It goes without saying that the likelihood of illness increases with age; that a significant health issue can easily lead to major, unexpected medical expenses; and that having to make a mortgage payment during such times can significantly add to the stress.
Retirees with good insurance and a well-funded portfolio may be equipped to handle such a situation with their own resources, but doing so can have some unexpected consequences. Unplanned withdrawals from a tax-deferred account, for example, can push you into a higher tax bracket for the year. Such withdrawals also reduce your portfolio balance, which translates to lower future expected returns.
If your retirement portfolio is limited, an unexpected medical expense could severely deplete it, starting a domino effect that could lead to future financial hardship. If you’re under funded or have no savings at all, such an event could easily lead to a major financial problem. However, if you have significant equity in your home, the judicious use of a Reverse Mortgage may be a viable solution.
NO MORTGAGE PAYMENT = LESS STRESS

PAYMENT OPTIONS BEAT SELLING OUT
survival of the fattest
Financial advisors call this problem sequence of returns risk. It’s very important to understand because if you have to sell off too many assets in retirement when they are undervalued, and if there’s an extended period where there is a poor sequence of returns, your assets may end up passing away before you do.
There are various ways to mitigate this problem and, as recent research by a number of highly-credentialed academics has clearly demonstrated, the judicious use of a reverse mortgage line of credit is an excellent solution. The methodology is simple: tap the line when needed to offset unexpected decreases in portfolio income during slow markets and pay it back when the market is up. The trick is to use the line of credit only when portfolio returns are lower than expected and to pay back the line when they are higher than expected. This strategy is one of the best uses for a reverse mortgage because it is one of the only means of generating income that is not correlated to the market and income from line advances is not taxable.
cash flow versus expected returns
Monte Carlo simulations are used to determine the likelihood that a portfolio will survive a certain number of years, and under what market conditions and cash flow scenarios it would be possible. The goal is to maximize both cash flow and returns, but the problem is that neither one of these factors can be known with certainty in advance. Unexpected expenses increase cash flow requirements and market downturns reduce expected returns. When the two occur together the result can be a premature death for your portfolio.
Using a reverse mortgage line of credit to access home equity to cover unexpected expenses or to bolster income during down markets offers an attractive advantage over selling portfolio assets: credit line advances are borrowed money, so they are not taxable. No income tax and no capital gains tax. Contrast this with the sale of portfolio assets, which may incur both types of taxes and reduce the portfolio value with the negative effect of lowering future returns as well.
How Americans Manage Their Finances by Leandro Carvalho, Arie Kapteyn and Htay-Wah Saw.
Promise of Reverse Mortgages and the Peril of Target-Date Fund by Nobel Laureate and MIT Professor Robert C. Merton
Improving Retirement Income Efficiency Using Reverse Mortgages by Wade Pfau, Princeton PhD, CFA & Professor of Retirement Income at the American College
Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income by Barry S. Sacks, MIT PhD & Harvard JD
Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions by John Salter, Ph.D., CFP, AIFA; Shaun Pfeiffer; and Harold Evensky, CFP, AIF