Category Archives: OPINION

How Can Older Workers Stay in the Game?

So, you retired, and a lot of your friends retired. It didn’t take long to see how difficult it is to retire without enough financial resources. No pensions. No large 401k to cash out. What can you do about it? Besides the usual list which may include scaling down your lifestyle,  you can take out some of your home equity with the use of a HECM mortgage to provide additional cashflow. Pay off the mortgage and reduce the overhead.

But even with those adjustments, some will consider staying in — or going back into — the workplace. There are challenges initiated by the changing workplace as evolving high tech skill sets overwhelm those not adequately trained.

Here are some strategies to consider — recently suggested by an article in the Wall Street Journal. These strategies help veteran employees stay current and valuable as workplaces become younger and more tech-focused.

By  Sue Shellenbarger

Updated May 22, 2018

Do your colleagues at the office seem to be getting younger?

It looks that way to the millions of older employees in industries being disrupted in the digital era and favoring younger more digitally savvy workers, such as tech, entertainment, retailing and media. As more workers in their 40s and beyond plan to delay retirement until their mid-60s, a growing number will have to hustle to reassert their value to their employers.

A core question older employees face: Would your boss hire you again with the skills you have now? Being able to answer yes takes some smart moves to keep your skills fresh, your attitude upbeat and your personal style up-to-date.

Waiting to act until a buyout offer or other rumblings of cutbacks surface at your company is too late. “You can’t wait until the axe is falling to get out of the way,” says Judith Gerberg, a New York City executive coach.

Networking with younger colleagues and showing curiosity about what they do can help you stay abreast of changes, says Ellis Chase, a New York career-management consultant and author. “You have to break through your comfort zone and talk to that 28-year-old hotshot. Seek her out and ask, ‘I’d love to learn more about this. Could you spend a half-hour with me? I’ll take you to lunch,’ ” Mr. Chase says.

Jeff Fuerst, 52

Jeff Fuerst, 52, spent eight years in his 40s as an inventory-management executive at Sears HoldingCorp. , the troubled retailer, in hopes of helping it turn around. He stayed abreast of technology and helped start a work-from-home program to help attract young recruits. As Sears continued to close stores, he kept his industry contacts fresh by attending meetings of professional groups.

In a transition initiated by one of those contacts, Mr. Fuerst left Sears three years ago for a position as a senior vice president at Integrated Merchandising Systems, a Morton Grove, Ill., merchandising and marketing agency. There, he’s learning e-commerce and digital-marketing technology, and he has since been promoted to chief logistics officer. “If you don’t react quickly to change, it’s very hard to keep up,” Mr. Fuerst says.

Forming ties and collaborating with colleagues at all levels is an important survival skill, Ms. Gerberg says. Make sure “you have somebody who, if your name comes up at a meeting to be fired, will say, ‘Oh no, that person is great. I’ve worked with them,’ ” she says. If your group is targeted for buyouts, having friends inside the company also improves your chances of transferring to a new assignment in a different unit.

Karen Alber, 54

Karen Alber, 54, continued to advance her skills and build new contacts during stints at three separate beverage and food companies in the past 15 years, enduring major cost cuts and restructuring threats and leaving voluntarily in each case. She earned certifications in a field that didn’t exist when she graduated from college in the 1980s—supply-chain management.

She joined professional groups and spoke at meetings. “I sometimes thought, ‘Really? I have to get on a plane and go to a conference?’ ” Ms. Alber says. “But then I did it anyway.” She took coaching courses because she enjoyed mentoring young colleagues.

She also volunteered for internal projects, including task forces for improving how work got done. She sometimes worried, “If I go on this team, how am I ever going to get my job back?” Ms. Alber says. But she learned valuable skills, including managing cross-functional teams and delegating work she couldn’t do herself, helping her advance to chief information officer.

Karen Alber, 54, stayed up-to-date in part by earning certifications in a field that didn’t even exist when she graduated from college: supply-chain management.

“It became her brand,” says Amy Ruppert, an executive coach who worked with Ms. Alber for years. “People knew, ‘You can throw Karen Alber into anything and she’ll run with it.’ ” Two years ago, Ms. Alber made a planned, voluntary move to a new career, co-founding the Integreship Group, a Chicago leadership-coaching firm, with Ms. Ruppert.

Many people face psychological roadblocks to learning new jobs or skills, says Andy Molinsky, a professor of organizational behavior at Brandeis University and author of a book on stepping outside your comfort zone. Older workers may feel resentful about having to stretch themselves when they’ve already worked for decades. Or they may think, “This doesn’t feel like me,” Dr. Molinsky says.

Some manage to venture into new terrain anyway, by developing a sense of purpose—a belief that making the effort is important for a reason you value deeply. Others manage to tweak, personalize or customize the way they move into new roles, so that they feel more comfortable, he says.

One way to do this, consultants and coaches say, is to develop your personal style. That doesn’t mean overhauling your wardrobe or appearance in an effort to look as hip as younger colleagues. “If you’re in your 30s and you have stubble, maybe it’s hunky. But if you’re 70 and you’ve got gray stubble, it looks like you’re homeless,” says Peter Cappelli, a management professor at the Wharton School and author of “Managing the Older Worker.”

New York image consultant Amanda Sanders advises choosing clothing and accessories that reflect current fashions, but making sure they also fit well and look good on you. Men can update their look by choosing trousers with tapered legs, leather shoes with double monk straps rather than laces, and contemporary glasses with tortoiseshell or colorful transparent frames. While an Apple watch suggests the wearer is tech savvy, “on someone older it looks like they’re trying to be young,” ​Ms. Sanders says. A​ better choice might be a classic watch with a leather band, she says. ​

Women should abandon outdated looks, such as a frumpy cardigan over a dress, in favor of a leather jacket or asymmetrical sweater, Ms. Sanders says.

Those whose hair is thinning can color it with highlights to lend more depth and thickness, she suggests. And gray hair is fine if it’s healthy and styled in a contemporary way, Ms. Sanders says. “Wear your age as a badge of honor,” she says. “If you believe it, they’ll believe it.”

SAVVY MOVES

To improve your survival chances late in your career:

If your area is a likely target for cuts, explore potential assignments in other units.

Look for problems you can solve for your employer to demonstrate your strengths.

Consider updating your wardrobe and hairstyle with help from a trusted adviser.

Participate when possible in off-hours socializing or charity events with colleagues.

Take the initiative to get to know younger colleagues with skills you don’t have.

Volunteer to help with training or onboarding programs for new hires.

Raise your hand for internal projects that will strengthen your network or skills.

Update your professional credentials via training or refresher courses.

Stay involved in professional organizations or your college alumni network.

WORK & FAMILY MAILBOX

Q: You wrote recently about employers replacing traditional one-desk-per-employee setups with unassigned desks and a variety of other spaces for meeting and socializing. What impact do these wide-open setups have on introverts?—M.S.

A: Losing your assigned desk can be especially jarring for introverts, who may feel the loss of a home base more keenly than others. Many also miss the predictability of sitting near the same people every day, employers and employees say. New hires in these freewheeling setups typically have to learn more new names and faces immediately.

Some introverts also benefit from being allowed to work from home or other private settings more often. Many employers provide this added flexibility as part of the transition to unassigned seating. These setups also typically include private workspaces for employees to settle down by themselves, focus on their work and think deeply.

Write to Sue Shellenbarger at Sue.Shellenbarger@wsj.com

Appeared in the May 23, 2018, print edition as ‘Reinvention in a Digital Era Stayin’ Alive.’

Those interested in a HECM should read through information on this website. Ask questions by calling Warren Strycker, a savvy upper aged veteran. See contact information under the “information” tab on the home page.

 

Let us be thankful.

These thoughts by Warren Strycker

I am thankful for the things I don’t want or like, because God teaches me about waiting, and patience, and faith, and for one of my Facebook friends that made me think of it.

I’m thinking about those that fail, and keep going, that cry and are not consoled, that try again when what they just did, didn’t work (again), and for those who scream out in pain without a ready fix.

I’m thinking for all the sports players who lost their games, churches that came out of the shute strong and came to naught, politicians who lost their elections again and again, because, in the end, their losses forge the completion of God’s plan for them and us, down the road, and around the corner when it’s time to win or lose, again and to know for sure that we don’t all have the power to succeed in the way we imagined.

Our visit on the earth is God’s experiment as he guides the events that lie ahead, with a firm hand. Lives and egos are lost in the process but the Plan he had from the beginning is continuing over the rough roads we travel.

From the beginning, God formed our thoughts and projects – mostly for his own plan for the world – and who would miss it, staring up into the sky at night as the stars reflect the Glory of the Creator?

