Tapping home equity in retirement with a reverse mortgage works best as a standby line of credit. Tolleson Wealth Management uses it as a backup for guardrail trim years, not as a monthly paycheck. Many retirees assume the bank ends up owning the house. With a federally insured HECM, you keep the title, and your heirs never owe more than the home is worth when it's sold.
What's unknown is how big your line would be. That depends on the youngest borrower's age, interest rates and the home's value, so only a lender's quote settles it. What isn't unknown is the cost of the choice you make when markets fall: you either sell investments at low prices, draw on something else, or carry a cash reserve. This article sets those three options side by side for one hypothetical couple, then shows who each one fits.
By Sarah Chen, CFP — Senior Financial Planner | Reviewed by Elena Rodriguez, CFASarah has guided families through retirement transitions for over fifteen years, specializing in tax-efficient withdrawal strategies.
If a down year would force you to sell more than 12 months of withdrawals, that's when we start talking about a backup line. If it wouldn't, a cash reserve usually does the job for free.
Senior Financial Planner, Tolleson Wealth Management
Draws from a HECM aren't income, so they don't push up your tax bracket that year. But the loan balance grows, and your heirs feel that, so we keep draws small and short.
CPA and Tax Director, Tolleson Wealth Management
At 52, the house is only a fallback
If you're 10 to 15 years from retirement, you can't open a HECM yet, because every borrower must be 62 or older, so the house can't stand in for savings today. The catch-up years carry the load instead: the IRS allows $8,000 extra at 50 and older in a 401(k) or 403(b), and $11,250 at ages 60 to 63 (2026 figures). Each dollar you save then is a dollar the house never has to cover. Compounding matters on the other side too. A line opened at 62 and left unused has more years to grow than one opened at 75, but the youngest borrower's age caps how much a lender offers at the start.
Option one: trim the paycheck and sell investments anyway
Selling investments in a down year, even after a guardrail trim, is the habit that hurts careful retirees most. The trim cuts what you spend, but you still sell shares at low prices to pay yourself. For hypothetical Glenn and Monique, the trimmed portfolio paycheck is still $4,050 monthly, which means $48,600 of selling in a falling market.
This option costs nothing to set up, and it works well when a cash reserve already covers the trim year. (A cash bucket is its own topic; we'll mention it here and leave it there.) Without that reserve, the sales happen on the market's schedule, not yours. Investment accounts can end a bad stretch worth less than what went into them, and selling during it locks in that loss.
For a couple with $1.4M, one rough year is survivable. For a household with a modest balance, it can set the whole decade.
Can a reverse mortgage line (option two) sit unused and grow?
Yes. On an adjustable-rate HECM, the unused part of the credit line grows at the same rate as the loan balance would, so an untouched line gets larger over time. Every borrower must be 62 or older, and HUD-approved counseling comes before the application.
A HECM is insured by the FHA. Draws are loan proceeds, not income, so the IRS doesn't count them on that year's return. You still pay property taxes, homeowners insurance and upkeep, and falling behind on those can make the loan come due.
Put three questions to the lender or counselor. Is this an FHA-insured HECM or a proprietary loan? Is it the adjustable line or a fixed-rate lump sum? Is my spouse a borrower or an eligible non-borrowing spouse? Three answers should worry you: being steered to a fixed-rate lump sum, being told to put the proceeds into an annuity or another product, or a spouse under 62 left off the paperwork with no non-borrowing status.
One careful-person mistake deserves its own line. Drawing the whole line as a lump sum 'to keep the cash safe' runs up about $10,500 of loan interest in the first year on $150K at an assumed 7 percent. That's far more than most savings accounts pay. An untouched line runs up no interest and keeps growing.
Quick test: if you expect to stay in the house at least 10 more years and a down market would force you to sell more than a year of portfolio withdrawals, a standby HECM line is worth pricing. If you may move within five years, the upfront costs usually outweigh the backup.
How would a $36K draw change Glenn and Monique's trim year?
A $3,000 monthly draw from a standby line cuts the trimmed paycheck's investment sales from $48,600 to $12,600 for the year. The trim itself is the same; the difference is a loan balance that grows at an assumed 7 percent.
