Reverse Mortgages and Annuities

An interesting article and study was published recently by the trade magazine The Journal of Personal Finance that did a comparison between using a tenure payment option from a Reverse mortgage versus receiving a payment from an SPIA.

Here is part VI of the article that I have gradually been posting in this blog.

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

“Researchers then move onto how the reverse mortgage options and SPIAs, either separately or together, can be integrated with systematic withdrawals to improve retirement outcomes.

Per the already established scenario featuring the 65- and 63-year-old husband and wife, researchers also assume this couple—who have a $400,000 home with no mortgage—also has $1 million in tax deferred savings.

Additionally, their Social Security income is $30,000, which will increase each year for inflation, and is assumed to reduce to $200,000 in real dollars when either member of the couple dies. It is also assumed that this couple has their savings allocated 60/40 in stocks/bonds and rebalanced to this allocation annually.

Compared to relying only on systematic withdrawals from investment accounts, the use of either reverse mortgage option (LOC or tenure) was found to greatly increase consumption—$70,881 median consumption for the line of credit, compared to $74,735 for tenure payments and $64,287 for systematic withdrawals.”

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