Monthly Archives: October 2016

Why Financial Advisors Must Accept HECMs in Retirement Planning

tree-trimmed-50

 

THE RETIREMENT TREE IS TOO LARGE, with new expenses cutting into income balance. Cutting Retirement “Tree” down to size introduces products that make it easier to balance the budget. This is about HECM and the Retirement Specialists, sizing up the issue and giving their thoughts here. Call 928 345-1200 for specifics.

October 18th, 2016  | by Jason Oliva Published in News, Retirement, Reverse Mortgage

The negative perception surrounding reverse mortgages not only stunts the growth potential for these products to reach a wider consumer audience, but also deters financial planners from recommending the use of home equity for retirement income planning.

(Can’t help but ask the obvious question — why does a great program like the HECM continue to suffer from bad press? Does anybody ask if the press is bad (as Trump does), or that government doesn’t intend for you to enjoy the benefits of this successful program (as I do)? (This is not an accident. Something might be afoul here but what it is, is not clear — what is it? Is it possible the government has other plans for your home equity? Just thought I would ask this pesky editor’s question). In any case, if you are one of those who trusts our government’s instincts regarding social security and retirement entitlements, you will believe I have conjured this idea up for the sake of politics. I don’t think so, but I respect your right to think so. Consider these thoughts and move forward in your retirement planning. There are lots ahead to consider. Reach out here with your questions. Let’s be friends: 928 345-1200.

“In short, well-handled reverse mortgages have suffered from the bad press surrounding irresponsible reverse mortgages for too long,” writes Wade Pfau, professor of retirement income at The American College and director of retirement research at McLean Asset Management, in his new book, an excerpt of which appeared in Investment News this week.

Pfau’s book, “Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement,” hit shelves last month and has been generating considerable press in various financial planning news outlets, including Investment News and TIME Money.

Although the media begun to acknowledge the improvements that have taken place for reverse mortgages in recent years, the trend of positive coverage is still a new phenomenon.

And with so much pre-existing bias against these products, Pfau says it can be hard to view reverse mortgages objectively without a clear understanding of how the benefits exceed the costs.

“Reverse mortgages give responsible retirees the option to create liquidity from an otherwise illiquid asset, which can, in turn, potentially support a more efficient retirement income strategy,” he writes book.

At the crux of the book is the concept that retirees must support a variety of expenses if they want to enjoy a successful retirement. So while retirees will have to manage overall lifestyle spending, as well as account for unexpected contingencies and their legacy goals, they will have to look beyond traditional funding sources like Social Security and pensions.

But suppose retirees have two other assets such as an investment portfolio and home equity. The task then, according to Pfau, is to link these assets to spending obligations efficiently while also mitigating retirement risks like longevity market volatility and spending surprises that can impact the person’s plan.

“The fundamental question is this: How can these two assets work to meet spending goals while simultaneously preserving remaining assets to cover contingencies and support a legacy?” he asks.

Since spending from either asset (an investment portfolio and home equity) today means less will be available for future spending, the dilemma becomes how a retiree can best coordinate the use of these two assets to both meet spending goals and still preserve as much legacy as possible.

A reverse mortgage can be one viable option, Pfau notes, but this product is typically only considered as a last resort once the investment portfolio has been depleted.

“The research of the last few years has generally found this conventional wisdom constraining and counterproductive,” he writes. “Initiating the reverse mortgage earlier and coordinating spending from home equity throughout retirement can help meet spending goals while also providing a larger legacy.”

This, he says, is the nature of retirement income efficiency: “using assets in a way that allows for more spending and/or more legacy.”

Read more from Pfau’s book in this excerpt published by Investment News here.

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It’s Time to Change How the U.S. Thinks About Aging in Place

October 20th, 2016  | by Jason Oliva Published in News, Retirement, Reverse Mortgage

Millions of U.S. homeowners will want live in their homes for as long as possible, but not everyone will accept today’s antiquated concept of what it means to truly “age in place,” according to a recent study.

It’s time to change the conversation on aging in place to better address the personal preferences of today’s older homeowners and what they expect when it comes to their aging needs, says a report released this month by HomeAdvisor, a digital home services marketplace that provides homeowners with resources for their home repair, maintenance and improvement projects.

