Editor's note: This is the final article in a five-part series about all-asset retirement planning that covers such topics as using lifetime annuities and housing wealth, making the most of tax benefits, and managing investment portfolio risk. See below for links to the first four articles.

In writing this series, we saved the topic of managing investment risks in a retirement plan for last. Not because it's either least or most important, but rather, it's an area where things could get complicated, particularly if it got into security selection or hedging strategies that go beyond our retiree's — and even our — expertise.

The reality is we have reduced the investment risk challenge through all-asset planning even before we get to this point.

Market volatility

Let me give you some context and background. Just as we did in the article Treat Home Equity Like Your Other Retirement Investments, we measure how investment markets perform by using the historical performance of benchmark portfolios over the past 30 years. No measure can predict the future, so we're comfortable with historical.

During the past 30 years, the S&P 500 index has twice dropped more than 20% for the entire year. So, with, say, $1 million in the market invested in an index fund of S&P 500 stocks, that would be a more than $200,000 reduction in market value in a single 12-month period.

Now, we know stocks recover, but if you were newly retired or late in retirement, this would be very upsetting and might cause you or your adviser to pull back on stocks — and lose the opportunity to regain that market value.

This is particularly an issue if you're liquidating a portion of your portfolio each year to fund, for instance, withdrawals/distributions (RMDs) from your IRA account.

The graphs below show the volatility of the S&P 500 using compound annual growth rates for five- and 20-year periods ending in the calendar year indicated.

Note in particular how the returns tend to stabilize as the holding period lengthens. The key appears to be to "stay the course," even in the face of adverse short-term performance.

But just as important is the understanding of how market performance could drive your plan's results.

How an all-asset plan already reduces investment risk

Let's see how all-asset planning has already reduced this risk — and made it more manageable. The first step in our planning is to combine the S&P 500 portfolio with a fixed income bond portfolio to create a Balanced Portfolio used in the rollover IRA account.

There is no return or tax reason to keep these investments separate for a rollover IRA account, and it also has the advantage of reporting a blended return. These graphs show the blended returns for those same five- and 20-year periods.

While reducing the risk over the long term by allocating to a fixed income portfolio, there is still stock market risk.

Steps to manage the investment risk

Despite the lowering of risk with a Balanced Portfolio, your plan is impacted by the stock market returns, and you may want that risk reduced.

Here are some preliminary steps already in place in an all-asset plan and covered in our first four articles of this series.

• Include housing wealth in planning. By taking a portion of income in a HECM (home equity conversion mortgage) drawdown, you're reducing IRA withdrawals. At the same time, you're building up liquid savings from, say, the HECM line of credit.
• Include lifetime annuities. While taking care of longevity risk through a SPIA (single premium immediate annuity) and a QLAC (qualified longevity annuity contract), you're reducing IRA withdrawals and, at the same time, reducing investment risk. These annuities provide fixed payments and are backed by highly rated insurance companies.
• Reduce income taxes. As described in our fourth article in this series, The 9% Solution, these first two steps in our example are reducing income taxes by as much as 50% in the first year.
• Use high-dividend portfolio for personal savings. If you're including personal savings in your plan, using this portfolio to increase cash flow from higher dividends also benefits from lower volatility and lower tax rates on dividends.

How much risk is left?

A lot of the work has already been done. For our sample investor ($1 million each in a rollover IRA, personal savings and the value of the home), about $420,000, or 14% of total net worth, is in an S&P 500 index and subject to liquidation to cover withdrawals. (If no personal savings, then it represents 21% of net worth.)

Here are two pie charts that show the allocation of all sources of income, and then focuses on those that are "safe" and not dependent on stock market performance.

The charts show that for our sample investor, a 67-year-old man, 76% of the income is not based on stock market performance.

Managing risks through plan adjustments

Whatever the protections from other assets, how do we deal with any residual risk? First, here's what we don't do in our planning:

• We don't use the HECM line of credit as a planned backstop for the stock market volatility. We have earmarked that for long-term care and unplanned expenses.
• We don't accelerate the income under the QLAC — that's already part of the planned income.
• We don't build in hedges to protect the portfolio.

What we do is look at two time frames:

• The initial five to ten years of the plan when a sharp drop in the market could reduce your retirement savings and upset your long-term plans. That's called a sequence of returns risk.
• A period of long-term underperformance where you literally might not have funds to cover the planned-for IRA withdrawals.

For the first time frame, we suggest thinking about allocating a portion to a money market fund. Our current model suggests an allocation into a money market fund of about two to three times the average IRA withdrawal during this initial five- or ten-year period.

This will be sufficient if we make withdrawals from the fund in adverse markets over the initial period.

Based on our early tests with historical performance, it pays for itself and, in particular, addresses the sequence of returns risk.

For the second long-term underperformance, we suggest you consider updating your plan and see how it works with an allocation of the reserve income to current income needs. This action may cut the amount you planned on for long-term care or to pay down your HECM loan to create a larger legacy. You'll be the judge of these options.

While the elements of the all-asset plan are correct, the allocations among asset classes should be set to meet your objectives.

If you have a chronic illness, you might skip the lifetime annuity or at least elect beneficiary protection. And if you have a favorite investment opportunity beyond our planning, then exclude it from your retirement plan and possibly accept a lower income or legacy.

About the recent news regarding inflation

With the announcement last week that inflation had jumped to 3.8% in April, we thought it necessary to address the inflation risk as one that needs management.

To put it in perspective, over the 30-year period ending in December 2025, there have been 11 five-year periods where inflation exceeded a compound average of 2.5%.

One straightforward approach would be to increase the assumed inflation rate built into the plan from 2.0% to 2.5%.

With this change, our sample investor (a man age 67) with $2 million in retirement savings and $1 million in the value of his house would see starting income drop from $131,000 to $124,000.

Now, what to do about short-term inflation jumps like the current 3.8%? You can accept the inflationary adjustments as they occur. Or, to avoid any income reduction, draw on, say, the HECM line of credit or other sources of savings.

Alternatively, you could set aside a slightly larger amount in the money market fund designed for stock market volatility and draw on it when needed to deliver the higher income.

Notably, since the most recent five-year period had a compound average of nearly 4.5%, it's smart to keep an eye on inflation.

Why now?

For decades, retirement planning has focused almost entirely on investment portfolios. The implicit assumption is that a well-diversified portfolio — managed prudently — can solve every retirement challenge.

Maybe it used to be true, but that assumption no longer holds. As suggested above, the construction of an all-asset plan can reduce the risks and the impact of adverse effects of the stock market.

Just remember, the all-asset plan is delivering the highest levels of income and liquid savings. It also has the lowest early tax rates and market risk. To find out for yourself, you can order a complimentary plan.

The other articles in this series

• It's Time to Redefine Retirement for Retirees With $500,000 to $5 Million
• Unlock Housing Wealth and Tax Benefits by Adding Lifetime Annuities to Your Retirement Plan
• Does Your Retirement Plan Ignore Half of Your Net Worth?
• The 9% Solution: An Expert Guide to Retirement Tax Breaks That Could Cut Your Tax Rate Nearly in Half

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor's note: This is the fourth article in a five-part series about all-asset retirement planning that is covering such topics as using lifetime annuities and housing wealth, making the most of tax benefits and managing investment portfolio risk. The first articles are: It's Time to Redefine Retirement for Retirees With $500,000 to $5 Million, Unlock Housing Wealth and Tax Benefits by Adding Lifetime Annuities to Your Retirement Plan and Does Your Retirement Plan Ignore Half of Your Net Worth?

So many details factor into retirement planning: Income needs, how much to leave to heirs, protection against long-term care costs and, just as important, leisure and travel.

And then there are taxes.

Don't read this article for advice on avoidance. Taxes must be paid. You can exert some control over how much you pay, however, and when you pay them.

In the first three articles of this series, we've talked about the components of a successful retirement plan and the Three L's — Lifetime Income, Liquid Savings and Legacy — retirees are trying to achieve.

Of course, the success of any plan is very much determined by factors outside your control — tax laws and regulations, market volatility and your health and related expenses. We've tried to address the last with a new source of liquid savings in the form of HomeEquity2Income. The next article will address how to protect your plan against market shocks.

Here we'll address the impact of taxes on the Three L's — and how to take advantage of any tax breaks in the law, especially for income.

Detailed analysis of taxation of income

First, let's look in more detail at how retirement plan income is taxed, including where taxes can be deferred and how rollover IRA and personal savings compare as sources of income and tax.

Here are the income items that make up our plans, listed by tax efficiency:

Every retiree may not enjoy the tax advantages of each income source, but understanding what is available and how they work, separately and together, helps with planning. When we discuss legacy-related taxes later in the article, remember these income advantages, too.

Income tax objectives and measures

While there are planning models that can simulate a tax return, none, according to our research, can actually "optimize" results. The tricky part may be to prepare the correct set of more limited objectives.

Here are several measures of tax effects we'll use in this article:

• Income tax rates at start and at age 85
• Before and after-tax return on investment (ROI)
• Percentage tax cost: Difference between before- and after-tax ROI

Because certain tax rules and our planning models use age 85 as a pivot point, in calculating the ROI, we assume consistent tax rates from the start date to age 84 and from age 85 to 95. We use the percentage tax cost in measuring the impact of taxes on all-asset planning models vs. traditional Investment-only planning.

The challenge is to create a plan that meets, as best it can, the Three L's on a before-tax basis and to make sure that the specific allocations and elections don't take away that advantage on an after-tax basis.

Income tax analysis for a sample investor

To show how all the pieces above fit together, we built an All-Assets Plan for a sample investor, a 67-year-old man with $1 million in each of these three buckets: Rollover IRA, personal savings and value of the house.

Set out below is a detailed analysis of the first-year tax.

You will see there is a large amount of "safe" income in this plan, or income that is not affected by the sale of an asset, and therefore is something you can count on despite market fluctuations. In this plan, only $47,000 of IRA withdrawals out of $167,000, or 28%, require that assets be sold to generate the income.

Further, the chart is based on standard deductions, which our investor is assured of. In periods of high health-related expenses or inflation on property taxes, for instance, our investor might be able to itemize and create a larger tax deduction.

The payoff is that for this "safe" plan, the taxes represent an average of 9.0% of total income. (Note that this rate will not apply to the lifetime of a plan. The rate will vary from year to year and will increase at age 85, barring any large increase in deductible expenses.)

Compare to a traditional investment-only plan

In a traditional Investment-only plan, with no lifetime annuities and no housing wealth, the following work against tax efficiency:

• Only uses investment products without special tax benefits
• Higher allocation to fixed income portfolio with interest that is fully taxed
• No allocation to "safe" lifetime annuities and no benefit from tax incentives
• No tax-free HECM drawdowns to supplement income
• Greater need for withdrawals from IRA to generate income

Under this approach, there is a greater need for Roth conversions, which create their own tax breaks by first incurring taxable conversions.

In the investment-only plan, here are the key first-year results:

• First-year income is lower at $140,000 vs $167,000
• First-year tax rate is higher at 16.4% vs 9.0%

Extending an All-Assets Plan to age 85

While the income advantage for the All-Asset Plan continues for the early retirement years, most of that tax advantage reverses itself at age 85 when certain tax breaks end. Using the same methodology as above, the tax rate goes up as the tax-deferred benefits end.

However, the income amounts go up as well, particularly QLAC, and thus there's more income from that source — again pushing out the time for withdrawals.

At 85, the All-Asset Plan develops income of $238,000 and an estimated tax rate of 17.1%. The traditional investment-only plan income at 85 is $200,000 with an 18.5% estimated tax rate.

In the All-Asset Plan, we also provide for QLAC reserve income to pay for either the higher deductible expenses, taxes or both.

Tax analysis of legacy savings

Most of the tax attention above has appropriately been on income, particularly in the early retirement years. However, the amount paid out at passing (legacy), should get your attention as follows:

• Housing wealth. Step-up in basis of the value of the original home at passing
• Sale of house. Tax paid at sale, with some significant deductions
• Personal savings. Step-up in basis at passing
• Rollover IRA. Taxable at 100%
• Roth IRA. Not taxable

As we've written about before, aging in place — if it can avoid the sale of your house — can be a huge tax benefit.

Comparison of an All-Asset Plan to traditional investment-only

To put both the income and legacy elements together, we use the ROI as a measure of the economic return, considering both before- and after-tax income and legacy. Here's the summary between all-assets and investment-only planning.

In its simplest terms, you can save money when you take into account how taxes affect your retirement. Bottom line, the tax-cost advantage of an All-Asset Plan vs a traditional investment-only plan as measured here is .7%. That seems small, but not when compared with, say, advisory fees in the .5% to 1% range.

Housing wealth, personal savings and even Social Security benefits offer potential tax deferrals and savings. When creating a retirement plan, think about other tax benefits, such as deferring certain taxable events.

The tax code offers certain tax breaks that can improve your retirement outcomes. It's up to me and others in the advisory space to point you to these advantages. As a next step, visit Go2Income, answer a few questions about your current income and future needs and start creating your own plan to grow your retirement income and liquid savings.

Related Content

• For a Richer Retirement, Follow These Five Golden Rules
• This HECM-QLAC Power Move Can Unlock Guaranteed Retirement Income
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• How Your Home Can Fill Gaps in Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor's note: This is the third article in a five-part series about all-asset retirement planning that is covering such topics as using annuities and housing wealth, making the most of tax benefits and managing investment portfolio risk. Articles one and two are It's Time to Redefine Retirement for Retirees With $500,000 to $5 Million: Here's How and Unlock Housing Wealth and Tax Benefits by Adding Lifetime Annuities to Your Retirement Plan.

For most Baby Boomers, their home represents 50% of their net worth, yet retirement planning software and advisers virtually ignore this asset in designing retirement income plans.

A Federal Reserve study shows that the share of net worth in primary residences among households headed by people ages 60 to 69 rose from roughly 40% in 1989 to just over 50% by 2022.

For those age 70 to 79, the share climbed from about 38% to 50% over the same period. In the 15 million mass affluent households led by Boomers from age 60 to 75, the principal residence has an average home equity of $750,000, out of an average net worth of $1.75 million.

