Retirement Planning and Reverse Loans

In my previous post, I shared an article about a Financial Planner who understands the importance of Reverse mortgages and how it’s use can make a positive addition to someone’s retirement plans.  Financial advisors have typically not considered a Reverse loan to be part of the tool box when it comes to planning for retirement.

This has been due to an enormous misunderstanding about the federal loan program and the unwillingness to educated themselves about it.   But the current times are now changing and it seems that more of the financial planning community is finally recognizing the value that a Reverse loan can have for their clients in extending their retirement funds and protecting them from taxation in the event they withdraw funds from their investments.

The following article discusses the intelligent approach that a Financial advisor is utilizing when he discusses financial concerns with his older clients.

Kitces: Reverse Mortgages Don’t Have to be Loan of Last Resort
Posted By Alyssa Gerace On September 19, 2013 @ 6:11 pm In News,Reverse Mortgage | No Comments

The use of reverse mortgages as a retirement planning tool should receive much more consideration earlier on in planning processes rather than as a loan of last resort, writes [1] a financial planner after comparing the loan to traditional amortizing mortgages kept in retirement.

With low interest rates suppressing both retirement portfolio yields and borrowing costs, some borrowers may be tempted to keep their amortizing mortgages in retirement, Michael Kitces writes on his financial planning new blog.

The decision to keep a forward mortgage in retirement is not without risk, however, Kitces cautions, outlining potential dangers including equities that don’t perform as expected and failure to generate a return in excess of the borrowing cost during a relevant time period.

Even when returns do add up, he continues, ongoing monthly payments on traditional mortgages create a “sequence of returns” risk for retirees, as withdrawals to fulfill mortgage repayment obligations could deplete retirement portfolios during an extended period of bad returns to the extent there isn’t enough money left over for when good returns arrive.

“From this perspective,” he writes, “retirees should perhaps consider the reverse mortgage instead.”

The remainder of the article will be in my next post to this site.

 

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