I predict a changing financial landscape in years ahead and tell retirees that when investment returns aren’t necessarily able to ensure a comfortable existence in retirement alone, they may need other ways to supplement income.
There’s one financial strategy I would have never recommended to retirees 15 years ago: a reverse mortgage. But for those living in prohibitively expensive areas, such as the Bay Area, the idea of a reverse mortgage to supplement one’s post-retirement monthly income has become an attractive option.
One option we’re suggesting to those who might be six to seven years from retirement is to focus their savings on paying down their mortgage now. This way, when they reach retirement, they can activate a 20-year income stream from the equity in their home. This, coupled with Social Security and even modest investment returns, can provide people the retirement lifestyle they’re hoping for.
It’s a nontraditional solution to a changing financial landscape, one where returns on investments may be modest over the next two decades as compared with previous decades. In my over 27 years as a financial planner and portfolio manager I have seen the evolving trends in retirement.
When I started in this business, there were people in their mid-50s. With increasing lifespans, many of those people are now in their mid-80s, and the question becomes, "did you control your spending in retirement?" The baby boomers are getting older. They’ve experienced 30-plus years of declining interest rates, but their homes have gone up a lot in value. Some people have seen their portfolios crash and burn, and they might be running out of money. But then there are others who have more money than they expected.