In this article, we explore the reasons housing wealth is ignored and why consideration of it can increase retirement income and liquid savings to cover large health-related and uncovered expenses.

Reasons housing wealth is not included in planning

Most retirement planning leaves out housing wealth and ignores the potential of that wealth to generate income or produce liquid savings. This is despite the fact that reverse mortgages, mostly home equity conversion mortgages (HECMs), are heavily marketed.

Our research indicates that planning tools often treat HECMs simply as a "liability for loans made" rather than as a "dynamic liquidity asset" that grows over time. In fact, most planning systems treat a HECM and its growing line of credit essentially as a swap for selling the house to access that cash.

Some reasons for this planning limitation:

Possible objections to HECM. Common arguments include high closing costs and service fees, along with the fear of having the home taken because the loan eats up its value. Also, the "common wisdom" has often been "no mortgages in retirement."

Planning only for income. Income is essential, but full and robust retirement planning should also meet the objectives for liquidity and legacy. The Three L's — Lifetime Income, Legacy and Liquidity — address retiree objectives and should drive planning strategies and tactics.

Just like a business plan, if you prepare and decide first on the objectives of the Three L's, you will significantly improve your chances for a successful retirement.

Adviser licensing. Those advisers doing retirement planning for prospects or clients might be licensed to execute only a portion of a plan, from investments to lifetime annuities and finally to HECM.

They or their firms must form partnerships to implement a plan with all the product solutions that should be considered. That may require one or more large financial firms to create these partnerships or internal organizations that are multi-licensed.

Adviser training and available software. Advisers are often taught to think that housing wealth is a significant but relatively illiquid asset for retirees, which is true if selling the house or borrowing through a traditional home loan are the only approaches considered for accessing equity. Very few planning systems consider the HECM line of credit to provide liquidity.

I've read about these reverse mortgage objections from pundits and heard the same from friends, but as we are focused on providing the best retirement planning results, we had to do our own analysis.

Why housing wealth should be included in planning

Here are some reasons to include housing wealth in your retirement planning:

Addressing unmet needs. As I wrote in the previous article in this series, Unlock Housing Wealth and Tax Benefits by Adding Lifetime Annuities to Your Retirement Plan (link above), a HECM used with lifetime annuities can help mass affluent retirees secure additional lifetime income, tax advantages and liquid savings to cover late-in-life expenses beyond what their 401(k) or IRA savings alone could provide.

Events like long-term care or additional support for children and home renovation when aging in place are unpredictable, which is why an additional source of liquid savings, like a HECM, may be essential.

Cost of accessing liquid savings. There is significant savings in being able to access the value of the home without selling it. The average cost of selling a home is 10% to 15% of its sales price, not to mention the stress involved with moving.

In addition, if the house is sold at a gain, the tax cost can be another 10% to 20% — meaning that selling a house now worth $2 million to generate liquid savings might have a total cost of $250,000 or more.

Special HECM protection. HUD backs every HECM loan, ensuring that the borrower's family will not owe money at the passing of the borrower or eligible surviving spouse, even if the outstanding loan balance is more than the value of the house. HUD insurance covers any difference for the lender.

Consideration of historical results. Assumptions about HECM interest rates and projected housing values are often conservative and misunderstood, particularly if not considered as part of a full range of products.

We did our own study of the past 30 years of house prices and interest rates, available in my article Treat Home Equity Like Other Investments in Your Retirement Plan: Look at Its Track Record. You will see that the results were more positive than generally available projections.

One helpful development is that the National Association of Insurance and Financial Advisors (NAIFA) is building a curriculum that will look at this "most underutilized asset" to better understand how housing wealth fits into retirement planning conversations.

(Breaking news: We just received an invitation to a course on "Learn How to Incorporate Housing Wealth into Retirement Planning" from another organization. Do I spot a trend here?)

Retirement planning that builds in housing wealth

To design the all-asset planning method means thinking about housing wealth differently and aggregating all sources of savings — personal savings, rollover IRA savings and housing wealth — so they all work together during retirement.

Critical to that process is to design a plan with the Three L's guiding your options and using investment portfolios and lifetime annuities to manage taxes and risks. We'll cover those topics in the next two articles.

To start the process of making an informed decision about housing wealth, review one plan "with" and a second "without" that resource. Easier said than done since most planning systems are not enabled to do so.

One can also think of the "with" housing scenario as one suited for retirees who want to age in place (favored by at least 80% of retirees) and the "without" as selling your house to generate income or liquid savings and investment dollars.

The first step in the "with" plan is to access housing wealth through HomeEquity2Income, as described in my earlier mentioned article about unlocking housing wealth, by combining HECM with a qualifying longevity annuity contract (QLAC) to provide not only lifetime income, but also a source of liquidity to pay for unplanned expenses.

For the "without" scenario, we assume the house is held until sold at age 85 with the net proceeds invested as liquid savings along with other savings. A multitude of other scenarios are possible, which should be tested with the retirement planning tool.

Comparing 'with' and 'without' H2I plans

Below is a comparison of two retirement plans for our average retiree, a 67-year-old man with $1 million in each of the three savings sources. The analysis focuses on income, liquid savings and legacy savings.

What we learn from the comparison

The plan "with" H2I is able to support higher starting income ($117,000 vs $131,000) and a higher legacy at age 95 ($7.2 million vs $5.7 million) than the plan "without" H2I.

The primary sources of the "with" H2I advantage:

• HECM drawdowns from age 67 to age 84
• Avoidance of closing costs and taxes on the sale of the home

To be fair, this is a little-explored area and probably needs even more analysis.

Both plans do benefit from the inclusion of lifetime annuities and the reduction of longevity risk, as covered in the unlocking housing wealth article.

The "economic returns on investment" are consistent between the two plans, meaning that the method of aggregating and disaggregating housing wealth is more or less economically neutral.

To me, the advantages of at least considering your home's equity in retirement planning are clear. An asset that amounts to 50% of the savings built over a lifetime can benefit retirees and their families in the near future and in the long term.

Be on the lookout for the next two articles, which will cover tax efficiency and risk management of planning models.

Building a comprehensive retirement plan requires an understanding of what different products and approaches provide — as well as an understanding of how separate advisers on investments, lifetime annuities and HECM might guide you. We believe it's well worth it. To find out for yourselves, order a complimentary plan and let us introduce you to a qualified adviser.

Related Content

• An Expert Guide to How All-Assets Planning Offers a Better Retirement
• This HECM-QLAC Power Move Can Unlock Guaranteed Retirement Income
• For a Richer Retirement, Follow These Five Golden Rules
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor's note: This is part four of a four-part series exploring financial fact vs fiction. Each article examines five of the top 20 most common financial myths — from investments to retirement and Social Security to life insurance. Parts one, two and three — This Roth Conversion Myth Could Cost You, Why Your 'Magic Number' Isn't Actually Magical and Why Inflation Is Lower, But Prices Are Not — covered the first 15.

We've come to the fourth and final installment of our deep dive into the top 20 most common financial myths.

Throughout this series, we've examined a wide variety of topics, from stock and bond performance to retirement readiness, life insurance, Social Security, income taxes and more.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Here are myths 16-20, along with the facts:

16. Social Security and Medicare are 'entitlements' funded by the government (i.e. taxpayers)

Most people think of an entitlement as something they get for free, regardless of whether they work for a living.

But American workers pay into Social Security and Medicare their entire working lives (if you're self-employed, you're paying twice as much), so these programs aren't freebies.

However, it's important to remember that Social Security isn't an income replacement. Those on the lower end of the spectrum might receive about 65% to 80% of their earned income.

Higher-income earners will get a lot less, as a percentage, since Social Security benefits plateau at $61,000 per year for 2025.

Ultimately, Social Security and Medicare are crucial benefits but should ideally work alongside your other investments (company-sponsored 401(k), individual retirement account and self-directed accounts) to provide you with income in retirement.

17. Since life insurance payouts are income tax-free to my heirs, I won't owe estate taxes on these payouts

When someone with life insurance dies, their beneficiaries receive the policy's face value as a tax-free benefit.

But when their spouse or child prepares the decedent's final tax return, the estate might owe state or federal estate taxes, depending on how large the estate is.

While life insurance comes to you income tax-free, remember there are different types of taxes, and the decedent's estate could still be taxed.

If you're wealthy, you should consider taking extra steps to protect your estate. You can do this by transferring your life insurance policy into an irrevocable life insurance trust (ILIT), in which your beneficiaries, not the decedent, own the trust, so life insurance proceeds are not part of the decedent's taxable estate.

Another similar option for married couples is to open a spousal lifetime asset trust (SLAT), which allows the decedent's spouse to live off the income produced by the trust while the asset itself remains in the SLAT and is exempt from estate tax liabilities.

18. Reverse mortgages are 'bad' and make no financial sense for homeowners

As a financial planner, I reject the notion that any one financial strategy is inherently "good" or "bad." I consider each client's specific situation and recommend a plan that is right for them.

While reverse mortgages have gotten a bad rap for years, they can be an effective tool for a specific type of client: people who are income-poor but asset-rich.

Rules and regulations around reverse mortgages and, specifically, HECMs (home equity conversion mortgages) have been updated to protect against most of the problems incurred by consumers decades ago.

Several years ago, I worked with a retired woman who lived in a fully paid off house in a wealthy neighborhood, but had no income outside of Social Security.

She needed additional income, wanted to stay in her home, was estranged from her children and planned to leave her estate to charity. This could be a perfect scenario for taking out a reverse mortgage.

When you obtain a reverse mortgage, you're converting home equity into an income stream. The bank or mortgage provider determines the maximum size of your loan based on age, interest rate and equity.

Unfortunately, in a high-interest rate environment, you can burn through your equity quickly, so borrowers should think carefully about the potential impact it can have on beneficiaries.

Typically, clients have other assets to sell or borrow against for income, so reverse mortgages aren't something I normally recommend, though they can be very effective when used strategically.

19. Since I raised our children and never paid into Social Security, I won't be eligible for Social Security benefits

If you're a nonworking spouse, you can access up to 50% of your working spouse's Social Security benefit while they are alive, meaning that, for example, a woman whose husband qualifies for $4,000 in benefits will qualify for up to $2,000 of her own benefits.

In a case in which the husband dies first, she would then qualify for the survivor benefit at the higher amount, $4,000.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

Additionally, a divorced spouse can qualify for a portion of their former spouse's benefit if they were married for 10-plus years and haven't subsequently remarried.

Your spousal benefit won't impact your ex-spouse's own benefit; they won't even know you're receiving it.

20. Responsible financial planning dictates that individuals should carry life insurance throughout their lifetimes

People often think they need to carry life insurance throughout their lives, but that's wrong. As a financial planner, I look at life insurance primarily as a replacement for income when someone is in their working years and has others who depend on their salary (e.g., spouse, children).

If a couple has had a successful working life, made money and invested it smartly, there might be no need for life insurance, because there is no income to protect after they retire.

There are other reasons to carry life insurance. Wealthy people who own businesses or real estate often take out life insurance for liquidity at their passing.

For example, I used to work with a farmer in the Midwest who owned 1,000 acres of farmland valued at about $10 million; he had no other assets.

By taking out life insurance, he can provide his family with cash to pay any taxes owed on his estate, avoiding a potential fire sale and allowing his heirs to (potentially) continue farming the family's land.

Beyond estate taxes, some people take out policies for philanthropic pursuits, to leave a legacy or establish a scholarship or foundation, but it's unnecessary to do so from a pure income-replacement standpoint.

Knowledge is power. Now that we've gone through the full list of 20 financial myths, you can set the record straight when a friend or relative makes a simplistic or incorrect statement such as "Social Security is going bankrupt," or "investing in the S&P 500 means you're broadly diversified."

Financial planning is complex and not conducive to black-and-white answers. That's why it's important to speak with a knowledgeable professional who can guide you through the process and devise strategies that are right for you, your family and your unique circumstances.

Related Content

• Eight Biggest Financial Planning Myths: How Many Do You Believe?
• Five Retirement Myths vs the Reality
• Should I Get a Reverse Mortgage? Six Questions to Ask First
• Ignoring Your Old 401(k) Could Be a $130,000 Mistake
• IRA vs Roth vs 401(k): Which Do You Pick?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement planning has to change. We're living longer. Social Security is under pressure. Long-term care is costly and getting even more expensive.

Think of your retirement savings as not only your 401(k), IRA and other qualified savings, but also the value of your home. And forget about rules of thumb. Think instead about refinements that make your plan your own.

What's your base plan?

In my previous two articles — Your Home + Your IRA = Your Long-Term Care Solution and What if You Could Increase Your Retirement Income by 50% to 70%? — I described IRA4Income, which delivers more income to meet budgeted expenses along with liquid savings to enable, for example, the coverage of typical long-term care costs.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

We explained how to achieve these results by using financial products that are "off the shelf":

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately (single premium immediate annuity, or SPIA) or in the future (qualified longevity annuity contract, or QLAC)
• A home equity conversion mortgage (HECM) that generates income and liquidity

Those pieces aren't exotic, but with our approach, called IRA4Income, we provide an individual with a "base plan" built around an allocation among and between asset classes, put in place with economic assumptions, such as:

• Rates of return on investments
• Personal planning choices, such as the percentage of increase in income
• Current interest rates based on a survey of annuity and HECM contracts

To measure the value of this planning model, we compared our results to two ends of the retirement spectrum:

• A single premium income annuity (SPIA) that would provide all guaranteed income but no liquid savings
• Investment-only plans with no guaranteed annuity income

Both of those and IRA4Income are based on a consistent set of assumptions.

While quite different in design but with consistent assumptions, the IRA4Income plans provide high starting income, they continue for life, and they have liquid savings late in retirement when the money will most likely be needed to cover long-term care.

Why do you personalize?

As the results below show, a base IRA4Income plan provides attractive results in the two areas we're working to improve: starting income and liquid savings at age 90.

Once you have a base plan that delivers the income and liquid savings, an adviser can help you modify it to better meet your personal objectives. The answer, unlike certain planning methods, is not simply to spend less.

Below, I provide examples of plan modifications, again with an emphasis on starting income and liquid savings.

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How do you personalize?

