By Brian Wilbur
As a financial advisor, your job is to help clients build retirement income plans that last. Most rely on investment accounts like 401(k)s or IRAs—but market volatility can make those portfolios risky.
One way to reduce that risk? Home equity.
It’s a powerful, non-correlated asset that, especially when integrated early, can help protect against market downturns and make retirement income more reliable, improving the overall durability of their retirement income plans.
Rethinking Retirement Risk
In retirement, the biggest risk isn’t just market losses—it’s running out of money.
When clients withdraw from their portfolios during down markets, they can lock in losses and hurt long-term growth. This sequence-of-returns risk is a major threat to portfolio longevity.
Using home equity as a buffer—especially in bad market years—can help reduce that risk and give the portfolio time to recover.
Home Equity: A Hidden Asset
Many retirees have a large portion of their net worth tied up in home equity. But in most retirement plans, it’s not used at all.
That’s a missed opportunity.
Home equity doesn’t move with the market, so it can serve as a non-correlated source of income—like bonds or cash. It can provide flexibility and protection, without requiring relinquishing ownership or the sale of the home.
A Smarter Way to Use Reverse Mortgages
Most people think of reverse mortgages as a last resort. But when used proactively—as part of a broader retirement income plan—they become a powerful tool.
A reverse mortgage, or Home Equity Conversion Mortgage (HECM) offers flexible access to home equity. There are no monthly payments, and the balance is only due when the client sells, moves out, or passes away.
In years when the market is down, clients can pull from their HECM instead of their portfolio. That means:
- Fewer losses locked in.
- More time for the portfolio to rebound.
- Less stress on the overall plan.
Moving Beyond Traditional Advice
Advisors have often told clients: “Spend from your investments first. Tap home equity later.” But research shows that this approach is less effective.
Coordinating portfolio withdrawals with home equity from the start can:
- Increase the chances of maintaining income over time.
- Improve safe withdrawal rates.
- Preserve more of the portfolio for longer.
Waiting until clients are out of options limits flexibility. Planning ahead makes all the difference.
What About Compliance?
Many advisors are hesitant to recommend reverse mortgages—often because of regulatory concerns or product misunderstandings.
A University of Illinois study (Lemoine 2020) found that fewer than half of advisors recommend them—mainly because of compliance hurdles or lack of familiarity.
More education is needed—not just for advisors, but also for compliance teams. When used correctly, reverse mortgages are safe, federally insured, and a legitimate retirement income tool that aligns with fiduciary planning.
Key Benefits of Reverse Mortgages for Retirement Planning
Adding home equity to your client’s retirement strategy gives them:
- A buffer against poor market timing.
- A longer-lasting portfolio.
- Flexible, tax-free cash flow.
- A more stable income stream.
- Diversification that fits fiduciary standards.
Help Your Clients Get More from Their Retirement
When used strategically, home equity becomes more than just a safety net—it’s a smart planning tool.
By including it in the retirement income conversation from the beginning, you can give your clients more flexibility, confidence, and peace of mind—especially during volatile markets.
Brian Wilbur is a reverse mortgages expert at Granite Bank. Reach out to learn more at brian.wilbur@granitebank.com.
References
Walker, Philip Barry H. Sacks, Ph.D., J.D., and Stephen R. Sacks, Ph.D. 2021, December. “To Reduce the Risk of Retirement Portfolio Exhaustion, Include Home Equity as a Non-Correlated Asset in the Portfolio.” Journal of Financial Planning. https://www.financialplanningassociation.org/article/reduce-risk-retirement-portfolio-exhaustion-include-home-equity-non-correlated-asset-OPEN
Lemoine, Craig. 2020, June 10. “Survey of Financial Professionals: Credit and Home Equity.” The Academy of Home Equity in Financial Planning.
Disclaimer:
The information provided in this blog post is for educational and informational purposes only and reflects the opinions of the author. It is not intended as financial, investment, tax, or legal advice. Granite Bank and its representatives are not acting as licensed financial advisors. Readers should consult with a qualified financial professional before making any financial decisions or implementing any strategies discussed here.
