financial stability

Will I Outlive My Retirement Money?

Well, many Americans are very concerned about this probability because they simply don’t have a retirement plan or never bothered to set one up for themselves and now they are facing a scary future where they may not have enough money to sustain their lives.

The 2016 study that was done by the Harris Pole for Northwestern Mutual took a very serious look at the pending domestic crisis America is facing and not surprisingly, those who are approaching retirement   ( If they can retire) and those that have already retired, are worried about running out of money.

In a previous post, I shared the first part of an article that discusses this study and due to it’s length I will share part of it in this post, with the rest of it to follow.

New Study Underscores Retirees’ Need for Non-Traditional Funding Sources
Posted By Jason Oliva On June 7, 2016 @ 5:32 pm In News,Retirement,Reverse Mortgage

“Life expediencies continue to climb and that’s a good thing, however, Americans are increasingly less confident that their savings will last through retirement. Roughly two-thirds of survey respondents believe there is a chance they will outlive their savings, with 34% of this bunch saying the likelihood of this happening is 51% or better.

“The prospect of an extended retirement in an environment of diminishing safety nets makes it even more essential that your financial plan is flexible enough to stretch as long as needed,” said Rebekah Barsch, vice president of planning for Northwester Mutual, in a written statement.

The 2016 study results not only highlight the vast unpreparedness of American adults, but also underscores the need to look beyond traditional funding streams like Social Security to bolster retirement savings.”

Of course, as a Reverse Loan Consultant I know how valuable the FHA loan program is for preserving wealth and providing emotional security, but that is another topic.

People need to simply become educated about their benefits and why they should consider using them as part of a retirement plan.

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Who has $12.5 Trillion Dollars?

American seniors do and it seems to me that this figure keeps growing each month.   It wasn’t too long ago when it was at $ 5.5 trillion dollars and I thought, that was a lot of money to have in one’s home.

Reverse loans have been around for a number of years and as we head into the void of a lack of retirement funds that most people simply don’t have enough of…..there is a looming question as to how all of their needs will be managed as they age.

The Street recently published an article about this massive amount of equity that seniors have available to them to supplement their retirement, but many are still afraid of the HECM FHA loan program and do not see it as an option to extend their retirement savings.

Here is the first part of the article.

The Street: Education is Key When Discussing Reverse Mortgages

September 5th, 2016 | by Alana Stramowski Published in News, Reverse Mortgage

With the amount of equity floating around in the U.S., reverse mortgages could be a good a good financial decision in the right circumstance, explains a recent article on The Street.
There is $12.5 trillion in home equity in America and about $14 trillion in retirement assets, according to the article. Reverse mortgages could be used by homeowners 62 and older to help supplement Social Security and other existing income sources like medical expenses, long vacations or even purchase a new home.
A perk about the product that the public was often confused about in the past is that homeowners will never relinquish title to their homes. “The reverse mortgage enables seniors with insufficient income to tap their home equity without selling their domicile,” the article says. “Moreover, the income can make it possible for a retiree to deal taking Social Security payments in favor of larger payments down the road.”

I will share the remainder of this article in my next Post.

 

 

 

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Reverse Loan Tenure Option

At last, I am posting the final section of an article that was recently published in the Journal of Personal Finance.  It was very long and I could not share it in it’s entirety on this site.

So I broke it up into seven parts and this is the last bit of it.    Overall, it’s in interesting commentary on comparing using the Tenure payment option from a Reverse loan in lieu of receiving payments from an annuity.

New Research Shows Financial Planning Value of Tenure Reverse Mortgages
Posted By Jason Oliva On March 3, 2016

“Because of the assumption that withdrawals are taken from savings before tapping the line of credit, the line of credit option depletes savings but leaves some home value. Tenure, on the other hand, depletes home value more and leaves remaining savings.

“Overall, the tenure option does somewhat better than the LOC in terms of both consumption and bequest measures,” researchers state. “This reflects tenure not depleting savings and thereby leaving more money invested in stocks, the potentially highest return asset.”

Because the tenure option pays out a higher rate than the SPIA, the study indicates it is necessary to allocate $238,061 for SPIA purchase, compared to the $201,174 borrowing limit used to generate tenure payments.

The SPIA option leaves median consumption about the same, but does reduce consumption risk, according to researchers who note that under the SPIA home value is preserved for late-in-life needs or a bequest.

“If the goal is to maximize consumption without a bequest concern, the reverse mortgage options win out over the SPIA,” the study states. “If bequests are important, the decision requires evaluating tradeoffs between consumption and bequest.”

 

 

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SPIA V.S. Tenure Payments from a Reverse Loan

In my previous post I shared a portion of an article that was published recently in the Journal of Personal Finance.   It’s quite long, so I have been breaking it up to make it easier to read here on my blog.

The most recent post shared an example of how using a Tenure payment option from a Reverse loan, might be better that that from SPIA.

Here is part V and a comparison to the previous post.

New Research Shows Financial Planning Value of Tenure Reverse Mortgages
Posted By Jason Oliva On March 3, 2016

“By comparison, researchers note that a SPIA purchased with $201,174 would pay $955.21 per month, based on market rates as of August 2015 for SPIAs sold directly.

“The SPIA advantage is that payments continue until both members of the couple are dead, whereas tenure payments only continue until the home is vacated,” the study states. “For couples who can put plans in place to utilize home care if needed and keep their home as long as possible, the tenure option can be expected to provide payments for a duration similar to a SPIA.”

The term tenure payment calculation is based on an interest rate that is the sum of the annual Mortgage Insurance Premium of 1.25% and the HECM Expected Rate, which is the sum of the 10-year LIBOR swap rate—about 2.3% in August 2015—and a Lender’s Margin, which may vary by lender, but was set at 2.5% in the NRMLA calculator as of the date of the research’s publication. The researchers’ example of the 65-year-old husband and 63-year-old wife assumes a 4.8% HECM Expected Rate.

“The tenure payment calculation uses a higher expected duration than the SPIA, which would lower the payout rate, but a higher interest rate, which would raise the payout, and the interest rate more than offsets the duration,” the study states. “So based on current pricing, tenure payments ($1,130.36) will exceed SPIA payments ($955.21) when the SPIA purchase amount is set equal to the HECM Net Principal Limit.”

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Tenure Payments and HECM’s

The previous post mentioned that a report had been completed and published in the Journal of Personal Finance, that discussed the benefits to using the Tenure payment option when a senior acquires a Reverse loan.   And why this could be a very viable way to manage retirement funds moving forward into the future.

Here is part II of the article.   The rest of it will follow in additional posts because of it’s length.

New Research Shows Financial Planning Value of Tenure Reverse Mortgages
Posted By Jason Oliva On March 3, 2016

“The report, “Reverse Mortgages, Annuities, and Investments: Sorting Out the Options to Generate Sustainable Retirement Income,” was written by Joseph Tomlinson, FSA, CFP, managing director of Tomlinson Financial Planning in Greenville, Maine; alongside Shaun Pfeiffer, Ph.D., CFP, associate professor of finance and personal financial planning at the Edinboro University of Pennsylvania; and John Salter, Ph.D., CFP, AIFA, associate professor of personal financial planning at Texas Tech University and a partner and wealth manager at Evensky & Katz Wealth Management in Coral Gables, Fla. ad Lubbock, Texas.

The study examines how using either reverse mortgage option (line of credit or tenure) can generate improvements in sustainable retirement income, particularly when combined with single-premium immediate annuities (SPIAs).”

 

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