the next natural question: what does your lifelong cashflow™ look like in retirement? Take a look at all the existing income sources in your financial plan — including pension(s), Social Security, savings and investment income, and SPIAs — as well as any existing debt. Are you concerned whether you will have enough to cover all your expenses for your lifetime? Setting aside good old-fashioned pride, leaning on family members to make up the difference may not be realistic.
You are not required to draw any money out of a HECM, so at a minimum, it can serve as a source for emergency cash. But taking withdrawals can definitely improve your overall cashflow. Depending on when you obtain a HECM, here are some of the ways using those payments can help:
Increasing your guaranteed monthly income by using the lifetime annuity (tenure payment) option, and without increasing your taxable income (unlike other options such as SPIAs);
Allowing your retirement investments to stay in place longer and continue to grow;
Delaying selling investments during a down market; and/or
Holding off on taking Social Security, possibly increasing that benefit up to the max monthly payment.
Finally (no pun intended), let’s talk about your heirs. What’s more valuable to you and to them: the proceeds from your house or helping them stay on track with their own financial plans? If you are confident that your expenses will be covered with the additional income from a HECM, then your family likely will NOT be inheriting your debts or scrambling to afford care for you on top of their regular expenses. And, of course, they may still be able to access the leftover equity in your home or eventually benefit from other investments you own.
Peace of mind is priceless for you — and perhaps the best kind of inheritance for them.