A recent New York Times article offers a concise 5-year countdown-to-retirement plan, with the final year of the timeline being the time to –cautiously – consider a reverse mortgage.
Offered as a way to make ends meet if you’re planning to stay in your current home, reverse mortgages are a “fourth- or fifth-tier line of defense,” according to financial planner Jennipher Lommen of Santa Cruz, Calif., who is quoted in the article.
“If you are concerned about running out of money in retirement, ‘they can be a good resource,” she says. “But you’ll need to continue to maintain the home and pay the property tax, and you have to understand what will happen if you leave the home. The bank may get it, not your heirs,’” states the article written by Peter Finch.
The article compiles interviews with financial planners, retirees and economists who agreed that the five-year mark is when many people begin to panic about their retirement plans. It’s also a crucial window to make sure your post-work years are sufficiently covered.
At five years out, experts recommend seeing where you stand financially and looking at overall asset allocation. Four years before retirement is the time to plan where you want to live in the future. A retirement community? Your current home? If a community with care options for later in life is your preference, experts recommend speaking with a financial planner before purchasing any pricey long-term care insurance.
Whether or not you decide you want to stay in your current home, three years before retirement is the time to make updates to your house, either for yourself or new owners.
“You might also look at refinancing your mortgage or even opening a home equity line of credit, which will be easier to do while you’re still earning income. Your goal should ultimately be to reduce debt, not take on more of it, but a line of credit could come in handy in an emergency,” writes Finch.
Also during this year is the time to prioritize and reflect on what you want your day-to-day life in retirement to include.
Two years before you officially retire is the time to plan for “tax-saving opportunities” available in early retirement, and, along with considering a reverse mortgage, you should take another look at your investment portfolio the year before you retire.