January 2014

More on the 4% Rule

Here is the second part of the article, discussing how a reverse loan can extend retirement funds for more years.

“Wagner’s study shows that the 4% rule works well with portfolios that are at least 50% invested in equities, and then shows how the use of a reverse mortgage can be used to “easily create new rules, such as the 6% rule for a 30-year horizon.”

‘Greater utilization of the reverse mortgage gives higher portfolio balances, but necessarily uses up home equity,” Wagner writes. “The six reverse mortgage options give higher overall results across all portfolio equity mixes than just relying on the portfolio as the source of retirement spending.’

The six options Wagner refers to include what he refers to as tenure advances; term loan advances over the spending horizon; term loan first; line of credit draws first; line of credit draws with a fixed threshold and Sacks’ coordinated strategy—all of which are outlined in the study.

Two reverse mortgage strategies dominate, according to Wagner, given the formula of a 63-year-old borrower living in a $450,000 home and having an $800,000 retirement portfolio.

The “term plan first” strategy, he says, would give an 89.4% chance of withdrawing 6% annually over 30 years if the client’s retirement portfolio is invested 70% in equities, compared to 42.8% chance of the client’s portfolio “going it alone” without a reverse mortgage.

Additionally, under the “term plan first” method, a client’s net worth could be $429,500 higher at 15 years, Wagner says.

Original post by Jason Oliva on 12/30/13

I will share the remainder of the article in my next post.

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The 4% Rule and Financial Planners

An interesting study was recently completed by Jerry Wagner of Ibis software, illustrating how by using a reverse loan in lieu of drawing down on a retirement portfolio, one can extend the spending horizon by many years.

The study is quite lengthy and involves charts and graphs to make his point and rather than try to share it here, I will provide a copy of a summary of his study.

The use of reverse loans for funding longevity and preservation of investments, is gaining greater acceptance among Financial planners, Estate Planning attorneys and CPA’s.

It is not the loan of “last resort”, but a safe and affordable method  to assist people  to move into their retirement years by leveraging the funds they have through the use of a reverse mortgage.

Study Touts Reverse Mortgage Benefits to Financial Planners

Posted By Jason Oliva On December 30, 2013 @ 6:53 pm In News,Retirement,Reverse Mortgage

“A recent study [1] aims to help financial planners realize the merits of using reverse mortgages to supplement their client’s portfolios.

The study, published by Jerry Wagner of Ibis software, a reverse mortgage software provider, was included in the Journal of Financial Planning, an industry publication for financial planners.

Deviating from what financial planners have known as the 4% rule, which determines the spending success of an individual’s portfolio throughout the course of a 30-year retirement, Wagner introduces what is known as the 6% rule, outlining a portfolio’s spending success when it becomes supplemented by a reverse mortgage.

The study affirms that with a 30-year spending horizon and a first-year withdrawal of 6%, reverse mortgages can provide “spending success” levels of 88-92%, writes the study’s author Gerald Wagner, Ph.D., who is also president of Ibis Software.

“A financial planner’s goal is to be able to sit down with a couple (or person), review their portfolio and other income sources, and create a plan that is both logical and explainable,” Wagner says.”

I will share the rest of the article in my next post.

 

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