Workers are told that they need to have at least three to six months worth of emergency savings, but when you’re already retired, accumulating this much cash may no longer be doable. For one thing, your income stream is no longer as steady as before, unless you have a business.
The money you receive from your 401(k) and Social Security may not suffice for enough emergency savings, either. You’re most probably spending them all for utilities, basic needs, and general home maintenance. If you have a part-time job, your earnings from it aren’t likely to be as abundant as well.
So if your income is just enough to provide for your everyday life, where can you turn to when an urgent situation occurs, such as a health emergency or property damage? That’s what makes emergency savings crucial, but where can we get them from?
Let’s explore the top workable options.
1. Reverse Mortgage
An excellent reverse mortgage deal is ideal for adults aged 62 and above with considerable home equity. As the name suggests, a reverse mortgage won’t require you to make monthly payments, but rather, you can borrow against the value of your home, and your lender will give you a lump sum cash, or fixed monthly payments.
Reversing your mortgage is a wise move if you don’t have the best credit score, because its basis for qualifying applicants will only be the home’s equity. And once you receive the money you loaned, you’re free to use it for any expenditure, such as medical bills, home repairs, or even leisure.
With regards to repaying the loan, your balance will only be payable if you move out of your home, sell it, or when you pass away. This flexible repayment term makes reverse mortgage highly convenient, especially for seniors who cannot afford to sacrifice a portion of their income for their debts.
2. Home Equity Loan
Like a reverse mortgage, home equity loan also lets you borrow money against your home’s value. You must have 15% – 20% equity in your dwelling, and a loan-to-value ratio of 80% – 85%, as well as a high credit score.
However, though it provides an easy cash source, a home equity loan can be risky, and some of its terms can be unfavorable. It used to have tax deductions, but they were discontinued in 2017. In addition, your home will be used as collateral, meaning if you default on it, your lender may repossess your home.
3. USDA Housing Repair Loan
If you qualify in the low-income threshold and intend the use the money for home repairs, you may be eligible for a loan from the U.S. Department of Agriculture. The terms last for 20 years, with only a 1% interest rate. You can borrow $20,000 at max, and possibly an additional $7,500 if you’re a senior homeowner with an income 50% less than your area’s median income, and if you will use the money to remove safety and health hazards in your place.
Tips on Creating an Emergency Savings
Ideally, you shouldn’t wait for a financial emergency before seeking an additional income source. Prepare for it by identifying where your unplanned expenses usually arise from. Is it from home repairs or maintenance medicines? Anticipate these circumstances and estimate how much money you may need for them.
If you’re not yet retired, start setting aside a portion of your income for your savings account and cut back on unnecessary expenses. This may mean going out less, quitting vices, and cancelling nonessential subscriptions and memberships.
Loans can only do so much. At the end of the day, you’ll still be more secure with sufficient savings to cover for your urgent needs.