My neighbor, the pastor, doesn’t think we are supposed to understand the process of life, though I try again and again to comprehend it – usually at Thanksgiving time.

It is enough to be thankful that we are not in charge of the chaos in the world or that our illusions of grandeur don’t happen as we planned.

We can be thankful that we accept Thanksgiving as the process of our beginning and all the wins and losses in between.

Let us be Thankful.

Editor’s note: This is not a new Bible. I expect this to be edited as new things and old are remembered and added to it. Life, after all, is God’s experiment, and we are just the ingredients as we all stir them together like a Thanksgiving salad in the making. There is so much more to know. (Sorry Pastor John, I hear you but I am not convinced that God gave us brains not to be used).

 

“Organizing for Action”

Charles Krauthammer

I do not understand how living in a country with its democracy established over 200 years ago, and now, for the first time in history, suddenly we have one of our former presidents set up a group called “Organizing for Action” (OFA).

OFA is 30,000+ strong and working to disrupt everything that our current president’s administration is trying to do. This organization goes against our Democracy, and it is an operation that will destroy our way of governing. It goes against our Constitution, our laws, and the processes established over 200 years ago. If it is allowed to proceed then we will be living in chaos very much like third world countries are run. What good is it to have an established government if it is not going to be respected and allowed to follow our laws?

If you had an army some 30,000 strong and a court system stacked over the decades with judges who would allow you to break the laws, how much damage could you do to a country? We are about to find out in America!

Our ex-president said he was going to stay involved through community organizing and speak out on the issues and that appears to be one post-administration promise he intends to keep. He has moved many of his administration’s top dogs over to Organizing for Action.

OFA is behind the strategic and tactical implementation of the resistance to the Trump Administration that we are seeing across America, and politically active courts are providing the leverage for this revolution.

OFA is dedicated to organizing communities for “progressive” change. Its issues are gun control, socialist healthcare, abortion, sexual equality, climate change, and of course, immigration reform.

OFA members were propped up by the ex-president’s message from the shadows: “Organizing is the building block of everything great we have accomplished Organizers around the country are fighting for change in their communities and OFA is one of the groups on the front lines. Commit to this work in 2017 and beyond.”

OFA’s website says it obtained its “digital” assets from the ex-president’s re-election effort and that he inspired the movement. In short, it is the shadow government organization aimed at resisting and tearing down the Constitutional Republic we know as AMERICA.

Paul Sperry, writing for the New York Post, says, “The OFA will fight President Donald Trump at every turn of his presidency and the ex-president will command them from a bunker less than two miles from the White House.”

Sperry writes that, “The ex-president is setting up a shadow government to sabotage the Trump administration through a network of non-profits led by OFA, which is growing its war chest (more than $40 million) and has some 250 offices nationwide. The OFA IRS filings, according to Sperry, indicate that the OFA has 32,525 (and growing) volunteers nationwide. The ex-president and his wife will oversee the operation from their home/ office in Washington DC.

Think about how this works.. For example: Trump issues an immigration executive order; the OFA signals for protests and statements from pro-immigrant groups; the ACLU lawyers file lawsuits in jurisdictions where activist judges obstruct the laws; volunteers are called to protest at airports and Congressional town hall meetings; the leftist media springs to action in support of these activities; the twitter sphere lights up with social media; and violence follows. All of this happens from the ex-president’s signal that he is heartened by the protests.

If Barack Obama did not do enough to destroy this country in the 8 years he was in office, it appears his future plans are to destroy the foundation on which this country has operated on for the last 241 years.

If this does not scare you, then we are in worse trouble than you know.

So, do your part. You have read it, so at least pass this on so others will know what we are up against. We are losing our country and we are so compliant. We are becoming a “PERFECT TARGET” for our enemy!

Charles Krauthammer

Using reverse mortgage credit lines to support income reliability — Financial Planners Do Diligence

Integrating Home Equity and Retirement Savings through the “Rule of 30”

To access charts presented as part of this paper, please access them online at: https://www.onefpa.org/journal/Pages/OCT17-Integrating-Home-Equity-and-Retirement-Savings-through-the-Rule-of-30.aspxby Peter Neuwirth, FSA, FCA; Barry H. Sacks, J.D., Ph.D.; and Stephen R. Sacks, Ph.D.

Note: *No payments as long as taxes and homeowners insurance is paid promptly.

Executive Summary

This paper examines the effect of using reverse mortgage credit lines to supplement retirement income by two types of retirees that have not been addressed in the previous literature: (1) those whose retirement savings are significantly below those of the mass affluent; and (2) those who are “house rich/cash poor.”

Results of this analysis demonstrate an important contrast with the results of the earlier literature; specifically, the greater percentages of home value, when coordinated with the retirement savings portfolio, resulted in substantially greater percentages of the portfolio that can be drawn.

This paper suggests a new alternative to the 4 percent rule that can guide planners and retirees toward an optimal cash withdrawal strategy. This new rule takes into account the total of the retiree’s retirement savings plus his or her home value.

The quantitative analysis in this paper uses the same spreadsheet models and strategies first presented in the Journal by Sacks and Sacks (2012). This paper builds on that work by extending the analysis to a broader range of retirees.

Peter Neuwirth, FSA, FCA, is an actuary with 38 years of experience in retirement and deferred compensation plans. Recently retired from Willis Towers Watson in San Francisco, he now maintains an independent actuarial consulting practice. He has published numerous articles on deferred compensation and a book on balancing time, risk, and money.

Barry H. Sacks, J.D., Ph.D., is a practicing tax attorney in San Francisco. He has specialized in pension-related legal matters since 1973 and has published numerous articles on retirement income planning and on tax-related topics.

Stephen R. Sacks, Ph.D., is professor emeritus of economics at the University of Connecticut. He maintains an economics consulting practice in New York and has published several articles on operations research and on retirement income planning.

Using home equity to enhance retirement income is an emerging topic in the financial planning profession. Research on strategies for tapping home equity to boost the sustainability of retirement income drawn from securities portfolios, such as 401(k) accounts or rollover IRAs, is quite recent. The concept was first introduced in the Journal of Financial Planning by Sacks and Sacks (2012) and Salter, Pfeiffer, and Evensky (2012), both of which focused on home equity accessed by reverse mortgage credit lines.

Research continued in 2013. Pfeiffer, Salter and Evensky (2013) focused their analysis primarily on cash flow sustainability rather than on portfolio survival, which was the focus of their 2012 work. And Wagner (2013) based his analysis of cash flow sustainability on a strategy that used the reverse mortgage annuity.

Pfeiffer, Schaal, and Salter (2014) presented results based on a strategy that used the reverse mortgage credit line as the last resort. And Pfau (2016a) presented a comparison of the strategies from the previous literature, including six strategies using the reverse mortgage credit line and one strategy using the reverse mortgage annuity.

Although the previous literature examined model retirees whose ratio of home value to the value of their retirement savings portfolio was 1:2, Sacks and Sacks (2012) and Pfau (2016a) suggested expanding the research to retirees with different ratios. This paper followed that suggestion, broadening the range of retirees examined using two strategies. Future research might examine how other strategies would apply to the broader range of retirees examined here.

Like much of the existing literature on reverse mortgages, this paper uses the term “reverse mortgage” to mean the Home Equity Conversion Mortgage, or HECM, established and regulated by the federal government.

Home Equity and Retirement Savings

Although data on retirement savings and home equity have been amassed from a number of surveys, there is not much coherence among, nor coherence between, the datasets. Some datasets consolidate data from ages 55 to 64 and 65 to 74 while others focus on the age group 63 to 65. And data on retirement savings is often tracked separately from data on home equity, making it difficult to draw conclusions about the distributions of the combination of home equity and savings.1

Some attempts have been made to correlate and combine home equity and retirement savings data. For example, Tomlinson, Pfeiffer, and Salter (2016) showed retirement savings, home equity, and home values for married retirees ages 63 to 65 who had non-zero retirement savings (see Table 1).

If, as some economists project, the use of home equity for generating retirement income grows in prevalence in the coming years (e.g., Merton 2015; Guttentag 2017), this conjoint analysis of the total resources available to retirees will improve financial planners’ understanding of the true state of retirement readiness of the population who will be retiring in the next five to 10 years.

This paper introduces a new rule, called the “rule of 30.” As the rule gains acceptance—and as the limits of its applicability are determined—this analysis based on retirement savings plus home value becomes that much more important. Retirement savings are assumed to be held in a diversified portfolio of securities—typically, but not necessarily, in a 401(k) account or a rollover IRA.

