Monthly Archives: April 2019

Percentage of retirement-age Americans who are working has doubled since 1985

Introduction According to recently-released data from the Census Bureau and Bureau of Labor Statistics (BLS), the percentage of retirement-age Americans in the labor force has doubled since 1985, from its all-time low of 10 percent in January of that year to 20 percent in February 2019.1

To understand who is continuing to work and why, we gathered data on retirement-age Americans’ incomes, health, and activities from the Census Bureau, Bureau of Labor Statistics, and Centers for Disease Control (CDC), finding: The share of retirement-age Americans in the labor force has doubled since its all-time low in 1985.

As of February 2019, over 20 percent of Americans aged 65 or older are working or looking for work, double the all-time low of 10 percent who were in the labor force in 1985. College-educated adults are the fastest growing workforce segment among retirement-age adults, pushing up incomes for older workers.

The share of adults that are 65 years or older and working that have at least a college degree increased from 25 percent in 1985 to 53 percent in 2019. This pushed up the average real income of retirement-age workers by 63 percent during this time period, from $48,000 to $78,000.

Improved health has been a key driver of this increase in labor force participation. Of Americans aged 65 or older and working or looking for work, 78 percent report being in good health or better, up from 73 percent in 1997 and 69 percent in 1985.

As a result, more retirement-age people can work: 77 percent feel no Older Americans in the Workforce | 2 Findings The share of retirement-age Americans in the labor force has doubled since its alltime low in 1985. As of February 2019, over 20 percent of Americans aged 65 or older are working or looking for work, double the 10 percent who were in the labor force in 1985.

To understand trends on work, we analyzed data from the Current Population Survey (CPS), a monthly survey jointly sponsored by the Census Bureau and BLS.2 The survey records, among other data, information about Americans’ work, incomes, and educations. As of February 2019, over 20 percent of Americans aged 65 or older are working or looking for work.

This level represents a 57-year high and a doubling from its lowest recorded value of 10 percent in 1985. The BLS expects this upward trend to continue in the near term, estimating that 13 million Americans aged 65 or older will be in the labor force by 2024.3

Crucially, this increase in retirement-age Americans who are working has been driven by an increase in paid work, not unpaid volunteer work. To analyze trends in paid versus unpaid work, we assessed data from the CDC’s National Health Interview Survey (NHIS), an annual cross-sectional survey of the health and health behaviors of 87,500 adults in the United States.4 We found that, whereas the portion of retirement-age Americans working for pay has climbed steadily, the portion doing unpaid work has hovered around 1 percent since 2001, the first year the NHIS began distinguishing between paid and unpaid work.

Nevertheless, the profile of work done by retirement-age Americans can vary as they enter transition periods between their careers and retirement: Researchers have documented arrangements such as part-time work, bridge jobs, and phased retirement that make the path to full retirement less abrupt.5

In addition, the jobs in which Americans are concentrated change: Older Americans are more likely to work in white-collar professions and retail, whereas younger Americans are more likely to work in physically demanding fields like manufacturing.6 FIGURE 1. Labor Force Participation (65+ Americans) 0% 5% 10% 15% 20% 25% 1985 1990 1995 2000 2005 2010 2015 Percentage of 65+ Americans in Labor Force Source: Current Population Survey Older Americans in the Workforce | 3 College-educated adults are the fastest growing workforce segment among retirement-age adults, pushing up incomes for older workers.

The share of adults that are 65 years or older and working that have at least a college degree increased from 25 percent in 1985 to 53 percent in 2019. This pushed up the average real income of retirement-age workers by 63 percent during this time period, from $48,000 to $78,000. Older Americans in the labor force earn more than their younger counterparts, and this gap has widened over time. On average, retirement-age Americans who are still working earn $78,000 in personal income, around 63 percent above where they stood in 1985, after adjusting for inflation. In comparison, working Americans below 65 earn on average $55,000 in personal income, 38 percent more than in 1985. As a result, the proportion of older Americans’ family income attributable to older Americans’ wages—as opposed to income from assets or younger family members’ wages—has increased over time.7 Over time,

Americans aged 65 and over who are working have become more educated as a group. Over half now have some sort of college degree—defined as associate’s, bachelor’s, or advanced degree—versus just one quarter in 1985. More educated subsets of the 65-and-over population have higher labor force participation rates in general and have also seen higher growth in labor force participation.

Retirement-age Americans are feeling healthier than ever. More than three out of four Americans aged 65 or older report being in good, very good, or excellent health, and this proportion has grown steadily over the past 35 years. This improved health means that retirement-age Americans experience fewer limitations in what they can do: 67 percent experience no limitations in any sort of activity—up from 60 percent in 1997. Notably, improved health has resulted in a greater ability to work into old age: While the percentage of Americans aged 65 or older who report being able to work at all has only increased modestly, retirement-age Americans increasingly feel they can do any work they want. A full 77 percent report no limitations in the kind of work they can do, compared with 71 percent in 1997.

Conclusion In summary, the percentage of retirement-age Americans who are working has doubled since 1985. This trend has been especially pronounced among highly-educated segments of the population, which has pushed up the average income of this group at a rate disproportionately higher than their younger peers. Improved health has been a key driver of this increased labor force participation, as retirement-age Americans are experiencing fewer work-related activity limitations. FIGURE 4. Self-Reported Health and Ability to Work 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 1985 1990 1995 2000 2005 2010 2015 Self-Reported Health (65+ Americans)

Self-reported health good or better No limitations in any activities 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 1997 2002 2007 2012 2017 Ability to Work (65+ Americans) Able to work No limitations in kind of work Source: National Health Interview Survey Older Americans in the Workforce |

It helps if you like what you are doing… can I help you?

Health Affairs Study: Middle America seniors on short retirement fuse

First-of-its-kind study identifies large, neglected ‘middle market’ for seniors housing and personal care needs
54% of middle-income U.S. seniors will not be able to meet yearly costs of $60,000 for assisted living rent and other costs, even if they committed 100% of their annual financial resources
Government and industry interventions urgently needed to meet needs of projected 14.4 million middle-income people over age 75, many with multiple chronic conditions

ANNAPOLIS, MD, April 24, 2019 — Demographic shifts in the United States over the next decade will nearly double the number of middle-income seniors ages 75 and over—more than 14 million people—lacking the financial resources to afford seniors housing with supportive personal care services, a new study shows.

The study, published today by the journal Health Affairs and also scheduled to appear in its May 2019 edition, identifies a vast new ‘middle market’ for the seniors housing and care industry and underscores the need for government and private sector actions to ensure middle-income seniors can afford the housing and care they will need.

The study was conducted by researchers at NORC at the University of Chicago, with funding provided by the National Investment Center for Seniors Housing & Care (NIC), with additional support from AARP, the AARP Foundation, the John A. Hartford Foundation, and The SCAN Foundation.

“We still have a lot to learn about what the emerging ‘middle market’ wants from housing and personal care, but we know they don’t want to be forced to spend down into poverty, and we know that America cannot currently meet their needs,” said Bob Kramer, NIC’s founder and strategic advisor. “The future requires developing affordable housing and care options for middle-income seniors. This is a wake-up call to policymakers, real estate operators and investors.”

Most Middle-Income Seniors Won’t Be Able to Afford Seniors Housing in 2029


Researchers found that more than half of (54%) of middle-income seniors would not have enough assets to cover projected average annual costs of $60,000 for assisted living rent and other out-of-pocket medical costs a decade from now, even if they generated equity by selling their home and committing all of their annual financial resources. That figure rises sharply, to 81 percent, if middle-income seniors in 2029 were to keep the assets they built up in their home but commit the rest of their annual financial resources to cover costs associated with seniors housing and care.

