How a Reverse Mortgage Fits Into a South Dakota Retirement Plan
By Jeff Buum, Certified Reverse Mortgage Specialist | Fairway Heartland | Sioux Falls, SD | NMLS #400290
jeffbuummortgage.com · 9 min read · Published June, 2026
For most South Dakotans who've spent decades building a home, a retirement plan, and a family, the moment of retirement brings a specific tension: how do you generate enough income to live comfortably, protect the assets you've built, and avoid outliving your money?
Financial planners have increasingly turned to the reverse mortgage, specifically, the Home Equity Conversion Mortgage (HECM), as one answer to that tension. Not as a last resort or a standalone fix, but as a coordinated element of a broader retirement income strategy.
This article explains how a reverse mortgage can integrate with Social Security timing, IRA withdrawals, long-term care planning, and sequence-of-returns risk management, and what South Dakota homeowners and their advisors should understand before evaluating this tool.
The Core Concept: Home Equity as a Retirement Asset
Most retirement plans treat home equity as background, something to fall back on in a crisis, or an inheritance for the kids. The research on retirement income planning increasingly challenges this assumption. Home equity, accessed through a properly structured HECM, can function as an active component of a retirement income portfolio rather than a passive reserve.
The key insight is this: a HECM reverse mortgage line of credit grows over time at the loan's interest rate. An unused line established today will be larger next year, and larger still the year after. This means that establishing a reverse mortgage line of credit early in retirement, even if you don't intend to use it immediately, creates a growing, tax-free reserve that becomes more valuable over time.
Strategy 1: Delaying Social Security With a Reverse Mortgage Bridge
Social Security benefits grow by approximately 8% for each year you delay claiming beyond your full retirement age, up to age 70. For a healthy South Dakotan who expects a long retirement, the lifetime value of delaying Social Security from 62 to 70 can be substantial, often hundreds of thousands of dollars in additional lifetime benefits.
The challenge is cash flow. How do you cover living expenses from 62 to 70 while you wait? For many South Dakota homeowners, the answer is a reverse mortgage line of credit. Drawing living expenses from home equity during those bridge years allows Social Security to grow and preserves the investment portfolio, which continues to compound.
Example: A 64-year-old South Dakotan with a $300,000 home, no existing mortgage, and $400,000 in an IRA establishes a reverse mortgage line of credit. She draws $2,000 per month for six years, delaying Social Security to age 70. Her monthly Social Security benefit increases by 48%, a difference she'll receive for the rest of her life.
Strategy 2: Managing Sequence-of-Returns Risk
Sequence-of-returns risk is the danger of experiencing a significant market decline early in retirement, when you're drawing from your portfolio to live on. A bad sequence of returns in the first five years of retirement can permanently damage a portfolio's longevity, even if markets eventually recover, because you've been forced to sell assets at depressed prices.
A reverse mortgage line of credit provides a solution: during market downturns, draw from home equity rather than selling investments at a loss. Allow the portfolio to recover before resuming withdrawals. This coordination between home equity and investment assets can meaningfully extend the duration of a retirement portfolio.
Research note: 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 significantly improved portfolio survival rates for retirees across various risk levels. The coordination strategy, not the reverse mortgage in isolation, was the key variable.
Strategy 3: Bridging the Medicare Gap
If you retire before age 65, you face a healthcare coverage gap: you're no longer covered by an employer's health plan, but you're not yet eligible for Medicare. For South Dakotans who retire at 62, 63, or 64, this gap can create significant out-of-pocket healthcare costs.
Paying those costs from an IRA or 401(k) may trigger a higher tax bracket or affect other income-based benefits. A reverse mortgage line of credit can cover those costs from home equity instead, preserving the tax efficiency of retirement accounts and keeping you in a lower income bracket during those critical early retirement years.
Strategy 4: Long-Term Care Funding
Long-term care is one of the most significant financial risks in retirement. The average cost of a private room in a South Dakota nursing facility exceeds $90,000 per year. In-home care, while often preferred, can also be substantial, depending on the hours and the level of care required.
Reverse mortgage proceeds can be used to purchase long-term care insurance, fund a hybrid life/LTC policy, or pay directly for home care services. By using home equity for this purpose, rather than liquidating investment accounts or life insurance, South Dakotans can protect their liquid assets and potentially remain in their homes longer.
Strategy 5: Tax Efficiency and Roth Conversion Support
Reverse mortgage proceeds are generally not considered taxable income. This creates a planning opportunity: in years when you need income but want to keep your taxable income low, perhaps to manage Medicare Part B premiums or to create room for a Roth IRA conversion, you can draw from the reverse mortgage instead of taking a taxable IRA distribution.
This kind of tax efficiency requires coordination with a CPA or financial advisor. But for the right South Dakota client, it can meaningfully reduce lifetime taxes and improve retirement outcomes.
A Note for Financial Advisors in South Dakota
If you are a CFP, CPA, financial planner, or estate attorney serving South Dakota clients who are 62 or older, I welcome the opportunity to be a resource. I can explain the HECM program in plain terms, model scenarios for your clients' specific situations, and participate in joint client meetings when appropriate.
My goal is to be a useful complement to your work, not to replace the advisor relationship you've built.
Financial advisors: let's connect. Homeowners: let's talk.
Jeff Buum | (605) 321-7303 | jeff.buum@fairwaymc.com | jeffbuummortgage.com/reverse-mortgage
Jeff Buum, NMLS #400290. Fairway Independent Mortgage Corporation NMLS #2289. 4750 S. Biltmore Lane, Madison, WI 53718. Reverse mortgage borrowers are required to obtain an eligibility certificate by receiving counseling sessions with a HUD-approved agency. The youngest borrower must be at least 62 years old. Monthly reverse mortgage advances may affect eligibility for some other programs. These materials are not from HUD or FHA and were not approved by HUD or a government agency. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Licensed in South Dakota. Equal Housing Opportunity.