Types of Retirees Considered

As previously noted, it can be difficult to draw conclusions about the distributions of the combination of home equity and retirement savings from the existing data. Nonetheless, for most segments of the population, from the “mass affluent” (who fit within the top quartile of Table 1) to the “almost affluent” (defined here as Table 1’s second quartile), home equity represents a significant component of total assets available in retirement.

Rather than extend the analysis of Tomlinson, Pfeiffer, and Salter (2016), this paper focused on four representative retirees drawn from Table 1 and explored more deeply the reverse mortgage strategies that each type of retiree might use to meet their retirement income objectives. As a part of that analysis, the following question was explored: is there an optimal percentage of total retirement income resources that a broad range of retirees could withdraw (from one or both sources) each year that would maximize retirement income while minimizing the probability of exhausting all assets before the end of retirement?

In addition to the combination issue noted earlier, another complicating factor in the data is that about 20 percent to 30 percent of retirees have mortgages still outstanding on their homes when they retire.2 Because of the reduced (or zero) HECM credit line available when a conventional mortgage is yet to be paid off, the analysis presented here considered only those retirees who own their homes free and clear, and whose value is consistent with the home equity values shown in Table 1. However, the majority of retirees own their homes free and clear.3 Therefore, the terms “home value” and “home equity” are synonymous in this paper.

As noted, Table 1 shows median values of both retirement savings and home equity. In order to better capture the range of financial situations among the population of retirees as well as the acute retirement income generation problems facing the retiree with significant home value but limited retirement savings, this study considered not only “typical” retirees but also “house rich/cash poor” retirees.

Table 2 describes the four representative retirees analyzed in this study.

Retiree No. 1: The mass-affluent retiree. Retiree No. 1, the typical mass-affluent retiree, has been defined and discussed in the existing literature. Sacks and Sacks (2012) considered a mass-affluent retiree with a home of value $417,000 at the outset of retirement and a portfolio of retirement savings of $800,000. Similarly, Salter, Pfeiffer, and Evensky (2012) considered a retiree with a home of value

of $250,000 and a portfolio of retirement savings of $500,000. (Although these figures place the hypothetical retiree at the low end of the “mass affluent” range, the ratio of home value to retirement savings is the same, 1:2.) Pfau (2016a) reviewed a series of previous papers and their respective algorithms, considering a retiree with a home value of $500,000 and a $1 million retirement portfolio, again replicating the 1:2 ratio of home value to retirement savings. With the possible exception of certain areas on the West Coast and in the Northeast where home values have climbed to extraordinary heights, these values would likely be typical of “mass-affluent” retirees.

The results of this study indicate that, in the case of the typical mass-affluent retiree considered, the probability of cash flow survival over a 30-year retirement would be at least 90 percent with an initial withdrawal rate of approximately 5 percent of the portfolio’s initial value. Thus, using the reverse mortgage credit line, in either the simple algorithm (referred to as the “coordinated strategy”) suggested by Sacks and Sacks (2012), or the more complex algorithm (referred to as a “standby line of credit”) suggested by Pfeiffer, Salter, and Evensky (2013), increased the initial withdrawal rate that had approximately a 90 percent probability of 30-year cash flow survival from Bengen’s (1994) 4 percent (with no use of home equity) up to 5 percent.

By contrast, if the reverse mortgage credit line was used only as a last resort, and not in either of these algorithms, the increase in effective safe withdrawal rate was negligible. Therefore, for this typical mass-affluent retiree, the reverse mortgage credit line used in either algorithm resulted in a roughly 25 percent increase in the retiree’s inflation-adjusted retirement income throughout his or her 30-year retirement.4

A question that arises, and one that is explored in the remainder of this paper, is: how, and to what extent, is the retirement income of the other three representative retirees affected by the use of one of those strategies, specifically the coordinated strategy of the Sacks and Sacks (2012) algorithm?

Retiree No. 2: The house-rich mass-affluent retiree. Retiree No. 2, the “house-rich” mass-affluent retiree, is defined here as one who has a home value of $800,000 at the outset of retirement and a retirement portfolio value of $400,000 at the same time. This representative retire has the same total retirement income resources as Retiree No. 1, but the opposite ratio of asset values (2:1).

For this retiree, his or her home value is substantially greater than the value of his or her retirement savings. Such a situation may have arisen because the retiree lives in a part of the country where exceptional increases in home value have occurred, or perhaps because of lifestyle choices resulting in buying a larger home at the expense of reduced retirement savings. This representative retiree does not appear to have been considered in any detail in the financial planning literature. Therefore, the situation of this type of retiree is examined in quantitative detail in later sections of this paper.

Retiree No. 3: The almost-affluent retiree. Retiree No. 3, the almost-affluent retiree, is one who has a home of value $150,000 at the outset of retirement and a retirement portfolio of $300,000 at the same time. This representative retiree is not quite affluent, having total retirement income resources of $450,000 at the outset of retirement.

Moreover, it follows from Table 1 that this retiree is not quite typical, because he or she has retirement savings greater than his or her home value, whereas the table (and other data) indicate that most retirees—especially those with total retirement income resources in the middle of the economic spectrum—have retirement savings that are less than their home values. It is worth noting, and relevant to the calculations set out in the later portion of this paper, that the ratio of home value to retirement savings (1:2) is the same for this retiree as for Retiree No. 1, the typical mass-affluent retiree.

Retiree No. 4: The house-rich almost-affluent retiree. Retiree No. 4, the “house-rich” almost-affluent retiree, is one who has a home value of $300,000 at the outset of retirement and a retirement portfolio of $150,000. This retiree has the same total retirement income resources as Retiree No. 3, but the ratio of home value to retirement savings (2:1) is the same as for Retiree No. 2. The amount of total asset value, plus the fact that home value is greater than retirement savings, makes this retiree more broadly representative than the others.

Assumptions and Background for the Analysis

Economic concerns of retirees. Retirees have several major economic concerns, most notably: (1) inflation-adjusted cash flow survival throughout retirement; (2) additional cash availability in the event of emergency or other unanticipated need; and (3) legacy.

It was assumed in this analysis that the overriding economic concern for many retirees is to maintain cash flow throughout retirement. Accordingly, the quantitative analysis presented in this paper addressed that concern.

Cash flow. Cash flow survival is defined here as a 90 percent or greater probability that cash flow to the retiree, based on the initial withdrawal and continuing at constant purchasing power each year thereafter, will continue for at least 30 years following the outset of retirement.

The measure of cash flow itself is expressed in terms of an “initial withdrawal rate.” Typically, this rate has been defined as a percentage of the value of the retirement savings portfolio at the outset of retirement. Many financial planners use this measure and some recommend that retirees adhere to a “4 percent rule” (Bengen 1994). Pfau (2014) examined several more nuanced approaches to withdrawal rates, exploring situations in which the 4 percent rule may be too low or too high.

The results presented here express the initial distribution rate in the traditional way so that comparisons can be made to the 4 percent rule, but these results also indicate that expressing the initial withdrawal rate as a fraction of total retirement income resources may be more useful and more broadly applicable. As shown below, in the context of investment returns consistent with historical averages, a “rule of 30” where the initial distribution rate is 1/30 of the total retirement income resources (including home value), provides a more stable and consistent retirement income strategy across various classes of retirees.5

The HECM’s growing line of credit. Also important to the analysis is the growing line of credit. A majority of the roughly one million reverse mortgage loans currently outstanding are HECMs.6 A unique feature of HECMs is that when some or all of the loan proceeds are taken in the form of a line of credit, the amount available to be taken grows over time. After the credit line is established, the amount available to be taken grows at the same rate as the interest applicable to the amount that actually is taken. (See the appendix for details on the assumptions related to the interest rate on the line of credit.)

The amount available when a reverse mortgage is established depends upon the age of the borrower at that time and is greater for an older borrower than for a younger borrower. However, the increment as a function of age is substantially smaller than the increment that results from an early establishment followed by the increase resulting from the application of the interest rate.

The effect of the HECM’s interest-based increase in the amount available is important in enabling a retiree to have cash available throughout a 30-year retirement. Moreover, at this time, reverse mortgages other than HECMs are not available as credit lines. Therefore, the reverse mortgage credit line considered in this paper was the HECM credit line.

Another important aspect of the HECM is the non-recourse feature. Regardless of the duration through which the HECM credit line is in place (and growing), the Federal Housing Administration guarantees that the retiree (or his or her heirs) will never have to pay back more than the value of the home. For many retirees, this guarantee, when combined with the growing line of credit feature, may be significant.

