Reverse Psychology

From Rainy Day to Retirement

Have you ever heard the term, “saving for a rainy day”? If you live long enough, you’re guaranteed to have some “rainy” days. These unfortunate events could be as inconvenient as a flat tire or as devastating as the death of a family member. Things happen in life that cannot always be prevented or anticipated, so having money set aside to help withstand inevitable setbacks is necessary.

This is why Dave Ramsey’s famous “Baby Step One” is to save $1,000 for a starter emergency fund. While $1,000 is not going to solve every problem in your life, it will accomplish two things. First, it helps boost confidence quickly because it can be achieved by most Americans in 90 days or less. Second, it is enough money to keep normal, everyday inconveniences from becoming financial catastrophes.

As you grow older you will make more money, save more money, and build out a diverse financial posture able to withstand significant adversity. Before you know it, the rainy-day fund has grown into a retirement plan.

Is there a hole in your retirement portfolio?

What is the most important thing to plan for in retirement? If you consider basic human necessities, the first three universal needs are food, water, and shelter. I would argue that where you are going to live and how you are going to pay for your home are two critical items that your retirement plan should address.

The American Dream is the idea that every person has the freedom and opportunity to attain a better life for themselves. For most Americans, that dream involves owning a home, and for most homeowners, the value of that home represents a tremendous percentage of their total net worth.

Let’s go back to the rainy-day fund. When you put money into a savings account, do you expect to spend it someday? We put money in IRAs and 401(k)s with the expectation that we will live off those funds in retirement. We put money in 529s and plan to take it out when our kids go to college. We put money in health savings accounts to pay for medical expenses or long-term care costs. According to a 2024 study conducted by Allianz Life, 63% of Americans are more worried about running out of money than death.

While most Americans have not saved enough money in their various retirement accounts, they have invested an enormous amount of money into their homes. Why do tens of millions of people make mortgage payments for 30 years and then refuse to ever touch that money in retirement? Home equity dollars are not worth more than 401k dollars.

Reverse Your Thinking

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

Mark Twain

Many retirees today refuse to spend home equity because of incorrect assumptions, such as fear of losing ownership of their home, getting scammed out of hard-earned equity, or leaving less money to their children. When using home equity correctly, none of those fears become reality. There is an FHA insured, HUD regulated mortgage product specifically designed for retirees to be able to access the money stored in their home in a safe and responsible manner. This product is called a Home Equity Conversion Mortgage (HECM). It can tremendously benefit retirees who are still making mortgage payments or have a significant portion of their money tied up in housing wealth. I would define a “significant portion” as 25-50% of total net worth, which statistically accounts for well over half of baby boomers today. Incredibly, less than two percent of boomers are currently using this product.

Having a mortgage on your home does not change who owns the property. You own your home because you can sell it at any time, with or without a mortgage. You can also pass the home on to your heirs with or without a mortgage. The only consideration is that once you sell, the outstanding mortgage balance must be paid back.

Using a HECM can make retirement more efficient, frequently allows seniors to pass on a larger inheritance to their children and can reduce the overall risk of running out of money. Any conventional wisdom that does not include use of home equity in retirement has not evolved to account for the recent improvements to the HECM product since 2013, or the current wealth distribution in America.

It’s time to reverse the mainstream public sentiment. Depending on how you use it, your home can turn into a financial anchor that drowns you, or a financial lifeboat that saves you. It’s time to get in the boat.