Boomers

Bloomberg News and Reverse Loans

Last month Bloomberg published an article discussing the positive changes to the HUD Reverse loan program and how their image is beginning to be seen as not only positive but as a viable option for additional funds to manage retirement portfolios and extend those funds into the future.

By using a Reverse loan Line-of-Credit when funds are needed in a “down” market  in lieu of withdrawals from a portfolio, possible tax consequences could be avoided and the funds left in place for later use when the market recovers.

Here is a copy of the summary of the article as it appeared in Reverse Mortgage Daily.

Bloomberg: Reverse Mortgages a Boon for Boomers
Posted By Jason Oliva On May 19, 2014

Last year’s program overhaul and newer research are helping reverse mortgages overcome stigmas of the past and become widely viewed as effective financial tools when planning for longevity, Bloomberg reports.

This combination of factors have transformed the perception of reverse mortgages from a “pariah in financial planning circles’and tools of last resort, to strategies for retirement planning, the article writes:

Recent studies on reverse mortgages have boosted their reputation in long-term financial planning, such as those conducted by John Salter, a Texas Tech University professor, CFP and occasional reverse mortgage researcher.

Using what they dubbed as a “standby reverse mortgage,, strategy, Salter and his colleagues revealed that the use of a reverse mortgage can improve the chances of financial sustainability of up to 30 years when based on simulated retirement portfolios.

In a “falling market,” the standby reverse mortgage was tapped rather than the individual’s portfolio, with the retiree repaying the money when the market recovers.

Under this strategy, which is based on a home valued at $250,000 and supports a 5% withdrawal rate, there is a 90% profitability of the money lasting 30 years, according to Salter.

The article also touched on recent research from Ibis Software CEO Jerry Wagner, which introduced the “6% rule” [3] when outlining the spending success of reverse mortgages.
Read more Ell at Bloomberg. Written by Jason Oliva..

 

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How to Plan for Retirement if You Are Single

The statistics are showing that more  people are remaining alone and unmarried in the United States and many of them have no children or significant “other” in their lives.   This has a lot of implications when it comes to how these “singles” will enter their elder years and face the challenges of failing health and maintain their financial independence.

One area that needs to be considered, is the question of retirement and how to plan for it when a person lives alone and is single.

I will be posting two parts of the following article, written by Steven M. Greenwood, P.C., a specialist in retirement planning.  steve@caestatelaw.com

Retirement Planning for Singles
“There’s a growing trend among the nation’s retirees – unexpected singlehood.

A March report by BMO Financial Group’s BMO Retirement Institute (http://tinyurl.com/c75r4r4) explains why more seniors are finding themselves living alone in their golden years, and it offers some advice on how to deal with it. I encourage you to download the report and share it with clients.”

Singlehood Is on the Rise

‘According to a 2011 U.S. Census Bureau report, 43% of people ages 65 and over are single, either due to the death of a spouse (27%), divorce (12%), or simply because they never married (4%).

These numbers are sure to rise as baby boomers reach retirement age, especially among women, who tend to outlive men by a large margin and whose salaries and pensions tend to be lower than those of men.

Single retirees have a 40-50% higher cost of living compared to married couples, and single women tend to have half the money saved for retirement than that of couples in the same age bracket.

Trying to maintain the same standard of living on one person’s pension instead of two can be daunting. There are also potentially additional expenses that a newly single person can incur when a spouse is no longer there to help with cooking, cleaning, household maintenance, or other necessary functions.”‘

I will post the reminder of this article on Monday, July the 11th.

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Financial Planning & Reverse Mortgages

Here is part 2 of an article that was published in Reverse Mortgage Daily, discussing how more Financial Advisors are beginning to look at the Reverse loan as an additional method of managing their client’s investments from being drawn down.
“Statements from those like Evensky, who are highly regarded in the financial planning community, have the potential to reach an largely untapped market. And some lenders may already be seeing an immediate benefit.

“We have already begun to market to the younger demographic, and this article has strengthened our message,” says Mike Gruly of 1st Financial Reverse Mortgages. ”The fact that the message comes from a respected member of the financial planning industry instead of the lending industry itself attracts more serious listeners, and is creating more serious dialogue.”

The dialogue is something originators have long worked toward, but have seen little success with as recently as late 2011.

Numerous financial planners told RMD in September [3] that they either didn’t know enough about reverse mortgages to recommend them to their clients, or that outdated information about reverse mortgages was drawing them against the loans as a retirement tool.

