Wade Pfau (Ph.D., CFA) is a Professor of Retirement Income, Retirement Income Certified Professional (RICP®) Program Director, and Co-director of the Retirement Income Center at The American College of Financial Services.
A home equity conversion mortgageline of credit provides a tool that can be used to mitigate the impacts of sequence of returns risk (the risk of incurring portfolio losses early in retirement).
Since 2012, a series of research articles has highlighted how the strategic use of a reverse mortgage can either preserve greater overall legacy wealth for a given spending goal or otherwise sustain a higher spending amount for longer in retirement. Maintaining higher fixed costs in retirement increases exposure to sequence risk by requiring a higher withdrawal rate from the remaining assets. (A period of down markets reduces the value of the portfolio, requiring a larger percentage of the remaining assets be withdrawn to fund the same absolute level of portfolio income.) Drawing from a reverse mortgage has the potential to mitigate this aspect of sequence risk by reducing the need for portfolio withdrawals either generally or just at inopportune times.