When we hear the annuity pitch it starts out like this: Put a lump sum down in your early fifties and when you turn 65 you will begin to receive monthly payments. How much will I receive per month? Well that depends on the index, like the S & P 500 or which one you chose, and how much money you put down. Then you have to read the fine print, park it on your kitchen table, and think about it.
Would an annuity be better than maybe buying ten blue chip dividend paying stocks and simply putting them aside and allowing them to grow over the same term? Maybe an annuity would be a safer bet without the market volatility. Maybe the answer is to consider both an annuity and blue chip stocks. This is a strategy most adults planning for retirement will have to consider.
Fast forward to 65 when most people plan to retire. Maybe you never had the lump sum to put down for the fifteen year plan. It is also possible that you didn’t buy into the annuity concept. Regardless, if you have equity in your home you may have another unique option to create your own annuity. Depending on the amount of home equity you have, you may even be in a position to conceptually create a double annuity immediately with no lump sum or 10-15 year waiting period.
All of this can be accomplished with a government-insured HECM Reverse Mortgage credit line. You can create an immediate annuity of cash in hand monthly by using the reverse to completely pay off an existing forward mortgage. This will eliminate the monthly principal and interest payments that are required by your lender thereby providing you your own annuity on your terms every month. Instead of having to make the mortgage payment your home equity can now do it for you and you still own and have absolute control over your home.
In addition to this monthly increased cash flow from paying off a forward mortgage, you may have the option of also configuring a term payment or a tenured payment to further increase your monthly cash flow. Alternatively, you may be satisfied with the primary annuity that you just created with the payoff of your mortgage and select a residual credit line. Your residual available home equity is now an emergency reserve credit line that will compound annually at just under six percent in today’s market. This is much more attractive than the CDs available at the local bank. You may also want to consider configuring a combination of these options by paying off a mortgage, creating a term payment, and also establishing a growing credit line.
A reverse mortgage, for eligible homeowners, can use their home equity securely to create annuity like streams of additional income or reserves in retirement with no lump sums or extended waiting periods. It’s safe, it’s cost effective, and it’s something you control. When planning for retirement, or if you are already retired, don’t short change yourself by dismissing the potential merit a government insured HECM Reverse Mortgage can offer over expensive and complex alternatives. See our all the potential uses of a HECM on our Practical Applications page or visit our reverse mortgage blog.