You can adjust income. A relatively simple way to adjust your starting and ongoing income is to revise the inflation protection assumption. Set out below is an example at different ages of what a change in the percentage increase can provide.

You can manage risk. In refining your plan, do you assume lower or higher assumed rates of return? If you aim for the high starting income you may want to use the base plan assumption of 8%, or a lower rate if you want to take less risk. The differences are shown here.

You can manage your legacy. Annuities are an important tool to create lifetime income in a plan. One feature of these lifetime annuities can be a payout to your beneficiary. You may want to provide beneficiary protection on early passing, as evidenced in the following table.

You can minimize taxes. Retirees who use just one source of savings to fund their retirement — their IRA or 401(k) — will pay taxes when distributions are made. Drawdowns from a HECM line of credit are not taxable and provide some tax benefit.

If taxes are a major consideration, you might consider using a portion of personal (after-tax) savings and reduce taxable portion, as seen here.

Now, create your options

The benefits of IRA4Income include increased income and more liquid savings. This combination of your IRA and your home can increase your income from your IRA-based planning by 50% to 75%.

While that increase sounds great, you have the ability to easily stress-test those results and anticipate long-term care or other events that can be planned for.

To get started, order an IRA4Income base plan as a great starting point for future refinements like those mentioned above.

Related Content

• What the HECM? Combine It With a QLAC and See What Happens
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For many homeowners, the family home represents far more than a place to live. It's often the single largest store of wealth on their balance sheets.

Yet, when it comes to planning for retirement, long-term care needs or estate strategies, home equity remains one of the most underutilized assets.

There are several strategies available to homeowners looking to convert their equity into income or financial leverage:

Home equity lines of credit (HELOCs). These revolving credit lines require repayment and are typically best for short-term or planned expenses. They require good credit and reliable income, but they add debt to the homeowner's balance sheet.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Reverse mortgages. This well-known option allows homeowners to stay in their homes while receiving income. The downside is that interest accrues over time, often significantly reducing the remaining home equity.

Reverse mortgages also include such costs as insurance premiums and origination fees.

Cash-out refinancing. Homeowners refinance their mortgages to take out a lump sum of cash. This strategy can be viable in low-rate environments, but in today's high-interest landscape, it can dramatically increase monthly payments.

Shared equity models. These newer solutions offer homeowners the ability to sell a minority share of their future home value in exchange for cash today.

Typically, this method doesn't involve monthly payments or interest. Like a reverse mortgage, they're nonrecourse, meaning there is no personal liability.

The shift: From debt to shared value

Unlike traditional financing options, shared equity solutions aren't loans and don't require servicing debt obligations.

They're designed to be a strategic enhancement to an adviser's toolkit, helping reposition home equity from a passive asset into an active part of a client's overall financial strategy.

Using shared equity solutions is similar to using cash on hand.

Why it matters now

There is an estimated $35 trillion in home equity in the United States, according to the Federal Reserve Bank of St. Louis, with 41% of homeowners carrying no mortgage debt.

Meanwhile, the cost of retirement continues to rise, longevity risk is real, and funding long-term care is an increasing concern.

At the same time, interest rates and market volatility have made it more difficult for advisers and consumers to rely solely on traditional investment strategies.

Liquidity needs often collide with the desire to preserve and grow assets, supported by the fact that in 2024, according to LIMRA, more than $400 billion of new life insurance, annuity and long-term care insurance premiums were primarily funded with cash or through investment portfolio sales.

That reduces liquidity, creating tax consequences and limiting future investment growth opportunities.

Weighing the tradeoffs and tailoring the strategy to you

Each option presents distinct advantages and tradeoffs.

• Borrowing strategies offer immediate access to cash, but the debt can add pressure in retirement.
• Reverse mortgages reduce financial stress in the short term but diminish estate value and can be complex to unwind.
• Shared equity solutions, such as CHEIFS (Cornerstone Home Equity Insurance/Investment Funding Solutions), where I am the co-founder and CEO, provide tax-free cash without adding monthly obligations, but the homeowner shares a portion of the future home value upon sale or refinance.

No one-size-fits-all solution exists.

The right path depends on your financial goals, income, health outlook and estate planning intentions.

• If your priority is maintaining full ownership, a HELOC or refinance might make sense.
• If your objective is to protect cash flow without monthly debt obligations, reverse mortgages or shared equity models could be a better fit.

The key is to align your solution with your broader financial strategy.

Applications for homeowners and advisers

The versatility of home equity optimization through shared home equity products spans a range of planning needs:

Long-term care (LTC) planning. Homeowners can use tax-free funds to purchase dedicated LTC policies or hybrid life/LTC products, ensuring protection against future health care costs.

Lifetime income. Funds can be used to purchase immediate or deferred-income annuities, helping bridge retirement income gaps without drawing down investment portfolios.

Legacy and estate planning. Liquidity from home equity can fund irrevocable life insurance trusts (ILITs), charitable-giving strategies or intergenerational wealth transfers.

In-home health care. Homeowners can secure funding to age in place, enhancing quality of life while retaining independence.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

In-force policy funding. Clients with valuable existing life, annuity and/or LTC policies can use shared equity solutions to maintain or enhance these assets without cashing out or surrendering valuable benefits.

Pros and cons of shared home equity to consider

Pros:

• No monthly payments or debt service, with no fixed repayment term
• No impact on credit scores or cash flow
• Retention of homeownership rights and lifestyle
• Tax-free liquidity
• Flexible use of funds across planning needs and lifestyle enhancements
• Adviser-driven distribution to align with holistic planning

Cons:

• Future appreciation (and depreciation) of the home is shared with the company you're sharing equity with
• It's not a suitable solution for homeowners planning to sell or relocate in the short term. As the home is partially owned by an investor, it might be more challenging for homeowners to leave their homes as a legacy for their heirs without proper planning

Looking ahead

Optimizing home equity is no longer just about borrowing or downsizing. It's about managing wealth more intelligently to support strategic, tax-efficient financial plans.

Shared equity solutions are modern financing innovations that offer pragmatic alternatives that empower both homeowners and financial advisers to achieve their goals while maintaining control, flexibility and long-term value.

Related Content

• Reverse Mortgages: 10 Things You Must Know
• What Home Equity Is and Why It's a Valuable Long-Term Investment
• How a Home Equity Line of Credit (HELOC) Works
• Refinancing Your Home

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you want to retire with minimum money worries, you have a few options: Marry really well, pick the Powerball along with the other winning lottery numbers or consider a personalized retirement plan that produces high levels of income while maintaining and growing liquid savings late into retirement.

Most retirees need to solve for a couple of problems. They want lifetime income to cover their budget, including the occasional splurge, and a way to pay for the real likelihood of long-term care, which 70% of us will face. We’ll cover that in more detail below.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

A plan that addresses both income and savings

I wrote about how that personalized IRA4Income plan I mentioned above works, in my article What If You Could Increase Your Retirement Income by 50% to 75%?, and here’s a quick description:

IRA4Income is a multi-asset class retirement plan that addresses both income and savings. It will smooth out the effects of market gyrations and unplanned expenses, but for this article, let’s focus on long-term care expense.

Using our Go2Income planning technology, we’ve put the following assets together into IRA4Income:

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately or in the future
• A home equity conversion mortgage (HECM) that generates income and liquidity

This will become important when we need to cover LTC expenses.

How big of an issue is long-term care?

More than two-thirds of retirees will incur an event requiring some form of long-term care.

Here are the median annual costs in 2025, depending on the type of care, according to CareScout and Genworth:

• Home health aide (44 hours a week): $80,000
• Assisted living facility: $73,000
• Semiprivate nursing home: $115,000
• Private room in a nursing home: $132,000

These costs will vary considerably by region. Here’s a projection of average costs considering the duration of a stay for a man, a woman and a couple.

For the purposes of the analysis below, we’ll assume $100,000 per year for five years, for a total of $500,000.

How does a retiree address this challenge?

Long-term care insurance is one solution. However, many don’t qualify or balk at the annual cost, which averages $2,000 to $4,500 per person and usually increases every year.

There often are sizable deductibles, and premium rates are not guaranteed.

Despite these issues, it is worth considering, particularly if you can cover a large portion of the event (deductibles) with your liquid savings.

Another possible solution is to use your liquid retirement savings exclusively, provided it doesn’t have an adverse impact on your retirement income. That’s where IRA4Income comes in.

For a sample male retiree, age 65, with $1 million in IRA savings and $1 million in the value of his house, here are the income and liquid savings with no adjustment for LTC costs.

Looks pretty good. However, that $500,000 event could come at any time.

How to build a self-insured plan

We’ll assume in this example that our retiree doesn’t have LTC insurance. (According to KFF, only 14% of people who are 65 and older do.) So, let’s build a self-insured plan around IRA4Income as follows.

• Set aside a portion of higher income from IRA4Income each year into a new investment account with low income taxes. In our retiree’s case, he’ll take $5,000 per year out of his $75,000 (and growing) income each year.
• When LTC costs appear, withdraw funds from the IRA account first. Since the bulk of the LTC expenses are tax-deductible in his situation, he’s not incurring a large tax bite on these withdrawals.
• Take a portion of the costs out of the new investment account and avoid drawing down on the HECM net line of credit, therefore preserving the highest value of his house to pass to his kids.

Now compare this to building a plan with only an IRA account, allocated solely to investments. Here’s what the savings under these two strategies look like.

In this scenario, the savings run out under the IRA-only strategy, and our retiree will have to sell his house or spend down the assets to qualify for Medicaid to pay for his long-term care.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

How to get started

Here’s a list:

• Check out LTC insurance. The earlier you buy it, the lower the premiums, although the insurance companies are allowed to increase premiums every year. An IRA4Income plan, with its higher income and savings, means your policy can have a large deductible.
• Get an estimate of costs in your region. The cost of services varies significantly, with the Northeast and West Coast being the most expensive. Insurers price policies based partly on expected future claims, so regions with higher caregiving costs lead to higher premiums.
• When building your own IRA4Income approach, request a plan that considers LTC costs. You can decide which options work best for you and make further adjustments until you have a plan that fits the needs of you and your family.
• Make sure your plans are communicated to family members or an adviser.

If you’re ready to consider an IRA4Income plan, visit Go2Income and create your own plan.

Related Content

• What if You Could Increase Your Retirement Income by 50% to 75%? Here's How
• What the HECM? Combine It With a QLAC and See What Happens
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• How Your Home Can Fill Gaps in Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You’ve worked hard to save for retirement in your 401(k) and now IRA — and succeeded. But wait. Your work isn’t done.

If you adopt a plan that combines assets to the best effect, our new IRA study shows average starting income of an IRA4Income plan of 50% to 75% over traditional planning.

Before describing the planning methodology and our study of the results, let’s describe these assets and answer the question, “Why haven’t I heard about this before?”

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

What are these assets? And why haven’t we seen this before?

Are we talking about high-yield bonds, complex annuities or other exotic investments? Nope. In fact, the elements are a little boring:

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately or in the future
• A home equity conversion mortgage (HECM) that generates income and liquidity

What’s unique is that the asset classes come from three separate financial businesses — investments, insurance and mortgages — and the Go2Income planning methodology (a little like AI) has figured out how to put the pieces together for maximum benefit, for all retirement ages and objectives.

If you haven’t heard about this method, it’s because the different businesses operate quite separately, sales forces have their own requirements for what they can sell you, and combining these asset classes requires complying with multiple regulations.

That means most advisers can’t, or won’t, talk about the asset classes they don’t represent.

Consumers don’t share those restrictions and can explore something like my company’s IRA4Income method, which, besides the huge increase in income, creates more liquidity than the IRA alone. By age 85, it can provide nearly double the IRA by itself.

That increase could help to cover, for example, the long-term care costs that 40% of retirees will incur.

How well do these assets have to perform?

Using our Go2Income planning technology, we’ve put the assets together into IRA4Income by first combining two programs: IRA2Income, made up of investments and immediate annuities, and HomeEquity2Income, made up of a HECM and a QLAC deferred-income annuity. (For more on this combo, see my article How Combining your Home Equity and IRA Can Supercharge Your Retirement.)

As you’ll see below, these programs can also be set up on their own to provide benefits, even if you don’t seek the maximum win-win of complete integration into your retirement income plan.

Our study analyzes results for different ages, marital status, IRA savings amounts, value of home and market conditions.

The old rule about taking $40,000 as starting income from your $1 million IRA has been upended, with starting income amounts that range from $60,000 to $80,000, depending on the case.

Highlights from the study

Each case study starts with $1 million from a rollover IRA and $1 million in home value. Besides starting income, the study looks at liquid savings and legacy, making sure we consider all three key retirement objectives. Starting income grows by 1.5% per year until age 85.

Set out below are key results for sample cases, as well as key planning assumptions:

62-year-old man

• Starting income: $70,000
• Total liquid savings at 85: $763,000
• Total legacy at 95: $2,597,000

65-year-old woman

• Starting income: $69,100
• Total liquid savings at 85: $977,000
• Total legacy at 95: $2,659,000

70-year-old couple

• Starting income: $68,200
• Total liquid savings at 85: $1,138,000
• Total legacy at 95: $2,583,000

75-year-old couple

• Starting income: $70,700
• Total liquid savings at 85: $1,115,000
• Total legacy at 95: $2,364,000

Key planning assumptions: Stock market investment returns: 8%; fixed income total return: 5%; allocation to annuities: 30% in an immediate annuity, 20% in a QLAC deferred-income annuity; HECM adjustable interest rate: 7.75%.

Too good to be true?

As with any retirement plan, the study results are based on certain assumptions about the performance of each asset class. The most important aspect is that no one assumption drives the results:

• The lifetime annuity is fully guaranteed and is issued by a highly rated insurance company
• The HECM interest rates are adjustable within limits, but with a large portion of the mortgage interest paid by the QLAC deferred-income annuity
• The IRA investment assumptions reflect an equity return that is lower than average long-term market returns

In setting up a personalized plan, you can customize the assumptions to your risk tolerance.

An IRA4Income plan in more detail

Let’s look at our example investor, Sally, age 70, who now has $1 million in rollover IRA savings and a home worth the same amount. She wants the maximum amount of income, within reason, and liquidity for long-term care costs.

