And how can you plan ahead?
Losing a spouse is easily one of the most traumatic life events you will ever have to face. And the financial uncertainty that often goes along with this loss can make it even more difficult.
Women are especially at risk for financial hardship. Women live longer and often lose retirement income as a result of spending years at home raising children.
We know of a gentleman with terminal cancer who was concerned that his military pension would stop after his death, leaving his widow financially vulnerable. In another case, a woman ‘woke up' a year after her husband’s death and realized that she was running out of money.
In both these cases, a reverse mortgage proved the right solution to the problem.
Could this course of action be right for you?
Here are some things to think about.
How a reverse mortgage works
A reverse mortgage allows you to tap into your home equity for extra cash. You can receive cash, a credit line, tenure, or term monthly payments to help with expenses that you and your deceased spouse used to share.
If you know you’re going to lose a military pension with the death of a spouse, setting up a reverse mortgage ahead of time can be a smart move. Rather than receiving monthly payments, you can opt to establish a reverse mortgage credit line to be used after he (or she) passes. Until you use it, the unused portion of the HECM (Home Equity Credit Line) continues to grow at a rate of 1-2%, similar to that of a loan note rate. This means that by the time you need to use it, your HECM will have grown, and can be a valuable financial cushion when loss strikes.
Here are a few ways in which a reverse mortgage can help you.
- Keeping up with monthly payments like insurance and property taxes
- Allowing your portfolio to continue rising instead of using it for living expenses
- Funding the purchase of a new home
- Making renovations to your current home that allow aging in place
- Paying for long-term care
- Delaying dipping into your Social Security benefits
- Paying down any taxes triggered by a Roth IRA conversion
Reverse mortgages and Social Security
You are eligible to receive Social Security survivor’s benefits when your spouse passes away.
However, if you are already receiving Social Security benefits from your spouse’s work record, you will not receive survivor’s benefits in addition to these. Instead, you will get the larger of the two amounts.
If you claim survivor’s benefits before you reach full retirement age, you will be entitled to between 71.5 and 99% of the benefits, whereas if you can delay until full retirement age, you are entitled to 100%. For this reason, it’s beneficial to put off claiming survivor’s benefits if you are able to do so, in order to access the full amount. A reverse mortgage can furnish you with the freedom to wait.
Since every situation is different, it’s important to discuss your options with a reverse mortgage expert like Angella Conrard and her team.
Reach out today to see if a reverse mortgage could be right for you.
