Household expenses generally decline on average almost 20% between the ages of 65 and 75 and typically drop an additional 15% by the age of 85.1 Despite the decrease in household spending, the average senior still has many other responsibilities which can be difficult to afford when you retire and your monthly income is reduced. Below is a list of six main expenses that seniors have which may be reduced by tapping into their home equity with a reverse mortgage loan.
Housing is the largest expense that seniors should expect when retiring. The average person over the age of 50 will spend 40-45% of their income on housing and housing related expenses like maintenance, utilities, furnishings, as well as property tax and insurance. 1 Although relocating, downsizing, and eliminating unnecessary home related projects can cut down the average cost of housing, many seniors are opting for a reverse mortgage loan to allow for increased monthly cash flow in their budget by paying off their existing mortgage.
Healthcare costs are the opposite of housing costs as they tend to increase with age. Healthcare costs tend to double between the ages of 50 and 80 even for seniors with good health insurance plans. Increasing need for out-of-pocket costs such as medical procedures and tests, prescription and non-prescription drugs, dental expenses, and extensive nursing or assisted living care all factor into such a drastic rise in healthcare expenses. 1
Although seniors are no longer subject to payroll taxes upon retiring they may still be responsible for paying income taxes on a portion of their Social Security benefits and any other income they receive. Not taking into consideration the taxes on their withdrawals from the IRA, investments, Social Security and pension income may leave seniors with less money to retire on than they originally planned. 1 A reverse mortgage loan may be a great asset for those who didn’t plan for the continuation of taxes and have home equity that they can access.
Retirees who no longer have to make a daily commute to the office may replace those transportation costs with more regular doctors’ visits and traveling to see specialists. Average weekly transportation, the need for insurance, maintenance, repairs, and depreciation of their vehicles all add up, making the cost of transportation likely to be one of the main expenses seniors face.1
One discretionary expense that is added to most retirement lists is travel. This is the expense that seniors have the most control over and can do as much or as little as they can afford depending on what their budget allows.1 Taking out a reverse mortgage loan may help seniors who do not have room in their regular budget for travel by letting them access a portion of the equity in their homes.
Lastly, the kids may have flown the coop and eliminated the daily expenses that come with caring for them, but many seniors may still plan on assisting them with reaching milestones in their lives. Whether it be paying for college tuitions, weddings, helping with the purchase of their children’s first home, the college funds for their grandchildren, or all of the above, those costs can add up drastically.1 Although this is yet another discretionary dispense, it is one that many seniors value.