You’re middle-aged and the thought of how you’re going to enjoy your golden years is becoming more persistent. You may be daydreaming about finally buying an RV to take that cross-country trip you and your significant other always talk about, or maybe you’ve begun planning how you can buy that vacation home. You take a quick look at your portfolio and it brings you back down to earth. You realize that those plans seem further off as you find yourself “financially stuck” between two generations of dependents — your aging parents and your adult kids struggling to find their financial footing. Congratulations, you are officially part of the Sandwich Generation.
As the population ages and lives longer, adults in their 40s and 50s are increasingly finding themselves navigating some thorny near-term financial demands while also trying not to wholly forgo any hopes of retiring with some financial surety. A Pew Research Center study shows that nearly half (47%) of adults in their 40s and 50s have a parent aged 65 or older and are either raising a young child or financially supporting a grown child (age 18 or older). That study also shows that one in seven middle-aged adults (15%) are providing financial support to both an aging parent and a child.
Sandwich Gens are facing an increasing number of financial responsibilities and with that comes growing financial shortfalls and serious disruptions to their long-term financial planning.
But the Sandwich Generation isn’t the only generation facing the retirement planning dilemma. Increased market volatility means that retirement portfolios are more volatile than ever, making it difficult for those who are already at retirement’s doorstep to plan for the full retirement experience typically afforded them.
So, what can those in the Sandwich Generation and those who may already be retired do to alleviate the pressures that come along with planning for the future in today’s turbulent financial environment? One often overlooked — or misunderstood — a financial tool is a reverse mortgage. Americans now hold over $7 trillion in home equity and tapping into that equity to adequately fund retirement is an increasingly popular option. Whether you’re a retiree trying to figure out how to afford the vacation home that you’ve dreamt about for the last 40 years or a Sandwich Gen with an aging parent and dependent children, tapping into home equity can help to both supplement retirement income and increase cash flow.
A reverse mortgage allows qualified borrowers age 62 and older to borrow against their equity in the form of a non-recourse loan. With a reverse mortgage, you live in and retain ownership of your home while using your home equity to help fund expenses. There’s no silver bullet when it comes to difficult financial decisions, but a reverse mortgage — as part of a balanced retirement solution — can be a viable option that can help families regain their financial footing.
Not your father’s reverse mortgage
Many people’s apprehensions about reverse mortgage are based on antiquated views about the offering and which demographic it could be designed to support. It turns out that in the past decade reverse mortgages have matured and evolved — both in terms of product innovations and in the protections they offer customers.
According to Finance of America Reverse, the current average borrower for a jumbo loan has a credit score of 729 and a home value of $1.7 million. Rather than drawing down on portfolios intended to be the base of a long and fruitful retirement, many people are managing to maintain their long-term financial plan while supporting dependent loved ones by tapping into home equity. And it seems like it’s working.
According to a study by the trade group NRMLA, compared to other financial products, reverse mortgages see incredibly high approval ratings, with 83% of seniors responding positively to their decision. Innovative products like Finance of America’s HomeSafe suite of reverse mortgage loans offer benefits of no mortgage insurance premium and zero out-of-pocket funds required at closing.
Tapping into home equity is now much more than a last-ditch effort to secure quick cash in a bind. Reverse mortgages serve as a viable option for building and maintaining a family’s financial legacy and easing the chokehold on the Sandwich Gens. Reverse mortgages can allow homeowners to provide children with an early inheritance, help those children purchase their first home, help alleviate ballooning college debt and even establish a trust fund for their grandchildren, as well as taking their own needs into account such as covering medical or in-home care expenses. – (BPT)
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