Said another way, only 19 percent of these ‘middle-market’ seniors are projected to have the financial resources to afford housing and care in 2029 if they don’t sell their home to use the equity for seniors housing.

These significant financial challenges are expected to coincide with many middle-income seniors seeking seniors housing and care properties due to deteriorating health and other factors, such as whether a family member can serve as a caregiver. The study projects that by 2029, 60 percent of U.S. middle-income seniors over age 75 will have mobility limitations (8.7 million people), 67 percent will have three or more chronic conditions (9.6 million people), and 8 percent will have cognitive impairment (1.2 million people). For middle-income seniors age 85 and older, the prevalence of cognitive impairment nearly doubles.

According to the study, the ‘middle market’ for seniors housing and care in 2029 will be more racially diverse, have higher educational attainment and income, and smaller families to recruit as unpaid caregivers than seniors today. Over the next 10 years, growth in the number of women will outpace men, with women comprising 58 percent of seniors 75 years old or older in 2029, compared to 56 percent in 2014.

Public and Private Sectors Have Roles to Play in Meeting Needs of ‘Middle Market’

“In only a decade, the number of middle-income seniors will double, and most will not have the savings needed to meet their housing and personal care needs,” said Caroline Pearson, senior vice president at NORC at the University of Chicago and one of the study’s lead authors. “Policymakers and the seniors housing community have a tremendous opportunity to develop solutions that benefit millions of middle-income people for years to come.”

Seniors housing in the United States is paid out of pocket by seniors with sufficient assets. A relatively small percentage of Americans have long-term care insurance to defray the costs. For seniors with the lowest incomes, Medicaid covers housing only in the skilled nursing setting, but increasingly also covers long-term services and supports in home and community-based settings. Programs such as low-income housing tax credits have helped finance housing for economically-disadvantaged seniors.

Researchers say there is an opportunity for policymakers and the seniors housing and care sector to create an entirely new housing and care market for an emerging cohort of middle-income seniors not eligible for Medicaid and not able to pay for housing out of pocket in 2029.

The analysis suggests that creating a new ‘middle market’ for seniors housing and care services will require innovations from the public and private sectors. Researchers say the private sectors can offer more basic housing products, better leverage technology, subsidize ‘middle-market’ residents with higher-paying residents, more robustly engage unpaid caregivers, and develop innovative real estate financing models, among other options.

They say government can create incentives to build a robust new market for middle-income seniors by offering tax incentives targeted to the ‘middle market,’ expanding subsidy and voucher programs, expanding Medicare coverage of non-medical services and supports, creating a Medicare benefit to cover long-term care, and broadening Medicaid’s coverage of home and community-based services.

“This research sets the stage for needed discussions about how the nation will care for seniors who don’t qualify for Medicaid but won’t be able to afford seniors housing,” said Brian Jurutka, NIC’s president and chief executive officer. “This discussion needs to include investors, care providers, policymakers, and developers working together to create a viable middle market for seniors housing and care.”

Accompanying the study are two perspective pieces in Health Affairs on how society can adapt to aging and supporting aging in communities.

The National Investment Center for Seniors Housing & Care is a non-profit organization that supports access and choice in seniors housing and care through its industry-leading research and analytics. In addition to researching the growing ‘middle market,’ NIC collects and analyzes quarterly data on seniors housing and care and convenes national conferences that bring together healthcare leaders, investors, property owners and operators, and others to discuss trends and innovations in seniors housing and care.

# # #

Additional Quotes:


“All seniors want to live in affordable, safe and supportive housing, and more than 19 million older adults are unable to do so. We must act now to implement innovative solutions – including robust aging-in-community efforts – to accommodate what is sure to be an increasing demand for housing that meets the needs of older adults.”
Lisa Marsh Ryerson, President
AARP Foundation

“The data are a powerful call for bold and immediate cross-sector action to create affordable options for age-friendly housing. As more people live longer with mobility limitations, chronic conditions and cognitive impairment, we must have housing that fits our budget and care needs.”
Terry Fulmer, President
John A. Hartford Foundation

“This study shows we are woefully unprepared to accommodate a growing population of often-overlooked older adults who won’t be able to afford daily living supports within 10 years. Now is the time to understand their unique needs and develop solutions that appreciate their health and socio-economic status.”
Bruce Chernof, MD, President and CEO
The SCAN Foundation

Editor’s Note: “Hmmmmmmm. HECM advisors have been blowing this horn for awhile so this doesn’t come as a surprise here at, where we have been preparing to help those with home equity, carry their later years at home where they want to be if possible,” says  HECM financial professional Warren Strycker. “We’ve been waiting for this acknowledgement, knowing we were expected to perform when it is clearly obvious for all to see. We expect to be busy helping those who see the hand writing on the wall. Others will find reasons to criticize HECM unfairly and fall into their own trap — sad, I’d say.”

The rate of people 65 and older filing for bankruptcy is three times what it was in 1991

Why the old rules for retirement savings don’t work anymore

“In case you thought you might not have to fight for your Social Security and Medicare, this should tease you into caring.” Warren Strycker.

Most homeowners think a reverse mortgage is a last-resort option. Here’s why they’re wrong

Savvy homeowners can use the loan to maximize their resources in retirement

April 23, 2019

Jessica Guerin

Reverse mortgages are traditionally thought of as a last-resort option for seniors who want to stay in their homes but have little resources and few options left.

But research has proven otherwise.

In recent years, a number of retirement experts and financial planners have extolled the ways a reverse mortgage can be used to generate a more positive financial outcome in retirement.

Of course, for the loan to make sense, the borrower must be at least 62 and should be committed to remaining in the home for a number of years, ideally using the loan as a means to age in place.

If this is the case, a reverse mortgage can be a beneficial financial planning tool for more well-off borrowers in a number of ways.

First, as part of taking the loan, a borrower’s original mortgage balance must be paid, therefore eliminating their monthly mortgage payment and freeing up cash, which is clearly beneficial for a retiree living on a fixed income.

Second, a borrower can use the proceeds from the loan to fund expenses and delay taking Social Security. This maximizes the benefit one gets from Social Security, as the later you draw it, the more money you can access.

Third – and this is the strategy most often touted by retirement researchers – borrowers can establish a growing reverse mortgage line of credit to drawn upon when needed. (without cost).

The idea is to use the credit line as a safety net in the event funds are needed but your stock portfolio or other assets are down. This way, borrowers can allow their assets to rebound, using the reverse mortgage proceeds instead to cover expenses.

Wade Pfau, a well-known retirement researcher and professor of Retirement Income at the American College of Financial Services, said studies have proven that using a reverse mortgage as a last resort offers the least benefit.

“For someone who ends up needing [the loan] as a last resort, they could have surely created more line of credit to help at that point by setting up the reverse mortgage earlier on in retirement and letting the line of credit grow until it is needed,” Pfau explained. “This is why last-resort strategies end up looking the worst in financial planning research about reverse mortgages.”

Jamie Hopkins, director of retirement research at Carson Group, said that a proactive strategy is especially important when it comes to home equity.

“One problem with waiting to deploy home equity toward the end of retirement is that home equity grows more slowly than other investable assets in general,” Hopkins explained. “Most homes just keep pace with inflation and provide no real return over it, and many senior-owned homes actually see a decline in value because seniors don’t always keep up with the newest and best home features and remodels.”

Instead, both Pfau and Hopkins say establishing a HECM line of credit earlier on can help a retiree better manage their resources.