Fortunately, Sally has read our articles and realizes her home is a valuable asset and that she can consider it as a way to ensure her money not only lasts for her lifetime but also provides a resource for unplanned expenses.

The charts below demonstrate how IRA4Income can bolster her spendable income (starting at $71,000) while providing access to savings that could pay for large unplanned expenses after age 85. Her total liquid savings under this plan are nearly $1 million at age 85 and will continue to grow thereafter.

What about taxes? What about risk?

Sally is not obsessed with taxes but would like to understand whether there’s any portion of her income, unlike the IRA, that’s free from tax. She’s pleased that, until 85, about 20% of her income is tax-free.

If we measure risk by the uncertainty of the value of the investment portfolio, a 100% IRA is all at risk, while with IRA4Income, only about 50% is subject to market risk.

If you’re nervous about plunging in all at once, the parts of an IRA4Income plan can be put in place one at a time, following your own timeline.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

As pointed out above, you could start by combining investments with an immediate income annuity (IRA2Income) or access the value of your home with a HECM and a QLAC.

At the same time, you might consider whether to delay claiming your Social Security benefits to get larger payments.

You might be able to wait until 73 (or 75 if you were born in 1960 or later) to take RMDs (required minimum distributions) from an IRA, allowing that income source to grow.

When you consider all your options together, you have choices.

Are you ready to start now?

In these articles, we have worked to explain these financial approaches in clear language so readers can talk knowledgeably with an adviser about what steps to take and when.

Still, there are indications that some people just throw their hands in the air and resolve to live with their savings in different silos for stocks/bonds, annuities and their home.

You don’t have to do that.

Visit Go2Income to order a Go2Income plan that with IRA4Income inside can meet more of your retirement objectives. A Go2Specialist can answer questions about the plan or refer you to a qualified adviser.

Related Content

• What the HECM? Combine It With a QLAC and See What Happens
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan
• Would a Reverse Mortgage Work for You in a Gray Divorce?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a recent article about QLACs, we said, “A QLAC doesn’t make your retirement. It makes it better.”

We offered up several ideas about using a QLAC as part of your plan for retirement income. One was to use a portion of QLAC lifetime payments to pay interest on a reverse mortgage called a HECM, resulting in a combination called HomeEquity2Income, or H2I.

The twofer benefits of a QLAC and a HECM

I’m a numbers guy, and I follow the patter of a former local New York sports broadcaster who used to urge, “Let’s go to the videotape!” for details of the game just played.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

My primary reason for favoring a combination of a QLAC (qualifying longevity annuity contract) and a HECM (home equity conversion mortgage) is what I call the twofer rule applied to both components.

QLAC twofer:

• Save taxes by deferring distributions from a rollover IRA account until age 85
• Lifetime income, also called longevity protection

HECM twofer:

• Additional tax-free income
• New source of liquidity for unplanned or uninsured expenses

To get an idea of how much income a QLAC can generate, you can get a personalized quote using this QLAC calculator. That income, when combined with a HECM as part of your retirement planning process, can help you achieve your retirement goals:

• Lifetime income
• Liquidity to cover long-term care
• A financial legacy for your heirs

And at the same time, you can defer taxes and lower risk.

Here's the triple play when you combine a QLAC and a HECM: By taking care of longevity protection and using some of that QLAC income to pay HECM interest, you dramatically increase the liquidity to pay for long-term care expenses, which a lot of us will face.

A recent report by Morningstar shows that about 45% of all baby boomers will need long-term care — ranging from in-home services to a nursing home — in retirement. The QLAC-HECM combination in the form of H2I allows you to anticipate a long life and also pay for that LTC.

Now, let’s do the numbers and focus on how the right combination can benefit retirees.

Sally's current situation

Sally, 70, has a traditional IRA worth $1 million invested in a stock-and-bond portfolio. She fully owns her home, which has a value of about $650,000. She’s reevaluating her financial situation, particularly with regard to long-term care expenses.

Sally’s adviser told her that with her income spending starting at around $60,000 per year, the IRA alone should last until age 95 if she is careful. (Unplanned withdrawals would upend that plan.)

Having read our previous articles about the benefits of adding guaranteed lifetime income, she considered adding a single payment immediate annuity (SPIA) contract to reduce the risk of running out of money.

She created a plan with a 30% allocation to a SPIA and a 50/50 split between equities and fixed income for the balance. Under this plan, her starting income increases to $63,500, and her money doesn’t run out.

While the SPIA contract in Sally’s plan went a long way to address the “don’t run out of money” issue, she recognized that the only liquid assets would be her rollover IRA account, which she might need for planned and unplanned expenses.

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Her liquid IRA account, starting at $1 million, didn’t run out, as she found out when she “tested” the plan, but it wasn’t adequate to pay for any substantial amount of unplanned or uninsured expenses.

She needs more help in adding liquidity to her plan, especially because when she takes money out of the IRA to pay for those expenses, her remaining savings will produce even less income.

Adding the H2I strategy to her retirement plan

Sally realizes her home is a valuable asset and that she can consider it as a way to ensure her money not only lasts for her lifetime, but also provides a resource for unplanned expenses.

She could simply apply for a reverse mortgage in the form of a federally endorsed HECM that provides not only access to cash but also an increasing line of credit during the life of the loan.

However, the H2I combination provides even greater benefits. That’s because if she converts some of her IRA savings to a QLAC, a form of deferred income annuity, she can use a portion of that income to pay interest on the HECM and preserve more of her liquidity and her ability to leave a legacy to heirs.

The charts demonstrate how H2I can bolster spendable income while providing access to a HECM line of credit that can finance large unplanned expenses after age 85.

Her total liquid savings under this plan reach $968,000 at age 90. And she can draw on it without tax if it comes from an H2I line of credit.

A simple explanation of advantages

Some of you may be skeptical about the benefits that a QLAC and then a HECM can offer together. Here’s a simple description of what you saw above:

1. A HECM taps into the “largest savings source” of retirees (your house, per experts):

• Tax-free cash flow until age 85 from HECM drawdowns
• Finds the liquidity missing from many plans

2. A QLAC provides longevity protection in two ways:

• Increases your guaranteed lifetime income
• Pays a portion of HECM interest after 85 to grow liquidity and legacy

3. A QLAC and a HECM together provide increases in income and liquidity

4. Importantly, that liquidity from a HECM comes without income taxes

And none of the above is subject to today’s stock and bond market volatility.

Visit Go2Income to order a Go2Income plan that with H2I inside can meet more of your retirement objectives. A Go2Specialist can answer questions about the plan or refer you to a qualified adviser.

Related Content

• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan
• Would a Reverse Mortgage Work for You in a Gray Divorce?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you like to oversee your own retirement planning, you have to do some homework. Most of you have gotten used to that and spend time on researching, sorting opinions and putting together the best approach for you and your family. Complicating the process is your need to address three key retirement objectives — lifetime income, liquidity for unplanned expenses and legacy for kids and grandkids. And, of course, you want to lower your taxes and have less market risk.

The product-by-product approach

Choosing among financial product options is sometimes fairly easy and is sometimes more challenging. When you’re comparing, for example, investments against guaranteed lifetime annuities, it’s not that difficult to measure market risk, tax effects and liquidity. It’s rarely an either/or decision, but rather a “how much.”

An advantage of this DIY approach is that you are in control of the decisions. The way to have confidence in your decisions, however, is to look at a plan with the options built in and then exclude those that don’t feel comfortable.

A traditional plan is a start for most retirees

Here’s an example for Sally, the sample investor we often refer to, who at 70 years old looks at her financial situation in two distinct buckets:

• Retirement savings that total $1.5 million, with half in her rollover IRA and half in her personal (after-tax) accounts
• Her home, worth $1 million with no mortgage

She may have another bucket for short-term cash needs or higher-risk investments. These are excluded for this exercise when planning for the three key objectives.

As she developed her traditional plan below, Sally has followed conventional wisdom in at least two other respects:

• She invests her retirement savings 30% (100 less her age) in equities and 70% in fixed income
• She plans to own her home without any mortgage in retirement

That’s about as simple as you can get. However, Sally realized it produces too little starting income ($68,000) vs. her 6% income goal — or $90,000 per year from her savings. (This doesn’t consider Social Security payments or any pension.) Drawing down another $22,000 to start, and increasing that annually to account for inflation, creates the risk of her running out of savings. And the $90,000 income goal doesn’t even consider the costs of long-term care and other unplanned expenses. (For more on this, see my article How ‘Home-Based Planning’ Can Address Long-Term Care Costs.)

Sally’s DIY starter plan is easy to understand, but if spending down your savings is not the answer, then how do you find the right plan design for you?

Start with a plan with the three L’s, then find the products

Begin with your goals, which for most retirees include lifetime income, liquidity for unplanned expenses and a legacy for heirs. To achieve those three L’s, your savings — including equity in your home — can be put to work in ways that Sally ignored in her plan above. Another part of the plan involves deciding which of your savings accounts you want to buy products from: tax-qualified or personal (after-tax) savings. Then, select single-purpose financial products that can be put together or eliminated to best serve your purposes.

For people who want to live in their own home as long as possible during retirement, access to home equity through a home equity conversion mortgage (HECM) is a consideration. And for lifetime income, which eases the fear of running out of money, converting some savings into lifetime income annuities provides a solution.

Those two (HECM and lifetime annuities) are not on every adviser or planner’s radar, but they should be on yours. Here’s a revised picture that shows how lifetime annuities and the value of the home add to a retirement plan. We call this an All-Asset Retirement Income Plan since it includes assets representing 90% of all asset classes.

Initial refinements to the All-Asset Retirement Income Plan

Now let’s apply these elements to Sally’s plan, which needs to be personalized for Sally’s age, gender and percentage of rollover IRA in her savings. Three important allocations are made in the refinement of this plan:

• Equity portfolios are allocated between high-dividend and growth portfolios
• The lifetime annuities are allocated between a SPIA (single premium immediate annuity) for current income and a QLAC (qualifying longevity annuity contract) for future income
• The value of the home is allocated between the HECM line of credit (with the amount determined by LOC percentages set by HUD) and the remaining equity

Sally’s All-Asset Retirement Income Plan delivers starting income of $92,000 that exceeds her objective of $90,000. She can add that extra $2,000 to her budget or reinvest it for future budgets.

Other deliverables under Sally’s All-Asset Retirement Income Plan

As you can see above, 68% of Sally’s income is “safe,” which means the income is not dependent on the liquidation or sale of investments. Even at a low market return, the plan will generate income from dividends, interest, annuity payments and drawdowns from HECM. (As part of the refinement process, planning software, such as that used by Go2Income, can test different investment returns and resulting plan outcomes.)

Her other objectives are also important, and the plan will help her achieve them:

• Liquidity. By adding the line of credit from HECM to her plan, more than 50% of her savings are liquid at the start, even with the addition of lifetime annuity payments.
• Legacy. Sally plans to live a long life, so the legacy, while delivered far in the future, equals or exceeds the original total value of savings.
• Lower taxes. Only 50% of her income is taxable through age 85. In turn, that will have a favorable impact on all of her taxable income, including Social Security and pension.
• Long-term care costs. Her liquidity is able to absorb, for example, substantial long-term care costs, with the impact felt on her legacy, not on income.
• Inflation protection. Under the starter plan with conservative return assumptions, her income grows by 1.4% per year until age 85. If inflation protection is a key objective, she can address it during the refinement process.

Of course, in order to achieve the best outcomes for Sally, she will need to speak with a financial adviser well-versed in all the elements of a diverse retirement plan. During that process, the plan can be attuned to Sally’s personal needs and desires.

You can order a Go2Income plan today based on the answers to three or four questions about your goals. Get started here with no obligation. Consult with your own qualified adviser, find an analytical tool to provide some guidance, or talk to a Go2Specialist.

Related Content

• A Different Way to Approach Your Mortgage in Retirement
• Transform Your Retirement Plan With This Powerful Combo
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan
• Annuities and Tax Planning Boost Retirement Income and More

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The concept that retirees should pay off their mortgage stems from a combination of historical economic conditions, cultural values surrounding homeownership and debt, and financial planning principles aimed at ensuring security and peace of mind in retirement. This idea has been passed down through generations, although individual circumstances today may lead to different approaches.

Nearly 40% of retirees, for instance, have a mortgage. And the average mortgage balance is over $100,000, which translates to average annual mortgage payments of $10,000 that will last at least 12 years or more.

That doesn’t mean retirement plans are doomed to fail if they include a mortgage. Rather, we think that in designing your plan for retirement, you ought to consider the equity in your home, and then decide whether a mortgage, either existing or new, belongs in your plan.

No differences between mortgages for Millennials and Boomers

The market for cars, clothes and restaurants is different for the Millennial generation vs Baby Boomers.

However, that’s not the case for mortgages. It’s the same product whether you are age 30 or 60. Why should that be the case for a financial vehicle when at age 30 you’re concerned about mortality and paying off the mortgage if you pass away early but at 60 you’re concerned about longevity and making mortgage payments into your 80s and beyond?

Let’s work through an example for a Boomer.

A Boomer with a mortgage

Mary, the 70-year-old cousin of Sally, the consumer we often refer to as our sample investor, is also 70 and has a $150,000 mortgage (against a home worth $1 million) and mortgage payments of nearly $13,000 a year for the next 15 years until the mortgage is paid off. She’s generating $100,000 in income from her retirement savings and $25,000 in Social Security benefits, but that $13,000 mortgage payment represents more than 10% of her income. Compounding this issue is her desire to age in place like 75% of aspiring and current retirees.

Her options regarding her mortgage

Like lots of retirees, she’s always considering her options when it comes to housing and finances. Here are the options she’s considering:

• Continue as is and cut back spending other than on the mortgage. But unless absolutely necessary, she wants to be able to spend at her budgeted amount, which includes trips to see the grandkids and other small luxuries.
• Sell the house and downsize. She’s moved a few times in her life and hated it. Plus, she loves the house she’s in, along with the neighborhood.
• Pay off the mortgage by taking $150,000 from retirement savings. That would remove the $13,000 in yearly mortgage payments, but also reduce her annual income from savings by $7,500 to $9,000 in her Go2Income plan. Is the net gain, and the reduction in savings and liquidity, worth it?
• Replace her existing forward mortgage with a home equity conversion mortgage (HECM). Also known as a reverse mortgage, a HECM would eliminate her monthly mortgage payments, but over time see her legacy fall.
• Refinance her forward mortgage with HomeEquity2Income (H2I). Under H2I, she generates more income and does a better job of maintaining her legacy.