Reverse mortgage specifications. Two specific aspects of reverse mortgage credit lines affect the quantitative analysis (for general information about reverse mortgages, see Giordano (2015) and Pfau (2016b)). They are: (1) the amount available at the establishment of the reverse mortgage line of credit; and (2) the cost of the reverse mortgage credit line.

The amount of credit line initially available is a function of the age of the borrower at the establishment of the credit line and the prevailing expected rate. In this analysis, the borrower was assumed to be 65 years old. The prevailing expected rate at the time of this writing (May 2017) meant that the amount initially available was approximately 54 percent of the home value (the Monte Carlo simulation program determined the amount available at later ages for the spreadsheets using Strategy No. 2).

Other than approximately $125 for a mandatory counseling session, there are no out-of-pocket costs for establishing or maintaining a reverse mortgage line of credit. The costs for establishing the reverse mortgage itself include three parts (described in detail in Giordano (2015) and Pfau (2016b)), all of which become part of the debt. These amounts can be negotiated with the lender to be brought down from a high of approximately $12,000 to near zero, in exchange for higher ongoing interest rates.

The calculations in this analysis used fees of $7,500, comprised of $3,000 for the mortgage insurance premium (as prescribed by HUD), plus $3,000 origination fee (calculated as the average of the figures shown on the Mortgage Professor website, mtgprofessor.com), plus $1,500 closing costs.

The Analysis

The analytic technique used here was similar to that used by Sacks and Sacks (2012), although this paper used a similar spreadsheet model for each of the four representative retirees. The spreadsheet model used the following input parameters: (1) initial value of the retirement savings portfolio; (2) initial value of the retiree’s home; and (3) initial withdrawal rate.

The model used two worksheets run simultaneously.7 The two worksheets were identical in all respects (including the investment performance of the portfolio, the rate of inflation, and the amount drawn by the retiree) except for the strategy used to determine whether the retirement income was withdrawn from the portfolio, and/or the reverse mortgage line of credit was used (in other words, whether Strategy No. 1 or Strategy No. 2 was used).

On each worksheet, the calculations of investment gain or loss and of retirement income withdrawal were performed for each year in a 30-year period. The investment gain or loss was determined stochastically, as was the inflation adjustment to the withdrawal amount.

The 30-year calculation was repeated 10,000 times. In a certain number of those repetitions, the cash flow survived for 30 years, and in the other repetitions it did not. (The three most significant determinants of cash flow survival are the initial withdrawal rate, the sequence of investment returns, and the strategy for dealing with negative returns.) In each of the 10,000 repetitions, the initial withdrawal rate was the same, and the average investment return was the same, but the sequence of investment returns, being randomly selected, was not the same in each. A simple count was made of cash flow survival over the 10,000 trials (with the two worksheets run simultaneously in each trial and the results of the 10,000 trials shown on a histogram for each worksheet). The percentage of the repetitions in which the cash flow survived was termed the “cash flow survival probability.”

The primary focus was on the comparison of the cash flow survival probabilities of the two strategies for each of the four representative retirees.

The quantitative analysis was based on the premise that the retiree sought to draw on his or her total retirement income resources at a rate that yielded the maximum amount of constant purchasing power throughout a 30-year retirement. Therefore, in each part of the analysis, the initial withdrawal rate that resulted in a 90 percent cash flow survival probability was used.

The assumed portfolio. The securities portfolio held by the representative retirees in all of the analyses and results shown was assumed to be a 60/40 portfolio comprised of the following indices, in the following proportions:

60 percent equities: S&P 500 (40 percent); U.S. small stock (10 percent); and MSCI EAFE (10 percent).

40 percent fixed income: Lehman Brothers long-term government/credit bond index (10 percent); Lehman Brothers intermediate-term government/credit bond index (15 percent); and U.S. one-year Treasury constant maturity (15 percent).

A normal distribution of the investment returns was assumed from each asset class. The geometric mean and standard deviation projected for the investment return of each asset class, consistent with historical averages, are set out in Appendix A. More recent (more conservative) figures for the same asset classes are set out in Appendix B. Correlation matrices were also constructed and incorporated into the simulation program.

Because the portfolio composition was the same in each of the 30 years of each trial, the portfolio was, in effect, rebalanced each year.

Establishing the HECM line of credit. As indicated previously, the primary financial objective of many retirees, especially those in the house-rich categories, was assumed for this analysis to be inflation-adjusted cash flow survival throughout retirement. And for analytic purposes, the duration of retirement was assumed to be 30 years.

The model for the analysis was that in the first year of retirement, a certain amount was withdrawn from the portfolio, and each subsequent year’s withdrawal was equal to the previous year’s withdrawal, adjusted only for inflation. Thus, the annual withdrawals provided constant purchasing power throughout retirement. Following the well-established convention, the initial withdrawal was expressed as a percentage of the initial portfolio value.

This analysis also used two alternative strategies for establishing and drawing on a HECM line of credit to enhance the 30-year survival of cash flow.

Strategy No. 1. Establish a reverse mortgage credit line at the outset of retirement. At the beginning of the first year of retirement, the first year’s draw is taken from the portfolio. The amount of the draw is equal to 1/30 of the total retirement income resources (or 1/34, if conservative projections of investment returns are used). At the end of each year, the investment performance of the portfolio during that year is determined. If the performance was positive, the ensuing year’s income is withdrawn from the portfolio. If the performance was negative, the ensuing year’s income is withdrawn from the reverse mortgage credit line.8 This is the “coordinated strategy” described by Sacks and Sacks (2012).

Strategy No. 2: From the outset of retirement, withdraw retirement income only from the portfolio. Do not establish a reverse mortgage credit line unless and until the portfolio is exhausted. From and after that point, as the only source of retirement income, the credit line is drawn upon continuously unless and until it is exhausted. This is the “last resort strategy” described by Sacks and Sacks (2012).9

Figure 1 and Figure 2 demonstrate the dramatic increase of cash flow survival probability of Strategy No. 1 over Strategy No. 2, which is the strategy often recommended by many financial planners.10

Key Findings

The key findings reported in this paper are the following:11

  1. Broad range of retirees. An effective coordinated approach to drawing upon total retirement income resources (defined here as the total of retirement savings plus home value) can be used across a broad range of retirees both in terms of their total retirement income resources and in terms of the ratio of their home value to the initial value of their retirement savings. These findings are explained in greater detail in the following paragraphs and are illustrated in Table 3.
  2. For any given amount of total retirement income resources, the dollar amount of initial withdrawal was constant regardless of the ratio of home value to retirement savings. The dollar amount of the initial withdrawal that resulted in an approximately 90 percent probability of cash flow survival was the same across a broad range of ratios of home value to initial value of retirement savings portfolio. That dollar amount was determined as a fraction of the retirees’ total retirement income resources. This finding resulted when the coordinated strategy was used for the withdrawals, but not when the last-resort strategy was used.
  3. Across a broad range of amounts of total retirement income resources, the applicable fraction was constant. In addition to the range of ratios described above, the fraction described above applies to a broad range of amounts of total retirement income resources. That is, once the fraction was determined for one value of total retirement income resources, the same fraction, applied to any other value of total retirement income resources, yielded, for that value, the applicable dollar amount of initial withdrawal that resulted in cash flow survival. This observation reflects that the computations scale up to greater amounts of total retirement income resources and scale down to lower amounts (see Table 3 and Table 4).
  4. The relevant fraction is a function of the investment returns. If the investment return figures used are consistent with historical averages, the dollar amount of the initial withdrawal for any given total of retirement savings plus home value (at the outset of retirement) turned out to be 1/30 of that total. Accordingly, the finding is termed the “rule of 30.” If more recent (and more conservative) projections of investment returns were used, the dollar amount reflected in the result described above turned out to be 1/34 of the total of retirement savings plus home value. However, it is important to note that, with these more conservative projections, the 4 percent rule became a 3.2 percent rule. This result is analogous to the results found by Finke, Pfau and Blanchett (2013) and by Pfau (2014).

The findings using the “rule of 30” are shown for the four representative retirees in Panel A of Table 3. Panel B of Table 3 uses the “rule of 34.” These results are also shown in a more granular fashion for a larger number of retirees in Table 4 and in Figures 3 and 4.

Observations Regarding Cash Flow

Computations using the “rule of 30” and those using the “rule of 34” both resulted in dollar amounts for retirees No. 2 and No. 4 that were more than twice the amounts resulting from the safe withdrawal rate applicable when only the securities portfolio was drawn upon. Even for retirees No. 1 and No. 3, the “rule of 30” and the “rule of 34” both resulted in dollar amounts of cash withdrawal that were more than 25 percent higher than the amounts that could be safely withdrawn from the portfolio only.

