simple home finances


Tips and Tricks for managing your finances!

Whatever happened to The Three Legged Stool?


Traditionally Retirement was seen as a three legged stool because it was funded by three financial sources:

1.       Company pensions,
2.       Social security and
3.       Personal savings (CD’s, Mutual Funds, Stocks, Bonds, etc.)

With the creation of the 401k retirement account companies began to move away from providing pensions to matching a portion of each employee’s contributions to their 401k account. That is not such a bad thing, due to a volatile economy and market, many pensions have gone underfunded or have been mismanaged and a pension crisis has resulted from that.

So how are people doing? Well if you look at the numbers in total, people are not doing all that well, many are not putting away nearly enough money. It turns out the same forces that caused companies to experience problems with their pensions also caused people problems in keeping a job or in some cases keeping their home.

Time has continued to march on and many who kept thinking they could get back on track have essentially run out of time. Many will not be able to save enough to replace the pensions that their parents enjoyed.

So now the three legged stool has become a two legged stool with two sources of funding:

1.       Social Security and
2.       Retirement Savings (401k, IRA, etc.)

We all know a two legged stool can't stand so what are people to do? Consider adding a Reverse Mortgage to get more income coming in, while many have not saved enough for retirement, many of those same people have a good amount of equity in their home. So putting that third leg on the stool can be done with a reverse mortgage.

So how does this work?

o   A Reserve Mortgage lender will “buy” up to 60% of the equity in your house and finance it with a loan which makes payments back to you.
o   But You get to stay in the house  
o   If you still have a mortgage the lender will pay that first so you no longer have a house payment but, it also reduces the loan payment you get since when the lender payed your mortgage company it reduced the equity you have.
o   But this is big a win for you since your house payment comes off your budget and you get additional income too.
o   If you don’t have a mortgage the Reverse Mortgage monthly payment you get can be much larger.

That two legged stool can once again become a three legged stool funded by:

1.       Social Security,
2.       Retirement Savings and
3.       A Reverse Mortgage.

This may make the difference between being able to retire or having to continue working.