Reverse mortgages: An overlooked retirement planning tool

However, certain types of homeowners should consider a reverse mortgage, Graves said. They include homeowners ages 62-plus who plan to stay in their home long-term; those looking to increase cash flow, reduce risks, preserve assets, or add funds to retirement savings; and people who want to eliminate a mandatory monthly mortgage payment to free up cash flow.

According to Graves, retirement in the future is going to be more expensive and less predictable. He explained that most retirees rely on three traditional buckets: employment, investments, and income from Social Security and/or a pension. “And those have to last them as long as they do,” he said.

Graves said that when confronted with the critical question, “Is that going to be enough? Is that going to make it?” most honest retirees say, “I don’t think so.”

That’s why another resource that 87% of American retirees possess — their home equity — could be the answer to improving retirement security.

“You’ve got a fourth bucket,” Graves said.

“If we could turn your home into a reserve fund that was growing, could that increase your cash flow, reduce risks, preserve assets, improve liquidity, or even add new dollars back to your retirement savings?” he added. “The modern reverse mortgage is designed to do those five things.”

According to Graves, a reverse mortgage loan amount is based on the age of the youngest spouse, home value, and projected interest rates. The line of credit grows over time and is currently around 7%, he said.

Some common uses of a reverse mortgage include eliminating existing mortgage payments, creating a growing line of credit for future needs, and supplementing retirement income. Retirees may also seek out a reverse mortgage to establish a reserve for healthcare and long-term care needs, aid in tax management strategies, and create a volatility buffer for their portfolio during market downturns.

To keep the reverse mortgage in place, homeowners must continue to live in and maintain the property, pay property taxes, and maintain homeowners insurance.

The loan becomes due when the last surviving borrower moves, passes away, or enters a care facility for 365-plus consecutive days.

Of course, reverse mortgages are not without costs, including the up-front costs of mortgage insurance premiums, origination fees, and standard closing costs.

Of note, consumer protections are also in place, including mandatory counseling with an FHA-approved agency. Plus, the reverse mortgage is a non-recourse loan, meaning borrowers will never owe more than the home is worth.

Read more: Best reverse mortgage companies of April 2025

Graves said it’s prudent to set up a reverse mortgage line of credit as early as possible if you’re planning to stay in the home, due to its compounding growth effect.

He outlined six other tips for determining whether a reverse mortgage is right for you:

1. Consider a reverse mortgage as a tool in your retirement planning, not as a last resort.

2. Consider using a reverse mortgage to eliminate existing mortgage payments and free up cash flow.

3. Consider using a reverse mortgage as a “volatility buffer” to avoid withdrawing from investments during market downturns.

4. Explore using a reverse mortgage for tax management strategies.

5. Visit reversemortgagemasterclass.com for a deeper educational dive on the topic.

6. Attend mandatory counseling to fully understand all of the obligations and benefits.

Each Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan for your future on Decoding Retirement. You can find more episodes on our video hub or watch on your preferred streaming service.