In dollar terms, and in percentage of income terms, these results are significant. For example, retiree No. 4 who retires with a 401(k) account or rollover IRA valued in the vicinity of $150,000 is likely to have Social Security as his or her primary source of retirement income. Assume that his or her annual Social Security income is about $25,000 (adjusted for inflation). Using Strategy No. 1, an initial withdrawal rate of 10 percent of the retirement account ($15,000) annually adjusted for inflation provided a 29 percent greater total cash flow throughout a 30-year retirement than drawing according to the 4 percent rule (equal to $6,000 per year).

Detailed Results

Cash flow survival probability. Figure 1 and Figure 2 set out the probabilities of cash flow survival for each of the four representative retirees. In each case, the initial withdrawal rate was selected to yield a 90 percent probability of 30-year (inflation-adjusted) cash flow survival when Strategy No. 1 was used. It turns out that, in every such case, the dollar amount of the distribution was equal to 1/30 of the total retirement income resources.

It is also noteworthy that when Strategy No. 2 was used, the cash flow survival probability was lower when the initial portfolio value was low compared with the home value, than when the initial portfolio value was high compared with the home value. That is because, with low initial portfolio values, under Strategy No. 2 the portfolio was exhausted sooner than with higher initial portfolio values. When then portfolio was exhausted sooner, the reverse mortgage credit line was drawn upon sooner, and it therefore must provide more years of withdrawals. Moreover, early withdrawals from the credit line (once it was established), coupled with relatively late establishment of the credit line, prevented the credit line from growing to a level from which it could sustain the retirement income withdrawals throughout the remainder of the retirement period.

Similar tests were performed with other combinations of portfolio values and home values, all with the same “total retirement income resources.” The rule of 30 was shown to apply in those cases as well, as set out in Table 3.

Other combinations of portfolio value and home value. In each case of analyzing other combinations of portfolio and home values, using Strategy No. 1 yielded a 90 percent probability of inflation-adjusted cash flow throughout a 30-year retirement, and in each case the dollar amount of the initial distribution was equal to 1/30 x total retirement income resources (see Table 4). These results are shown in graphic form in Figure 3.

When considering the results shown in Figure 3, keep in mind that both strategies accessed the home equity. The big difference was in the order in which the access occurred. Under Strategy No. 1, the home equity was accessed in each year following a year in which the volatility of the securities portfolio incurred an adverse investment return. Under Strategy No. 2, the home equity was only accessed if and when the securities portfolio had been exhausted.

Figure 3 shows that when Strategy No. 1 was used, a 90 percent probability of 30-year cash flow survival was independent of the ratio of initial home value to initial portfolio value over a wide range of such ratios.

Similar results to those shown in Figure 3 were obtained with values of total retirement income resources equal to $600,000, $750,000, $900,000 and $1.2 million. And although the results shown were obtained using the “rule of 30” with the investment return figures set out in Appendix A, essentially the same independence of ratio was shown with the investment return figures set out in Appendix B.

An obvious corollary of the constant dollar result is that the initial withdrawal that resulted in a 90 percent probability of cash flow survival, as a percentage of the initial portfolio value, varied widely across the range of ratios. This variation is illustrated in Figure 4. Thus, with the ratios of home value to portfolio value (at the outset of retirement) in the range from 0.5 to 2.0, that percentage ranged from about 5 percent to 10 percent when investment returns were consistent with historical averages, and from about 4 percent to 9 percent when investment returns were more conservative.

Limitations and Caveats

The analysis presented has the following limitations and caveats:

As noted earlier, the existing data on the distribution of the combination of retirement savings and home value is very sparse. In the aggregate, Americans have more home value than retirement savings; therefore, there is increasing focus on the use of home equity as a component of retirement income. As a result, there should be an increase in the amount and detail of such combination data. When such data becomes available, analysis similar to that presented here should be performed in order to refine the applicability of this research.

The top two key findings presented in this paper are: (1) when the “coordinated strategy” was used, a constant dollar amount yielded an approximately 90 percent probability of a 30-year inflation-adjusted cash flow survival across a wide range of ratios of home value to initial portfolio value; and (2) the same approach applied across a wide range of total retirement income resources. These findings are empirical observations; they are not mathematically determinable in closed form. Although these findings have been tested and validated for ratios of home value to initial portfolio value ranging from 0.5 to 2.0, it is not clear what the results would be for lower or higher ratios; that is, where there was little or no retirement savings portfolio or accumulated home equity. The findings presented in this paper are unlikely to have any application to a retiree whose total retirement income resources substantially exceeds the HECM limit of $636,150 by an order of magnitude or more.

The Monte Carlo simulations employed in the analyses presented in this paper are purely stochastic. That is, each year’s investment performance and inflation amount is treated as entirely independent of those parameters of the previous year. Other approaches exist that reflect the fact that actual financial processes are often subject to a kind of “homeostasis,” a reversion to the mean, often resulting from government intervention (such as the Fed changing interest rates to bring down inflation). Strategies No. 1 and No. 2 have not been tested under such approaches to determine whether the resulting cash flow sustainability results would be significantly different from the results obtained with the purely stochastic method employed here.

The analyses reported in this paper assumed that the “expected” interest rates, and therefore the principal limit factors (plfs), would remain constant. The expected rates are currently near the low ends of their ranges, so the plfs, and therefore the amounts available under reverse mortgage lines of credit, are near the high ends of their ranges. If the expected rates increase, the amounts available will decrease, and the effectiveness of the strategies considered would also decrease.

Finally, there has been no consideration of possible changes in the law or regulations governing reverse mortgages in this paper.

Implications for Planners

The foregoing results have great significance for baby boomer retirees who have limited total resources and/or have a disproportionate amount of their wealth in the value of their home.

A simple rule of 30 can be used by a broad range of retirees to help determine how much retirement income their total retirement resources can provide, with a small probability of outliving those resources. The availability of this rule can potentially make retirement income planning more straightforward for a large number of individuals currently considering their future retirement income needs.

In addition, the non-recourse feature of the HECM is significant over the long term (20-plus years into retirement). As a result, establishing a HECM line of credit as early as possible can provide the almost-affluent retiree—particularly if he or she is house rich and cash poor—with a significantly higher retirement income than a later establishment of the credit line, while reducing the probability of exhausting his or her assets.

Endnotes

See the May 2015 GAO report, “Retirement Security: Most Households Approaching Retirement Have Low Savings” and the 2016 Vanguard report, “How America Saves 2016.”

See “Home in Retirement: More Freedom, New Choices,” a 2014 Merrill Lynch retirement study conducted with Age Wave., specifically figure 7 citing 2013 Bureau of Labor Statistics data. The study is available at agewave.com/wp-content/uploads/2016/07/2015-ML-AW-Home-in-Retirement_More-Freedom-New-Choices.pdf.

As a practical matter, for the minority—those who retire with a mortgage debt against their home—a mortgage-free situation could arise through “downsizing” at retirement. The extension of this analysis to situations where a mortgage exists is quite feasible, however, the fundamental results of such an analysis would not differ materially from those shown here.

In addition, as noted by Sacks and Sacks (2012) and Salter, Pfeiffer, and Evenksy (2012), the residual net worth of the retiree at the end of his or her 30-year retirement had a 67 percent to 75 percent likelihood of being greater if the coordinated strategy or the Salter, Pfeiffer, and Evensky algorithm was used, than if the last resort strategy was used. This greater residual net worth results in a greater legacy prospect.

Over the course of a lengthy retirement, aspects of any retiree’s financial situation and the financial environment can, and do, evolve. Accordingly, the “rule of 30,” just like the 4 percent rule, will be subject to mid-course corrections.

See “HECM or Jumbo Reverse Mortgage: Which Is Better” at lendingtree.com/home/reverse/hecm-or-jumbo-reverse-mortgage-which-is-better.

In addition, two other worksheets were run, using the hybrid strategies mentioned in endnote 9, simply to ascertain the results reported in endnote 10.

In cases where the investment performance was positive but less than the withdrawal amount scheduled for the ensuing year, only the amount of the positive performance is withdrawn from the portfolio, and the remaining portion of the scheduled withdrawal amount is taken from the reverse mortgage credit line. Also, if the investment performance was negative but the credit line has already been exhausted, the entire withdrawal will come from the portfolio.

Two “hybrid” strategies were also considered. In one, the HECM credit line is established at the outset of retirement but only used as a last resort. The other hybrid strategy is essentially the same as Strategy No. 1 except that the HECM credit line is not established until it is first needed to be drawn upon. These strategies are not analyzed in detail here because of space constraints and the fact that, in practice, neither is likely to be implemented.