Her choice

The approach we’ll focus on here is to refinance a forward mortgage as part of an H2I plan. There are a couple of steps involved, but if you follow the HomeEquity2Income plan I’ve written about recently, including in my article Transform Your Retirement Plan With This Powerful Combo, you will see that the reasons a Boomer might order an H2I-Refi plan include:

• Eliminating mortgage payments for the term of the current mortgage
• Generating additional current and lifetime cash flow
• Creating additional liquidity for unplanned expenses
• Delivering a reasonable amount of legacy from the value of a home

Mary originally liked the idea of continuing her mortgage payments to eliminate the mortgage at 85 and leave the house unencumbered at her passing. That plan is OK and fits the conventional wisdom about paying off the mortgage.

Mary is one, however, who could use additional cash flow from eliminating mortgage payments — and then some — to maintain her home and have funds to pay for caregivers she might bring into the house.

High-level results from H2I

To prepare, she read my most recent H2I article, How 'Home-Based Planning' Can Address Long-Term Care Costs, but learned that for her to fund those costs, she must refinance the current mortgage. ( A recent poll conducted by University of Michigan’s Institute for Healthcare Policy and Innovation found that long-term health care costs top the list of concerns of older Americans.)

This refinancing requirement means that the $150,000 mortgage balance is paid out of the line of credit set up under the HECM component of H2I. This leaves a smaller line of credit than if there were no loan. (Paying part of the mortgage off with savings and the balance with a HECM line of credit is another option.)

While there are lots of assumptions that could be tested, the bottom-line results under H2I for her three primary objectives were:

• Current cash flow changed with (a) the elimination of outflow of $13,000 per year for the term of the mortgage and (b) the addition of H2I inflow of $15,000 (and growing) per year for life. That means an extra $28,000 in cash flow over the next 15 years and thereafter $20,500 annually for life. That addition of combined cash flow can be spent on her budget, providing gifts to kids and grandkids or growing her savings and legacy.
• Liquidity from moving from the existing mortgage to an H2I plan jumped from $0 to over $300,000 at 90 — not counting the potential reinvestment of the additional cash flow.
• Her legacy at 95 would be $1.3 million for H2I, and substantially more if she reinvests the additional cash flow.

Year-by-year results from H2I

The adjustments a retired mortgage holder can make with H2I, and the different applications of income, are clear in the charts below. H2I provides for more cash and liquidity and can still result in a meaningful legacy.

Cash flow

H2I, which combines HECM with a deferred income annuity called a QLAC, allows Mary to end her mortgage payments and to generate additional income for life.

Liquidity

The HECM component also provides a line of credit even after paying off the forward mortgage that can help pay for home improvements, health care costs or unplanned expenses.

Legacy

Finally, when the QLAC payments start at age 85, Mary will be able to pay interest on the line of credit, which enables her to leave a substantial legacy to her heirs.

Like most investors, Mary has a number of objectives. H2I gives her options to create the best plan to meet her personal goals.

Even for the dedicated DIY retirement planner, we don’t expect you to dig into H2I alone. Order your own Go2Income plan to learn about how to use the equity in your residence to create more retirement income and a new source of liquidity as you prepare for long-term health care and other needs.

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• A Challenging Retirement Plan Mission: Not Impossible

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor’s note: This is part seven of an ongoing series throughout this year focused on helping older adults navigate the financial difficulties of gray divorce. See below for links to the other articles in the series.

The subject of reverse mortgages is often met with skepticism from clients. A person going through a late-life divorce might even be perplexed by how a reverse mortgage might offer a potential solution to the financial stress of divorce.

I understand. Until recently I always associated reverse mortgages with late-night television infomercials, a product pitched by actors like Tom Selleck or Henry “The Fonz” Winkler. I had always lumped them in as something that was sold like a timeshare, variable annuities or indexed universal life insurance.

My research working with Certified Divorce Lending Professionals (CDLPs) and older divorcées has convinced me that the reverse mortgage can solve some key problems in gray divorce.

Most, but not all, reverse mortgages today are federally insured through the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) Program and are available for homeowners ages 62 and up. Let’s review the key features of a HECM and how it might benefit late-life divorcées.

No monthly mortgage payment

HECM borrowers are not required to make monthly mortgage payments. The loan, which grows over time, is repaid when the homeowner sells the house, moves out or passes away. This can reduce financial strain for divorced clients living on a fixed income or facing uncertainty about future cash flow.

Unlike traditional mortgages, the borrower’s income and credit score aren't as important as their age and equity in the home. Borrowers with lower credit scores may have to pay a higher interest rate.

Home equity access

Divorce usually involves dividing assets, including the marital home. Reverse mortgages allow older homeowners to convert part of their home equity into tax-free cash, helping divorcées who need liquid assets to buy out their spouse’s share of the marital home or to fund new living arrangements without selling the home.

To qualify, in addition to being 62 years of age or older, you must own your home fully or have a low mortgage balance and meet HUD’s financial requirements.

Additional income stream

The proceeds from a reverse mortgage can supplement income, helping to cover living expenses and health care costs. Chris Bruser, a reverse mortgage specialist with Mutual of Omaha in Tampa, notes, “A divorced person may have had their net worth cut in half in divorce. The HECM helps preserve those investment assets by eliminating mortgage obligations. Those assets can be used to generate income from investments.”

Eligible borrowers qualify to receive disbursements either as a lump-sum payment, monthly payment or line of credit.

Non-recourse loans

Insured by the FHA, HECMs are non-recourse loans, meaning that the borrower or their estate will not owe more than the value of the home when the loan is repaid. The FHA guarantees that the loan will be repaid if it ever goes into default, so lenders are willing to offer HECM loans with low interest rates and flexible terms.

The HECM has been reformed over the years. One reform restricts the amount of funds available to a borrower, and another introduced underwriting requirements through a financial assessment. These reforms have coincided with a reduction in the rate of tax and insurance default before and after the reforms.

Bruser notes, “The HECM program has improved dramatically over the last 15 to 20 years, to ensure its longevity and utility for our aging population. After a basic consultation, a lot of the stigma goes away.”

Consider two potential solutions the HECM may solve for homeowners getting divorced later in life:

1. The marital home remains with one spouse.

A HECM on the marital home can provide the necessary funds for the departing spouse’s down payment on a new home.

John Drennen, a Certified Divorce Lending Professional with VIP Mortgage in Las Vegas, says, “Let's say we have a 70-year-old couple divorcing with a free and clear house and the man wants to stay in the house, and he doesn't have a lot of income. He can do a reverse mortgage to access the equity in the house to give to his wife, who can use that money as a down payment on the purchase of a place for herself, possibly using a HECM for the purchase of her new home. Neither spouse is saddled with debt-service obligations, and there's no forced sale of the marital home.”

2. The marital home is sold.

In this case, the proceeds would be divided. Each spouse could then use their share of the proceeds toward the down payment on a new home purchase and then use a home purchase HECM to pay the rest. Once again, neither spouse has a debt-service obligation. Nor is there the need to draw down liquid assets from bank or investment accounts.

Drennen notes an even more creative option where one spouse purchases a duplex or a fourplex with a HECM and lives in one unit and rents out the others to boost cash flow.

When a reverse mortgage isn't a good idea

Of course, a reverse mortgage is not always advisable. If the homeowner plans to move soon, the upfront costs involved in setting up a reverse mortgage loan may not make sense. While the HECM may provide more options than a traditional mortgage, including no mortgage payments and potential growth of a credit line of unused funds, the reverse mortgage is still more expensive than a traditional mortgage.

Also, if the homeowner is intent to leave an equity-rich home to their heirs, they may want to consider alternative arrangements.

Another consideration is eligibility for government benefits. While the proceeds from a reverse mortgage are not considered taxable income, they can affect eligibility for certain government assistance programs, such as Medicaid. It's important to understand how a reverse mortgage might impact eligibility for these benefits.

Drennen, pointing to the common misconception that with a reverse mortgage you no longer own your home, suggests homeowners reframe their approach: “When you buy a car, do you go and tell your best friend, ‘Hey, I just financed a Ford F-150 with Ford Credit’? No, you say, ‘I bought a new Ford F-150.’ You own your vehicle; you owe the bank. It’s the same with a HECM. You own the house; you owe the bank.”

I work with divorce lending professionals who specialize in helping older divorcées. If you are going through divorce and you’d like to learn more, please email me at andrew@wiserdivorcesolutions.com for a free consultation.

Other Articles in This Series

• Introduction: Happy New Year: Let’s Get a Divorce
• Part one: How Does a Gray Divorce Affect Social Security Benefits?
• Part two: In Gray Divorce, Two Financial Planning Yardsticks Are Key
• Part three: Don’t Forget to Update Beneficiaries After a Gray Divorce
• Part four: What Is a Lifestyle Analysis in Divorce?
• Part five: How Much Will Getting Divorced Cost You?
• Part six: Think of Prenups and Postnups as Financial Planning Tools

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• How to Add Home Equity to Your Retirement Income Planning
• Is Your Retirement Solution Hiding in Plain Sight?
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• How Finances Are Split in a Gray Divorce

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you ever watch cable TV, chances are you’ve seen reverse mortgage commercials with celebrity spokespeople like Tom Selleck, Robert Wagner and Henry “The Fonz” Winkler. A reverse mortgage is a way to borrow against the value of your primary residence for extra retirement income.

“It’s a personal financial management tool that enables homeowners to convert the home equity into loan proceeds," says Steve Irwin, president of the National Reverse Mortgage Lenders Association. “Homeowners can access this money without having to sell, move or take on monthly loan payments.”

However, these products can have some sizable risks and drawbacks, which the celebrity spokespeople gloss over. If you’re considering a reverse mortgage, here’s what to know.

1. You have multiple ways to tap into your home equity 

A reverse mortgage allows you to borrow and spend your home equity, that is, the value of your home that you’ve paid off. You could collect a lump sum. You could also set up ongoing monthly income payments, either for a set period or guaranteed to last as long as you’re living in the home. You could set up a line of credit to tap into at your convenience.

If you still owe some amount on your mortgage, a reverse mortgage can pay off the remaining debt so you no longer owe monthly payments. If you want to move, you could use a reverse mortgage to pay for your new home. That way, you don’t have to sell first to free up money to buy. 

2. Payouts depend on a few factors 

The amount you receive for a reverse mortgage depends on the value of your home, your total equity and age. The older you are when you apply, the more you receive. That’s because these loans are usually repaid only after the applicant passes away. If you’re married, the payout is based on the age of the youngest spouse.

Interest rates also matter. When interest rates are high, like now, you receive less because more of the equity goes towards the borrowing cost. Most reverse mortgages are insured and regulated by the Federal Housing Administration (FHA). The government sets a borrowing limit for these FHA reverse mortgage loans. It’s up to $1,149,825 maximum in 2024, even if your home is worth more. 

These lenders don’t check your income or credit score. You qualify based only on your age and your home’s property value.

3. Fees can be costly 

When you take out a reverse mortgage, the lender deducts an upfront fee. It also charges interest over the life of your loan. Reverse mortgage interest rates are usually higher than conventional mortgage interest rates, but similar to rates on home equity loans. 

For example, a married couple owns a $750,000 home in Washington, D.C. The youngest spouse is 75. They could potentially borrow up to $258,699 through a reverse mortgage, according to a calculator from the reverse mortgage association. Alternatively, the couple could receive around $2,000 in ongoing monthly income. The loan would charge $25,551 upfront for fees and costs, and has a 7.5% annual adjusting interest rate. 

Assuming the couple borrows the full $258,699 upfront, lives for another 15 years, and the interest rate averages 7.5% during this time, the debt would grow to around $765,000. The heirs would need to pay this debt after selling the home, keeping any remaining equity after property appreciation to themselves. 

A reverse mortgage can be costly versus a home equity loan because of higher upfront fees, but then you have ongoing loan payments. “A reverse mortgage is meant for someone who doesn’t have cash flow,” says Derek Miser, president of Miser Wealth Partners in Knoxville, Tenn.

4. There’s a minimum age limit 

You must be at least 62 to take out an FHA reverse mortgage. If you’re married and only one partner is over 62, you could still take out a reverse mortgage. The lender would classify the younger partner as an eligible non-borrowing spouse and reduce the payment to account for their age.

There are private proprietary reverse mortgage loans that aren’t FHA-insured and have more flexibility to set terms. Some of these products accept applicants as young as 55. Private reverse mortgages could also extend credit beyond the $1,149,825 cap for FHA loans. In exchange, these private reverse mortgages may charge higher interest rates.

5. You don’t owe loan payments while living in the home 

Reverse mortgages do not require ongoing payments while you’re alive and still living in the home. The loan only comes due after you move elsewhere or pass away. At this point, you or your heirs can sell the property to pay off the reverse mortgage, keeping any sale proceeds above the outstanding loan. If your family wants to keep the home, they could refinance the debt to a new primary mortgage.

“Be sure to coordinate strategies with your beneficiaries so they are ready to make arrangements upon your death,” says James Enriquez, a financial planner with Strategic Insights Financial Planning Group in McAllen, Texas. That way, they aren’t surprised and upset by the smaller inheritance.

Reverse mortgages are non-recourse loans. They are only secured by your property. If the total reverse mortgage debt exceeds the resale value of your home, the lender can’t go after your other assets or heirs for repayment.

6. Cover taxes, maintenance, and insurance, or else 

As part of a reverse mortgage contract, you agree to continue paying the ongoing property taxes, homeowner’s insurance, and maintenance. If you don’t, the lender could foreclose and seize the property because you aren’t protecting the asset securing the loan.

Several top reverse mortgage lenders faced six-figure fines because they didn’t properly disclose this condition. Their ads made it seem like it was impossible for seniors to lose their homes with a reverse mortgage when they could by breaking the contract terms. The government felt this was deceptive advertising.

