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Telegraph
10-07-2025
- Business
- Telegraph
How savers are protecting their pensions from Labour's inheritance tax grab
Since 2015, private pensions have been a sensible way to get around Britain's most hated tax. During his time as chancellor, George Osborne, guided by 'the fundamental Conservative principle that people who have worked hard and saved hard all their lives should be trusted with their own money', decided that retirees should be able to pass on unspent pension pots without their descendants incurring inheritance tax. But, if Labour's plans come to pass, this will soon no longer be the case. In her first Budget as Labour Chancellor, Rachel Reeves undid some of these freedoms by announcing her intention to bring pension pots into scope for inheritance tax. Though yet to become law, the proposals have nonetheless thrown a spanner in the works for many savers and financial planners, whose carefully planned retirements must now account for their pensions being fair game for the taxman. HMRC and the Treasury have been silent since the consultation into the change closed in January. According to Rachel Vahey, of stockbroker AJ Bell, pensioners are already patting for parachutes. 'While we wait to see the Government's next move, the pensions market is already starting to factor in the proposed changes,' she says. 'Over half of advisers are seeing new clients approach them for help with estate planning, including measures such as withdrawing money to spend, sheltering funds from inheritance tax or giving money to loved ones.' While some pension savers are seeking to spend their cash as quickly as possible, most are seeking more sensible ways to mitigate the new rules. For David Hobbs, 56, a former wealth manager from south London, Labour's planned tax raid on pensions undoes the more progressive policies of past Tory governments. 'It was great that Jeremy Hunt got rid of the lifetime allowance,' he says. 'By bringing pensions into inheritance tax, they've effectively taken that giveaway.' Though he is a decade away from retirement, Hobbs does not have much time to recalibrate his savings to account for such a significant shift in tax policy – and he's now busy planning what to do for the best. 'As I come to stop working, my ability to change my financial outcome is limited,' he says. 'The point I go from accumulating to 'decumulating' is fixed.' In the last year, Hobbs has thought about how to pass on more money to his children. 'I'm not against paying tax, but the fact is you ultimately build a set of plans and you make assessments based on your understanding of the tax rules as they apply,' he says. 'From a financial planning point of view, you'd have looked to use your pension last, but this reverses the whole thing so you're incentivised to spend as much as you can.' 'I think it's grossly unfair' Effects of the forthcoming changes could be compounded by those who already changed their pension plans as a result of Mr Osborne's pension freedoms, which allowed retirees to access their savings early. This prompted many to plough money into private pensions, ditching annuities. Research by the Pensions Policy Institute found that the number of annuity sales plummeted after the former chancellor's initial announcement. Their lack of flexibility and historically poor rates meant annuities continued to fall out of favour in the following years. Sir Steve Webb, the former pensions minister, said: 'More recent figures show some recovery, but sales of annuities are still way down. This means that, instead, more people have either cashed out their pension pot in full at retirement – usually for smaller pots – or kept them invested in a 'drawdown' account.' But Ms Reeves's announcement has moved the goalposts yet again – and annuities could be worth considering. 'The main thing which has changed recently is that the proposed inclusion of pensions in inheritance tax may lead to some flow of money out of defined contribution pensions, including possibly some people buying annuities to help avoid inheritance tax,' says Sir Steve. Buying an annuity gives you a guaranteed income for life. There are lots of different types, but if you buy one for you and your spouse, for example, the money is not held as part of your estate, and when you die the money will still be paid to them – subject only to income tax. However, the rate you get will depend on a lot of factors, including your age and any health conditions. It's one option that savers like Hobbs might consider. Wealth management firms such as Quilter are also advising clients to look at other options, such as strategic gifts, using trusts, or considering investment bonds wrapped in trusts, as investment growth steadily pushes the value of estates higher over time. Rachael Griffin, of Quilter, says: 'Many more estates are set to become liable for inheritance tax as pension wealth is brought into scope from 2027. 'But to add fuel to the fire, the frozen residential nil-rate band will compound the problem for families with estates nudging over £2m, where that valuable allowance starts to taper away. 'For those with significant property and pension wealth, it could mean a much bigger tax bill than expected.' But for those already in retirement like Barry Davis, 72, changing the structure of their pension savings is far more difficult – and he feels it's too late to make a difference now. 