Refinancing to Prepare for Retirement

There have been many stories in the news about the struggle of senior citizens trying to live purely on Social Security. According to, 45% of unmarried, retired Americans rely on Social Security for most of their income, but the average monthly Social Security payout is only $1,471. Unfortunately, that may not cover many people’s expenses or way of living that they may have become accustomed to before retiring.

Couple enjoying retirement after refinancing their home

One tool that some advisors use is replacement income. The idea is that, in retirement, your income should be 70% of your pre-retirement income. This calculation is only an estimate, but it was reported on that only Hawaii, Alaska, and South Carolina are exceeding the 70% target and the nationwide average of 60.27%.

And even if you do everything right, like spend conservatively and put money into 401(k) plans that offer corporate matching or IRAs, there are things in life that can’t be predicted. Many seniors have medical expenses that aren’t covered by their insurance or Medicare. They find themselves using their savings to pay for these unplanned expenses instead of using the money to travel or pursue interests.

Advantages and Disadvantages

Here are some of the advantages and disadvantages of refinancing to prepare for retirement.


  • If you can refinance to a lower rate, it can reduce your monthly payments and allow you to set aside extra money.
  • If you know that you will relocate in the next few years to a smaller home, retirement community, or closer to family, refinancing may make sense to lower your monthly payment to save for this event.
  • Refinancing at a lower rate could free up money that you can put toward paying off additional debt obligations.
  • After years of paying your mortgage, you can make the equity you have built up work for you with a Home Equity Conversion Mortgage (HECM). There are no monthly mortgage payments required, though you will be responsible to pay your property taxes and homeowners insurance. A HECM will help you maintain or establish financial independence throughout your retirement.  Learn More

Types of Loans for Retirement

  • HECM Home Loan — The HECM proceeds from the equity in your current home is available when you need it and can help you pay bills and other expenses. 
  • HECM For Purchase — You can also purchase a home and get a HECM in all one transaction.

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