“We must change the discourse related to housing and aging,” states the report prepared by Marianne Cusato, HomeAdvisor’s housing expert and professor of the practice at the University of Notre Dame’s School of Architecture. “The dialog must be about adding features that enhance our lives today by offering a return on investment through livability, yet also happen to support the process of aging gracefully.”

One way to start on this path, the report suggests, is by rebranding the phrase “aging in place,” which HomeAdvisor denotes as an activity for old people, and begin a discussion instead about“thriving in place”—a goal for people of all ages.

The report, which is drawn from two recent HomeAdvisor surveys—one of 279 home service professionals and the second of 586 homeowners over the age of 55—arrives in the midst of America’s swelling aging population.

With already 108.7 million people, the population of Americans age 50 and older is expected to grow by another 10 million by 2020, according to AARP data cited in the HomeAdvisor report. Meanwhile, the number of adults age 85 and older is expected to more than triple by 2050.

Discussions about aging in place inevitably include the need for retrofitting the home with certain design elements meant to foster an older person’s ability to continue living in the residence.

As the inhabitant ages and their physical limitations change, installing features like grab bars and wheelchair access ramps are manageable upgrades homeowners can make. But while installing features like these can provide easy fixes to some aging in place issues, these have become elements of last resort for “old” people, HomeAdvisor says.

Today, more cutting-edge solutions such as smart in-home technology are rising to the forefront of aging in place solutions to improve safety and livability. Nearly 70% of homeowners over age 55 believe smart-home tech could help them age in place, yet fewer than 1 in 5 (19%) have actually considered installing it for such purposes. A similarly lacking adoption trend was found even for more conventional home renovation projects.

Although the majority of adults age 50+ plan to remain in their homes for as long as possible, HomeAdvisor found only 22% of homeowners have completed aging in place renovations, while nearly one-third (31%) have never even considered making at least one project.

Among those who haven’t considered any home improvement projects for their aging-related needs, the most common reasons, according to the report, are that homeowners don’t have any physical disabilities that would require such renovations (40%) and they do not consider themselves “old” enough to need them (20%).

There is also a disconnect between the level of preparedness homeowners think they have and what they are actually doing to ready themselves, and their homes, for aging in place.

Most homeowners over age 55 (67%) consider themselves to be proactive about making aging in place renovations, however, roughly 57% of home service professionals surveyed by HomeAdvisor indicated that aging in place projects account for less than 10% of the work requests they receive.

Moreover, only 20% of pros say most homeowners who contact them about aging in place projects reach out proactively, that is, before they have urgent home improvement needs.

Most professionals said the primary reasons homeowners hire them to do aging in place renovations are accessibility (50%) and safety (43%), while only 6% say homeowners hire them to make “ease of living” improvements like lowering countertops or installing low-maintenance landscaping.

When it comes to the timing of these projects, there are several compelling reasons for older homeowners to begin “thriving in place” renovation projects sooner rather than later, says HomeAdvisor’s Chief Economist Brad Hunter.

“If homeowners start early, they can spend sufficient time researching and planning to avoid wasted time and suboptimal solutions,” Hunter says in the report. “And, homeowners can protect, and possibly even raise resale value of the home by making the home more appealing to buyers in all age groups with modifications that have a broad appeal.”

Read the full HomeAdvisor report here.

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For your retirement planning, count on living until age 95

Robert Powell, Special for USA TODAY 12:46 p.m. EDT October 5, 2016

If you knew your date of death, retirement planning would be a breeze.

Unfortunately — or maybe fortunately? — you don’t. And that can make planning for retirement extremely difficult. Does your nest egg need to last 20 years? 30 years? 40 years? And what about couples? How should couples go about planning for the likelihood that one spouse — usually the husband — predeceases the other?

Well, if you’re like most people, you’re guessing at this, and guessing quite wrong.

“Many people do not understand longevity well, and those people who plan often do not plan for long enough,” says Anna Rappaport, president of a retirement consulting firm bearing her name and chair of the Society of Actuaries (SOA) Committee on Post-Retirement Needs and Risks.

Noel Abkemeier is the founder of Abkemeier Actuarial and chair of the American Academy of Actuaries Lifetime Income Task Force. (Photo: Handout)

Becoming familiar with current life-expectancy statistics is the first order of business. “There are two aspects to addressing longevity,” says Noel Abkemeier, the founder of Abkemeier Actuarial and chair of the American Academy of Actuaries Lifetime Income Task Force. “First, understanding it, and then planning an income that will last throughout life.”