'It made more sense to do income drawdown – and it was a decision that was irreversible,' Davis says. 'Nine years later, they announced that pensions would be subject to inheritance tax. To buy an annuity now, I would have to take the money out and pay tax on it. It's a retrospective change in law, and I don't think they should apply it when people have made irrevocable decisions.' Davis has roughly £1.3m saved in his pension, and he estimates Labour's tax raid will increase his inheritance tax liability to £500,000. 'Worse than that, if I die and that £1.3m is still there, the people I leave money to pay 45pc [income] tax when they take it out, on top of the inheritance tax. I think it's grossly unfair.' 'We give our children regular gifts of £3,000 a year' The most common way to avoid the spectre of the taxman is to make regular gifts out of disposable income. Provided the amount you give does not negatively impact your standard of living, the money will not incur inheritance tax. A Telegraph reader, who asked to remain anonymous, is doing exactly this. 'We give our children £3,000 a year each, and when they buy a house, we will take some money out of our Isas, not our pensions,' he says. The 60-year-old and his wife have been self-employed for 20 years, and have for decades prioritised saving into their Sipps, funnelling money from their Isas into their pensions as a direct response to Osborne's pension freedoms. Making regular gifts is the way they're choosing to reorganise their finances, but it's not without risks – not least the chance you'll fall short if faced with the eye-watering cost of care in later life. 'If my wife gets dementia, or I do, or both of us do, then our children have power of attorney and they will spend everything we've got looking after both of us,' says the reader. An HM Treasury spokesman said: 'We continue to incentivise pension savings for their intended purpose – of funding retirement, instead of them being openly used as a vehicle to transfer wealth – and more than 90pc of estates each year will continue to pay no inheritance tax after these and other changes.'
Yahoo
07-07-2025
- Business
- Yahoo
3 Situations Where You Need to Ignore the 4% Rule
A popular strategy has savers withdrawing 4% of their nest eggs annually with adjustments for inflation. There are certain scenarios where the 4% rule doesn't make sense. It's important to customize your withdrawal strategy to your personal situation. The $23,760 Social Security bonus most retirees completely overlook › People who enter retirement with savings generally have to work hard to get that point. After all, your IRA or 401(k) isn't going to fund itself. But after pushing yourself to build up a nice amount of retirement savings, the last thing you want is for your nest egg to run out of money while you're still alive. That's why it's so important to establish a safe withdrawal strategy. Many financial experts will tell you to follow the 4% rule in that regard. With the 4% rule, you withdraw 4% of your savings balance your first year of retirement and then adjust future withdrawals based on inflation. Following the 4% rule gives you a strong likelihood of your money lasting for at least 30 years. It's a good plan in theory. But it won't work for everyone. And if any of these situations apply to you, you may not want to use the 4% rule. As mentioned above, the 4% rule is designed to help people's savings last for 30 years. But if you're retiring early, you may need to stretch your nest egg for 35 years, 40 years, or longer. Following the 4% rule in that scenario could increase your risk of running out of money. What withdrawal rate should you use in that case? It depends on your portfolio composition, income needs, and just how early you're retiring. It's best to work with a financial advisor to figure out a safe withdrawal rate that's customized to you. If you're retiring early, the 4% rule puts you at risk of depleting your savings. If you're retiring at a later age than the typical person, following the 4% rule won't necessarily pose a financial risk. But it could mean denying yourself larger withdrawals that could enhance your quality of life. Let's say you retire at age 75 and expect to need your nest egg to last for 20 years. In that situation, you may be perfectly fine to tap your savings to the tune of 5% per year or more. If you force yourself to stick to a 4% withdrawal rate, you could end up missing out on different luxuries and conveniences money can buy. The 4% rule assumes that your portfolio has a roughly even mix of stocks and bonds. But if you're someone who's very risk-averse, and your portfolio therefore consists mostly of bonds, then the 4% rule may not work for you. Of course, bond interest rates will also influence how well your portfolio holds up. But generally speaking, stocks are able to generate more portfolio growth than bonds. So if you're someone with 20% of your retirement portfolio in stocks and the remaining 80% in bonds, a 4% withdrawal rate may be too aggressive given your portfolio's likely performance during your senior years. Following a broad rule of thumb like the 4% rule may seem like an easy and convenient way to manage your nest egg. But it's not necessarily the optimal choice for you. Rather than commit to the 4% rule, use it as a starting point, but work with a financial professional to come up with a targeted withdrawal rate based on your retirement age, income needs, and investment mix. A more tailored approach could give you peace of mind and reduce your chances of running out of money. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. 3 Situations Where You Need to Ignore the 4% Rule was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
