A 63-year-old widow with $1.1 million in her 401(k) is evaluating a reverse mortgage as a retirement income strategy despite having substantial savings. Financial experts caution on long-term trade-offs for accessing home equity.
- Retiree is 63 years old with a $1.1 million 401(k) balance
- Home value estimated at $750,000, potentially eligible for up to $400,000 in reverse mortgage funds
- Reverse mortgage interest compounds over time, reducing equity and increasing loan balance
- Upfront costs range from 2% to 5% of loan amount
- No monthly payments required, but repayment is due upon death or home sale
- Decision affects long-term financial legacy and potential inheritance
At 63, a recently retired widow with a $1.1 million 401(k) balance is considering a reverse mortgage to supplement retirement income. The decision comes amid rising living costs and increasing uncertainty around long-term healthcare expenses, particularly for women who outlive their spouses. While the 401(k) balance provides a strong foundation for retirement, the retiree is exploring ways to convert home equity into liquid assets without depleting investment accounts. Financial advisors note that reverse mortgages allow homeowners aged 62 and older to access a portion of their home’s equity as tax-free funds, with no monthly repayments required. For a home valued at $750,000, a reverse mortgage could yield up to $400,000 in available funds, depending on interest rates and loan terms. However, the upfront costs—typically 2% to 5% of the loan amount—and accrued interest can significantly reduce the home’s equity over time. The retiree’s financial profile highlights a common dilemma: balancing liquidity with legacy planning. By using a reverse mortgage, she could avoid forced withdrawals from her 401(k), potentially preserving asset growth and reducing tax liabilities. Yet, doing so may leave less inheritance for heirs and increase total debt burden over decades. Experts warn that the interest compounds over time, and if she lives beyond 10 years, the loan balance could exceed the home’s value, creating a financial strain on future generations.