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Tough Decisions

Dennis and Mary also have to deal with the fact that their largest asset, their house, does not spin off income. When they retire, their home will be worth roughly $445,000. If Dennis and Mary sell their home and move into a less expensive home, or simply rent, they will be able to dedicate that asset to generating an income. One option they may want to consider is using their home to generate insured income for the rest of their lives. For example, they can earn $28,000 a year for the rest of both of their lives by selling their home and using the assets to purchase income insurance. If their Social Security payments are kept intact, the combination would provide over $61,000 in income.

A similar approach would be to consider a reverse mortgage, which is a reverse loan. In this case, Dennis and Mary would borrow money from the bank in a lump sum, a monthly payment, or a line of credit using the house as collateral. The advantage is that the income is not taxed; the problem is that most reverse mortgages would offer only 25 percent of the equity in the home. In this case, the Glovers would be able to generate only $100,000 in income from the reverse mortgage.


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