Reverse Mortgage as a Retirement Alternative
Having alternative sources of retirement income is critical for those who are currently retired, those retiring in the near future, and those planning to retire in the next 30 to 40 years.
One alternative available to many Americans is a reverse mortgage. Surveys show that Americans tend to store more than two-thirds of their wealth in their homes, which implies that housing, as a retirement asset, will grow in importance in the future (Society of Actuaries 2011).
This alternative may be particularly attractive to the baby boomer generation who have high homeownership rates and have conserved their home equity (Poterba, Venti, and Wise 2011).
This paper assesses the current and future challenges facing retirees, demonstrates how a reverse mortgage can be used to provide a supplemental source of retirement income, and explains the potential impacts current monetary policy and recent changes to the Home Equity Conversion Mortgage (HECM) program may have on the reverse mortgage market.
Nearly 80 million baby boomers are expected to retire over the next 18 years. Unfortunately, the recent recession has eroded their retirement portfolio values, increasing retirees’ dependence on Social Security. The long-term solvency of the Social Security system, however, is uncertain. Thus, having alternative sources of retirement income is important. Reverse mortgages are one possible alternative.
The recent housing market crash has negatively impacted the reverse mortgage market by reducing home values; however, current expansionary monetary policies may create new opportunities. Concerns over the fiscal soundness of the HECM program have necessitated changes to the program requirements that went into effect September 30, 2013. The implications of these changes and monetary policy effects on the reverse mortgage market are discussed in this paper.