To Enhance Lifetime Retirement Security, Use Reverse Mortgages or Immediate Annuities?
This paper reviews how reverse mortgages work, with a focus on costs, taxation, and possible use in enhancing lifetime retirement security through tenure payments.
A recent article in the financial planning literature found that tenure payments from a reverse mortgage effectively and efficiently balance income and bequest needs of a retired household.
For those retired households who have both significant retirement assets and housing equity, the question remains whether they should use reverse mortgages based on their housing equity or immediate life annuities based on their retirement assets. The answer lies, in part, in an empirical analysis done here with note of costs and current market conditions, using standard calculators.
Results show that for three timeframes with different interest rate levels, the life annuity produced higher income for individuals of almost all ages and both genders in retirement, while for couples, the reverse mortgage produced generally higher incomes, although the income from the annuity improves relatively when the age spread among the couple widens and as they are older.