Today, however, the conversation has a different tune as originators have research with data to back up the idea of marketing to younger borrowers who have greater savings and higher home equity.

“This offers different possiblities but for a different customer, and a customer who might be amendable to a financial planner,” financial columnist Scott Burns told RMD after writing about the Sacks and Sacks research.

The Saver is a win-win for retirees, Evensky told Financial Advisor magazine.

“When markets regain their strength, the mortgage can be paid back,” Evensky told Financial Advisor magazine. “Our studies indicate this will significantly increase the survivability of the portfolio in retirement.”

Written by Elizabeth Ecker [4]

 

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Financial Planners & Reverse Loans

There continues to be a misunderstanding in the Financial Planning industry about the effectiveness and the benefits of using funds from a Reverse loan to protect a client’s principal from running out of funds.

I thought the following article was quite informative based upon an analysis to see what the probability of retained equity and investment principal would be in the future if a person also utilized a Reverse loan as part of their retirement strategy.

 
Financial Planners: Reverse Mortgage Traditional Use is All Wrong
February 27th, 2012 | by Elizabeth Ecker Published in News, Reverse Mortgage | 4 Comments

“Two researchers proved through analysis published in February that a reverse mortgage credit line can lead to “substantially greater cash flow survival probabilities” for people who are planning for retirement.

Published in the Journal of Financial Planning, Barry Sacks, Ph.D. and Stephen Sacks, Ph.D. detail three strategies for using home equity in the form of a reverse mortgage credit line to increase the safe maximum initial rate of retirement income withdrawals.

Examining a last resort strategy; a credit line strategy used after other investments have shown negative returns; and drawing upon the reverse mortgage credit line first, before other forms of investment, Sacks and Sacks find that the retiree’s portfolio plus home equity net worth after 30 years is about twice as likely to be greater when one of the latter two strategies is used.

‘“The conventional wisdom holds that home equity, drawn upon in the form of a reverse mortgage (discussed below) or similar product, should be used as a last resort, only if and when the account is exhausted,” the authors write. “This is a rather passive approach.  We show that the probability of cash flow survival is substantially enhanced by reversing the conventional wisdom.”’

The reverse mortgage is not necessarily the best option for everyone, they write, but for those who do decide to take a reverse mortgage, the research shows how it can best benefit them in retirement. The use of a credit line planned in advance is far more beneficial than the “last resort” strategy, they find.”
View the full reverse mortgage analysis.
Written by Elizabeth Ecker

 

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Boomers and Seniors Financial Insecurity

The news out of Washington to resolve the nation’s debt ceiling continues to drag on due to the inability for the Republicans in the House to come to a majority vote to pass their proposal, which as we all know will not get passed in the Senate.

What a mess and the financial markets are negatively reacting to this continued uncertainty as to whether or not the country will be able to pay their bills next month.   And if this does happen, this may mean that Social Security checks will not be going out to seniors which is unthinkable.  And now the latest figures are indicating that the Boomer generation is very worried about their financial future as well as their retirement funds have dropped to such low levels, that they will be unable to retire.

My personal feeling is one of frustration but I do feel that in the future the importance and value of Reverse loans will finally gain some respect.   As the population ages into the future, more people will make a Reverse mortgage part of their over-all financial plan & will be simply become another option for additional funds to live life and pay the bills each month.

Following is the remaining portion of the article that I posted yesterday:

Percentage of Economically Insecure Senors Surges to 75% and Counting

“Not only are 36% of seniors economically insecure, but also 40% of seniors are classified as financially vulnerable, meaning they’re neither secure nor insecure, for a total of 76% of seniors in what IASP calls an “economically precarious position.” And minorities have been hit especially hard, with 52% of African-Americans and 56% of Latinos experiencing economic insecurity.

Nearly half of single female seniors are at risk, too, at 47%, as women generally outlive men and thus face a higher chance of outliving their resources. This, says IASP, is especially true since women generally earn less than men and often spend less time in the workforce due to raising families and fulfilling caregiving duties.

In order to alleviate and even reverse these trends, says IASP, action must be taken. However, contrary to some proposals to “dramatically alter” Social Security or Medicare benefits, IASP says it’s better to work on policies and interventions designed to reduce expenses and boost income.
Suggestions along these lines include increasing asset-building opportunities throughout the life-course, expanding low-income housing options for seniors, and strengthening Social Security for vulnerable groups.”

By Elizabeth Ecker Published in Data, News, Reverse Mortgage 7/26/2011

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