Withdrawing funds from your nest egg in down market years can severely shorten its life causing retirees to possibly run out of money, so why do people do it? The answer is that many people do not have access to funds outside of the market to draw from.
For senior citizen homeowners who have ample equity a HECM standby reverse mortgage line of credit can help solve this problem. By drawing on the line of credit in down years instead of the nest egg, it allows your portfolio to regenerate and grow, and once it gets back to where it was, stop drawing off the line of credit, and go back to the withdrawing from the portfolio.
There is a study on this exact strategy that was done in 2012 that compared a scenario over 30 years, taking withdrawals with and without having a HECM standby reverse mortgage line of credit and the numbers were nothing short of astonishing
It took a $400k portfolio designed to last for 30 years and it ran out of money in less than 25 years. Why? Because they took funds out every year, even in market down years.
Then it was compared to having a reverse line of credit, and that same portfolio not only lasted the full 30 years, it ended with having over $1,000,000 left. Compare zero to $1,000,000. That’s because in the down market years, they didn’t take from the portfolio, they took withdrawals from the HECM line of credit, allowing their portfolio to regenerate.
Don’t take my word for it, I have a link to a 7 minute video presented by a former money manager, who presents the case study highlighting these figures. I usually show this video to financial planners but I think the general public needs to see it as well. I will provide the link to the video below. Just know I am an expert in reverse mortgages and if you have any questions, feel free to email, call or leave a question or comment below.
Here’s the link.
Best KW