“A HECM or other line of credit can provide cash flow and spending flexibility for retirees. This needs to be the focus,” Hopkins said. “Can using a reverse mortgage or line of credit improve the client’s life? If the answer is yes, then it should be explored.”

Hopkins added, though, that it’s important to fully understand the terms of the loan.

“On the flip side, reverse mortgages are a form of borrowing, so all costs and downsides also need to be understood,” he said.

Pfau agreed with an early deployment strategy.

“The line of credit creates many opportunities to help manage the new types of risks retirees face, such as the amplified impacts of market volatility caused by the sequence of returns,” Pfau said.

“The reverse mortgage can help to protect the investment portfolio from this risk in any number of ways, such as reducing the early retirement distribution rate to make mortgage payments, managing the delay of Social Security benefits, or coordinating portfolio distributions with reverse mortgage proceeds to cover a retirement spending goal,” he added. “It’s all about creating the opportunity for greater line of credit growth by the time it is needed.”

What the Critics Get Wrong About (HECM) Reverse Mortgages

Input varied on future of Social Security (as usual); HECM can fill gaps

Source: ABC News 04/23/19 — Editor’s Note: See footnote for our take on this:

The nation’s Social Security program is running out of money with benefits on track to be reduced by around 2035 unless Congress steps in, according to a report released Monday by the Trump administration.

The prediction is somewhat better than last year’s annual assessment delivered to Congress, when the government predicted a reduction of benefits a year earlier in 2034.

The government also concluded Monday that Medicare’s hospital insurance trust fund will run out of money in 2026. That’s on par with last year’s assessment.

“Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare,” according to an administration statement. “Lawmakers should address these financial challenges as soon as possible.”

The viability of America’s 84-year-old Social Security program has become an urgent question for politicians looking to court voters in next year’s election.

(MORE: Soaring bankruptcy rates signal a ‘coming storm of broke elderly,’ study finds)

President Donald Trump has repeatedly vowed not to touch the popular program or Medicare, the health insurance program for seniors. But his 2020 budget proposed spending less on both programs over the next 10 years, including some $26 billion on Social Security programs and hundreds of billions trimmed from Medicare. Administration officials insisted that the cuts wouldn’t impact benefits and the cost savings would be found by rooting out fraud and changing how the Medicare pays providers like hospitals.

House Democrats have vowed to block the budget proposal from being enacted.

“Americans pay into these essential programs throughout their working lives, and they expect to receive the benefits they’ve earned,” said Rep. Richard Neal of Massachusetts, the Democratic chairman of the House Ways and Means Committee.

Options to fix the program could include increasing the payroll tax, raising the retirement age or modifying the formula that determines how people receive their benefits. Some 94% of workers participate in Social Security.

One House bill would expand benefits for individuals, implement a payroll tax to earnings that are more than $400,000, and lower taxes for some recipients, among other things.

Rep. John Larson, D-Conn., who serves as the chairman of the House subcommittee that oversees Social Security and is a co-sponsor of that bill, said the report “underscores why it is so important that Congress take action now to prevent cuts from occurring in 2035.”

“With 10,000 Baby Boomers becoming eligible for Social Security every day, and with people facing a retirement crisis after still not fully recovering wealth lost during the Great Recession, the time to act is now,” Larson said in a statement.

Nancy Berryhill, acting Social Security commissioner, said the program was able to buy more time before it depletes its reserves because of a decline in people receiving money for disability. Since last year’s estimate, the trust funds supporting Social Security increased by $3 billion in 2018 to a total of $2.895 trillion in reserves.

“Disability applications have been declining since 2010, and the number of disabled-worker beneficiaries receiving payments has been falling since 2014,” she said in a statement.

But even with that extra cash on hand and plenty of political support, the cost of the program has struggled to keep pace with the cost of paying out benefits for some 174 million Americans and their 63 million beneficiaries.

(MORE: Is Trump coming after Medicare? White House, Dems try to claim upper hand on health care debate: ANALYSIS)

“Social Security’s total cost is projected to exceed its total income (including interest) in 2020 for the first time since 1982, and to remain higher throughout the remainder of the projection period,” the report found.

The assessment was completed by Berryhill, along with Treasury Secretary Steven Mnuchin, Health and Human Services Secretary Alex Azar and Labor Secretary Alexander Acosta.

Editor’s Note: As usual, we promote HECM mortgages to back up the uncertainty of Social Security as a primary income source. “Yes, Martha, you can use your home equity to fill the gaps.” In basketball terms, “you gotta make your free throws”.


Build Home Equity: The “#HECMHOUSE” is your bank in retirement

What the Critics Get Wrong About (HECM) Reverse Mortgages

by Wade Pfau, 4/15/19

Press coverage around reverse mortgages has grown more positive in recent years as new research has helped to explain how they can improve the prospects of an overall retirement income plan. However, a lingering question remains about the costs of reverse mortgages. Costs can be high, which leaves people wondering how their benefits can be justified.

In isolation, reverse mortgages can look expensive, and one might question the motivations of those researchers who argue that reverse mortgages can add value. But reverse mortgages should not be viewed in isolation. They are a piece of a larger puzzle that retirees are trying to solve. Reverse mortgage costs can be offset by gains elsewhere in the overall financial plan. To show this, I’ll create an example to illustrate how a reverse mortgage, by protecting the investment portfolio in retirement, creates a net positive result despite its costs.

The power of a reverse mortgage to help preserve an investment portfolio in retirement can be viewed in any number of ways. For instance, a reverse mortgage could be used to refinance a traditional mortgage to avoid making mortgage payments in the key early years of retirement; it could be used to build a bridge to support the delay of Social Security benefits without taking excess distributions from an investment portfolio; or it could be used to coordinate distributions from an investment portfolio to avoid creating greater pressure on the portfolio when markets are looking bleak.

I’ll show an example of the last point, as this is where most of the research about reverse mortgages has focused, starting with Barry and Stephen Sacks’ seminal article1 on reverse mortgages published in 2012.

For the example, I’ll assume a 65-year old retiree who has $1 million in an IRA and a home worth $200,000. The home is fully paid off. She uses a 50/50 asset allocation, rebalanced annually and divided between the S&P 500 and intermediate-term U.S. government bonds. I’ll use historical market returns from 1966 to 1995. This is a valuable series of data to use because it was the years that gave the financial planning world the 4% rule-of-thumb for retirement spending. Over those years, one could withdraw just 4.038% of their retirement date investment assets and sustain that level of spending with inflation adjustments for 30 years without depleting the assets. I’ll also assume that the home’s value grows at the Case-Shiller Home Price Index returns over that period.

The idea is to treat the retiree as retiring at present and facing current rules and costs for IRAs and reverse mortgages, but we test their retirement with a market return sequence from the historical data. On the reverse mortgage side, because LIBOR rates are not available for this period, I will approximate them using one-year constant maturity Treasury rates and 10-year Treasury bond yields. The historical data for stocks, bonds and inflation are provided by Morningstar; the one-year Treasury rates are from the Federal Reserve; and the Shiller-Case home price returns and the 10-year Treasury yields are provided by Robert Shiller’s website.

In the first scenario, the retiree does not use a reverse mortgage. She takes a $40,388 dollar distribution from her $1 million IRA balance in the first year of retirement and adjusts those distributions for inflation in subsequent years over a 30-year retirement period. As this was the historical sequence that triggered the 4% rule, her IRA balance is reduced to $396 (effectively $0) after 30 years. Her home value has grown over retirement to be worth $992,270 at the end. The combined net worth she has created for heirs at the end of retirement is $992,666. The full details are provided in the Scenario 1 table below.

