Another option given by the media and other financial advisors to the question of how can seniors in Kansas City make ends meet in retirement is to sell their house and rent something smaller.
Assuming you have an $180,000 house if sold would net 90% after selling costs and seller concessions that would leave you with $162,000. If that was invested into a conservative investment that earned 5% after taxes and the strategy is to use that money to pay the rent every month plus pull out the amount the taxes and insurance would have been on the house.
If you rented a place at $800 per month it would likely be much smaller than the house that you had and you would have missed out on any appreciation on the house. The idea behind this is that you can't afford your house which would have about $260 in taxes and insurance each month. If we assumed that rent and house costs go up the same 4% annually how long would that $162,000 last?
Since you would only do this to pull extra money out, let's assume the amount you were paying on the house each month $260 is taken in additional income adjusting for inflation. In 5 years that amount would be $304.16, 10 years $370.06, and in 20 years $547.78.
The question we ask is how long could you pay rent and pay yourself the equivalent of what your house would have cost? The answer is 19 years and 1 month. So selling and renting in this situation would give you 19 years and one month before you ran out of money. Granted you had income too, but isn't that the only reason you would do this plan and would $260 to $547.78 a month make that big of a difference in your life?
What is the media's plan or the financial advisors plan on where you would live if you live longer than 19 years and 1 month? They didn't think about that did they?
Comparing a reverse mortgage at the age of 62 you could take a life time income of $559 and never have to make another payment on your house for life. That is $559 beginning right away which pays your taxes and insurance on the house for more than 20 years if you spent the amount over those costs.
Or if you took a lump sum of $100,127 and invested it at 5% took enough money out to pay your housing costs and the same amount in income it lasts for 25 years. That's almost another 6 years and you can still live in your house after that because there are no payments.
Please realize these are simplistic examples and there are other factors to consider. The goal here is to open your eyes to other possibilities and to let you know that the media and even financial advisors can be way off base on their blanket recommendations. The best way to decide what is best for you is to consult with professionals that have taken the time to thoroughly analyze options.
If you would like more information about Reverse Mortgages contact Kurt Jackson he is a Certified Mortgage Planner with more than 17 years of industry experience and would be happy to answer your questions about Reverse Mortgages. He even conducts a Free Seminar "Insider Secrets Revealed! The Truth about Reverse Mortgages: Is a Reverse Mortgage Right for You?" They are held every Thursday at 1:30PM at 12 Westwoods Drive in Liberty. Seating is Limited. Call for reservations at 816-415-1737 or email kurt@stayinyourhomekc.com.
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