For illustration: hypothetical Glenn, 66, retired as an operations manager for a regional grocery chain, and Monique, 64, was a dental hygienist. They have no pension, a paid-off house and $1.4M across two 401(k)s, an IRA and a brokerage account. They want about $7,500 monthly while deciding whether Glenn claims Social Security now or at 70. Monique, as the younger borrower, sets their limit. They opened the line before they needed it, and the upfront mortgage insurance and closing costs are left out of the math (get those quoted before you count on any number).
In a down year, their guardrail trims the portfolio's share of the paycheck by 10 percent, from $4,500 to $4,050 monthly. Without a line, they'd sell $4,050 of investments each month, or $48,600 for the year. With the line, they draw $3,000 monthly and sell only $1,050, which is $12,600.
What should you look at in the table? The trim happens in both columns. Only the source of the money changes, and the cost shows up as a loan balance that grows.
What the draw costs over time
Why this matters below six figures
| Trim year | Portfolio only | With reverse mortgage line |
|---|---|---|
| Portfolio paycheck monthly | $4,050 | $4,050 |
| Investments sold monthly | $4,050 | $1,050 |
| Investments sold in the year | $48,600 | $12,600 |
| Line balance after one year | $0 | $38,520 |
| Owed after 10 years if unpaid | $0 | about $70,800 |
Option three: a HELOC or downsizing in your 70s
A HELOC needs monthly payments from the start, and banks have frozen or cut these lines in past downturns, which is exactly when a trim-year backup is needed. Selling and moving to a smaller home frees equity with no loan balance at all. But it brings selling costs and a move, and it only makes sense if you'd want to move anyway. For someone in their 70s who already plans to downsize, it can beat both other options. For someone who loves the house, it's a lot to ask of a backup plan.
Should we open a line if we might move within five years?
Plan to stay 10 years or more and a standby line is worth pricing; expect to move within five years and the upfront mortgage insurance and closing costs usually outweigh the backup. You gain cash that avoids down-year sales, but you give up home equity your heirs would otherwise inherit.
Two hypothetical households show the split. Glenn and Monique plan to stay and want to avoid forced sales while Glenn decides between claiming Social Security now or at 70, so the line fits them. A widowed 63-year-old with $300K who plans to move near her daughter in four years would pay setup costs for a backup she'll barely use. She's better off with a larger cash reserve and a sale later.
Your household shape changes the call as well. Married: the younger spouse's age sets the limit, and the loan lasts until the second spouse leaves. Single: the loan comes due sooner for heirs. A small portfolio makes the line matter more, while a $2M portfolio may never need it. An early borrower at 62 gets a smaller starting line with more years to grow; one at 75 gets a bigger line with fewer years to use it.
At home, the spouse who pays the bills usually raises it first, and a grown child usually raises the inheritance question. Ask whether an adult child can join the counseling session. Then run this checklist:
- Home paid off or nearly so
- You plan to stay 10 or more years
- Property tax and insurance fit in the monthly paycheck
- Youngest spouse is 62 or older, or is listed as an eligible non-borrowing spouse
- Investments you'd sell in a trim year add up to more than a year of withdrawals
Before a lender call, Tolleson Wealth Management sizes your trim-year gap
Tolleson Wealth Management first works out how much you'd have to sell in a guardrail trim year and how many months your cash already covers. Then it checks whether property taxes and insurance fit in the paycheck, and how Social Security timing changes the gap. If you open a line, it goes into your playbook and gets revisited at the annual meeting. A reverse mortgage line doesn't replace the trim or a cash reserve, and no outcome is promised.
The trim happens either way; the only question is whether the money comes from selling low or from a line you opened early.
Questions about in retirement with a reverse mortgage
My lender offers a fixed-rate lump sum instead of a line of credit. Should I take it?
Can we pay off a reverse mortgage early if we later decide to sell and move?
Aren't reverse mortgages just a way for lenders to end up with your house?
Do my kids have to repay more than the house is worth after we're both gone?
Does money drawn from a reverse mortgage line count as taxable income or raise Medicare premiums?
Can my wife stay in the house if she isn't 62 yet when I take out the loan?
Where the rules come from
This is general information, not personalized investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Talk to a financial professional before making decisions about your money.