Why Your Home Shouldn’t Be Your Retirement Plan

November 12th, 2019

Too many Americans are banking on the value of their homes to fund their retirement. As time has gone by, many are realizing that their retirement savings are far short of the goals recommended by financial experts. Retirement planning professionals advise saving a minimum of a million dollars to supplement Social Security, but few people in their 50s have reached that goal. Some survey statistics report that a third of Baby Boomers have less than $25,000 saved for retirement. The median retirement savings for those 40 years of age and up is just $63,000, and $117,000 for Americans in their 50s, according to the Transamerica Center For Retirement Studies. The one big asset that older people often do have is their home. And without adequate liquid savings, the backup plan that many people are considering is using their home to provide the additional cash they need to pay for living expenses in retirement. That’s dangerous thinking on many levels. The earlier you understand the different strategies you can use to convert the equity of your home into a stream of regular payments the more options you will have to enjoy your retirement.


Reverse Mortgages Are Highly Risky


Reverse mortgages were invented by lenders way back in 1961. These products would allow you to keep living in your home while receiving monthly payments based on the equity of your home. The idea seems pretty attractive however, reverse mortgages didn’t surge in popularity until about a decade ago, when certain well-liked celebrities started endorsing them in television infomercials and commercials. If someone that the public already trusted was advocating reverse mortgages, they must be a good idea, right? Wrong. Reverse mortgages promise the moon but often deliver a hailstorm of financial woes that can swiftly lead to foreclosure. Reverse mortgages can suddenly become due and payable for a variety of reasons, including:


– The borrower moves out. This may happen due to changing life circumstances or sudden health emergencies. Even if the borrower lets someone else live there (such as a grown child) or rents out the premises for income while the borrower is recuperating in a hospital, this may constitute moving out and could be a violation of the terms of many reverse mortgage contracts.


–  The borrower gets behind on insurance or tax payments. This is a violation that can result in swift foreclosure on the home.


– The borrower fails to maintain the property. The lender may call the loan due in this situation, in which case the property can be foreclosed.


Every reverse mortgage contract is slightly different, but they all favor the rights of the lender, not the borrower. They are highly risky, deceptively complex and dangerous for all but the most financially savvy.


These risks were lost on thousands of unwary homeowners who took out reverse mortgages for everything from funding retirement to taking an extended vacation, to paying for a home purchase for their own grown children. Hundreds of thousands of reverse mortgages have ended in foreclosures around the country, but you won’t see that advertised on your local television channel. The heaviest tolls for failed reverse mortgages have been shouldered by those who can least bear it; urban blue collar workers who found themselves unable to make ends meet in retirement and turned to reverse mortgages in desperation. They didn’t just lose their only asset; they lost their dignity and the very roof over their heads.


Selling Your House For A Lump Sum


If you are at the door of retirement you may find yourself with no other option than to sell your home and get a lump sum amount of money. Ideally, you want to think about your situation as early as you can so you  have as many options as possible. Once you sell your house and get that lump sum, how can you make best use of it to earn passive income?


Annuities are heavily advertised as a means for passive income in retirement.  Annuities shift your cash balance to an insurance company. Essentially, you’re buying an insurance product that underwhelms. Annuities have high entry fees and offer very low returns hovering around 2% and 3%, assuming a survivorship plan and payments adjusted to the cost of living.


Another popular idea is the retirement fund withdrawal plan. This advocates investing your money into a low risk, low yield vehicle and only withdrawing the gains, or about 2-3% of capital. For example, if you have $1 million, you’d withdraw 20,000 a year. Of course, this isn’t much to live on and the withdrawal schedule doesn’t even keep up with inflation. Practically speaking, you’d need to eat into the principal to get the income you need, which ultimately inhibits your future interest earning power.


What Lies Ahead in Retirement?


When most Americans think of retirement they dream of sitting on a beach somewhere or just relaxing in the backyard while grandchildren coo and play at their feet. At the very least, the thought of not having to wake up to an alarm every morning and face a long commute has its own rewards. What lies ahead in retirement sometimes surprises even the most meticulous retirement planners. The fact is, you can’t plan for your life in retirement as much as you think you can. Things happen that catch you off guard.


As people get older, they may experience health challenges or simply wish to slow down their pace in life. Whether you’re healthy as a horse in retirement, recovering from a long illness or suffering from an unexpected health challenge, you most certainly won’t want to be running in the rat race. What’s the solution? Passive income.


Passive Income is the Only Smart Retirement Solution


The only retirement solution that makes sense for absolutely everyone is passive income. What is passive income? It’s money that you make automatically, 24/7. Have you ever heard of making money while you sleep? That’s passive income. Passive income is having your money work for you instead of you having to work for it. Your money works for you, but not in the way it works for you with stocks, bonds or similar investment vehicles. Those are ways to make your money grow, but they don’t provide you with income. And in retirement, you need income. Passive income is actual money that goes into your bank account each month; money that you can use however you choose. Passive income is the only smart retirement solution because it meets the two primary needs of retirees; 1) income without work and 2) income that can be used to meet daily needs. In addition, passive income doesn’t necessitate risking your home. Your home shouldn’t be your retirement plan. Passive income should not only be your retirement plan; it should be your life plan. Depending on how far out you are from retirement, you have two excellent options.


Passive Income If You’re Ten Years Away From Retirement


If you’re ten years out from retiring, consider investing in cash flowing rental properties. Before you start with all the reasons you don’t want to be a landlord, know that you can have a property manager in place and stillget cash deposited into your bank account each month. That’s what cash flowing means. Cash flow is the profit after all the expenses have been paid. To be clear, when you invest in cash flowing rental properties to fund your retirement, you aren’t taking on a second job as a landlord. Technically you are the landlord because you’re the owner, but the property manager takes care of the day to day so you can put those visions of changing locks right out of your head. To recap, if you have ten or more years left to retirement age, cash flowing rental properties make a smart, passive income retirement funding option.


Passive Income If You’re Three Years or Fewer From Retirement


If retirement is looming and you’re one of the unlucky ones who matches the statistics mentioned earlier, retirement isn’t looking very rosy. It’s scary to think that you’re getting older and you don’t have the resources to get through retirement. After all the hard work you’ve put in for so many years, where’s the payoff? The fact is, at this stage of the game, you have to create your own payoff. One possible retirement solution is private money lending.


If you’re hoping that banks will raise interest rates on savings accounts to levels that will support your retirement, don’t hold your breath. Those days are over, at least in your lifetime. Anyway, CDs, stocks and bonds and savings accounts won’t support your income needs in retirement. They certainly won’t grow your retirement account, either. What you need if you’re three or fewer years out from retirement is something that will give you double-digit returns in a very short time. That’s private money lending.


Private money lending is a relatively safe way to reap returns that equal between 8 and 12% in term lengths that last somewhere between eight and 24 months. That’s what you need for your retirement at this late stage. When you lend money from your retirement savings as a private money lender, you get the same kind of returns as banks and other financial institutions that lend to borrowers for real estate projects and entire developments.


No matter what you’re personally interested in, you’ll find passive income opportunities that match your needs. You can earn passive income from cash flowing turnkey rentals, passive income from private money lending and much more. What you shouldn’t do is risk losing your family’s home to fund your retirement plan. It’s not necessary and it isn’t smart. If you’re already facing retirement and you own your home, you might consider selling it for a lump sum and using the proceeds to earn passive income with private money lending. If you’d like more information about opportunities for passive income at any age, please contact MartelTurnkey today.


  1. I have been absent for a while, but now I remember why I used to love this web site. Thank you, I will try and check back more often. How frequently you update your site?

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