It's important for seniors to plan for all the changes that come with retirement, but one personal finance expert says an area that deserves special attention is how their spending must change in order to keep them financially stable throughout their golden years. But among his suggestions for seniors to help manage spending is to consider getting a reverse mortgage.
"Retirement is financially unlike any other period in their lives because retirees generally are working less or not at all, living off investments and monthly benefit checks, and using more medical services," says Eric Tyson, coauthor, along with Bob Carlson, of Personal Finance For Seniors For Dummies. "Making the most of their senior years and their money requires them to plan ahead and be prepared for some surprises."
Tyson's first piece of advice: don't freak out. One study from a large accounting firm ominously warned that about 60% of middle-class retirees would probably run out of money if they maintained their pre-retirement lifestyles. Technically that may be true, but an important detail the study failed to mention is the vast majority of retirees spend less—in some cases quite a bit less—when they retire in comparison to their pre-retirement spending.
Among his suggestions is for seniors to consider supplementing their income stream by obtaining a reverse mortgage.
"Retirees we speak with who have taken a reverse mortgage generally say it has been a good experience for them," says Tyson. "They often cite that the extra income allowed them to keep up a home's maintenance, pay medical and other costs, avoid having to scrimp so much on things like eating out sometimes, and gain peace of mind not having to make house payments.
"However, reverse mortgages aren't free of their downsides. The effective interest rate can easily jump into the double-digit realm if you stay only a few years into the loan. So as with any financial decision, do some research to determine if it is right for you."
He also suggested for seniors to reduce or manage the amount they spend on housing.
"Some retirees have attachments to their homes and don't want to move, while others don't mind downsizing or moving to a lower-cost area," says Tyson. "Some would never consider taking on a tenant or opting for shared housing, while some, especially those who have been widowed, might find the social aspects of those situations appealing. Each person's situation and preferences are unique, so we advise that you explore your options and select the choice that feels right for your situation money-wise and comfort-wise."
