Reverse Loan “Saver” Option

This is an ideal option to consider whenever a senior is forced to withdraw money from their retirement portfolio and possibly be subject to penalties or tax consequences.   Financial planners are naturally concerned with protecting their clients principal funds in their investments.

But what if they begin to draw them out too often, risking the possibility of outliving their savings?   Wouldn’t it make more sense to use funds from a Reverse loan to address this situation and leave their investments in place?

The following article discusses that and was written by a well known Financial Planner.

Financial Planning Guru: Reverse Mortgages Can Be Insurance Policy
Posted By Elizabeth Ecker On June 20, 2013 @ 6:32 pm In News,Reverse Mortgage | 7 Comments

Reverse mortgages can be used as an insurance policy under the Home Equity Conversion Mortgage Saver program, financial planning expert Harold Evensky tells the Journal of Financial Planning in a Q&A [1].

Citing a paper [2] he published recently on the use of the Saver reverse mortgage as a financial planning tool, Evensky explains how his mind was changed on the use of reverse mortgages.

“Up until very recently, pretty much like every other practitioner, I wouldn’t touch [reverse mortgages] with a 10-foot pole,” Evensky tells the Journal of Financial Planning. “What changed that was a year or so ago when a new product came out called the [HECM] Saver, which is very analogous to a home equity loan, a HELOC. The difference is, with HELOCs, as we learned the hard way, there’s nothing guaranteed.”

Advocating the use of the Saver essentially as a standby home equity loan, Evensky explains the way borrowers can keep the reverse mortgage as an option for times when their retirement portfolios are underperforming.

“When markets recover and get better you pay it off again, so it’s not designed to be a leverage investment strategy; it’s not designed as a credit strategy,” he says in his response. “We see it simply as risk management, “insurance” against a volatile market allowing investors to remain invested through those volatile times.”

The study, which ran hundreds of simulations of retirement portfolios led the researchers to conclude the use of reverse mortgages is effective in almost all cases.

“…our conclusion was, anyone who qualified for it should consider doing it. And there’s a high probability, based on our simulations, that most investors would never have occasion to draw on it, but as I said, we see it as an insurance policy.”

View the original Q&A [1].

Written by Elizabeth Ecker [3]

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