When in or approaching retirement, it is imperative to explore all your living options including purchasing a home with a reverse mortgage. “NAR (National Association of Realtors) data shows that the largest portion of homebuyers in the real estate market today are Baby Boomers. And half of older Baby Boomers (aged 68 to 76) paid cash for a recent home purchase, while a third of younger Boomers did so as well. In addition, the Silent Generation makes up just 4 percent of recent buyers, but 53 percent of them also used all cash to purchase a home. Older buyers are less likely to be first-time homeowners, and they are more likely to be downsizing to a smaller, less expensive property. They also tend to have more equity in their current homes, which helps them afford their next home purchase without needing to finance it.” https://www.bankrate.com/real-estate/rise–of-cash-home-buyers/#all-cash-purchases

It is the goal of many retirees to live out their years without a monthly mortgage payment while relishing in the comfort of their own home and relaxing due to the financial freedom they worked hard for their entire lives. But is purchasing a new home the optimal way to use their cash during retirement?

The 2023 NAR Generational Trends Report showed the top reason for those aged 55+ to desire a move was to be closer to friends and family. Moving to a new area might also bring with it higher costs to consider while on a fixed income. New homes can come with unexpected expenses and possibly higher property tax payments, insurance, and general upkeep. Aging, as well, can bring with it new and unexpected challenges. It is especially important for retirees to have cash available for things that may pop up without notice. We all hope for good health and our bodies to not fail us, but aging can bring a myriad of obstacles with it. What if you can no longer take care of your yard? Or walk your dog? Or make your own bed? Health scares can happen overnight to anyone, and retirees need to be ready and able to afford help for these tasks, and others, that may allow them to live a more quality life. Even if they have a long-term care insurance policy, these policies often have large gaps in coverage and take months to access, leaving the policy holder to fund their needs themselves. Staying comfortable in their own home is priceless. It is imperative to be able to fund any needs that will allow them to hold tight to their freedom and autonomy.

Additionally, it is likely that renovations or repairs will need to be made on the home at some point to make it as comfortable as possible and to add their own touch. These situations need to be considered when deciding whether to use all cash to purchase a home outright or purchasing a home with a reverse mortgage. Having cash available during retirement is imperative to financial freedom and flexibility.

Purchasing a home with a reverse mortgage loan can allow people aged 55+ to keep more of their cash and give them more flexibility while ultimately meeting the goal of having no monthly mortgage payments in retirement. Buying a home with all the cash they received from the sale of their previous home can tie up their cash in an illiquid asset; while taking out a reverse mortgage could leave them with more cash for other needs, possibly other investments and allow them access to their lump sum of cash as a financial security net.

Paying all cash for a home can make sense for some people and situations, especially if they aren’t planning on staying in the home for very long or as their primary residence but be sure to also consider the potential downsides of spending what could be considered their greatest nest egg. They don’t have to sacrifice liquidity to meet their goal of financial freedom in retirement, purchasing a home with a reverse mortgage can allow them to achieve this goal and many others while maintaining liquidity leading to a much more relaxing experience knowing they will be able to afford a comfortable quality of life throughout retirement.