Under Funded Seniors

Every day 10,000 people are turning age 62 and many of them are underfunded for retirement.   As the “Silver Tsunami” of Boomers begin to retire or attempt to retire, they may not have the funds for their later years and this is a serious national concern, about to take care of this aging population in the next ten years.

Financial Advisers after may years of resistance to the idea of using a Reverse loan as part of retirement planning, are beginning to see the wisdom in utilizing this option to extend the longevity of a retirement portfolio.

The Journal of Retirement recently published an article about how using funds from a Reverse loan is an excellent strategy manage and extend retirement funds and provided three examples of individuals and how a Reverse mortgage could give them a retirement advantage.

My previous two posts cover the first sections of the article and this post will provide the remainder of it.

“The Under Funded Client”

“Lastly, there are under-funded clients—those who may need cash flow immediately and may obtain a reverse mortgage as a last resort only after exhausting all of their other resources. This group’s Monte Carlo success rates are low, perhaps 60% or less.

“These clients may have the greatest need for a reverse mortgage,” the authors write. “However, it can be demonstrated, using Monte Carlo simulation, that under-funded retirees with home equity that is equal to, or greater than, their relatively low level of invested assets can gain a tremendous boost from the use of an RMLOC [reverse mortgage line of credit]. The challenge may be to maintain a strong financial discipline and to use the reverse mortgage judiciously to their greatest long-term advantage.”

An important conclusion of the article is that reverse mortgages can help with a retiree’s three basic concerns: enhancing sustainable spending, serving as an emergency fund, and even boosting estate sizes, according to Davison and Turner.

“Overall, the major positive surprise is the value reverse mortgages can add to the lives of retirees, both those who already look forward to a satisfying retirement and those who are not as well prepared financially but will make it through,” Davison and Turner write. “This bodes well for a country with a rapidly expanding and aging retiree population.”’

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