Scenario 1
Retiree does not use a HECM reverse mortgage

Age IRA Distribution HECM Distribution IRA Balance Home Value HECM Loan Balance Net Worth: IRA + Home – Loan
$1,000,000 $200,000 $0 $1,200,000
65 $40,388 $0 $933,846 $201,616 $0 $1,135,463
66 $41,741 $0 $1,003,574 $204,875 $0 $1,208,449
67 $43,010 $0 $1,035,488 $215,224 $0 $1,250,712
68 $45,040 $0 $944,689 $231,270 $0 $1,175,959
69 $47,792 $0 $990,489 $248,938 $0 $1,239,427
70 $50,416 $0 $1,048,322 $259,917 $0 $1,308,240
71 $52,110 $0 $1,116,456 $265,592 $0 $1,382,047
72 $53,887 $0 $1,009,175 $276,039 $0 $1,285,214
73 $58,629 $0 $851,784 $307,354 $0 $1,159,138
74 $65,781 $0 $962,972 $324,844 $0 $1,287,816
75 $70,393 $0 $1,056,412 $352,154 $0 $1,408,566
76 $73,778 $0 $954,285 $403,688 $0 $1,357,972
77 $78,773 $0 $919,506 $467,865 $0 $1,387,370
78 $85,887 $0 $927,526 $525,073 $0 $1,452,599
79 $97,318 $0 $981,016 $565,602 $0 $1,546,618
80 $109,385 $0 $891,416 $595,952 $0 $1,487,368
81 $119,165 $0 $967,284 $602,121 $0 $1,569,405
82 $123,776 $0 $969,696 $627,789 $0 $1,597,485
83 $128,480 $0 $926,558 $660,151 $0 $1,586,709
84 $133,555 $0 $1,001,127 $710,556 $0 $1,711,684
85 $138,590 $0 $1,007,487 $776,359 $0 $1,783,846
86 $140,156 $0 $902,588 $838,339 $0 $1,740,928
87 $146,337 $0 $842,880 $897,684 $0 $1,740,564
88 $152,805 $0 $844,584 $928,142 $0 $1,772,726
89 $159,910 $0 $707,131 $919,989 $0 $1,627,120
90 $169,681 $0 $661,091 $926,191 $0 $1,587,282
91 $174,873 $0 $522,344 $931,510 $0 $1,453,855
92 $179,944 $0 $378,746 $955,676 $0 $1,334,422
93 $184,893 $0 $190,141 $976,881 $0 $1,167,022
94 $189,829 $0 $396 $992,270 $0 $992,666

Next, in Scenario 2, she uses a reverse mortgage. In particular, at age 74, which corresponds to January 1975 in the series of market returns we are using, the retiree opens a reverse mortgage to cover age-74 spending. Her reasoning is that in the previous two years, the stock market dropped 15% and 26%, respectively. Her IRA balance is $851,784, down approximately 15% from its initial retirement level. With inflation, her age-74 IRA distribution would be $65,781, which is 7.7% of her remaining portfolio balance. This is getting to be on the high side and it would be nice to provide some relief for the investment portfolio during this stressful market period. I did not model the RMD, but if she does not have other IRA assets outside what we focus on, she could take her RMD and immediately reinvest it into a taxable account to keep the stock holdings intact.

Her home is worth $307,354 as she finishes her 73rd year. Her reverse mortgage will be based on the 10-year Treasury rate of 7.5% at that time, along with a 0.5% ongoing mortgage premium and a lender’s margin of 2.5%. The loan balance growth is based on the 0.5% mortgage premium, 2.5% lender’s margin and the variable one-year Treasury rate. The full retail fees to set up the reverse mortgage include a $5,074 loan-origination fee, a $6,147 upfront mortgage insurance premium and $2,500 of closing costs. This total of $13,721 in fees, which will surely create some “sticker shock,” will be financed into the loan balance of the reverse mortgage. As for spending, because reverse mortgage dollars are proceeds from a loan, they are not taxable income like her IRA distributions. Assuming a 22% marginal tax rate, she needs only $51,309 from the reverse mortgage to cover her age-74 spending, since the rest of the IRA distribution would be used to pay taxes. With fees, her total reverse mortgage spending at age 74 is $65,030. The Scenario 2 table below shows this analysis.

Scenario 2
Retiree uses a HECM reverse mortgage to protect investment portfolio

Age IRA Distribution HECM Distribution IRA Balance Home Value HECM Loan Balance (Amount Due) Net Worth: IRA + Home – Loan
$1,000,000 $200,000 $0 $1,200,000
65 $40,388 $0 $933,846 $201,616 $0 $1,135,463
66 $41,741 $0 $1,003,574 $204,875 $0 $1,208,449
67 $43,010 $0 $1,035,488 $215,224 $0 $1,250,712
68 $45,040 $0 $944,689 $231,270 $0 $1,175,959
69 $47,792 $0 $990,489 $248,938 $0 $1,239,427
70 $50,416 $0 $1,048,322 $259,917 $0 $1,308,240
71 $52,110 $0 $1,116,456 $265,592 $0 $1,382,047
72 $53,887 $0 $1,009,175 $276,039 $0 $1,285,214
73 $58,629 $0 $851,784 $307,354 $0 $1,159,138
74 $0 $65,030 $1,043,564 $324,844 $71,852 $1,296,556
75 $70,393 $0 $1,151,797 $352,154 $78,283 $1,425,668
76 $73,778 $0 $1,046,917 $403,688 $84,960 $1,365,645
77 $78,773 $0 $1,016,793 $467,865 $94,332 $1,390,326
78 $85,887 $0 $1,035,773 $525,073 $107,661 $1,453,186
79 $97,318 $0 $1,108,926 $565,602 $123,401 $1,551,127
80 $109,385 $0 $1,022,230 $595,952 $149,167 $1,469,015
81 $119,165 $0 $1,131,135 $602,121 $175,793 $1,557,463
82 $123,776 $0 $1,158,059 $627,789 $197,978 $1,587,870
83 $128,480 $0 $1,134,030 $660,151 $226,408 $1,567,774
84 $133,555 $0 $1,263,051 $710,556 $252,671 $1,720,936
85 $138,590 $0 $1,313,427 $776,359 $279,353 $1,810,432
86 $140,156 $0 $1,220,964 $838,339 $305,891 $1,753,412
87 $146,337 $0 $1,197,726 $897,684 $339,172 $1,756,238
88 $152,805 $0 $1,278,880 $928,142 $381,705 $1,825,317
89 $159,910 $0 $1,155,672 $919,989 $426,288 $1,649,373
90 $169,681 $0 $1,212,819 $926,191 $469,641 $1,669,369
91 $174,873 $0 $1,115,065 $931,510 $503,268 $1,543,308
92 $179,944 $0 $1,034,384 $955,676 $536,936 $1,453,124
93 $184,893 $0 $833,224 $976,881 $577,743 $1,232,361
94 $189,829 $0 $817,851 $992,270 $633,784 $1,176,336

By sourcing the age-74 retirement distribution from the reverse mortgage, the portfolio was protected from further decline at this key point in retirement. Rather than entering into a downward spiral that left the portfolio essential depleted by age 95 as in Scenario 1, the portfolio was able to recover in Scenario 2 and $817,851 remained at the end of the retirement horizon. The portfolio balance is $817,455 larger in the reverse mortgage scenario 2, and this portfolio gain has been the key benefit overlooked by those saying reverse mortgages are too expensive.

