The argument against reverse mortgages

Risks, upfront costs can outweigh benefits

DEAR BENNY: I hope you enjoy a good discussion as much as I do, as I’m going to try to convince you that a reverse mortgage is more than a last resort. Let’s look at a 70-year-old who has been very comfortable in his retirement, collecting Social Security and withdrawing 4 percent from his $500,000 portfolio.

Unfortunately, his portfolio has lost 40 percent of its value, is now worth $300,000, and in order to maintain his income he now has to withdraw 7 percent. We both know that by withdrawing 7 percent that $300,000 will go fast. Why not enter into a reverse mortgage, leave the portfolio alone so it can have a chance to recover, and use the equity in the home (tax-free dollars) to make up the income from the portfolio? When the portfolio has recovered a bit, stop using the equity and return to the portfolio, keeping in mind the equity not used in the reverse mortgage is in a growing line of credit that is available at anytime for any reason. –Stephen