Keep in mind that you’ve already been paying insurance and property taxes for years as a homeowner and wouldn’t run into problems so long as you keep doing so, says Miser, the financial advisor from Tennessee. “If you don’t pay your property taxes, the government would eventually place a lien and auction the home anyway.”

7. You and your spouse are protected, but other family members are not

The government strengthened spousal protections for reverse mortgages in 2014.

“Years ago, there were cases of people removing their younger-than-62 spouse from the home title so they could take out a reverse mortgage, “says Enriquez. “When the older partner died, the lender would try to foreclose on the surviving spouse. Today, they can remain for the rest of their lives.”

However, these protections do not apply to other family members. If you take out a reverse mortgage, the loan will be due after you pass away or move. If your family member can’t cover the debt, they could lose the home.

8. You meet with an independent counselor first 

The government requires you to meet with an independent, third-party counselor who doesn’t work for a lender before you can take out a reverse mortgage. 

“During this session, you’ll discuss how these products work, the payment plan and the attributes. You’ll also compare against other options, like selling and downsizing or borrowing using a home equity loan,” says Irwin from the NRMLA.

9. A reverse mortgage can support your stock portfolio 

Reverse mortgages are most commonly used as retirees get older and run out of other assets, says Enriquez, the CFP from Texas. In other words, they only use a reverse mortgage as a last resort. However, he finds there are benefits to proactively taking a reverse mortgage earlier in retirement to coordinate with your other investments.

For example, you could set up a line of credit reverse mortgage early in your retirement, locking in the value. If the stock market dives, you could spend down the line of credit while your portfolio recovers.

10. Review multiple lenders before applying 

You should get quotes from multiple lenders for a reverse mortgage, the same as any home loan. AAG (American Advisors Group), Finance of America Reverse, Longbridge Financial and Mutual of Omaha are a few top options. Lenders typically present the loan information in a one-page document, including the fees and amount you’d receive under different payout options.

While you need to review your options carefully, reverse mortgage lenders have a worse reputation than they deserve, says Miser. “There’s a lot of poor information and guidance out there which creates the suspect nature. While reverse mortgages aren’t for everyone, they can make sense for someone who needs an extra lifeline.”

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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With more retirees than ever choosing to age in place, the idea of selling your home to downsize may no longer be part of your plans.

That’s smart, because you don’t have to sell the homestead to produce retirement income and help cover the costs associated with a critical health crisis, or just the effects of aging that require outside care.

In the New York Times article The High-Class Problem That Comes With Home Equity, author Ron Lieber, the NYT’s Your Money columnist, suggests that reverse mortgages could be a good product for some retirees who want to tap the equity in their home without selling. We agree, and the Go2Income planning method can now incorporate a reverse mortgage.

I have found that lifetime income, liquidity for unplanned expenses, lower taxes and a financial legacy are the objectives most retirees seek. When they also want to stay in their homes or age in place, I propose that annuities and home equity, added to traditional savings and investments, will best meet their retirement goals.

In our previous article, The (R)evolution of Retirement Income Planning, we presented the advantages of a plan based on investments, annuities and a home equity conversion mortgage, or HECM. Let’s dig deeper into that plan for our sample investor. You’ll see the key elements and how they can be customized to your personal objectives.

Sally’s case

Sally, 70, is focused on starting income. She has $1.5 million in savings (50% in a rollover IRA account) and $1 million in the value of her house (without any mortgage). She understands that with income annuities added to her plans, she can be a little more aggressive and wants starting income of $96,000 a year — translating to 6.4% of her retirement savings, or 60% higher than the 4% rule. (Together with her $62,000 in Social Security benefits and pension, she’s up to $158,000 in starting income.)

The following charts tell her story.

The first is her sources of income chart with Go2Income split into three sources:

• Investment portfolios: Dividends and interest from personal (after-tax) savings, RMDs and withdrawals from her rollover IRA account
• Annuities: Single-premium immediate annuity that provides lifetime annuity payments generated from personal (after-tax) savings for tax efficiency
• Home Equity2Income (H2I): HECM drawdowns until 85; QLAC lifetime annuity payments less HECM interest after 85

The product elements are allocated to accounts based in part on tax efficiency, and for Sally’s plan, less than 40% of the first-year income is taxable, with over $92,500 of the $96,000 becoming her spendable income. Also, a very large percentage of income is safe, meaning she doesn’t have to liquidate securities to realize the cash flow. Nearly 60% is safe over her lifetime.

The second chart is her projected liquidity, which may be the biggest surprise, with liquid funds to cover planned and unplanned expenses, like long-term care, modifying the house for aging-in-place necessities, etc. These funds are made up of the following:

• Investment portfolios: High-dividend portfolio (personal savings), fixed income portfolio (personal savings) and balanced portfolio (rollover IRA account)
• Home Equity2Income: HECM net line of credit

This plan meets Sally’s objectives for lifetime income, but also provides substantial liquidity for late-in-life spending — both planned and unplanned.

A reminder of the world before the evolution of retirement

It wasn’t so long ago when almost all retirees could be comfortable with income from Social Security benefits, savings and perhaps a pension or an IRA.

For most of us, pensions are now unattainable. Happily, Social Security is designed to be lifetime income, and if you worked 40 years and paid into the program, it will provide a good chunk of safe income. Your savings also might provide significant income, but investments in stocks and bonds can vary from year to year. In our prior article, we showed how each product element improved the results, in terms of income, liquidity, taxes and safety.

Another application of H2I

It doesn’t appear that we will ever go back to the days when we could retire without thinking too much about the income that we knew would flow in each month from a pension and Social Security. The (R)evolution of Retirement article, however, provides the information to help you make the decisions required by today’s environment.

When I was running the product area of a life insurance company, I knew that customers liked the lifetime protection of annuities. But some didn’t want to give up access to their funds. Back then, I got a patent on something called the Income Manager, which enabled the annuitant to cash in future payments and get access to some funds. While I can’t violate the patent, there is a need there that might be fulfilled somewhat differently:

By combining an HECM with annuities in different proportions, consumers get lifetime income (although at lower levels than Sally chose) and still maintain a large portion of savings as liquid. The available line of credit from HECM nearly matches the premium for the annuity and thus maintains most of your liquidity while gaining the annuity’s lifetime protection. We’ll explain in more detail in the next article.

Visit Go2Income Personal Planning to start a plan risk-free. You can ask one of our analysts to help you make adjustments. And then decide whether you want the peace of mind that lifetime income and greater liquidity can provide.

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• How a Fixed Index Annuity Can Manage Retirement Income Risks
• Retirees: Worry Less About Markets, Long-Term Care and Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor’s note: The earlier article How Your Home Can Fill Gaps in Your Retirement Plan discussed the “why” of incorporating the equity in your home in your plan for retirement income. This article discusses the “how.”

In retirement, your home means something more than it did while you were raising kids, getting promotions at work, and dreaming about how the future might unfold.

Now, it can provide the opportunity that helps you realize your future in retirement — financially at least.

For most of us, our house carries much more equity than it did when we were just starting out. Home prices have more than doubled in the past 20 years. How to use that equity to benefit you and your family is a key retirement question that your home can answer. But as you will see, it may work better when combined with an annuity contract that produces late-in-life income.

Combining two financial products in the right proportions

I pointed out in my earlier article For Sustainable Retirement Income, You Need These Five Building Blocks that hydrogen and oxygen have their own good properties, but they create the magic of water (also known as H2O) only when combined in the right proportions. In a similar way, the combination of a home equity conversion mortgage (HECM) and longevity protection in the form of a QLAC, or a qualifying longevity annuity contract, in a new program we call HomeEquity2Income (H2I) provides a beneficial mix of an immediate income boost and additional long-term liquidity. H2I can be the “solution” to pay for both planned and unplanned expenses.

H2I uses the equity in your home, accessed through an HECM, a type of reverse mortgage backed by the Federal Housing Administration (FHA), that enables homeowners age 62 or older to convert a portion of their home equity into cash, as a source of tax-free drawdowns early in retirement until age 85. Then payments from a QLAC (or another deferred income annuity contract) start at age 85 to pay HECM interest and continue the income for life.

Payment of interest is not an HECM requirement (more on this below); paying the interest from QLAC payments is simply a way to grow a line of credit and liquidity for the future.

Note: The stock traders’ technical definition of financial liquidity refers to the ease with which an asset or security can be converted into cash without causing a significant impact on its market price. In this case, the definition of liquidity is the ability to access funds for unplanned expenses without upsetting your plan for retirement income. It could be that your liquidity is the “set aside,” or reserve, fund, the money market fund or equity in your home that’s convertible into cash to cover say, health care expenses or 529 contributions.

A little more about the components of H2I

There are a lot of financial products out there, and we have studied most of them. As I suggested above, most will not interact with others in a way that produces a better fit to meet your objectives. Here’s how we determined the elements that would work in H2I.

A QLAC works because it is designed to produce lifetime income from a rollover IRA account (but not later than your age 85), which means you’re deferring otherwise taxable required minimum distributions (RMDs) and purchasing income at a deep discount. As important, the income kicks in to pay your HECM interest and continue your age 85 income the HECM was providing — for the rest of your life. They fit like hand and glove. Visit our calculator to see how you much lifetime income a QLAC will guarantee.

There is a virtual clone of a QLAC that you can purchase from your personal (after-tax) savings called a conventional deferred income annuity (DIA). If the $200,000 limit on a QLAC restricts your H2I benefits, you can purchase a DIA to fill in the gap.

Like other income annuities, your income under a QLAC/DIA is a function of age, gender and whether a surviving spouse receives income. One other option is to protect your beneficiary in case of early passing.

An HECM is the element that binds with a QLAC to make H2I. Several advantages make it a good fit, enabling the homeowner to convert a percentage of home equity into tax-free cash. The benefits include:

• No required monthly principal and interest payments
• Borrower or heirs won’t owe more than the appraised value of the home at the time of repayment
• The FHA insures HECMs

Let’s pause here for a short discussion of HECM vs HELOC (home equity line of credit). Retired homeowners may be thinking that they can delay establishing a line of credit from the value of their home until they actually incur large expenses, but they risk waiting until it’s too late. With a HELOC, lenders often consider the borrower’s age along with creditworthiness and what you owe on the house. If you’re 62 or over, age is not a consideration with an HECM, which also offers a line of credit that grows each year based on the mortgage’s interest rate. Finally, HELOC requires payment of interest; not so with HECM.

How does H2I work for our sample investor?

Let’s look more closely at the example of this “water” of retirement income planning for a typical retiree or near retiree. Her net worth is $2.5 million, with $1.5 million in retirement savings and $1 million in the value of her home. She really loves her home and doesn’t want to sell. She wants to age in place, recognizing that a home health aide probably costs $60,000 a year or more. That’s a good reason to have a source of liquid funds available. If she needs in-home care, she can pay for it. If she stays healthy, she can leave the equity in her home to grow.

With that knowledge, here's what one customized H2I program provides in comparison to our investor’s current plan.

Income. H2I will provide about $17,200 a year from HECM drawdowns until age 85, when a QLAC will begin, replacing that income and also paying the interest on the loan balance. Our investor can use the $17,200, which is received income tax-free, on expenses or reinvest it in a tax-favored account that she expects to grow over time. As an alternative to using the $150,000 to purchase a QLAC, she could keep that amount in her IRA account and pay out RMDs. After tax, that’s generating about $4,300 to start.

The H2I income translates to 11.5% per year on the $150,000, tax-free until age 85 vs. about 2.85% from her rollover IRA account. Of course, if she tried to match the 11.5% from her current rollover savings each year, the account would shrink more rapidly than she planned

Liquidity. With the income boost and tax benefits, what about liquidity in her new H2I program?

To start, HECM provides tax-free liquidity from a line of credit, and under her H2I program, it will grow from $340,000 to $580,000 at age 85 to use as she sees fit. That liquidity grows even faster after age 85 with the payment of interest, exceeding $1 million by age 90. Importantly, that line of credit grows regardless of the appreciation of the home.

Under her current plan, while her home is growing in value, there is no automatic liquidity unless she set up a HELOC in advance.

Is it a good deal?

Compare the legacy. An H2I plan provides more income and greater liquidity at the expense of a lower legacy payoff to the kids because of income generated earlier in retirement. However, they will appreciate that you took on the burden of your health care and other costs. And you also may use some of the line of credit to finance things, like your grandchildren’s college expenses.

To do the full analysis of the pros and cons of H2I, you really need to look at your total plan. A future article will show the value of combining H2I with Go2Income.

Visit here to create your own Go2Income Plan. After you have a chance to review that plan, you’ll be able to appreciate how adding H2I can prepare you for the future.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Most retirement planning methods have ignored what for some retirees is their largest single asset — their home. That means the plan may fail to deliver on one or more of the five things retirees want:

• Don’t run out of money
• Grow income each year
• Leave a meaningful legacy for kids and grandkids
• Increase spendable income by reducing taxes
• Build up a source of liquidity for unplanned or unfunded expenses

With the addition of the new HomeEquity2Income (H2I) program described in this article, Go2Income now covers over 90% of all retiree asset classes. H2I uses the equity in your primary residence to fill in the gaps in your plan that otherwise might require insurance that you don’t qualify for, higher-risk investments, or more aggressive assumptions as to yields and returns in your plan.

Starting with this article and continuing over the next month or so, we’ll cover the why, what, and how of the HomeEquity2Income program.

First, the “why” of H2I.

Overlooked area of wealth

One major area of wealth for retired investors is the value of their residence, less any mortgages or home equity loans. A report by the Joint Center for Housing Studies of Harvard University shows that for high-income retirees, an average of 23% of their personal wealth resides in the value of their primary residence. Put another way, there is $47 trillion in total home value, according to Redfin — and that is up 19% from two years ago. Higher-value homes worth $250,000 to $750,000 posted the largest gain of 4% in the last year.

The issue is whether to unlock that value and, if so, how best to do that. There are multiple ways to unlock, like selling or renting the house, a home equity loan (HELOC) or a home equity conversion mortgage (HECM). Our planning view is to consider, where possible, all major asset classes available to the retiree; however, selling or turning your home into a rental property is beyond our pay grade.