Meanwhile, the reverse mortgage loan balance does grow substantially throughout retirement. The loan balance grows to $633,784, which is nearly 10-times as large as the proceeds used. This is where opponents of reverse mortgages would step in and say they are too expensive.

However, money is fungible and we need to assess the household’s overall situation. Our retiree’s net worth is the IRA balance plus the home’s value, less the loan balance due, which is $1,176,336. This is $183,670 larger than the net worth in Scenario 1 without the reverse mortgage.

This is the key. If heirs wish to keep the home, they could repay the loan balance and still have $183,670 more left over as an additional windfall provided by this strategy.

Again, those only doing a partial analysis will focus on the reverse mortgage costs and conclude that the reverse mortgage is just too expensive. But even after repaying the loan balance, the net legacy value of assets is still $183,670 greater than in Scenario 1, which does not include the reverse mortgage. These gains are because the reverse mortgage protects the investment portfolio from incurring excessive distributions.

The reverse mortgage has helped to preserve a legacy for heirs. It must not be viewed in isolation, but rather as how it contributes to an overall plan. The value of the reverse mortgage can mostly be found in its diversifying benefits for investment assets in retirement. Taking distributions from investments can dig a hole that is hard to recover from, and wise use of a reverse mortgage protects the investment portfolio in retirement. Aside from pointing out relevant caveats, those writing negatively about reverse mortgages are treating them in isolation rather than viewing them as part of a whole financial plan. They are missing this value that recent research has clarified.

To learn more about reverse mortgages, please find the second edition of my book about them, which is available through Amazon.

Wade D. Pfau, Ph.D., CFA, is a professor of retirement income in the Ph.D. program in financial services and retirement planning at The American College in Bryn Mawr, PA. He is also a principal and director at McLean Asset Management and the Chief Planning Scientist for inStream Solutions. He actively blogs at See his Google+ profile for more information.


Senate Majority Leader Mitch McConnell says the budget deficit disturbing.

Editors Note: “This is posted to add to the discussion about the future of Social Security/Medicare/Medicaid and how that will impact senior budgets down the line. Readers can believe what they want from this discussion. Any overhaul of the “entitlements” will doublessly impact senior incomes negatively as the new left now claim a piece of Medicare for everyone. As a believer in the HECM income fix, we believe it is time to open our minds to the use of home equity as a hedge against erosion of what is referred to as “entitlements”. Many will argue that they were paid for with SS deductions over many years believing they would be claimed at the 62+ mark and don’t refer to them as entitlements.”

By Steven T. Dennis

October 16, 2018, 8:15 AM MST Updated on October 16, 2018, 11:16 AM MST

Leader sees little chance of tackling debt without Democrats

GOP passed tax cut bill adding more than $1 trillion in debt

Senate Majority Leader Mitch McConnell says the budget deficit is “very disturbing.”

Senate Majority Leader Mitch McConnell blamed rising federal deficits and debt on a bipartisan unwillingness to contain spending on Medicare, Medicaid and Social Security, and said he sees little chance of a major deficit reduction deal while Republicans control Congress and the White House.

“It’s disappointing, but it’s not a Republican problem,” McConnell said Tuesday in an interview with Bloomberg News when asked about the rising deficits and debt. “It’s a bipartisan problem: unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.”

McConnell’s remarks came a day after the Treasury Department said the U.S. budget deficit grew to $779 billion in Donald Trump’s first full fiscal year as president, the result of the GOP’s tax cuts, bipartisan spending increases and rising interest payments on the national debt. That’s a 77 percent increase from the $439 billion deficit in fiscal 2015, when McConnell became majority leader.

McConnell said it would be “very difficult to do entitlement reform, and we’re talking about Medicare, Social Security and Medicaid,” with one party in charge of Congress and the White House.

“I think it’s pretty safe to say that entitlement changes, which is the real driver of the debt by any objective standard, may well be difficult if not impossible to achieve when you have unified government,” McConnell said.

Politically Unpopular

Shrinking those popular programs — either by reducing benefits or raising the retirement age — without a bipartisan deal would risk a political backlash in the next election. Trump promised during his campaign that he wouldn’t cut Social Security, Medicare or Medicaid, even though his budget proposals have included trims to all three programs.

McConnell said he had many conversations on the issue with former President Barack Obama, a Democrat.

“He was a very smart guy, understood exactly what the problem was, understood divided government was the time to do it, but didn’t want to, because it was not part of his agenda,” McConnell said.

“I think it would be safe to say that the single biggest disappointment of my time in Congress has been our failure to address the entitlement issue, and it’s a shame, because now the Democrats are promising ‘Medicare for all,”’ he said. “I mean, my gosh, we can’t sustain the Medicare we have at the rate we’re going and that’s the height of irresponsibility.”

Divided Government

McConnell said the last major deal to overhaul entitlements occurred in the Reagan administration, when a Social Security package including an increase in the retirement age passed under divided government.

McConnell said he was the GOP Senate whip in 2005 when Republican President George W. Bush attempted a Social Security overhaul and couldn’t find any Democratic supporters.

“Their view was, you want to fix Social Security, you’ve got the presidency, you’ve got the White House, you’ve got the Senate, you go right ahead,” McConnell said. The effort collapsed.

The Office of Management and Budget has projected a deficit in the coming year of $1.085 trillion despite a healthy economy. And the Congressional Budget Office has forecast a return to trillion-dollar deficits by fiscal 2020.

During Trump’s presidency, Democrats and Republicans agreed to a sweeping deal to increase discretionary spending on defense and domestic programs, while his efforts to shrink spending on Obamacare mostly fell flat.

Tax Cut

Republicans in December 2017 also passed a tax cutprojected to add more than $1 trillion to the debt over a decade after leaders gave up on creating a plan that wouldn’t increase the debt under the Senate’s scoring rules.

At the time, McConnell told reporters, “I not only don’t think it will increase the deficit, I think it will be beyond revenue-neutral.” He added, “In other words, I think it will produce more than enough to fill that gap.”

Senate Minority Leader Chuck Schumer of New York responded Tuesday by saying McConnell and other Republicans “blew a $2 trillion hole in the federal deficit to fund a tax cut for the rich. To now suggest cutting earned middle-class programs like Medicare, Social Security and Medicaid as the only fiscally responsible solution to solve the debt problem is nothing short of gaslighting.”

House Minority Leader Nancy Pelosi of California said in a statement, “Under the GOP’s twisted agenda, we can afford tax cuts for billionaires, but not the benefits our seniors have earned.”

— With assistance by Erik Wasson




Yes, you already knew this but now you know for sure — there are fixes on the way (if you are willing to learn how to live happily with less and …) if you have home equity and are wiling to use it with Home Equity Conversion Mortgage (HECM).

by Teresa Ghilarducci, Bernard L. and Irene Schwartz Professor of Economics at The New School for Social Research and Director of SCEPA’s Retirement Equity Lab (ReLab); Michael Papadopoulos, ReLab Research Associate; and Anthony Webb, ReLab Research Director

Inadequate retirement accounts will cause 8.5 million middle-class older workers and their spouses – people who earn over twice the official poverty line of $23,340 (if single) or $31,260 (if coupled) – to be downwardly mobile, falling into poverty or near poverty in their old age. • Two in five – or 40% – of older workers and their spouses will be downwardly mobile in retirement.

