Reduce Investment Draws and Increase Cash Flow
Mrs. Y has always been a very disciplined saver/investor and has approx. $500,000 in a 401(k). She withdraws $4,000 per month to supplement her retirement income. Mrs. Y pays approx $5,000 per year in taxes on a total of $48,000 401(k) funds used for retirement income.
Mrs. Y owns a town home with an estimated value of $550,000. Her mortgage is approximately $100,000 with monthly payments of $900 per month.
In addition to paying off her current mortgage with a Reverse Mortgage, Mrs. Y, age 80, will benefit in the following ways.
Reverse Mortgage benefits:
1. Increased Cash Flow
Mrs. Y will use a Reverse Mortgage to pay off her current mortgage. With no mortgage payment Mrs. Y's cash flow will increase by $900 per month, or $10,800 per year.
2. Llifetime Income Payments:
Mrs. Y will supplement her retirement income with non-taxable lifetime income payments from a Reverse Mortgage receiving $2,000 + per month*. (Alternately, she could take less monthly and leave funds in a line of credit for emergencies without having to draw extra from her 401(k).)
3. Tax savings:
Mrs. Y only needs to take out the required minimum of about 5.35%* annual distribution this year from her 401(k) which amounts to about $26,800*. By reducing her 401(k) distributions from $48,000 to 26,800*, she will save an estimated $1,500+ per year in taxes*.
4. Preservation of Capital:
By reducing her 401(k) withdrawals from $48,000 to $26,800*, Mrs. Y's Reverse Mortgage will also help preserve her retirement fund. Her 401(k) is projected to continue growing at 7%* and, if needed, could be used to generate additional dividend income.
A Reverse Mortgage will lower Mrs. Y's taxes, preserve her 401(k), and increase her annual cash flow by about $15,100, ($1,500 per year in taxes + $10,800 in mortgage payments + $2,800 more from the RM than she gave up in 401(k) distributions).
*This is an example that may not currently have the same criteria. Results will vary based on borrower's age, current interest rates, home value and FHA maximum limits. Ask me to quote a similar scenario for you or one of your clients.