Retiring is a significant financial achievement. However, the highly publicized conjecture of an impending recession has added layers of complexity and concern for those who’ve recently retired or are preparing to do so. However, with strategic planning and informed decisions that look to all asset classes, retirees may be able to safeguard their financial well-being even during economic downturns.
Here are three key strategies retirees may want to consider:
1. Diversification
After a record high the S&P 500’s rapid 10% decline has pushed the markets into correction territory. CNBC reports the U.S. stock market has lost $5 trillion in value in just three weeks. In such markets, diversification is essential as all asset classes don’t respond the same way to economic news, a new Presidential administration, or inflation.
Yet, some retirees may be reluctant to dump their stocks- especially if doing so would result in realized losses being sold lower than the original purchase price. Knowing this, some older homeowners have chosen to take a federally insured reverse mortgage, known as the Home Equity Conversion Mortgage or HECM. Borrowers who have a sizeable line of credit in their HECM may opt to take modest withdrawals from their line of credit rather than from their portfolio. This preserves investments and helps protect future sustainable withdrawals. This ‘standby reverse mortgage’ strategy should be done under the guidance of a qualified financial professional.
2. Establish an emergency fund
Having a readily accessible emergency fund is vital for covering unforeseen expenses without disrupting long-term investments. Financial experts recommend setting aside funds to cover six to twelve months of living expenses. Unfortunately, for some retirees, this is not possible.
Rather than running up credit card balances to meet unexpected expenses a retiree may find the HECM’s line of credit to be their ace in the hole, cushioning them against the impact of unexpected financial shocks. Unlike a HELOC there are no required monthly payments preserving cash flow and the credit line may not be reduced or frozen due to a change in home values or the homeowner’s financial circumstances.
3. Reassess location
Relocation is one of the most powerful ways retirees can reduce their cost of living. Relocating to a lower-cost state or municipality can make all the difference between one’s retirement portfolio lasting or running out of funds. Even better, qualified older homeowners may be able to use a HECM for Purchase to buy a new home in a less expensive region. This reduces their monthly expenses and relieves them of the burden of required monthly mortgage payments. Relocation is typically not top of mind for most retirees but its benefits are undeniable.
These are just three ways older homeowners may be able to mitigate the worst impacts of an economic recession whether it comes to pass or not.
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