You may have access to some retirement funds that you aren’t aware of. I’m not talking about retirement accounts, pensions, or savings. I’m referring to tapping into your home equity or selling a life insurance policy, both of which many seniors have access to. Here is how to best utilize these unconventional sources of retirement income.
Reverse mortgages. Many retirees own their home. Home ownership lowers your monthly cost-of-living, but it doesn’t do much in the line of adding cash flow. If you own your home and need access to the equity, there are a couple ways you can take advantage of your home equity without having to sell your house and move. One method is to take out a home equity line of credit, which requires a good credit score and gives you a small line of credit, but doesn’t do anything to improve your cash flow.
Another option is to do a reverse mortgage, which is a good way to access the equity in your home while still maintaining ownership and being able to live in it. Unlike other mortgages, it doesn’t matter which credit score range you fall into or your income level. If you are 62 or older and live in a house that is paid off, you may be eligible for a reverse mortgage.
A reverse mortgage works almost exactly the opposite of a conventional mortgage. Instead of making a monthly payment as you would with a conventional mortgage, you receive money against the value of your home, often in the form of a lump sum payment, a monthly payment, a line of credit to use as you wish, or any combination of these. A reverse mortgage does not have to be paid back until the owner dies, sells the home, or moves to a nursing home or assisted living facility.
Who might benefit from a reverse mortgage: The advantages of reverse mortgages include their flexible payment structures and the ability to use the money however you wish. A reverse mortgage could be a useful tool for people who need a little extra cash flow each month or who need access to a lump sum of cash. However, reverse mortgages can be a little complicated and homeowners are required to sit through a financial counseling session before participating in a reverse mortgage to ensure they are appropriate for the homeowner.
Sell your life insurance policy. Life insurance policies are good for the survivors, but don’t usually benefit the policy holder. However, you may actually be able to sell your life insurance policy to access some of that money now. There is a secondary market for life insurance policies where investors purchase the life insurance policies of elderly individuals for less than the policy’s face value. Life settlements offer some people the chance to cash in on their life insurance policy while they are still living.
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Who might benefit from a life settlement: People who need a lump sum of money now might benefit from selling their life insurance policy to investors. However, you need to keep in mind that you will be required to change the beneficiaries to the investors buying your policy, so this would not be an option for someone who has survivors who are relying on the life insurance settlement for their livelihood. Life settlements also pay out less than face value and the proceeds are taxable.
These unconventional ways to fund retirement may or may not be appropriate for your needs. When in doubt, reach out to a professional financial planner for help in understanding whether or not a reverse mortgage or life settlement is appropriate for your financial situation.