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May 31, 2019

Raising Cash Quickly Post-Retirement

After you retire, your finances are going to change dramatically. If you’ve been saving for retirement for decades, they’ll likely change for the better. But without a regular salary from a full-time job and with a different distribution of assets, you’ll need to change how you approach various financial challenges. For example, if you face a financial emergency and you don’t have enough immediate savings to cover the costs, how are you going to raise cash quickly? 

Options for Post-Retirement Cash Raising

These strategies are some of your best options when it comes to getting cash in hand: 

Sell stocks, bonds, or other holdings. If you have most of your holdings in investments, the simplest thing to do is sell some of them to raise cash. For example, if you have $100,000 in stocks in a brokerage account and you need $1,000 for medical expenses, you could sell 1 percent of your stock holdings to cover the costs, negligibly impacting any income you’re getting from dividends and any long-term growth you’ll see. This method isn’t ideal, since these assets can be a source of growth and sustenance for decades to come, but it’s relatively liquid and reliable compared to some of the other methods on this list. Also consider whether your holdings are in a tax-advantaged account, like a Roth IRA, and whether you meet the conditions for withdrawal. 

Sell your life insurance policy. You may also be able to sell your life insurance policy to a third party, using a life settlement. In retirement, life insurance policies become less important; you’ll have fewer dependents counting on you, you won’t have a conventional income to replace, and you probably have assets in other areas to cover expenses related to your death. On top of that, your insurance premiums are probably increasing, making it more expensive to sustain over time. It’s possible to cash in your life insurance policy, but the amount you get will be far less than your potential death benefits. Instead, if you use a life settlement, you’ll sell your policy to a third party for a cash amount greater than the cash value (but still slightly less than the total death benefits). 

Sell a major asset. If you don’t have a life insurance policy but you still want to sell something to raise cash, you could sell another major asset you hold. For example, if you own one or more vehicles, you may be able to sell them for several thousand dollars. The downside here is that this method isn’t very liquid; it may take you time to sell an asset at full price, especially if it’s something extremely valuable, like a house. If you’re in a bind and you need cash as quickly as possible, you may want to lower your asking price, or sell to someone who buys assets like these in bulk. 

Consider a reverse mortgage. Many retirees have much of their net worth tied up in a piece of property. If this is the case, you may be able to pursue a reverse mortgage. A reverse mortgage is a special type of loan available for seniors at or over age 62. Basically, you’ll use your existing home equity to secure cash income, without needing to make monthly mortgage payments. You may be able to get a reverse mortgage in exchange for a lump sum, provided to you upfront, or as fixed monthly payments. Instead of paying the loan in the future, like with most loans, your loan will be repaid when you move, sell the home, or die; the value of the home will be used to pay it back. This arrangement has many pros and cons, so it isn’t for every retiree. 

Get a secured loan. You could also get a straightforward loan, if you’re confident in your ability to pay it back. If you secure the loan with an existing asset, like a home or a car, you should be able to get a lower interest rate. Just make sure you understand all the terms and conditions before you proceed. 

Cultivating Emergency Savings

After handling your initial financial emergency, it’s important to set yourself up so you can handle similar situations more easily in the future. That means creating an emergency savings fund, liquid enough to be accessible whenever you need it. How much you need will depend on your current circumstances, but you should count on putting away at least a few months’ worth of expenses.
If you have trouble putting enough aside, consider taking on part-time work if you’re still able. The sooner you get your emergency savings up and running, and the more you invest into maintaining it, the better financial position you’ll establish.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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