Past generations of retirees used a “three-legged stool” approach to retirement security, including personal savings, defined benefit pension plans and Social Security. Unfortunately, many facing retirement today have little personal savings, and pension plans are rapidly disappearing from many employer’s benefit options. That leaves Social Security with the task of supporting retirees through their golden years, a job that the supplemental income program was not designed for.
Defined benefit pensions are calculated based on a worker’s years of service and income and for many middle class retirees, used to play a vital role in providing a financially secure retirement. The United States Senate’s report states that pensions have helped millions prepare for retirement. Pension plans are “regulated to protect participants against mismanagement, and they shield people from the risk of market downturns and the possibility of living longer than expected. However, the pension system has been in a steady decline for decades, and now, only one out of every five people working in the private sector has a pension… [Employers] that choose to offer their employees a retirement plan tend to provide defined contribution plans (“DC Plans”), such as 401(k) plans”. Defined contribution plans are often the first choice for employers because they are not required to make contributions for employees and the risk is shifted to the employee. The US Senate also reports that, “Research indicates that the poverty rate in 2010 for older households lacking pension income was nine times greater when compared to households with pension income”. For those without a pension or significant retirement savings, retirement can become a period of significant financial insecurity.
The retirement crisis is further fueled with seniors living longer, making it even harder to keep up with the rising costs of living “In 2010, nearly 6 million Americans aged 65 and over were living in poverty or near-poverty. By 2020 that number is expected to increase by 33%. Given that an increasing number of older people are reaching retirement age without income to supplement Social Security, we could see even higher poverty rates in the future.”
There is another option that may help retirees make ends meet. A reverse mortgage loan could be a viable financial solution for those ages 62 and older that either own their home outright or have significant equity in their home and live in their home full time.
A reverse mortgage loan allows homeowners to access a portion of the equity in their home. The loan becomes due when the home is sold, the borrower moves out of the home as their primary residence or the borrower passes away. Typically the home is sold to repay the loan. If the heirs want to keep the home they can repay the loan balance in full.
Reverse mortgage loans may not be a good fit for everyone. However, if you are a senior who is struggling financially, or you know someone who is, a reverse mortgage loan could be the right option for you. For more information about reverse mortgage loans and how one could help you live a more financially secure retirement, please call 866-751-6105.