03-07-2025
- Business
- Yahoo
This income fund pays more than a bank account while keeping price volatility low
Laura Mayfield of Fort Washington Investment Advisors specializes in asset-backed securities (ABS) — a space that offers opportunities that might be overlooked by income-seeking investors. She co-manages funds designed to keep volatility risk at a minimum while providing yields that are higher than investors can get at their bank or in money-market funds. Fort Washington Investment Advisors subadvises for the $822 million Touchstone Ultra Short Duration Income Fund, which we will call the mutual fund, and the $172 million Touchstone Ultra Short Income ETF TUSI, which was established in August 2022. S&P 500 just saw its first 'golden cross' in more than 2 years. Here's what comes next. My wife and I have $7,000 a month in pensions and Social Security, plus $140,000 cash. Can we afford to retire? My wife and I are in our late 60s. Do I sell stocks to pay our $30,000 credit-card debt — or do it gradually over 3 years? 'Finance makes me break out in hives': I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job? 'Today is my 61st birthday': I have my ex-spouse's Social Security benefits. Should I retire at 65 and travel? Fort Washington Investment Advisors and Touchstone Investments are based in Cincinnati and are both subsidiaries of Western & Southern Financial Group. The mutual fund has six share classes with varying annual expenses and account minimums, and are distributed in different ways. The Class Y shares TSYYX are available through some investment advisers and are rated four stars (the second-highest rating) within Morningstar's 'Ultrashort Bond' category. This share class has annual expenses of 0.46% of assets under management; however, there is a partial expense waiver so that the expense ratio will be 0.40% until at least Jan. 29, 2026. In this article, we'll focus on the Touchstone Ultra Short Income ETF. It has an annual expense ratio of 0.52%, but there is a partial expense waiver, so the expense ratio will be 0.25% until at least April 29, 2026. In June, David Sherman, who co-manages the CrossingBridge Low Duration High Income Fund CBLDX, said that the fund was appropriate for investors who could commit for periods of between one and three years. At that time, that fund's duration-to-worst was 0.77 years. Read: How to select bond funds based on your investing needs and time horizon Duration is a measurement of volatility, expressed as a number of years. It indicates how much a bond portfolio's market value can be expected to move in the opposite direction of interest rates. A duration of one would indicate that a portfolio's market value would decline 1% if interest rates in the economy were to rise 1% and vice versa. Investors can take an even more conservative approach to volatility with an ultrashort income fund. The Touchstone Ultra Short Income ETF had a weighted average effective duration of 0.6 years as of March 31. During an interview with MarketWatch, Mayfield said six months was 'the minimum we would recommend' for investors in the ETF for the income to make up for any price volatility. 'When we think about the ultra short duration category, the way we manage it is that it is tailored toward cash or money-market investors who would like a little more return with a little higher risk appetite,' she said. TUSI is managed for total return, Mayfield said. It makes monthly distributions to shareholders that are calculated to encompass discounts or premiums paid by the fund when it buys securities, and reflects variable interest rates and amortization for some securities. To put it a different way, Mayfield said that some individual investors 'are focused on the dividend-yield return, but some might be leaving some money on the table.' This chart shows the fund's total return for one year through June 30, compared with the return for the ICE BofA U.S. Treasury 1- to-3-month index: For one year through June 30, the Touchstone Ultra Short Income ETF's total return was 5.79%, while the average return for Morningstar's U.S. Fund Ultrashort Bond fund category was 5.33%. Another comparison could be made with the 4.76% return for Morningstar's U.S. Fund Money Market Taxable Index for the same period. All investment returns in this article include reinvested income distributions. The chart provides a good example of the type of volatility TUSI shareholders can experience. The largest decline over the past year was from April 3, the day after President Trump made his 'liberation day' tariff announcements, through April 11. The ETF's share price declined by 0.39% during that eight-day period. So this type of fund will have price volatility, where money-market funds are designed to maintain stable share prices of $1. Mayfield said that while the ETF follows the same underlying investment strategy as the mutual