KEY FINDINGS Table 1: Projected Downward Mobility in Retirement of Individuals in Older, Working Households Sources: Authors’ calculation using the 2014 Survey of Income and Program Participation. Notes: The sample comprises workers ages 50-60 in 2014 and their spouses or partners. They are considered to be downwardly mobile if their household labor market earnings exceed 200% of the Federal Poverty Level (FPL),1 but their household is projected to have income below 200% of FPL in retirement at age 62. Suggested Citation: Ghilarducci, T., Papadopoulos, M. & Webb, A. (2018).

“40% of Older Workers and Their Spouses Will Experience Downward Mobility in Retirement.” Schwartz Center for Economic Policy Analysis and Department of Economics, The New School for Social Research, Policy Note Series.

  • If workers ages 50-60 retire at age 62, 8.5 million people are projected to fall below twice the Federal Poverty Level, with retirement incomes below $23,340 for singles and $31,260 for couples.
  • 2.6 million of 8.5 downwardly mobile workers and their spouses will have incomes below the poverty level – $11,670 for an individual and $15,730 for a two-person household.
  • A typical single worker in the middle 40% of earners (earning $25,000-$64,000) can expect an annual income of $18,000 if they retire at age 62, the most common age of retirement.
  • Couples in the middle 40% of earnings (earning $44,000-$105,000) can expect an annual income of $29,500 if workers retire at age 62. 8.5 million who will be near poor or poor in retirement 37 million older workers and spouses 21.5 million who are not near poor while working.

POLICY NOTES | Downward Mobility in Retirement: 8.5 Million Middle-Class Workers Will Be Poor Retirees Older workers – ages 50-60 and their spouses – are projected to be downwardly mobile in retirement if their household income is currently more than twice the Federal Poverty Level (more than $23,340 for a single individual, and more than $31,260 for a couple in 2014), but is projected to be less than twice the Federal Poverty Level in retirement.

This study treats claiming benefits as synonymous with retirement.

2 The projection assumes that workers retire at age 62 because more than half of workers claim benefits at that age.

3 Because working longer is often touted as a solution to the We project two in five older workers and their spouses will be downwardly mobile in retirement. If workers currently ages 50-60 retire at age 62, 8.5 million people – or 40 percent of these workers and their spouses – are projected to become downwardly mobile, with incomes falling below twice the Federal Poverty Level ($23,340 for a single individual, and $31,260 for a couple) when they retire. Of these, 2.6 million will have incomes of less than the poverty level, or $11,670 for an individual and $15,730 for a two-person household.

PROJECTING DOWNWARD MOBILITY retirement savings crisis, we test the sensitivity of our findings to an alternative assumption that workers retire at age 65 (less than 10 percent retire after that age). We assume that households contribute to their retirement plans until retirement and earn returns on their retirement savings and other financial assets. At retirement, households use their retirement and non-retirement financial wealth to purchase an inflation-indexed lifetime income.


Table 2: Projected Downward Mobility of Older Working Households in Retirement Threshold Assumed Retirement Age Individuals (million) Share Poor 62 2.6 8% 65 1.2 4% Near Poor 62 8.5 40% 65 5.0 19% Source: Authors’ calculation using the 2014 Survey of Income and Program Participation. Notes: The sample comprises workers ages 50-60 in 2014 and their spouses or partners. They are considered to be downwardly mobile if their household labor market earnings exceed the given threshold, but their household is projected to have income below the threshold in retirement.

Numbers of individuals are rounded to the nearest 50,000 and percentages to the nearest percentage point. FEB 18 3 | SCEPA WORKING LONGER WILL NOT PREVENT DOWNWARD MOBILITY Due to poor health and lack of employment opportunities, many older workers are unable to delay retirement. However, even if workers delay retirement until age 65, 5 million people will be downwardly mobile and 1.2 million will fall below the Federal Poverty Level.

Delaying couples’ retirement to age 65 increases their projected average annual retirement income by just $8,500, to $38,000. Of the additional $8,500, $6,000 comes from Social Security, $500 from DB pensions, and $1,500 from DC pensions (Table 3). Working longer may help some, but it is not the solution to the retirement savings crisis.


Table 3: Projected Annual Retirement Income of Coupled Households Ages 50-60 Income Source % with income Income if retiring at 62 Income if retiring at 65 All sources 100% $29,500 $38,000 Social Security 100% $23,000 $29,500 DC Savings 66% $4,000 $5,500 DB Pension 18% $1,500 $2,000 Financial Assets 17% $1,000 $1,000 Source: Authors’ calculation using the 2014 Survey of Income and Program Participation Notes: Dollar amounts are means (in 2014 dollars) for the middle 40 percent of earning households (coupled households earning $44,000-$105,000) rounded to the nearest $500. Means are not conditional on having income source. Percentages are rounded to the nearest percentage point. We project the retirement income of single older workers because single households are a large (24 percent) and growing share of older households.

Rising divorce rates among older couples often cause the less wealthy partner to be left in a precarious financial situation.

Single older workers in the middle 40 percent of earners will receive on average $18,500 in retirement income, $14,000 of which will come from Social Security.

An additional $3,000 is expected from DC pensions, $1,000 from DB pensions and $500 from financial assets. Delaying retirement from age 62 to age 65 provides an additional $6,500 in retirement income, of which most ($4,000) comes from Social Security (Table 4).

Table 4: Projected Annual Retirement Income of Single Workers Ages 50-60 Income Source % with income Income if retiring at 62 Income if retiring at 65 All sources 100% $18,500 $25,000 Social Security 100% $14,000 $18,000 DC Savings 55% $3,000 $5,000 DB Pension 12% $1,000 $1,500 Financial Assets 11% $500 $500 Source: Authors’ calculation using the 2014 Survey of Income and Program Participation Notes: Dollar amounts are means (in 2014 dollars) for the middle 40 percent of earning households (coupled households earning $44,000-$105,000) rounded to the nearest $500.

Means are not conditional on having income source. Percentages are rounded to the nearest percentage point. If older workers retire at age 62, couples in the middle 40 percent of the income distribution will receive on average $29,500 in retirement income. Of this total, the largest share comes from Social Security, which contributes $23,000. In contrast, income from defined contribution (DC) and defined benefit (DB) retirement plans average $4,000 and $1,500, respectively, reflecting low levels of coverage and small account balances.

Only 17 percent4 of these couples own nonretirement financial assets, such as money market accounts, CDs, government securities, municipal and corporate bonds, stocks, or annuities. Averaged over all households in the middle 40 percent, yearly income from these sources is a mere $1,000 (Table 3).

POLICY NOTES | Downward Mobility in Retirement: 8.5 Million Middle-Class Workers Will Be Poor Retirees should strengthen Social Security – the most effective vehicle for preventing old-age poverty.

But we also need a strong second tier. Only 65 percent of workers nearing retirement have any retirement wealth (an IRA or 401(k) balance or a defined benefit pension from a current or past job), and the median balance of those with IRA or 401(k) plans is $92,000, which will provide a lifetime income of a mere $300 a month.5 Guaranteed Retirement Accounts (GRAs) are individual accounts requiring employers and employees to contribute with a fair and effective refundable tax credit provided by the government.

GRAs provide a safe, effective vehicle for workers to accumulate personal retirement savings over their working lives.7 1. The Federal Poverty Level for a single-person household in 2014 was $11,670, and $15,730 for a two-person household. 2. Labor market outcomes for those who work after claiming are typically modest and decline rapidly with age. 3. Munnell and Chen (2015).