Regarding HECM, while I understand a built-in reluctance to mortgage (either forward or reverse) your primary residence after retirement, it’s an option that can address several worries about income, long-term care and staying in the home you love.

What is an HECM, and what does it offer a homeowner?

The term HECM is still not widely recognized, and the purpose of the product is not always understood. Plenty of definitions exist, but for the most up-to-date, I consulted with our artificial intelligence tool, ChatGPT. Here’s what it says:

A home equity conversion mortgage (HECM) is a type of reverse mortgage backed by the Federal Housing Administration (FHA) that enables homeowners age 62 or older to convert a portion of their home equity into cash.

• HECM allows homeowners to access a portion of their home equity without needing to sell their home or make monthly mortgage payments.
• Homeowners can choose how they receive the funds from the HECM, whether as a lump sum, monthly payments, line of credit or a combination of these options.
• Unlike traditional mortgages, borrowers are not required to make monthly payments. The loan is typically repaid when the homeowner sells the home, moves out permanently, or passes away.
• HECM loans are insured by the Federal Housing Administration, providing additional protection to borrowers.
• Borrowers can continue to live in their home as long as they meet the loan obligations, such as maintaining the property and paying property taxes and homeowners insurance.
• HECM loans are non-recourse loans, meaning that the borrowers or their heirs will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the home's value.

HECM funds can be used for various purposes, such as supplementing retirement income, covering medical and long-term care expenses, home renovations or paying off existing debts. (ChatGPT’s words, but my emphasis.)

As to the first point, HECM can be set up to provide periodic cash flow to the investor — and that can be tax-free. Properly designed interest paid on a line of credit can be tax-deductible.

Thus, an HECM offers a way to access home equity to improve your financial situation without the burden of monthly mortgage payments. Still, I would consider it only one option in retirement planning, not the sole solution.

Unmet needs in planning

In earlier articles, we’ve discussed unmet needs and wants that occur even with the most diligent planning. For example, very few plans fully contemplate the costs of an extended health crisis. According to Genworth Financial, an insurer that does regular surveys on the expense of long-term care, you can expect to pay monthly costs of at least $1,690 for adult day health care, $5,148 for a home health aide and $9,043 for a private room in a nursing home facility. That last type of care costs more than $100,000 per year.

As regards the wants, with the price of college skyrocketing, you may decide to fund more of these costs for your grandkids through your 529 plan. And then there are the costs of renovating or modifying your residence if you, like most others, want to “age in place.”

An example of this planning dynamic is the family we visited on Thanksgiving in my article How Finances Can Improve for Retirees — and the Next Two Generations. That family thought they had a plan worked out to serve the interests of three generations, until they investigated long-term care insurance and realized how expensive it is. Every family contends with both current and future unmet needs. The difference is in how you approach them.

Before we describe how we assembled the H2I solution, I will again list the why:

• Equity in your home is an overlooked area of wealth
• HECM can be a suitable component in your plan
• You should plan for unmet financial needs and wants

Create the H2I solution

Our new approach, called HomeEquity2Income, or H2I, can become (1) a source of additional retirement income that is lifetime, tax-efficient and safe and (2) create additional liquidity late in retirement. It can work either as part of a Go2Income plan or as a stand-alone H2I program.

At Go2Income, we discovered that for optimal efficiency, we should combine lifetime annuity payments with an HECM for tax-free drawdowns early in retirement and include a line of credit for later-in-retirement unplanned expenses. We also realized that, with a properly designed approach, we could address multiple regulatory issues.

You get one thing — liquidity — with an HECM. You get another — lifetime income — with an annuity. One particular annuity that we favor is a QLAC. Visit our QLAC calculator to get a free quote.

When you put them together, the combination provides lifetime income and the cash resources you might need to pay for expensive outlays like health care not covered by Medicare.

As usual with Go2Income, you get to choose the combination that best suits you and your family.

The benefits that H2I generates

In future articles, I will discuss how to use H2I as a stand-alone program and then how to integrate it into your Go2Income plan. Before we end this article, let me give you an example of the benefits H2I delivers for our typical investor — a 70-year-old woman with $2 million in savings and $1 million in home equity.

• $20,000 of tax-free cash flow growing to $27,000 by age 85
• $27,000 of lifetime income at 85
• $700,000 of liquidity at age 90

To repeat myself, your circumstances and solutions will be different. But you can get started now. Order your own complimentary Go2Income plan to learn more about how to use the equity in your residence to create more retirement income and to create a new source of liquidity.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

While saving for retirement is a major financial goal for many, not everyone saves or is able to save enough money to live on by the time they hit retirement age, leaving them wondering how they will manage to pay for living expenses and any unexpected costs that might crop up. A reverse mortgage is one solution to this problem. Instead of making mortgage payments to their lender, homeowners can relinquish their home’s equity back to the lender in exchange for payments they can use to cover their expenses. This can be a tempting solution if you’re worried about how you’ll cover costs during retirement, but it’s not the only solution for supplementing your income, and it may not be right for everyone.

So how can you know if it’s right for you? Here, six financial experts from Kiplinger Advisor Collective shed light on the pros and cons of a reverse mortgage and offer up critical questions you should ask yourself before deciding whether to take on this type of solution.

What are three viable alternatives to a reverse mortgage?
“A reverse mortgage is just one potential tool that can be used to solve a specific problem or achieve a unique goal. It may or may not be a good fit for you. Instead of getting trapped evaluating the viability of a reverse mortgage in isolation, challenge yourself (and your financial adviser) to uncover three additional solutions to analyze and consider. From there, you can review the pros and cons of each option and make an educated and informed decision that best matches your needs and goals.” — Taylor Schulte, Define Financial

Can I afford the high fees and the risk to my family?
“Can I afford the high fees associated with these types of mortgages? Will my family potentially lose the house upon my death when they need it? If the answer to the first question is ‘no’ and the second ‘yes,’ then be very careful before going down this path. Reverse mortgages can tempt people with upfront payments that you ultimately will have to pay back.” — Andrew Schrage, Money Crashers LLC

Is this the right house for aging in place?
“Everyone wants to age in place, but before determining if a reverse mortgage is an appropriate option, it is important to think about whether this is the right house for aging in place. A reverse mortgage or home equity conversion mortgage can help individuals and couples use their home to stay in their home, but it is important to consider other factors, such as maintenance and upkeep.” — Marguerita Cheng, Blue Ocean Global Wealth

Do I need help paying for long-term care and other expenses?
“‘Do I have sufficient assets during retirement to pay for significant expenses such as long-term care expenses?’ If someone answers ‘no’ to this question, then that tells me that the person does not feel secure about their resources and being able to handle a significant expense. In most cases where someone does not have sufficient assets, the best solution could be using the equity in their home through a reverse mortgage.” — Mario Hernandez, Longevity Wealth Management

Do I want my house to go to my kids or grandkids?
“One important question to ask yourself is how important it is that your house eventually goes to your kids or grandkids. If you want them to keep the house, or much of its value, then be very careful to accurately assess how much of your equity the reverse mortgage might consume, and include interest expense in this calculation. Establish a maximum, and don’t borrow beyond that point.” — Greg Welborn, First Financial Consulting

Can I actually explain what a reverse mortgage is?
“One great question to ask yourself to determine if a reverse mortgage is right for you is if you can actually explain what a reverse mortgage is to someone who doesn't know and actually have it make sense to them. If you can't do that, well, it's probably not right for you. You need to fully understand it before knowing if it's right for you or not.” — Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Get a large wad of cash! Never make a mortgage payment again! Stay in your home as long as you want! Sounds like a great deal, right? Well, for some homeowners 62 and over, a reverse mortgage can be a great deal and the solution to some financial or cash flow problems.

For others, it's more perilous than promising. If you’re considering a reverse mortgage, there’s a lot you need to know before signing on the dotted line. Keep in mind there is no such thing as free money. Even though there are no monthly payments like a mortgage, there are costs associated with a reverse mortgage, interest and fees, that accumulate during the term.

Here’s 10 things you need to know about reverse mortgages.

1. What is a reverse mortgage?

It's a loan on your house that lets you tap your home equity. Like a cash advance, a bank fronts you the money — either as a lump sum, a line of credit or monthly draws — and you have to repay it eventually, with interest.

Unlike a traditional mortgage, you don't have to repay the loan during the term of the reverse mortgage. Instead, you or your estate pay off the principal you borrowed and the accrued interest all at once at the end of the loan. Homeowners must be at least 62 and should either own their house outright or have paid off most of the mortgage.

You retain title and ownership of your house. You are still responsible for paying the property taxes and the costs of insurance and repairs. If you still have a regular mortgage, you either have to pay it off before taking the reverse mortgage or use part of the proceeds from the reverse mortgage to retire it.

The most popular type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA).

(Private lenders may offer proprietary reverse mortgages but this is a small part of the overall market and these loans aren’t federally insured. Because of that, this article mainly addresses HECMs.)

2. How much can you borrow with a reverse mortgage?

The amount you can borrow, which is called the “initial principal limit,” with a reverse mortgage will depend on several factors, including the age of the youngest borrower and interest rates. The calculation also includes either the appraised value of your home or the HECM mortgage limit, whichever is less.

The HECM mortgage limit for 2025 is $1,209,750, up from $1,149,825 in 2024.

Generally, the older you are, the lower the interest rate and the higher the house value, the more money you'll be able to tap. You won't be able to tap 100% of your equity. The calculation leaves room for accrued interest. Instead, you get a portion of the equity in your home and you pay interest on that.

3. Getting money from the reverse mortgage

You can take a lump sum, open a line of credit to tap whenever you choose or receive monthly payouts (either for a set number of months or for as long as you live in the house). Or you can choose a combination of those options — say, a lump sum for part of the mortgage with the remainder in a line of credit.

A fixed rate is typically only available if you take a lump sum, which could be advantageous to lock in costs for those who want to use all of the money at once. Interest accrues on that amount.

A line of credit or monthly payout comes with an adjustable rate, which can change monthly or yearly. Ideally, you would only take out only the money that you need. You only accrue interest on funds that are dispersed to you so any untapped money won’t rack up interest.

Additionally, the unused portion also grows larger over time, generally at the same rate as the loan's interest rate. Unlike a home equity line of credit, which can be reduced or frozen by a lender, a reverse mortgage line of credit is safe, thanks to mortgage insurance.

4. Non-interest costs of a reverse mortgage

There is an origination fee, which is the greater of $2,500 or 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. The HECM origination fees are capped at $6,000. You'll also pay closing costs that include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes and credit checks, which will likely run several thousand dollars.

You must also pay insurance premiums. The FHA insurance guarantees that you will receive your money and that the lender later receives its money. You'll be charged an upfront premium of 2% of the home value, plus an annual 0.5% premium of the mortgage balance.

Finally, the lender may charge a monthly servicing fee of up to $30 if the loan has a fixed interest rate or if it adjusts annually. The servicing fee can be no more than $35 each month for loans with a rate that adjusts monthly. The monthly servicing fee will be added to your loan balance, or the lender can include the servicing fee in the mortgage rate.

It pays to shop around. Fees set by the government won't vary, but some costs, such as the interest rate and the monthly servicing fee, can differ by lender. Compare reverse mortgages from at least three lenders. Lenders will issue you a "total annual loan cost," or TALC, for each option to help you compare costs.

5. Repaying a reverse mortgage

The money does not have to be paid back as long as the homeowner remains in the house and keeps up with taxes, insurance and repairs. Generally, repayment is triggered when the homeowner dies, sells the house or moves out for at least 12 months. If a couple owns the home and one spouse dies, the surviving spouse can stay in the home without having to pay back the loan until he or she dies, sells or moves out for 12 months.

When it’s time to repay the loan, you or your estate will pay the principal you tapped and the accrued interest. Be aware that the interest expense can really accumulate. If you take out the loan in your 60s and stay in your house until your 80s, the interest owed on the loan could be significant. After the loan is paid off, there could be little or no equity left to use, say, for a move to assisted living.

However, HECMs' "non-recourse" feature means you never have to pay back more than the house is worth at the time of sale. If the debt exceeds the sales price, federal mortgage insurance covers the shortfall.

As for taxes, because the reverse mortgage is a loan, the money you receive is not taxable income. But you can't deduct the interest on your tax return each year. In the year the loan is paid off, you or your estate can write off at least part of the interest (see IRS Publication 936, Home Mortgage Interest Deduction).

6. Options for your heirs

For an HECM, your heirs will have 30 days after receiving the due and payable notice from the lender to buy your house, sell it or turn it over to the lender after you pass away. But they could get up to 12 months to secure financing to buy the house or sell it. They would need to work with the lender to get additional time.

To keep the home, your heirs will have to repay the full loan balance of the reverse mortgage or 95% of the home’s appraised value, whichever is less, for a HECM.

7. Refinancing a reverse mortgage

You can refinance an HECM but only in certain circumstances. You have to wait at least 18 months before refinancing. The funds that would be available to you would have to be at least five times the refinancing costs. And the additional cash you would get from the refinance has to equal at least 5% of the new loan’s proposed principal limit.

8. Consumer protections for borrowers

You can back out of the loan within three days of signing the paperwork. This is known as the right of rescission. Notify your lender of your decision in writing by sending a letter through certified mail and ask for a return receipt.

Before you can apply for an HECM, you have to meet with a counselor from a government-approved housing counseling agency. Some private lenders require this as well. Lenders are not permitted to pay this fee for applicants.

The Consumer Financial Protection Bureau has a search option to find a counselor near you. These agencies normally charge a fee, usually around $125, which can be paid for from the loan proceeds. However, you also can’t be turned away because you can’t afford the fee. Homeowners can contact the counseling agency to request a “hardship” approval to pay a reduced fee.

Lenders also have to complete a financial assessment to ensure they will be able to pay their property taxes and homeowners insurance. This is meant to help limit the number of foreclosures that occur.

9. Watch out for high-pressure sales tactics

You should be wary of any unsolicited sales pitches or offers for a reverse mortgage. You should be skeptical if a salesperson pushes you to take out this type of loan or gives you suggestions on how to spend the money from a reverse mortgage. If the person suggests investing the funds in certain financial products, such as long-term care insurance or an annuity, you need to be cautious. Never buy a financial product you don’t fully understand.