The first hybrid strategy yielded a slightly greater cash flow survival probability than Strategy No. 1, but a substantially smaller legacy potential. The second hybrid strategy yielded results very similar to those of Strategy No. 1.

Editor’s note: While this paper was in final editing, HUD issued Mortgagee Letter 2017-12 (portal.hud.gov/hudportal/documents/huddoc?id=17-12ml.pdf), which revised initial and annual mortgage insurance premium rates and principal limit factors for all HECMs with FHA case numbers assigned on or after October 2, 2017. The authors note that none of the HUD changes would have a material impact on the key findings presented here, however some numerical results would change slightly.

References

Bengen, William P. 1994. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning 7 (4): 171–180.

Finke, Michael, Wade D. Pfau, and David M. Blanchett. 2013. “The 4 Percent Rule Is Not Safe in a Low-Yield World.” Journal of Financial Planning 26 (6): 46–55.

Giordano, Shelley. 2015. What’s the Deal with Reverse Mortgages? Pennington, N.J.: People Tested Media.

Guttentag, Jack M. 2017. “Income Replenishment with a Reverse Mortgage,” posted June 2, 2017 at mtgprofessor.com/A%20-%20Reverse%20Mortgages/Income_Replenishment_With_a_Reverse_Mortgage.html.

Huebler, Robert. 2015. “Robert Merton and the Promise of Reverse Mortgages and the Peril of Target Date Funds.” Posted Nov. 2, 2015 at advisorperspectives.com/articles/2015/11/02/robert-merton-on-the-promise-of-reverse-mortgages-and-the-peril-of-target-date-funds.

Pfau, Wade D. 2014. “Is the 4 Percent Rule Too Low or Too High?” Journal of Financial Planning 27 (8): 28–29.

Pfau, Wade D. 2016a. “Incorporating Home Equity into a Retirement Income Strategy.” Journal of Financial Planning 29 (4): 41–49.

Pfau, Wade D. 2016b. Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement. McLean, VA: Retirement Research Media.

Pfeiffer, Shaun, John R. Salter, and Harold Evensky. 2013. “Increasing the Sustainable Withdrawal Rate Using the Standby Reverse Mortgage.” Journal of Financial Planning 26 (12): 55–62.

Pfeiffer, Shaun, C. Angus Schaal, and John Salter. 2014. “HECM Reverse Mortgages: Now or Last Resort?” Journal of Financial Planning 27 (5):44–51.

Sacks, Barry H., and Stephen R. Sacks. 2012. “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income.” Journal of Financial Planning 25 (2): 43–52.

Salter, John R., Shaun A. Pfeiffer, and Harold R. Evensky. 2012. “Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions.” Journal of Financial Planning 25 (8): 40–48.

Tomlinson, Joseph, Shaun Pfeiffer, and John Salter. 2016. “Reverse Mortgages, Annuities, and Investments: Sorting Out the Options to Generate Sustainable Retirement Income.” Journal of Personal Finance 15 (1): 27–36.

Wagner, Gerald C. 2013. “The 6.0 Percent Rule.” Journal of Financial Planning 26 (12): 46–59

Citation

Neuwirth, Peter, Barry H. Sacks, and Stephen R. Sacks. 2017. “Integrating Home Equity and Retirement Savings through the Rule of 30.” Journal of Financial Planning 30 (10): 52–62.

See “Information” tab on home page to find contact information on this website. Thank you. Warren Strycker.

 

“One specific asset that needs to be tapped, is the house.”, says Merton

Robert C. Merton has been called a groundbreaking economist, an options guru and one of the finest minds in finance. For those in tune to the finance world, Merton is as high-profile as it gets.

A sought-after speaker on the investor circuit, Merton caught the attention of the crowd at an asset management conference in St. Louis last fall when he commented on the value of reverse mortgages. “Americans have wrongly steered clear of reverse mortgages,” he said. “This is going to become one of the key means of funding retirement in the future.”

Merton’s advocacy of reverse mortgages coincides with support from other leading academics and financial experts. It just might signal the beginnings of a shift in public opinion. Certainly, support from someone as influential as Robert Merton is a tremendous boost for reverse mortgages, one that might help elevate the product in the financial community, in the press and in the public eye.

Who is Robert Merton?

Robert Cox Merton is a longtime student of economics. He holds a B.S. in engineering mathematics from Columbia University, an M.S. in applied mathematics from the California Institute of Technology and a Ph.D. in economics from MIT, in addition to honorary degrees from 13 universities. (Merton’s father, a prominent sociologist, was also a noted academic, known for pioneering the focus group and coining the terms “role model” and “self-fulfilling prophecy.”)

In 1997, Merton was awarded the Nobel Prize in Economics for his work in developing a new method to determine the value of derivatives. His options-pricing method, the Black-Scholes model, has been labeled one of the most revolutionary concepts in modern finance.

Nowadays, Merton sits on the faculty at MIT’s Sloan School of Management, serves as a professor emeritus at Harvard University, and is a resident scientist at global asset management firm Dimensional Fund Advisors. His current research includes a focus on lifecycle investing and retirement funding solutions, a topic that has led him to assess the benefits of home equity conversion. His work takes him around the world, where he speaks before groups of riveted followers and sometimes extols the reasons why reverse mortgages have such value.

The Global Retirement Crisis

According to Merton, home equity conversion stands to play a key role in solving the retirement crisis—a problem that plagues countries around the world, not just the U.S.

The global financial crisis that exploded in 2007/2008 depleted savings for many and volatile markets prevented a significant rebound. Add to this a dramatic increase in the 65-plus population and increasing life expectancies around the world, and it’s clear that the world economy is experiencing pressure like never before. Faced with an aging population, government benefits and pension plans in many countries are stifled as resources once earmarked for retirement funds are being funneled toward health care and other services to accommodate aging.

“The world is getting older,” Merton says. “With our baby boomers in the U.S., we are an older society. China is aging even faster than the U.S., and Korea faster than China. Increasing demographics is putting pressure on funding.”

This means that the traditional three-legged stool of retirement funding—government benefits, employer pensions and personal savings—is getting awfully wobbly. It appears that now, the responsibility to fund retirement has mostly shifted to the individual.

Rethinking Retirement

But the picture is not entirely bleak, as Merton points out. “There is good news, and I underscore, it is very good news: Future generations are going to live longer. This is great. But, as with many good things, there comes another challenge, which is simply how to fund those extra years.”

If you live 10 years longer than your parents, but still want to retire around 65 as they did, you now have to save enough to support 20 years of retirement, Merton points out. “The only way you can do that is to save 33 percent of your income.”

If saving more during your working years proves impossible, the alternative is to alter your lifestyle in retirement. 8 “If you want to work the same number of years your parents did, fine, but you’ll have to accept a lower standard of living,” he says. “If you want to have the same standard of living as your parents, you can have 12 years of retirement—they only had 10—but you have to work 48 years, not 40.”

Basically, Merton says it boils down to this: “You either have to work longer or accept a lower standard of living. What you can’t do is work the same number of years as your parents, live longer and enjoy the same standard of living. That’s not feasible.”

Finding a Solution

For those who can’t work longer or save more, Merton draws attention to another solution.

“There is one more thing we can do to try to address the challenge, and that is to take the assets people have and get more benefits from those assets. Now, I don’t mean get higher returns; we’re already trying to get the highest returns on our investments that we can for the level of risk, we can’t just dial up the return… So how do we get more from the assets? Well, we use them differently and we develop tools that are efficient for doing that.”

One specific asset that needs to be tapped, says Merton, is the house.

“There’s no magic potion here. For working middle-class people, the biggest asset they have is not their retirement pension, it’s their house. And it’s typically the only major asset they have, but it is big. I’m talking about the house they want to live in in retirement.”

Merton says we need to start thinking about the house differently, viewing it as an asset rather than treating it as part of our legacy.

“The house is like an annuity: It provides the housing you need for as many years as you need it,” he says, adding that the idea of leaving the house as a bequest is flawed. “In our society, and even in Asian societies that are transforming from agrarian to industrial, the children don’t move into the house. No matter how precious the house is, how sacred, in any culture, in the end when you don’t need it anymore, it’s going to get sold, and that makes it a financial asset. So it’s an annuity while the retiree needs it, and then it becomes just a financial asset.”

Overcoming Obstacles

While Merton praises the concept of a reverse mortgage, he takes issue with the name itself, which he says has hindered the product’s acceptance.

“I hate the name. First of all, it’s misleading because saying it’s a mortgage makes it sound like it’s a loan. But with reverse mortgages, you don’t pay anything as long as you stay in the house. So it’s a very different animal. It also sounds like you’re leveraging your house.”