fund, it can have high-yield securities making up as much as 15% of the portfolio. High-yield bonds or other income securities are those rated below-investment-grade by ratings firms such as S&P Global Ratings or Moody's. You can read S&P's explanation of its ratings hierarchy here and about the Moody's rating scale here. And Fidelity also provides a guide, lining up the agencies' ratings next to each other. The highest bond ratings are AAA at S&P and Aaa at Moody's. The lowest investment-grade ratings for bonds at these firms are BBB- for S&P and Baa3 at Moody's. While the TUSI portfolio is mainly investment-grade, Mayfield stressed that most securities it buys, including securitized loans, aren't available to individual investors in the secondary market. About 35% of the fund is made up of asset-backed securities, with about 20% in 'short high-quality commercial mortgage-backed securities,' between 6% and 8% in residential mortgage-backed securities and between 20% and 25% corporate credit, which includes bonds and securitized loans. As she manages the portfolio to have a short duration, some investments feature a 'straightforward return calculation,' such as an investment-grade bond with one year left until maturity. She will pay a small premium to face value or a slightly discounted price, which is baked into the return calculation. The specialty work is done with asset-backed securities. For example, if she is looking at a five-year bond backed by auto loans, 'we have principal amortization as the car loans pay down, but the amount of amortization varies greatly. There are many factors that affect the timing of repayment.' And some fund managers who are running longer-duration portfolios will need to sell these securities as they near maturity. 'When [the bonds] go to less than a year, they are thought of as cash substitutes. And many managers must trade out to keep in line with their duration targets,' Mayfield said. 'So these securities can be sold somewhat haphazardly. That is gold to me,' she added. Mayfield continued: 'We manage a $22 billion securitized portfolio. We have resources to get very granular with the cash-flow modeling. We can identify premiums and discounts and apply cash-flow models and find opportunities for discounts.' Those discounts can enhance the ETF's return well above its income distribution rate. Within the asset-backed space, Mayfield stressed the importance of understanding behavior. 'The consumer is volatile and seasonal, especially as you go down the spectrum' of credit scores, she said. This means that during the holidays, default rates on auto loans will increase, while default rates decline during tax-refund season. When asked to discuss a favored credit sector, Mayfield said, 'We actually like subprime auto ABS better than prime auto.' Anyone would expect loans to borrowers with weaker credit histories to command higher interest rates than loans made to borrowers with high credit scores. But what is so attractive about subprime, according to Mayfield, is that the higher interest rates more than make up for the greater risk of default during periods of economic stress. She described Fort Washington's stress-testing of subprime auto loan pools, which she said used the global financial crisis of 2008-09 (GFC) as a guide. 'The base case might be 25% default' rates for subprime during a severe recession, she said, 'so we are not giving credit for that 25% right out of the gate.' The pooled subprime auto loans have interest rates ranging from 15% to 25%. 'During GFC, what we saw was that the loss multiple was 1.5 to 2 times. So going into GFC, loss expectations were 15%, we saw losses 1.5 to twice that level,' she said. Meanwhile, for prime auto loans, the expected loan default rates were 1% to 2%, she said. But during the GFC, the loss multiples were four to five times the normal levels. 'We don't get, in my view, an appropriate level of credit protection, for prime ABS,' she said. Going further, Mayfield pointed to credit features for auto ABS. 'We have some lenders that retain a significant portion of those loans on their balance sheets. They sell a portion of what they originate for the securitization,' she said. These issuers of securities backed by auto loans retain 'anywhere from 20% to 60%' of the credit risk tied to the loan pools, she said. 'It is meaningful and it gives us comfort they will not relax their underwriting standards for the sake of volume.' Mayfield wrote a detailed article about the history of auto financing and securitization, with a discussion of the current market for subprime auto MBS. Don't miss: Two ETFs that have beaten value stock indexes with this simple approach This income fund pays more than a bank account while keeping price volatility low Fourth of July holiday highlights 4 reasons 'American exceptionalism' isn't going anywhere I'm a stay-at-home mom. Do I take a part-time job to spend more time with my kids — or get a job for six figures? Now that the megabill has passed, expect a ton of short-term debt to be sold to finance the government's deficit 'My whole financial world is upside down': I'm 'medically retired' at 51 with $428K in stocks. Is this enough to live on? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
02-07-2025
- Business
- Yahoo
Should a B.C. couple, both 45, sell their GICs to buy a bigger house?
