How a Downey Homeowner Avoided Selling Investments During a Downturn
Drew from a line of credit during a market decline so investments had time to recover.
A Downey retiree was watching his account statements drop during a sharp market decline and considered selling investments to cover his everyday living expenses. He knew that cashing out while prices were down would mean locking in losses he might never recover. Still, the bills did not stop coming, and he needed a way to bridge the gap until markets steadied.
The challenge
Withdrawing from a portfolio while it was down would shrink his nest egg and reduce its potential to grow back once the market recovered. Selling shares at depressed prices to pay for groceries and utilities felt like the worst possible timing, yet he still needed income in the meantime. He wanted a source of funds he could lean on during the rough stretch without touching the investments he was trying to protect.
The approach
He relied on a reverse mortgage line of credit as an alternative income source during the downturn, drawing from equity instead of selling investments at depressed prices — an option he set up after the required HUD counseling.
The outcome
Using the credit line gave his investments time to recover and helped him avoid selling at the wrong moment.
Key results
- Avoided selling investments while markets were down
- Drew from home equity instead
- Investments given time to recover
- Maintained income during the downturn
Frequently asked questions
How does a reverse mortgage reduce sequence-of-returns risk?
By drawing from a line of credit during down markets instead of selling investments, you avoid locking in losses early in retirement. This 'buffer asset' approach can help a portfolio last longer. An advisor can model it for you.
Can I pay the line of credit back down later?
Yes. You can make voluntary payments at any time with no prepayment penalty. With a HECM, repaying the balance can also restore available credit for future use.
Can a lender cancel or freeze my reverse mortgage line of credit?
A HECM line of credit generally cannot be frozen or reduced as long as you meet the loan terms — paying property taxes and insurance, maintaining the home, and living there as your primary residence. This is a key difference from many home equity lines of credit, which a lender can cut during a downturn.