Reverse Mortgage Strategy

Protect Your Investment Portfolio

How South Dakota retirees can use home equity to manage market risk and extend how long their portfolio lasts.

The biggest financial threat most retirees face is not a bad market - it is a bad market at the wrong time. A significant decline in the first five years of retirement, when you are drawing from your portfolio to live on, can permanently damage your financial picture even if markets eventually recover. Selling investments at depressed prices to fund living expenses locks in those losses.

This is called sequence-of-returns risk - and a reverse mortgage is one of the most effective tools available to manage it.

How it works

Rather than drawing from your investment portfolio during a market downturn, you draw from a reverse mortgage line of credit instead. Your portfolio stays intact, does not sell at a loss, and is positioned to recover when markets improve. Once markets recover, you resume portfolio withdrawals and allow the reverse mortgage line to replenish - or simply leave it as a standing reserve.

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Research context A 2019 study published in the Journal of Financial Planning found that incorporating a reverse mortgage line of credit into a coordinated retirement income strategy improved portfolio survival rates significantly across various risk levels. The coordination between home equity and investment assets was the key variable - not the reverse mortgage in isolation.

The growing line of credit advantage

The reverse mortgage line of credit grows over time at the loan's interest rate - regardless of what your home's value does. Establishing the line early in retirement, even without drawing from it immediately, creates an expanding reserve. If markets perform well, you may never need it. If they do not, it is there - and larger than when you set it up.

Who this fits

  • Retirees with a significant investment portfolio who want protection against early-retirement market declines
  • Those working with a financial advisor on a coordinated retirement income strategy
  • Homeowners 62 or older with substantial equity who want to coordinate home equity and portfolio withdrawals
  • Those who want a growing, available reserve without committing to monthly draws

This strategy is best implemented as part of a coordinated plan with a CFP, CPA, or financial planner. Jeff Buum welcomes joint client meetings and is glad to model scenarios alongside your existing advisor.

Related guides

How a reverse mortgage fits into a South Dakota retirement plan Bridge to Social Security Create a retirement income stream Reverse mortgage overview