Married couple Alex and Alina are 45 years old with a child in elementary school and their eyes cast on the future. They are focused on how to build an investment portfolio that will allow them to achieve their short-term and long-term goals. They have adopted a similar approach to finances as their parents. 'My parents had pensions so they never invested in registered retirement savings plans (RRSPs),' said Alex. 'The focus was on buying real estate and saving in a bank account and that's what we've been doing.' The couple are ready to explore their investing options as they look to upsize from their current home in British Columbia. They have a budget of between $1.7 million and $2 million and are looking for a house with a rental unit. They plan to use the proceeds from the sale of their mortgage-free current home, valued at $1.2 million, and the $400,000 they have in cashable guaranteed investment certificates (GICs) to pay for a larger house. 'Is this the right approach?' asked Alex. 'Will using the GICs to help fund a new home hurt my retirement plans?' Alex and Alina earn $195,000 a year combined before tax and Alex will be eligible for his full employer pension at age 62, which will pay about $5,500 a month. He does not plan to work after he retires. Alina will likely work to age 65 and does not have an employer pension. The couple also own a rental property valued at $1.4 million that generates $5,500 a month in rental income. This more than covers expenses and the $3,200 monthly mortgage payments on the $538,000 mortgage at 3.93 per cent. The mortgage matures in 14 years. They plan to keep the rental property and have it serve as Alina's pension before eventually giving it to their child as part of the inheritance. Alex and Alina also have $73,000 invested in exchange-traded funds (ETFs) and stocks in a tax-free savings account (TFSA). They have $156,000 invested largely in mutual funds and ETFs in an RRSP. They also maximize contributions to a registered education savings plan (RESP), which is valued at $40,000. To this point, Alex feels their savings haven't been working for them and he would like to change that. Specifically, he wants to know what the couple should be invested in and where. 'Should 60 per cent of our investments be in the U.S., 20 per cent in Canada and 20 per cent in emerging markets? Should we be focused on generating dividend income or do ETFs make the most sense for us? What type of asset allocation should we have?' he asked. Graeme Egan, president of CastleBay Wealth Management Inc. in Vancouver, said Alina and Alex have saved well and are on the right track to building a substantial investment portfolio — a definite priority in today's world of relatively low interest rates and rising inflation. 'Parking money in a bank account is no longer an option today.' Using their GICs to help purchase a larger house makes sense, Egan said. 'Even if they have to take on a small mortgage, the rental suite and income they hope to have in their new house will help offset mortgage payments and their surplus income from their rental property provides a cash-flow cushion if it takes a while to find a tenant.' When it comes to their investment portfolio, their focus at this stage of their planning should be on capital appreciation, not generating dividend income while they are still working and don't need the income, Egan said. 'If Alina and Alex continue to self-manage their investments, ETFs are the right choice to build a globally diversified equity portfolio and they should look at replacing all of their retail mutual funds with similar ETFs, which have lower management expense ratios (MERs) and are liquid. If they have not already done so, they might have to open self-directed RRSPs and TFSAs at a discount broker of their choice; all the big banks own a discount brokerage arm. A few discount brokers even offer no commissions on ETF purchases as an incentive to open an account.' Given their long runway to retirement — at least 17 years of investing if Alex retires at 62 — Egan believes their current overall asset mix seems a bit conservative. He recommended at least 70 per cent equities and 30 per cent fixed income, reducing to 60 per cent equities at age 55, with further reductions in equity holdings as they age. 'Their TFSAs should hold 100 per cent equity ETFs, given the tax advantage of completely sheltering long-term capital gains. Any fixed income (bond ETFs) should be invested in their RRSPs.' In terms of geographic focus, Egan suggested 20 per cent of their equity ETFs be invested in Canada, 25 per cent in the U.S. (including large- and small-cap as well as Nasdaq exposure) and 25 per cent international (including five per cent directed to emerging markets for 'higher octane exposure'). 'If they do not want to continually rebalance and monitor their portfolio, there are all-in-one asset allocation ETFs … with various asset mix allocations to suit different investors which are rebalanced occasionally according to the ETF sponsor's pre-set rules,' said Egan. 'If Alina and Alex want to build their own ETF portfolio and they are not interested in researching bond ETFs, they can consider using an aggregate bond ETF that contains a range of short- to long-term government and corporate bonds. No bond management is required by the investor, MERs are lower compared with a bond mutual fund and they pay interest monthly into your account.' Egan recommended Alina and Alex continue to maximize annual RESP contributions to obtain government grant money and then focus on investing in RRSPs and use their annual tax refunds to contribute to their TFSAs and invest in equities each year. 'The good news is Alex's defined benefit pension will likely be indexed at age 62 and beyond. Equity investments tend to keep up with inflation so only their fixed income portion is not indexed,' he said. Is saving $500,000 in investment income enough for couple to meet their retirement goals? Can Bianca afford to retire at 66 with a mortgage? 'Once their current real estate situation is settled, they should consider engaging the services of a fee-for-service financial planner to do some long-term projections for them to calculate what they should save annually in RRSPs and TFSAs in conjunction with Alex's known pension so they can both be financially independent at Alina's age 65.' *Names have been changed to protect privacy. Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@ with your contact info and the gist of your problem and we'll find some experts to help you out while writing a Family Finance story about it (we'll keep your name out of it, of course). Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
01-07-2025
- Business
- Yahoo
I'm 69 with a $250K reverse mortgage hanging over my head — should I use up most of my nest egg to pay it off?