Merton points out that other countries with similar equity conversion programs have much better names. “In England they call it equity release, that’s a little more neutral. I like the Korean name; they call it a home pension. It’s more descriptive. The house itself provides you a pension, and the home pension allows you to take some of the value from the house to provide you additional pension. It doesn’t say anything about a mortgage or imply that you may owe money.”

Merton admits that confusion about the product is problematic, and says the HECM program as it currently stands may need some tweaking to help the product reach its full potential.

“We also have to educate people as to the proper use of them and in general make them much more efficient,” he says.

“You hear some people say reverse mortgages are bad, but I think what they may mean is the way that they are currently being produced and sold, and the cost associated with them, is not a good example of the product,” he says. “I think that’s what they mean, but people hear it as, ‘Reverse mortgages are not a good idea and we should ban them.’ I say that a reverse mortgage is a good idea, but maybe we need to fix the design a bit. Let’s fix it if we need to, but don’t get rid of it.”

Merton says making product improvements, which have already taken place with recent changes from HUD, is a large but feasible undertaking.

“It’s going to require a lot of hard work and innovation, which we know how to do. It’s a simple engineering problem,” he says, adding that he doesn’t believe a government-sponsored program is the right way to go.

“There’s going to be a need to find wide-based funding sources, and I don’t believe government is the answer. HECMs are about the only reverse mortgages out there, and it’s a government plan, but government balance sheets just aren’t big enough,” he says. “We have to find very efficient ways to provide the funds for the reverse mortgages, but we can do it.”

Global Acceptance

Merton predicts that home equity conversion—whether it’s called a home pension, an equity release or a reverse mortgage—is going to be a crucial part of solving the retirement income problem.

“I believe it is going to be essential for a good retirement around the world. In Asia, they are paying a lot of attention to it, they are working on it. There is a lot of interest in developing it in many countries. Even in Colombia and Latin America, where they don’t have a reverse mortgage, they are very interested in finding out about it.”

“Sooner or later, to have a decent retirement, a number of people are going to have to tap into this. It’s not a matter of choice. This is going to be an essential part of the foundation for funding retirement around the world.”

*For those freaked out over my use of the word “confiscation” in the headline, consider that there are already government studies on the trillions of dollars tied up in senior home equity and how it may be used for retirement in lieu of reduced social security benefits the government may plan to run out of. The rest is for your imagination if you are concerned about what the government will do with increasing debt and reduced social security funds in the years ahead.

Also, consider how the retirement industry is counting on your equity to cover the “gap” they perceive between retirement costs and resources: “There is a really, really large gap between retirement assets and retirement liabilities,” says Chris Meyers, a professor at Columbia Business School and the CEO Longbridge Financial. pointing to data that suggests an $11 trillion gap between the available assets and overall needs. Down the road, he says, home equity might be able to offer as much as $6 trillion to fill the gap.

It is not a big reach, given the government’s little by little dissipation of your social security benefits for them to confiscate your home equity in lieu of paying you the social security you counted on and believe is  yours. There is already evidence that governments around the world are contemplating what happens when they run out of money. There is reason to believe they have a focus on your home equity to get them past the devastation of your social security benefits. Is it already happening? CONSIDERING A HECM NOW is  wise move. Call me with your questions: Warren Strycker 928-345-1200.

CONSIDER other information about HECM on these pages: http://gofinancial.net/category/hecm/

HECM spectrumhttps://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=150%2C103 150w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=300%2C206 300w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=768%2C527 768w" sizes="(max-width: 604px) 100vw, 604px" />“We endorse HECM, the reverse mortgage, for senior age future”, said Warren Strycker this week as it takes the stage in financing retirement. Other efforts to dominate retirement trust have failed to do that, leaving seniors short of cash in their closing chapters forced to resorting to another forward mortgage with payments they can’t afford”, he added. We believe the HECM is a trusted tool as seniors are rewarded for their focus on home equity. This tool will revolutionize the mortgage industry as the reward for good mortgage planning.”

For more information about this website, call 928 345-1200 and ask for Warren Strycker. Email: wstrycker@gofinancial.net, This is a HECM informational website and does not solicit or intend to represent any lender or loan officer in providing solutions for retirement products or services. 928 345-1200.

Jump in on “Messenger” — let’s talk about this. (see symbol lower right home page). Pick up the conversation on your own Messenger outlet.

 

https://i0.wp.com/gofinancial.net/wp-content/uploads/2017/09/MCM-BUSCARD-SBS2-LAST.jpg?resize=131%2C150 131w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2017/09/MCM-BUSCARD-SBS2-LAST.jpg?resize=300%2C343 300w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2017/09/MCM-BUSCARD-SBS2-LAST.jpg?resize=768%2C878 768w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2017/09/MCM-BUSCARD-SBS2-LAST.jpg?resize=1024%2C1170 1024w" sizes="(max-width: 604px) 100vw, 604px" />https://i2.wp.com/gofinancial.net/wp-content/uploads/2016/06/Lets-talk-messenger.jpg?resize=150%2C150 150w" sizes="(max-width: 300px) 100vw, 300px" />

Get up, and get on…

Facebook Chief Operating Officer Sheryl Sandberg spoke recently about the death of her husband, telling graduates at UC Berkeley that they will face adversity in life, but they can overcome it.

“Today I will try to tell you what I learned in death,” Sandberg said in a commencement address. “Dave’s death changed me in very profound ways. I learned about the depths of sadness and the brutality of loss,” she said. “But I also learned that when life sucks you under, you can kick against the bottom, break the surface, and breathe again.” In a little over a year since Sandberg’s husband, David Goldberg, died suddenly while they were on vacation in Mexico, she has opened up from time to time on Facebook.

Most recently, she wrote a post acknowledging that she never realized how challenging single motherhood was until she was forced to experience it for herself.

But in her speech to the UC Berkeley class of 2016, the “Lean In” author spoke candidly about the wisdom she has gained in the year since she lost her husband. “I have never spoken publicly about this before. It’s hard. But I will do my very best not to blow my nose on this beautiful Berkeley robe,” she said. She told the graduates that she was sharing her experience with them because they too will face challenges and set­backs, possibly more grueling than what they have encountered before.

“The question is not if some of these things will happen to you. They will,” Sandberg said. 5/15/2016 nbcnews.com http://www.nbcnews.com/news/us­news/sheryl­sandberg­opens­about­husband­s­death­uc­berkeley­commencement­n574206 2/2 “It is the hard days — the times that challenge you to your very core — that will determine who you are,” she said.

“You will be defined not just by what you achieve, but by how you survive,” Sandberg shared times in which she was heavily distraught over the loss of her husband, and the advice from loved ones: To pursue and make the most out of other options, to “lean into the suck,” to be grateful that the situation wasn’t more devastating, and other words of encouragement that helped her get through the year.

“When the challenges come, I hope you remember that anchored deep within you is the ability to learn and grow,” Sandberg said. “You are not born with a fixed amount of resilience. Like a muscle, you can build it up, draw on it when you need it.”

Tough words to follow. Here at Gofinancial, we are tested too, following a multitude of tests over many years now.

Getting a HECM can be like Sheryl says: ” when life sucks you under, you can kick against the bottom, break the surface, and breathe again”.  We’ve seen this phenomenal reconstruction happen so many times when our clients gain a new financial foothold on their lives after they were able to hook up to a HECM.

It will be best to reach out BEFORE a financial crisis in retirement. It will be so much easier to make the transition to enhanced financial balance when things are calm. In another story on this page, a discussion centers on whether it makes more sense to go with a HECM mortgage early or late in retirement. The assumption that you will need to balance finances with a HECM is strong and well chartered by a lot of other happy clients. The focus may be on when you transition to HECM, and not so much whether. (http://gofinancial.net/2017/09/now-or-last-resort/)

See contact information in navigation bar for details — http://gofinancial.net/home/. Consider stories on this page: http://gofinancial.net/2017/09/power-of-hecm/ http://gofinancial.net/2017/08/hecm-premiums/. Call and let us help, 928 345-1200. (Why should you trust me with this? Test me and find out! I can do a HECM analysis for you to see what you think. You’ll recognize the truth when you see it).

 

 

On my honor

On my honor, I will do my best. To do my duty to God and my country and to obey the Scout Law; To help other people at all times; To keep myself physically strong, mentally awake and morally straight.

Boy Scout Law

  • Trustworthy,
  • Loyal,
  • Helpful,
  • Friendly,
  • Courteous,
  • Kind,
  • Obedient,
  • Cheerful,
  • Thrifty,
  • Brave,
  • Clean,
  • and Reverent.

