DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Retirees seeking steady cash beyond Social Security and retirement savings may encounter two prominent choices: a reverse mortgage and an annuity. Both can provide additional income, potentially for life, but they operate in fundamentally different ways and carry distinct costs, restrictions, and risks.

A reverse mortgage allows eligible homeowners to borrow against the equity accumulated in their property without making a monthly loan payment. Home equity is the essential funding source, making this option most relevant for people who own a substantial share of their home.

For a home equity conversion mortgage, homeowners generally must be at least 62. Certain proprietary products have lower age requirements, including Longbridge’s Platinum Mortgage and Mutual of Omaha’s SecureEquity+, which are available to borrowers over 55 or beginning at age 55, respectively.

The balance on a reverse mortgage, plus interest, becomes due when the homeowner stops occupying the property full time. That can happen after relocation, a move into a care facility, or the homeowner’s death.

The loan may also become due if the homeowner fails to make property tax or insurance payments on time or stops maintaining the property. If the borrower or heirs cannot repay the balance, the lender can force foreclosure.

The appeal is immediate access to the loan proceeds without regular monthly payments. Unlike annuities that may impose penalties for early withdrawals, a reverse mortgage can provide access to the full loan amount, and there is no maximum age limit for obtaining one.

Those advantages come with substantial obligations. Borrowers can face origination costs, third party charges, and an insurance fee, while the eventual balloon payment can place pressure on homeowners or their heirs.

After the homeowner dies, the reverse mortgage balance and interest must be settled. If the heirs cannot repay the debt or sell the property, the lender can foreclose, making the treatment of the home an important consideration before signing.

CNBC Select recommends Longbridge and Mutual of Omaha among reverse mortgage lenders. Both offer government insured home equity conversion mortgages as well as jumbo reverse mortgage products, including loans reaching as high as $4 million.

Longbridge has lower than average rates and does not charge a service fee, which otherwise could cost as much as $35 per month. Mutual of Omaha has dozens of physical locations and offers reverse mortgages nationwide except in New York and West Virginia.

An annuity takes a different route by converting cash into a guaranteed income stream through a contract with an insurance company. A buyer can fund the contract with one lump sum or several smaller payments, and the money often grows on a tax deferred basis before distributions begin.

Immediate annuities start paying shortly after the contract is signed, while deferred annuities begin distributions after the number of years specified in the agreement. The available structures also differ according to how the account grows and how much market exposure the buyer accepts.

A fixed annuity provides a guaranteed return and steady payments. An indexed annuity is connected to the performance of an index such as the S&P 500, subject to caps and floors, while a variable annuity offers a selection of investment options chosen by the contract owner.

Annuities may suit relatively risk averse investors, particularly people concerned that Social Security and other funds will not cover expenses or that they could outlive their savings. The guarantee of continuing income distinguishes an annuity from managing investments independently, which may not produce the same dependable payments.

Gainbridge offers the Save Traditional Account and Save Retirement Account, both of which grow at a fixed rate described as higher than most certificate of deposit returns. Investors may withdraw up to 10% of the account value annually, while deposits start at $1,000 across the platform.

Gainbridge annuities have no upfront sales charges or administrative fees, although withdrawal fees and surrender charges may apply when annual withdrawals exceed 10% of account value. Depending on the product and the investor’s age, an early withdrawal penalty of 10% may also apply.

Athene offers immediate, fixed, fixed indexed, and registered index linked annuities. Its MYG fixed annuities have a $5,000 minimum initial premium and no annual contract fees, although listed products including Athene Agility and Athene MaxRate carry $10,000 minimum deposits.

Athene rider fees can range from 0.40% to 1%. More broadly, annuities may include commissions, administrative expenses, maintenance charges, and added costs for riders, all of which can reduce the contract’s overall growth.

Annuities can deliver income monthly, quarterly, or annually and may allow earnings to grow without taxes being owed until withdrawal. However, early withdrawals or cancellation can trigger penalties, potentially tying up savings that might otherwise cover home repairs, car repairs, or other obligations.

Inflation creates another concern because a payment selected when the contract begins may lose purchasing power as prices rise. A cost of living rider can increase payments each year, but adding that protection brings an additional cost.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.