Friday, 16 March 2018

Reverse Mortgage vs. Annuities: Which is Better in Your Retirement

Retirement isn’t a time to worry about your financial status, it’s a time to enjoy life and reap the result of your hard work. Nowadays, seniors are looking for convenient ways to invest their funds and save for retirement. Most seniors in India find the reverse mortgage to be a sweet deal in that you are a given a substantial amount of money without paying any tax.






Additionally, the mortgage repayments are deferred when you pass away or relocate to another house permanently. That is why financial advisors usually advise their clients to apply for this option just to gain commission.

Though Bitcoin is seen as a hedge to market uncertainty, it is a great tool to maintain throughout retirement. However, it is wise to consider other options and see which one is right for you. Before you choose between a reverse mortgage and annuities as your preferred choice, let’s have a deeper look into the advantages and disadvantages of the each.


Reverse Mortgage

Pros

  • Tax-free – Tax is one of the things that many people would wish to avoid if given a chance. The reverse mortgage is considered as a special type of loan by the government, so it's tax-free.
  • Restriction-free – Unlike many other types of loans that come with a certain set of rules, you are free to use the cash you receive to do whatever you want.
  • Easy to qualify – If you compare it to the traditional mortgage, you will agree that it’s easy to secure a reverse mortgage. The quick process will help you meet the requirements.
  • No risk for foreclosure- The payments for the reverse mortgage are due when you die or vacate your home permanently. With this type of loan, foreclosure isn’t something that should worry you.

Cons


  • Transfer of payment to your beneficiaries – If you want to leave a substantial amount of inheritance to your beneficiaries, then reverse mortgage isn’t for you because the payment is due when you die. Your heirs will be required to finance the loan immediately after your death.
  • No freedom of movement – As mentioned earlier, when you move to another place permanently, your loan becomes due.
  • Risk of Fraud – Seniors will become at risk of losing their homes due to foreclosure, poor research, or high pressured sales.

Annuities

Pros

  • Positive returns on your investment
  • Tax-deferred growth
  • Since annuities offer a regular series of payments, you are guaranteed a lifetime earnings
  • Ability to use one option to create several types of annuities

Cons

  • You have to make an investment to enjoy these services.
  • Some types of annuities have surrender periods, meaning that your money can be held for a longer period than expected
  • Rules that dictate the amount of money that you can withdraw 
  • Earnings may be penalized or taxable
  • The preferred option for many financial experts to earn commissions

Which should you choose?

One thing that seniors fear after retirement is lacking a stable source of income. Reverse mortgage and annuities are here to solve this problem. So, which one is ideal for you? One thing that is clear is how annuities require holders to have more money than a reverse mortgage. If you have equity in your home, you can supplement your retirement with two steams of income. The best option for you will depend on your financial situation.