  1. Financial Assets do not include bank savings accounts. Although bank savings accounts are widespread, their balances are too low to alter retirement income.
  2. Johnson (2017).
  3. Ghilarducci, Papadopoulos, and Webb (2017). 7. Ghilarducci and James (2018). 8. Clingman and Burkhalter (2017). Clingman, M., & Burkhalter, K. 2017. Scaled factors for hypothetical earnings examples under the 2017 Trustees Report assumptions. Social Security Administration, Actuarial Note 2017.3. Ghilarducci, T., & James, T. 2018. Rescuing retirement. Columbia University Press: New York. Ghilarducci, T, Papadopoulos, M, and Webb, A. 2017. Inadequate Retirement Savings for Workers Nearing Retirement. Schwartz Center for Economic Policy Analysis Policy Brief. Johnson, R.W. 2017. Health and income inequality at older ages. Paper presented at the meeting of the International Associate of Gerontology and Geriatrics, San Francisco. Munnell, A.H., & Chen, A. 2015. Trends in Social Security claiming. Center for Retirement Research at Boston College, Issue Brief Number 15-8. POLICY

RECOMMENDATIONS Insufficient savings in DC plans and low coverage by DB plans are among the main drivers of the projected downward mobility of today’s older workers and their households. Working longer, tested here by delaying the assumed retirement age from 62 to 65, will still leave many people with insufficient income. Moreover, for many workers, delaying retirement is not possible.

Some cannot handle the physical demands of work at older ages,5 and some who can work have difficulty finding jobs offering decent pay. Workers forced to delay retirement due to inadequate savings will lose deserved retirement time, and some may die before they retire.

All workers deserve a dignified, financially secure retirement after a lifetime of work. Policymakers ENDNOTES REFERENCES FEB 18 5 | SCEPA APPENDIX This brief uses Wave 1 the 2014 Survey of Income and Program Participation (SIPP) and the supplemental questions in the Social Security module. Workers’ individual retirement incomes are projected and summed into households.

Retirement income is the sum of income from Social Security (including spousal benefits), defined benefit (DB) pensions, annuitized defined contribution (DC) savings, and annuitized wealth from other financial assets. For households with two workers ages 50-60, for our age 62 scenario, we assume each spouse retires at age 62, project each spouse’s income to that age, and sum.

For our age 65 scenario, if the younger worker is age 62 or younger at this point, we use their projected retirement income for age 62. If the younger worker is ages 63-65, they receive their projected retirement income at that age. For spouses who have already retired, we take their current reported incomes from each income source. Only heads of household and their spouse (if any) are included as part of a household, and if there are multiple households living together they are treated as separate observations. Because this survey only asks respondents to report their earnings from the most recent year, we must construct profiles of career earnings for each worker.

The Social Security Administration constructs scaled earnings factors for ages 21- 64, and we use these factors to construct ageearnings profiles for each worker.8 The 35 highestearning years in these synthetic age-earnings profiles are then used to project Social Security income in retirement.

We consider all DB plans from current and previous jobs to project DB pension income in retirement. For pensions from current jobs, we assume the worker stays at their current job until retirement, and receives benefits equal to 1.5 percent of the average of their last five years of earnings at the job (using the synthetic age earnings profiles) per year of job tenure. For pensions from past jobs, we assume the same accrual rate of 1.5 percent.

For the purposes of determining earnings when transitioning out of past jobs, workers are assumed to have left past jobs at the same age and same nominal pay as their starting pay on their current job. A worker’s DC savings is the sum of the balances in their savings in 401(k), 401(k)-equivalent accounts, and IRA savings, from current and past jobs.

We project income post-retirement from retirement savings with generous assumptions: (1) workers earn a 4.5 percent real return on investments net of fees; (2) workers contribute 6 percent of earnings to their 401(k) with an employer match of 3 percent; and (3) workers purchase an inflation-indexed annuity when they retire. Although people rarely purchase an inflation-indexed annuity, it provides a higher income than commonly used drawdown strategies and is the only financial product that provides an inflation-indexed lifetime income.

Thus, the assumption yields a conservative estimate of the share of households financially unprepared for retirement. We assume August 2017 annuity rates. We make similar generous assumptions for income from other financial assets. A worker’s financial assets include the value of money market accounts, CDs, government securities, municipal and corporate bonds, stocks, and equity in annuities.

We assume workers earn a 4.5 percent real return on their investments, and purchase an inflation-indexed annuity when they retire. We report the mean retirement income separately for the middle 40 percent of single earners (earning $25,000-$64,000) and for coupled households (earning $44,000 to $105,000). This provides estimates that are close to the median while allowing for individual components of retirement income to be additive.

POLICY NOTES | Downward Mobility in Retirement: 8.5 Million Middle-Class Workers Will Be Poor Retirees.


Why the old rules for retirement savings don’t work anymore

30 Nov 2018

Times have changed and so have the rules for retirement. Get practical tips from Robert Merton here. Nobel Prize economist recipient Robert C Merton explains how Reverse Mortgage is wise for families.

When it comes to planning for your retirement, there are many aspects to keep in mind. Most of us want those golden years to be filled with exciting events, a comfortable way of living and of course that health supports it. But, is there a right way to approach retirement?

Retirement used to be something with not a whole lot of variance to it; people entered the workforce in their 20’s, retired in their 60’s and lived another 10 years in retirement. Social security programs and pensions were well established and expected.

But the world has changed. People are entering the workforce later, retiring later, living longer and the impact retirement has on people’s well-being is different than it was before.

The financial situation of most people has also changed, as individuals are less financially equipped to prepare for a retirement even when no social security program is guaranteed.

The conventional wisdom has been that people should have $1 million USD stashed away for when they want to retire. While that number may have seemed like a huge amount of money for most at one point, new data shows that it may no longer be sufficient. The average retirement age of 63 hasn’t changed but life expectancy has, sitting at about 85, meaning that you should plan to spend 22 years in retirement, according to CNBC.

There’s no free lunch. If it looks too good to be true, it’s probably not true.

Nobel Laureate Robert C. Merton knows that times are changing fast. He’s a father of three and a professor of finance at MIT. Over the years, he has kept a close eye on financial developments around retirement and has had many financial conversations with the younger generation.

It can be broken down in simple terms and math. Because people live longer, 40 years of work that used to support 50 years of consumption now has to support 60 years. What does this mean for the average person?

“The arithmetic is equally simple,” says Merton. “Either, if you want to work the same number of years as your parents, you better live at a lower standard of living. If you’ve got the benefit of living longer, you’re going to work longer.”

“If I had one rule, one finance principle that I had to teach to every kid,” he says. “I would teach them there’s no free lunch. If it looks too good to be true, it’s probably not true.”

See what Merton says about the Home Equity Conversion Mortgage.

Merton: Reverse Mortgages are powerful, yet largely untapped

Robert C Merton explains how Reverse Mortgage is wise for families



Ámelos o deténgalos, las hipotecas inversas de HECM tienen un lugar: ¿es su lugar?

Stephanie Moulton, una profesora de la Universidad Estatal de Ohio, ha investigado las hipotecas. CréditGreg Marinero para The New York Times

Stephanie Moulton, una profesora de la Universidad Estatal de Ohio, ha investigado las hipotecas. 26, 2014 Los ejecutivos de las compañías de hipotecas revertidas saben mucho acerca de los sentimientos de los consumidores con respecto a la herencia. Después de todo, están en el negocio de alentar a los estadounidenses mayores a drenar el capital ahora de las casas que pueden transmitir a sus herederos en el futuro.

