Re-thinking the Three-Legged Stool in Retirement

I recently read an article in The Oregonian titled “Boomer’s future is spelled: W-O-R-K.” Doug Bates spelled out the difficulty that boomer’s are having keeping up with their lifestyle with the traditional “savings, pensions, and social security” mentality, commonly seen as the “three-legged-stool.”

Though there are many areas to blame for this problem, the reality is that those who are considered “boomers,” as a group, have not saved enough money to maintain the lifestyle that they are accustomed to. In fact, two-thirds of today’s leading baby boom cohorts are not ready for a financially comfortable retirement. “Comfortable” is defined as being 80% of the pre-retirement income.

The rest of the article went on to talk about how the United States must re-invent retirement, which likely should include creating opportunities for retirees to work throughout retirement, more specifically a more flexible system in which more opportunities would be available to them.

The article is a good read and I recommend it. However, though I agree with Bates that this is going to be a huge problem for many of the boomer’s planning for retirement, there is an option that was not discussed, and which may be a more solid fourth-leg on the retirement stool. You guessed it! A reverse mortgage!

Here are some numbers to chew on . . . . Financial Freedom, one of the largest reverse mortgage lenders in the country, estimated that roughly 30 million senior homeowners hold 3 trillion dollars in home equity (2006). Though this number is probably down using today’s home equity numbers due to a devaluation of home prices, those numbers will likely climb back in time. The reverse mortgage can be used to provide a guaranteed income for life, as long as they reside in their home. At the point in which the owner moves out of their home, the loan comes due. As an FHA guaranteed loan, the owner will never owe more than the value of their home. This kind of guarantee is one that many seniors today are considering. It is a source of income that pays, and allows boomers to enjoy their final stage of life! Let’s hear it for the “four-legged stool.”

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