Some salespeople for home improvement companies may suggest this type of loan as a way to pay for upgrades. If you think that’s the right decision, be sure to shop around and calculate the costs associated with a reverse mortgage along with the repair expenses to get a clear picture of the overall costs.

10. How to decide if a reverse mortgage is right for you

Start by thinking about what you plan to do with the proceeds. For instance, a reverse mortgage might be a good fit for a senior who wants to age in place, with the loan proceeds paying for home health care, instead of moving to assisted living. Some financial planners recommend a reverse mortgage as a line of credit to cover expenses during market downturns. This strategy, which is known as a “standby reverse mortgage,” allows the borrower to pay for their expenses until their portfolio recovers.

If you need financing to pay for something like a home improvement, another type of loan might be better, such as a home equity line of credit. Be sure to consider all of your options before taking out a reverse mortgage. Consider discussing the option with a trusted family member or financial advisor.

Related Content

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• Tap Your Home's Equity for Retirement Income

A reverse mortgage is a loan on your house that lets you tap your home equity. Like a cash advance, a bank fronts you the money and you have to repay it, with accrued interest, at the end of the loan period. If you’re considering a reverse mortgage, there’s a lot you need to know before signing on the dotted line. There are costs associated with a reverse mortgage, interest and fees, that accumulate during the term. Start with our guide to everything you should know about reverse mortgages, then work your way through our other features, guides and news stories.

Many homeowners in or near retirement face a quandary. Their wealth is tied up in their home—two-thirds of the average retiree’s net worth is home equity—yet they’d rather not tap that wealth by selling their house and downsizing.

One versatile solution is a reverse mortgage. It lets you stay put, ditch your mortgage payment (if you still have one) and tap your home equity. The money you borrow can be used however you like—to supplement retirement income, to renovate your home or to cover health care costs, for example. Divorcing spouses can use a reverse mortgage to, say, help one spouse keep the house and the other buy a home. With a reverse mortgage “for purchase,” you can even buy a retirement home. The loan comes due when the last surviving borrower dies, sells the home or leaves for more than 12 months due to illness. You’ll never owe more than the value of your home when you or your heirs sell it to repay the reverse mortgage.

The National Reverse Mortgage Lenders Association figures that only about 3% of eligible borrowers have one. Many financial advisers and consumers continue to think of reverse mortgages as loans of last resort. But some potentially detrimental features have been corrected. And over the past several years, financial researchers have found that a reverse mortgage taken as a credit line early in retirement can grow, providing steady income or buffering financial shocks, even for well-heeled borrowers. For example, tapping a line of credit could allow you to avoid taking a distribution from your investment portfolio when it has lost value, or it could cover the cost of long-term care, says Wade Pfau, director of retirement research at McLean Asset Management, in McLean, Va.

Bill and Maureen Deller of Marana, Ariz., near Tucson, took out a reverse mortgage in mid 2017 as a kind of insurance policy. The couple, both in their mid seventies, have a “reasonable” retirement portfolio, says Bill. They also collect Social Security and have long-term-care insurance. The Dellers considered a home-equity line of credit but chose a reverse mortgage after discussing it with their financial adviser. Their home appraised for $280,000, which qualified them for a reverse mortgage with a line of credit of nearly $172,000. “We really don’t need the reverse mortgage financially,” says Bill, “but it makes us feel more comfortable that if we need it, we’ve got it.”

Options for taking the money

Your borrowing power depends on your age (or the age of the younger spouse), the value of your home and current interest rates. With a rate of 5%, a 62-year-old borrower can qualify for an initial payout (the principal limit) of 52% of the home’s value (up to the current Federal Housing Administration limit of $636,150), says Shelley Giordano, chairwoman of the Funding Longevity Task Force, which focuses its research on the role that home equity and reverse mortgages can play in planning for retirement income.

Because, in effect, you’re receiving loan advances, not income, the money is tax-free. It won’t affect what you pay for Medicare, how your Social Security benefits are taxed or your eligibility for Medicaid. You or your heirs can deduct interest on a limited amount of debt when the loan is repaid. To offset the up-front cost, plan to keep your home for several years or more. If you use little or none of the money, it’s similar to paying premiums for insurance that you never need. You can prepay the loan balance without penalty whenever you like.

Borrowers have several payout options, depending on their goals. A line of credit offers the most flexibility. You can borrow the maximum amount for which you qualify during the first two years, tap the line periodically to supplement income, or hold the line in reserve. You’ll incur interest only on the outstanding balance. Meanwhile, the untapped portion of the line compounds at the same rate at which interest is charged on any balance. If interest rates rise, more interest will accrue on the outstanding balance, but the untapped portion of the line will grow in tandem. That’s another reason to take a reverse mortgage with a line of credit sooner rather than later. Over many years, the line of credit can increase to far more than the original amount.

Retirees will have the greatest probability that their resources will outlast them if they avoid taking money (or take less) from their investments in a down market, especially early in retirement, according to research by Pfau and others. In a month or year when your investments have lost value, you could take withdrawals from the line of credit instead. When your investment portfolio has recovered, you can begin withdrawing money from your investments again, possibly repaying the line of credit and rebuilding its insurance value.

Borrowers who want guaranteed income can also choose fixed monthly payments—possibly in addition to the line of credit. You can take fixed payments in one of three ways.

A term payment will provide fixed monthly payments for a certain period. You could use it as an income bridge to, say, postpone taking Social Security until age 70, when you’ll qualify for the maximum Social Security benefit. However, if you take term payments, you don’t get any more money after the fixed period. Older seniors who anticipate needing in-home care for just a few years may benefit by taking a reverse mortgage with term payments just before they begin care, says Steve Resch, a vice president of Finance of America Reverse.

A tenure payment provides fixed monthly payments based on your age (and a life expectancy of 100), and payments continue until the last borrower dies, sells or leaves the home. The term or tenure payment will remain the same even if your loan balance grows beyond the value of your home.

A reverse mortgage with tenure payment can be a compelling alternative to an immediate fixed annuity if you plan to stay in your home for life, says Pfau. Whereas an annuity requires a large up-front payment taken from other assets, a reverse mortgage requires only that you cover the up-front costs, which you can pay from the loan proceeds. The payment calculation doesn’t penalize women or couples for their longer life expectancies compared with single males, as annuities do. Plus, payments from the reverse mortgage are tax-free, whereas annuity income may be taxable.

A modified term payment or modified tenure payment combines either payment type with a line of credit. This approach provides guaranteed income and flexible access to a growing line of credit. You’ll continue to receive the term or tenure payment even if you use the entire line of credit.

The least-flexible form of payout is a lump sum. This is a one-and-done deal. You can take part or all of your principal limit to, say, renovate your home, buy long-term-care insurance or pay the tax bill if you convert traditional IRAs to Roth IRAs. But because you incur interest from day one, “it makes no sense to put the money under your mattress or invest it in something else,” says Patricia Whitlock, a loan originator in Brookhaven, N.Y.

Shop for the best terms before you choose

Before you shop for a reverse mortgage, it’s a good idea to discuss with a financial adviser how one would fit into your retirement plan. Look for an adviser who has earned the retirement income certified professional (RICP) designation from the American College of Financial Services (search for one at Designationcheck.com).

An adviser can discuss options for payouts with you, or you can run what-if scenarios with the reverse mortgage calculator at the Mortgage Professor website. See how much you qualify for based on various factors and receive a summary of competitive offers from participating lenders. You can give a lender your contact information to follow up with you, or you can use the summary to compare offers from other lenders. To find lenders in your state, visit Reversemortgage.org, the website of the National Reverse Mortgage Lenders Association, and click on “Find a Lender.” Look for a loan officer who is a certified reverse mortgage professional.

Get at least three quotes, and make sure each one shows a selection of margins and illustrates how your choice affects your up-front cost and payout. The Federal Housing Administration says lenders can charge an origination fee equal to the greater of $2,500 or 2% of your home’s value (up to the first $200,000), plus 1% of the amount over $200,000, up to a cap of $4,000 for homes valued from $200,000 to $400,000 and $6,000 for homes worth more than $400,000. But the FHA program doesn’t require lenders to charge the maximum, and if a lender says it does, move on. You’ll also owe fees for third-party services (such as an appraisal, title search and insurance, and inspection), which can run $1,300 to $2,500 or more. You can pay up-front costs from the loan proceeds or out of pocket—say, to stay under the 60% threshold so that you avoid a higher insurance premium.

Lenders charge a fixed interest rate on a lump-sum payout and a variable rate on all other types of payouts. Rates are based on an underlying index—typically the one-month or one-year LIBOR—to which lenders add a margin of 2.5 to 4 percentage points. In general, the higher the margin, the lower the origination fee. You can negotiate a credit against your closing costs if you agree to accept a higher margin. A typical interest rate on lump-sum payouts is 5%. Draws from a line of credit have variable rates, recently ranging from 5% to 6.5% using the one-month LIBOR.

Some loan officers’ compensation may be linked to the amount that you borrow immediately, so they may suggest taking more money sooner. Don’t fall for that. Plus, reverse mortgage lenders can’t legally sell you other financial products, such as annuities.

Keeping your end of the bargain

You must maintain your home and pay property taxes, hazard insurance premiums, and homeowners association or condo dues, or you’ll risk defaulting on your loan. If the lender determines you can’t handle those costs, it will set aside funds from your payout in an escrow account and pay those bills.

After the borrower leaves the home, lenders must allow an eligible nonborrowing spouse or committed partner to stay. That could still leave survivors in the lurch because they can’t take any more money from the reverse mortgage, but they must still keep up with taxes, insurance and maintenance. You’ll never owe more than the value of your home when it’s sold to repay the reverse mortgage. If your home sells for more than you owe, you or your heirs keep any leftover equity. If your heirs want to keep the home, they can refinance the reverse mortgage, or they can pay the outstanding debt or 95% of the home’s appraised value, whichever is less.

What you need to know

To be eligible for a reverse mortgage, borrowers must be at least 62 years old, named on the title of the home and live in the home for more than half of the year. The maximum payout, or principal limit, for which you’ll qualify depends on your age (or that of a younger co-borrower or a nonborrowing spouse, who must meet certain criteria to be eligible), as well as the current interest rate and the appraised value of your home, up to a maximum of $636,150. Some lenders offer larger, “jumbo” reverse mortgages.

You must get financial counseling to ensure that you can meet your obligations as a borrower. To find a housing counselor certified by the Department of Housing and Urban Development, call 800-569-4287 or search for “HUD Approved Housing Counseling Agencies” online. A session costs $125 to $250 over the phone or in person.

If you have a mortgage, you must pay it off from the loan or other sources. You can withdraw no more than 60% of your principal limit in the first year, unless you need more to pay off existing mortgage debt or make repairs required by the lender. Reverse mortgages are insured by the Federal Housing Administration and, at closing, you’ll pay an initial FHA mortgage insurance premium equal to 0.5% of the appraised value of the home if you take 60% or less in the first year, or a 2.5% premium if you take more than 60%.

You’ll accrue annual mortgage premiums at a rate of 1.25% of the amount you borrow, and interest charges will accrue on any outstanding balance—though no principal or interest payments are due until the home is sold.

Homeowners applying for a reverse mortgage will soon have to clear a new hurdle. In the spring, all borrowers will have to prove that they can handle the ongoing costs of the loan. Homeowners who don't pass the financial assessment could be denied. "It's the biggest change we've ever faced in the industry," says Paul Fiore, executive vice-president of American Advisors Group, a reverse mortgage lender.

The financial assessment is intended to ensure that potential borrowers will have enough money to pay ongoing costs, such as property taxes and homeowners insurance, over the life of the loan. In recent years, the federal government, which backs reverse mortgages, has ended up with about 10% of loans going into default as a result of unpaid taxes and insurance.

A reverse mortgage allows seniors 62 or older to tap their home equity. The loan is not repaid until the homeowner dies, sells the house or moves out for at least 12 months. Nearly all reverse mortgages are insured by the Federal Housing Administration. With the Home Equity Conversion Mortgage, or HECM, the government pays the lender if the house sells for less than the loan balance, so the homeowner will never owe more than what the home is worth.

Previously, reverse mortgage borrowers have not been subject to income and credit checks required of borrowers of traditional mortgages. Reverse mortgage lenders' concerns have focused on the amount of equity in the borrower's home and the home's value.

As the industry grapples with the new guidelines, applicants should expect a slightly longer wait to qualify for and close a loan, at least initially, once the new rules are in place (the expected implementation date was March 2 but that date has been delayed to April 27). “There will be an adjustment period for everyone,” Fiore says.

Lenders will have to look at all of the borrower's income streams, such as Social Security and pensions, plus any additional resources, such as investments. Borrowers will have to provide documents such as tax returns and bank account statements.

Any credit trouble will have to be explained. The lender will determine whether the explanation qualifies as an "extenuating circumstance" in getting the loan approved.

The amount of equity in the home can make a difference. "If somebody comes up short in the assessment, but they have equity in the house, that would count as a resource," says Peter Bell, president of the National Reverse Mortgage Lenders Association.

Setting Aside Money for Expenses

The financial assessment determines whether the lender will need to set aside a certain amount of money to pay for property taxes and other expenses over the course of the loan. The "set aside" will reduce the amount of loan proceeds available to the borrower.

To figure whether a set-aside will be required, the lender subtracts property charges, debt obligations and other living expenses from the borrower's income and assets. The resulting "residual income" is the amount of money left over each month. This figure is compared to a government threshold amount (based on region and family size) that determines whether a borrower has enough monthly residual income to pass the assessment. A family of two in Massachusetts must have residual income of at least $906 a month, for instance.

If there is a shortfall in residual income or credit problems, the lender will be required to carve out a set-aside from the loan proceeds. "The older you are, the less you might have to set aside," says Michael Branson, chief executive officer of All Reverse Mortgage Co.

A large shortfall requires a full set-aside that covers all property taxes and insurance over the borrower's life. The lender will pay the expenses from the set-aside.

A small shortfall requires only a partial set-aside. For instance, Bell says if the shortfall is only $100 a month, the amount set aside just needs to cover that $100 monthly difference. The money will be paid to the borrower each month, who then pays the bills.