Imagine this scenario: Samantha is retired at 69, but a few years back she took out a reverse mortgage. Now, she'd like to be done with it, especially since the loan comes with a hefty interest rate of 6.75%. She currently has about $375,000 in home equity while her reverse mortgage loan is close to $250,000. She also has about $300,000 in savings, but she's wondering if she should use a chunk of those savings to pay off her reverse mortgage and live on her Social Security (about $2,500 a month) instead. I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it Or, does it make more sense to stick with the status quo? A reverse mortgage allows homeowners who are at least 62 to borrow money based on the equity in their home. (Your equity is based on how much you'd get if you sold your home, minus how much you have left on your mortgage.) Unlike a traditional mortgage, you don't make monthly loan payments. Instead, the lender pays you, using your house as collateral. 'Reverse mortgage payments are considered loan proceeds and not income. The lender pays you, the borrower, loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home,' according to the IRS. Because it isn't considered income, the money is tax-free and won't generally impact your Social Security or Medicare benefits. But, you still have to pay property taxes and insurance. Interest accrues on the loan balance, meaning the amount you owe goes up over time. If you have a high interest rate, that can add up — and fast. It increases your debt while decreasing your equity, and the interest added to your balance each month can 'use up much — or even all — of your equity,' explains the Federal Trade Commission about the risks of a reverse mortgage. The total (including interest) must be repaid either when you move out and sell your home or after you pass away, in which case it must be repaid by your estate. If you sell your home, you can use part of the proceeds of the sale to pay off the loan. This could make sense if you want to downsize or move in with family, or if you need to move into an assisted living facility. However, if you continue living in your home until you pass away, your heirs will inherit the house — and the reverse mortgage. The loan would have to be paid in full, if they decide to keep the home. If they instead decide to sell, 'they must repay the full loan balance, or at least 95 percent of its appraised value if the loan balance owed is more than the home value,' according to the Consumer Financial Protection Agency. Typically, they would have 30 days to repay the loan after receiving a notice from the lender (or turn over the home to the lender), although it's possible to get an extension if they're actively trying to purchase or sell the home. Read more: You don't have to be a millionaire to gain access to . In fact, you can get started with as little as $10 — here's how Maybe Samantha wants the peace of mind of owning her home, or maybe she wants to leave the house to her children without burdening them with debt. Whatever the reason, she does have a few options. One of those options is to do nothing. She could choose to remain in her home, with enough money coming in from Social Security and her retirement savings to enjoy a comfortable retirement. When she passes away, her children could sell it and use the proceeds to pay off the reverse mortgage. It's a trade-off: Samantha lives more comfortably and leaves less to her children, or she lives a more spartan lifestyle to leave more to her children. If Samantha does decide to pay the loan off early, she could consider refinancing (turning a reverse mortgage into a regular mortgage), though that may not make sense in a high interest rate environment. She could also consider paying it all off in one lump sum, making a partial payment (such as paying off $50,000 to $100,000 now while preserving some of her savings) or making loan payments to reduce her interest over time. Or, she could keep the reverse mortgage and invest that money conservatively as part of her long-term retirement plan. Even if Samantha can live off her Social Security and savings, she'll still be responsible for paying property tax, insurance and maintenance on her home. Plus, she may not want to drain her savings in case she needs that money for an emergency or future medical care. If you're considering paying off a reverse mortgage early, it's a good idea to sit down with a qualified financial advisor to model various scenarios based on your Social Security income, retirement savings, withdrawal rate and taxes — and how different scenarios would play out if you paid it off (either in a lump sum or with smaller payments over time). This could help you make an educated decision based on calculations instead of emotion. This tiny hot Costco item has skyrocketed 74% in price in under 2 years — but now the retail giant is restricting purchases. Here's how to buy the coveted asset in bulk Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
