Why Financial Advisors Must Accept HECMs in Retirement Planning



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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