Whether you’re retiring on a healthy nest egg or trying to find ways to retire on very little, you should be thinking very carefully about two things: your assets and potential financial emergencies.
Many Americans don’t have enough cash on hand to handle even relatively affordable surprise expenses, and retirees all too often form retirement plans and budgets that rely on good luck to stay afloat. Many of us are one unexpected illness or other crisis away from financial disaster.
If and when you’re faced with unexpected expenses, you may find that you don’t have enough cash to cover them. But that doesn’t mean that you don’t have enough wealth to stay afloat. It’s possible that you need to convert some of your assets into cash.
Assets and liquidity
To understand the issue here, you need to know about assets and liquidity.
“Assets” are simply things that you own which have value. Liquidity refers to how quickly those things can be “liquidized” — that is, transferred into cash or some other easy-to-spend form of value. Cash is something that you can take to the grocery store and use to buy groceries; your house is not, making it illiquid. Your house is still valuable though, and it’s likely one of your biggest assets.
So when you’re facing down big medical bills or some other unexpected expense in old age, you may find yourself struggling to figure out how to convert an asset like your house into cash that you can use now. Compounding the trickiness is that even if your house were highly liquid, you might not want to sell it.
So how can you get cash out of an asset without losing it? What assets can you part with that are worth decent amounts of cash?
Getting cash from your assets
There are two ways to use your assets to generate cash. The first is obvious: sell them. But many of your assets are very important to your daily life at this point. “I don’t want to sell my house or my car,” you wonder, “So what can I sell?” Here’s what you should think next: “I should be selling my life insurance!”
Yes it is possible — relatively easy, in fact — to sell your life insurance benefits before you receive them. That’s a great way to get cash that you otherwise would never see (by definition, your life insurance will pay out only after your passing). And getting the cash now means that you can pay down debts, afford medical care, and live more comfortably for the remainder of your life. That could result in benefits to your heirs that far outweigh the cost of the lost insurance settlement.
The second way to get cash out of your assets is to get a loan using them as collateral. You can do this with your home, and one of the most popular methods is the reverse mortgage. Under the terms of a reverse mortgage, you’ll get cash each month instead of paying it as you would with a traditional mortgage. You can live in your home for as long as you’re around, and then your heirs will pay off the loan either in cash or by selling your house.
Not sure what the right move for you is? Never fear: you can turn to the experts for help. You should hire a financial advisor or, if you feel that’s beyond what you can afford, look for free financial help through programs at your local senior center or library. The money pros will know how to help you make the most of your situation.