As new studies have shown, a reverse mortgage could be the perfect financial tool to provide additional security and improve portfolio longevity. Today’s reverse mortgage has a variety of options, and additional consumer protections in place to provide borrowers with more confidence in their retirement plans. Today’s reverse mortgage can be used to pay bills or other financial burdens, provide cash flow, or add additional security as a rainy day account. The new reverse mortgage is now a versatile, safe, and effective retirement planning tool. Ask an Efinity professional, or your existing financial advisor to find out more.
“Reverse mortgages do have a place in mainstream retirement distribution planning, and have a significant impact on the probability that some clients will be able to meet their predetermined retirement goals.” – The Journal of Financial Planning. ‘Standby Reverse Mortgages; A Risk Management Tool for Retirement Distributions’ by John Salter, Ph.D.,CFP,AIFA;Shaun Pfeiffer;and Harold Evensky,CFP,AIF
HOW CAN A REVERSE MORTGAGE BE USED FOR RETIREMENT SECURITY?
WAYS TO USE A REVERSE MORTGAGE
The Journal of Financial Planning has outlined various strategies to use a reverse mortgage effectively to help retirement funds survive:
Reverse-Mortgage-Last Strategy > A reverse mortgage is established when the client is in financial trouble. This usually means that the portfolio funds have been depleted, high-value assets have been sold to make ends meet, and leveraging the home equity is the last remaining option.
Reverse-Mortgage-First Strategy > A reverse mortgage is established at the outset of retirement and drawn upon every year to provide retirement income until exhausted, allowing the client’s portfolio more time to grow. Subsequent withdrawals are then made from their portfolio.
Coordinated Strategy > A reverse mortgage is established at the outset of retirement but only drawn upon if the portfolio under performs. The need to use the reverse mortgage funds is determined yearly based upon investment performance, which spares the portfolio any drain when it goes down, giving it a better chance to recover.
Using these Active Strategies, the cash reserves are made available up front and incorporated into a plan, giving your portfolio the maximum amount of time to grow and the best possible chance of survival. You can still live in your home without making monthly payments, feel confident about being financially prepared for emergencies, and maintain your desired quality of life. Simple and Effective.
THE BIG PICTURE
Home equity is another tool to help clients reach their goals during retirement planning.
Six Major Portfolio Survival Risks:
1 - LESS STRUCTURED ASSISTANCE – Diminished roles of defined benefit plans from both the government and the workplace.
2 - MARKET VOLATILITY – The market has experienced greatly varying annual returns over the last 30 years.
3 - INFLATION – Based on historical average inflation rates, if your client requires $50,000 to maintain their present lifestyle, they will need over $131,000 in 25 years just to keep pace.
4 - LONGEVITY – One member of a 65-year-old couple today has a 50% chance of living to age 92 and a 25% chance of living to age 97.
5 - TAXES – The top marginal tax bracket for many retirees in 2011 was 35%, so minimizing tax burden can help stretch savings.
6 - HEALTH CARE – Approximately 70% of Americans age 65 or older will need some type of long-term care, and the costs are rising faster than inflation.
AMERIPRISE SURVEY – 47% of respondents plan to use home equity to help fund their retirement.
BOSTON COLLEGE CENTER FOR RETIREMENT RESEARCH – 74% of retirees will fall short of their income needs at 62 years old. (start of reverse mortgage eligibility)
PEW RESEARCH CENTER – Between 2002 and 2011, the percentage of adults that said they would not have enough money to live comfortably in retirement rose from 32% to 53%.
Among adults 55 to 64 years old, the percentage who said they were not too confident or not at all confident that they will have enough to live on in retirement rose from 26% in 2009 to 39% in 2012.
Reverse mortgages are not just for people struggling to keep their homes. Reverse mortgages can also work for financially comfortable retirees looking for additional retirement security in order to avoid selling other portfolio assets at the wrong time or under duress.