Facebook Family member takes the HECM step; Whataboutyou?

Another MEMBER OF MY FACEBOOK FAMILY took the step this month to get a HECM to ACCESS HOME EQUITY to make their retirement ends meet again.

Some of you will consider that reckless. With the close of this HECM in June, this family will pay off all their bills and have considerable resources in a line of credit next year. They are set for the next leg of their journey through retirement -- and there is a lot to celebrate. Will you take the same step? If you are 62 and have more than 50% home equity, Call me at 928 345-1200 from ANYWHERE IN THE UNITED STATES. Let's talk about it.

Don’t let life suck you under — you can kick against the bottom, break the surface and breath again — Facebook’s Sheryl Sandberg.

Interesting, wouldn’t you say?

Two out of three Americans would not be able to raise $1000 easily in an emergency, we are told, and yet at this point, only 2% of them — at eligible age and qualifying equity — would get a HECM. 86% of you want to retire safely in your homes.

Hmmmmmmmm???

Homeowners who have put this money away in the equity of their home can use it to draw on when they need $1000 (and much more) to use it when they need to, or when they want to, or ….

Clearly, most of us don’t understand HECM, and most of us won’t ask even when it’s easy to do so.  There is substantial conflicting information to sort out because it is in an unfair marketplace where others have their own products to tout. So, it may take longer for some folks to get a hold of this concept. The information is available here on this webpage for your evaluation.

Here’s the HECM, like a HELOC without payments — remaining proceeds you don’t need or want, goes to your heirs — just like you hoped.

“Here I am”. Warren Strycker, for HECM, 928 345-1200 — anywhere in the United States from right here in the desert to serve you — trained, experienced over 12 years now, internet savvy and willing — I work for the right reasons. You’ll see.

It is clear to me that a lot of you will be doing HECM ahead just because it is making considerable sense now because many will need to use the equity in their homes to survive retirement. No longer do all those interested in the HECM come with bills they can’t pay. Some million dollar homes support the HECM lifestyle. If that knocks on your door, it’s probably time to open it and take a look for yourself — don’t you think? A HECM line of credit supports the rest of your time in retirement. If you don’t spend it, so much the better, but if you have it there to spend, life can be a lot better for you and it is a lot better for you to have an LOC you don’t need than to not have one when you do.

Research for “HECM” on these pages. http://gofinancial.net/category/hecm/

HECM spectrumhttps://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=150%2C103 150w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=300%2C206 300w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=768%2C527 768w" sizes="(max-width: 604px) 100vw, 604px" />

See contact information in navigation bar for details.

 

DREAM BIG — getaHECM. Behold the Century Plant.

????????????????????????????????????
https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/Century-DREAM-BIG-2.jpg?resize=22%2C150 22w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/Century-DREAM-BIG-2.jpg?resize=59%2C400 59w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/Century-DREAM-BIG-2.jpg?resize=177%2C1200 177w" sizes="(max-width: 287px) 100vw, 287px" /> ????????????????????????????????????

QUESTION:

I have an Agave(century plant) well on its way now to a long flower stalk. You can see the bloom taking shape above the trees in our Wizard of OZ cactus garden on the golden brick road. I have read the mother plant will die after flowering. Can I cut off the stalk before it flowers to save the plant? If not, how do i get the seeds to plant another. I do have several small “pups” around the mother plant. I really love this huge plant and don’t want to lose it, but at the same time I would like to see it flower. Thanks for your time. I look forward to hearing from you.

ANSWER:

No, cutting off the stalk of buds before the agave blooms is not likely to save the plant. The reason Century Plants are called that is that it takes them up to 40 years (but not a century) to bloom. And the reason for that is that the agave is native to very dry and forbidding desert areas where water is scarce, the sun is unforgiving and the soil not much better. Every plant is driven by its own genetics to reproduce those genes. In order to do that, every plant must bloom and manufacture seed. This takes an enormous amount of energy; by the time you see the bloom stalk emerging, the plant is already on its way to dying. The blooms represent many years of work to reproduce, and if you cut off the bloom, you lose both the incredible sight of a blooming Century Plant, but also the plant, which you were going to do anyway.

In our Native Plant Database, there are nine plants with the common name “Century plant.” All are members of the genusAgave, and not a single one is native to Florida, or even close. Agave americana (American century plant) has these propagation instructions on our website page:

Propagation

Propagation Material: Seeds
Description: Division by offshoot of pups, seed
Commercially Avail: yes
Maintenance: Removal of old lower leaves or dead plants can be difficult due to size and leaf tip spines.

So, you see, you answered part of your own question when you mentioned the “pups” around the present plant. You can take them out and transplant them now or wait until the blooming is ended, so you don’t have to worry about damaging the blooming plant as you dig out the offspring. Just heed the warning to be careful about where you transplant those babies, they will not always be babies. When they grow up, they need to be somewhere that they will not hurt passersby like your children, your pets and yourself. As they get older, they are very difficult and dangerous to move.

To quote from one of our own previous answers:

“Agaves produce new smaller plants around their base. All you need do is remove the pups from the mother plant using a trowel or knife and put them in smaller pots with the same kind of soil mixture that your original plant has been thriving in.  If you don’t know what the original is growing in, nurseries carry “cactus mix” potting soil which is grittier and more like the desert ground the plants are used to. Keep them watered, but let the soil dry a bit between waterings so they don’t rot.  These pups can have very long roots that connect them to the mother plant, but you can break them off to about the same length as the height of the plant or whatever will fit in your new pot.  Even if you think you have lost too much of the root, pot it up anyway and see what happens.  Agaves are very hardy and forgiving plants!”

 “Watch for the pups”. Gofinancial.net — where new plants grow. 928 345-1200. Warren Strycker, Financial Professional.
 MAKEYOURAMERICA postcard LEARN

http://gofinancial.net/2016/05/breath/

Talking to a new HECM (PLUS) audience

WITH THE IMPLEMENTATION OF FINANCIAL ASSESSment
and draw limitations, the most likely borrowers
against their home equity have changed. If the old industry
mantra was simply eliminate your forward mortgage
payments, the new mantra is a more complex look at
fi nancial planning. How do you best utilize a HECM in
conjunction with other savings tools? And what can you
use it for?

These statements open a whole bunch of new dialogue with those thinking about a HECM now. It is no longer billed as the loan of last resort, though it may well be the last loan you’ll need in retirement.

HECM spectrumhttps://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=150%2C103 150w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=300%2C206 300w, https://i0.wp.com/gofinancial.net/wp-content/uploads/2016/05/HECM-spectrum.jpg?resize=768%2C527 768w" sizes="(max-width: 604px) 100vw, 604px" />

See contact information in navigation bar for details.

 

 

 

 

It will answer a lot of your questions upfront.

Banker Bio Flyer_warren strycker

 

Getting Hired After 50

What older adults need to know when they’re back in the job market.

Whether you’re looking for full-time work or a part-time position, conducting a successful job search after 50 can be challenging. It often takes baby boomers longer to land a new position, says Robin Ryan, a career counselor and author of Over 40 & You’re Hired! While the average time for unemployed people under 35 to get a new job is just under four months, for older adults it typically takes nine months to a year to land a new position. And securing that new job may even mean changing occupations all together—a recent AARP survey found that 53 percent of reemployed workers 45 to 70 did so. But you can improve your chances of landing a new position quickly by following these simple tips.

Keep Your Resume Relevant

Highlight your experience from the last five to 10 years, emphasizing your most recent accomplishments. Also create a PDF of your résumé so you can easily upload it to online job sites or email it to the contact specified in the job posting.

Modernize Your Search

Pepper your résumé and cover letter with keywords and phrases used in the job posting. Most large companies use applicant tracking systems (also called robots), which filter résumés by scanning for contextual keywords and key phrases, then mathematically score them for relevance. Only the highest scoring ones get through for human review.

Get on LinkedIn

“Create a profile that advertises your strengths and your accomplishments,” says Ryan. Don’t simply copy and paste your résumé though. LinkedIn gives you an opportunity to show a bit of personality and give context to your achievements. Also, be sure to include a professional-looking headshot. No image at all may be off-putting to potential employers.

Look the Part

Landed an interview? Congratulations! Before your in-person meeting, Ryan advises making sure you look contemporary to today’s work world. “That may mean updating your hairstyle, or investing in a new interview outfit.”

Yellow brick road has twists and turns…

In the early morning, the path may seem dim at first. Put a little light on it and watch where the turns go. Try to rethink your old platitudes. Ask your advisor for his take on this stuff. Don’t be afraid to ask questions. If you are being ignored, you will no longer  be involved in developing your own plan. Make sure that is OK with you.