You may live much longer than you think. “There have been significant improvements in how long people survive in retirement, especially for wealthier Americans,” says David Blanchett, head of retirement research at Morningstar Investment Management.

Consider: Someone born in 1950 was expected to live to age 68.2. By contrast, someone born in 2014 was expected to live to age 78.8, according to the Centers for Disease Control and Prevention. In other words, someone born today will need to fund an extra 10 years of retirement vs. someone born 66 years ago.

What’s more, life expectancy for those alive at age 65 has also increased dramatically. In 1950, a 65-year-old male could expect to live another 12.8 years. In 2014, a 65-year-old male could expect to live on average of 18 more years. The same is true for women. In 1950, a 65-year-o woman could expect to live another 15 years. By 2014, a 65-year-old woman could expect to live another 20.5 years.

Another resource is the Living to 100 life expectancy calculator.

Financial advisers are starting to change assumptions about how long clients will live to make sure they don’t outlive savings, according to a survey by InvestmentNews. Advisers are basing retirement-income plans on an average life span of 91 for men and 94 for women, according to the survey.

“Many people do not understand longevity well,” says Anna Rappaport, chair of the Society of Actuaries (SOA) Committee on Post-Retirement Needs and Risks. (Photo: Anna Rappaport Consulting)

Consider the probabilities. One drawback with using life expectancy to plan for retirement is that it’s just an average. One-half will die before life expectancy, and the other half after. So, the better way to approach the problem is to consider the probability of living to certain ages.

Consider: There’s a 25% chance that a 65-year-old man will live to 93; a 25% chance that a 65-year-old woman will live to 96; and for a couple 65 years old, there’s a 25% chance that the surviving spouse lives to 98, according to SOA projections.

All that said, Blanchett still thinks it makes more sense for people (and planners) to use a fixed time horizon, such as planning to age 95.

Couples should consider their combined planning timeline. For couples who are 65 today, there’s a 45% chance that a wife outlives her husband by five years and a 20% chance by 15 years, according to the SOA. “Don’t forget that assets need to last until the second to die for couples,” says Rappaport.

Consider your genes and behavior. “Some factors that influence how long you live may be beyond your control,” according to the SOA. “Others depend upon the choices you make every day. A successful retirement plan will address both.”

How will you manage longevity risk? There are some time-honored ways to deal with the risk of outliving your assets. Those include the use of annuities, a sound asset-drawdown plan, delaying Social Security to age 70 for the higher wage earner, and a reverse mortgage. Read Managing Post-Retirement Risks – A Guide to Retirement Planning.

Remember, says Abkemeier, half of retirees will live longer (than life expectancy) and, to build in a cushion, individuals should plan for an additional five or more years when considering lifetime income.

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Email Bob at rpowell@allthingsretirement.com.

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APIWATW

Sea shells washed up in the desert? Probably not. Somebody is playing a joke thinking this used to be the ocean. I don’t believe it was an ocean, but the shells, planted or not, make it look that way. Some have commented on this and joined the “evidence”, planted or not. Be wise and take a second look when you consider a HECM. Miracles happen, but they may also be somebody’s effort to fool you. Cautious is good.

APIWATW =  A Picture is Worth a Thousand Words

A picture has no merit unless it says something to you. That’s my mantra here.

I use pictures to frame these HECM IDEAS because they create a thought usually illustrated by normal things we spend so little time with in this busy world of ours — like two rocks stacked like a boy scout sign that “this is the way”, or two roads to nowhere to illustrate a choice of direction, a newly blooming sunflower “winking” at a new way to go, a teepee on an Indian reservation nearby to remind how housing has improved around us or a tree too large to remain in place when the wind blows, being trimmed down to a new and manageable size.

Life gets tedious…  as the song goes, so a few pictures liven up the discussion for me. I hope you enjoy them as I click away at things with my iPhone8 while the Nikon gathers dust in its branded bag under my desk.

You can get “inside my head” by joining me in this expression of things seen and unseen day after day without enjoying the tease that goes with why I choose a picture to illustrate a thought I want you to consider. You can mark this website as a “favorite” and enjoy the progression of ideas here at Gofinancial.net.

APWATW.

Then, consider the HECM LIFESTYLE positioned in front of you if you are 62, have home equity and an issue with financial liquidity. Consider my photos as little reminders about the wonders of the world we ignore (mostly).

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