Pero se atreven a citar a una de estas personas como fuente en esta publicación, como hice la semana pasada. , y este es el tipo de reacción vigorosa que proviene de los lectores: “Ni siquiera puedo imaginar un escenario en el que una hipoteca revertida deba considerarse nada más que radioactiva”, dijo un comentario. Y: “No son más que una estafa que nadie con ningún sentido común debería caer en la cuenta “, según otro.”

Estos vehículos son la provincia de los prestamistas más inescrupulosos y serían prohibidos en una sociedad más civilizada “, dijo un tercero. Estas son cosas fáciles de decir cuando uno tiene suficientes ahorros o pensiones y los ingresos de la Seguridad Social para sobrevivir. Pero dado que las casas de los estadounidenses mayores valen, en promedio, más que sus otros ahorros combinados, existe una inevitablemente escandalosa sobre las hipotecas revertidas.

A medida que más personas se jubilen en las próximas décadas con ahorros modestos y sin pensión privada, necesitarán recuperar parte del capital de la vivienda durante sus vidas cada vez más largas. Ha sido fascinante ver crecer a la industria de hipotecas inversas, o intentar – en años recientes. Por un lado, siempre se ha llenado con compañías sin nombre que usan celebridades de segundo nivel para tratar de vender a las personas mayores en el producto.

Los vendedores no éticos se involucraron en todo tipo de mal comportamiento, persuadieron a los clientes para que retiraran el capital de sus hogares e invirtieran en productos financieros inadecuados o dejaran a los cónyuges fuera de la escritura de la propiedad de una manera que les causara la pérdida de los hogares más tarde. Compañías de marcas como Bank of America, Wells Fargo y MetLife abandonaron el sector con horror.

Pero este verano, BNY Mellon volvió al negocio como administrador y asegurador de los préstamos. Y varios investigadores respetables han respaldado ciertos usos de las hipotecas revertidas; uno incluso ha ido tan lejos como para invertir dinero en un prestamista de hipotecas inversas de nueva creación.

Una serie de cambios legales y regulatorios destinados a reducir el número de incumplimientos también han entrado en vigencia o están a punto de hacerlo. Muchas de las personas que ingresan o examinan el negocio de hipotecas revertidas ahora describen su interés en él como una especie de conversión. Incluso hace media década, Michael Gordon, el jefe de retiro y soluciones estratégicas de BNY Mellon, nunca habría sugerido que la compañía se acercara al producto.

Las compañías que consideran a un cliente potencial generalmente no verificaron para asegurarse de que el prestatario pudiera pagar los impuestos a la propiedad y los pagos del seguro del hogar. Tampoco descalificaron a muchos prestatarios para quienes el préstamo simplemente no era adecuado. Eso está cambiando ahora, y el comunicado de prensa de BNY Mellon sobre sus intenciones estaba repleto de conversaciones felices sobre la compra de préstamos que los prestamistas habían suscrito de manera “socialmente responsable”. El Sr. Gordon se apresura a notar que el producto no es adecuado para todos.

Pero también cree que muchos jubilados con carteras de inversión que son la mitad en acciones y la mitad en bonos no son conscientes de su verdadera asignación de activos. Después de todo, su capital propio es un activo también. Muchas personas tienen una gran cantidad de esto, y quienes compraron una casa de retiro en 2005 saben muy bien cuánto puede desaparecer. “Tenemos esta idea como seres humanos de que vivimos al final de la historia y todos los hechos son conocidos, ” él dijo.

“Pero mi percepción aquí es que todavía estamos descubriendo cómo se supone que su hogar debe encajar con el resto de sus activos”. A lo largo de los años, probablemente haya visto a Alicia H. Munnell citada en esta publicación. Ex miembro del Consejo de Asesores Económicos del presidente Clinton y veterana de 20 años del Banco de la Reserva Federal de Boston, ahora dirige el Centro para la Investigación de la Jubilación en el Boston College.

Si bien el centro recibe apoyo financiero de una larga lista de compañías financieras, incluyendo un prestamista de hipotecas revertidas, nunca pensó en hacer una apuesta de seis cifras en ninguna de ellas. Pero recientemente, la Sra. Munnell de 72 años y su esposo, que probablemente debería estar volviéndose más conservador con su dinero a medida que se levantan en años, invirtió $ 150,000 en un nuevo prestamista de hipoteca inversa llamado Longbridge Financial. “Nunca antes había hecho algo así en toda mi vida”, dijo.

“Creo en eso tanto que utilicé parte de la herencia de mis hijos para invertir”. Su convicción no le produce ninguna alegría particular. “Cuando miro hacia adelante, no veo cómo la gente va a tener suficiente, realmente no”, dijo. Las personas pasan su vida adulta pagando sus hipotecas, y las personas con pensiones a menudo pudieron evitar el uso de ese capital en la jubilación. “Nuestra evaluación sigue adelante

Is Social Security/Medicare Sustainable? Consider Home Equity workaround

Social Security – signed into law in 1935 as the Old-Age, Survivors, and Disability Insurance program – provides cash benefits to retirees and those unable to work due to disability. It is funded by payroll taxes that are collected from workers and their employers and deposited into interest-earning accounts called trust funds. Since the early 1980s, the income collected by the funds has been greater than the benefits paid to people, so the funds have been able to save money for future years.

The 2018 trust fund report for Social Security predicts that 2018 will be the first year since 1982 that benefits paid out will exceed money taken in through taxes.

Since 2008, the combined yearly surplus has been declining. Although it reversed course and increased in 2016 and 2017, the Social Security Administration predicts it will fall below zero in 2018.

This means we will have to use the savings to make up the difference between how much money the program makes and how much it pays in benefits.


The Social Security program encompasses two benefit programs – income insurance for retirees and their spouses and income insurance for people with disabilities. Funds for these programs are kept in two separate trust fund accounts and both contribute what is left after paying benefits to savings.

Trust fund balances

While both trust funds currently have a positive balance, once we start using savings, the extra funds will slowly be used up. The Social Security Administration estimates the trust fund savings for disability will run out by 2032 and the trust fund savings for retirement by 2034.


No. Without savings to dig into, the programs will only be able to pay people as much as they receive from taxes. Beneficiaries will still receive payments, but those payments will be less than they are now. After 2034, the trust funds predict they will be able to fund 79% of benefits.

Currently, the average monthly payment is about $1,300 for retirees and $1,000 for people with disabilities.

Average monthly payment (adjusted for inflation)


Currently, the retirement trust fund supports 50 million people and the disability fund 10 million people.


There are a number of options:

Reduce benefits to match income from payroll taxes.

Increase payroll taxes in order to pay the current level of benefits or higher. Currently, income is taxed at 12.4% (6.2% each for employer and employee) and income above $128,900 is not taxed at all. We could either increase the tax or increase or remove the ceiling on taxable income.

Change the retirement age again to delay when people can start collecting benefits.

Reduce or eliminate benefits for wealthy retirees.

Privatize the program and let workers invest their payroll taxes themselves.


Financial data from the Office of Management and Budget, Table 13.1 of the historical tables.

Benefit and beneficiary data from the Social Security Administration, Annual Statistical Supplement.

Further information on forecasts can be found in the tables for the 2018 Annual Trustees Report.

Gofinancial response: Wisdom is on the side of preparation, or as the Boy Scouts would say before they melted down, “Be Prepared”. Those who are nervous about the future of social security income might want to consider the benefits of using home equity to level the income factor. See contact information under the “Information” tab on the home page.

Total costs of Social Security will exceed total income this year (2018); Will Gov’t fund deficits?

Will your Social Security be enough to balance household budget?

Senate Majority Leader Mitch McConnell says the budget deficit is “very disturbing.”

Will Government confiscate HOME EQUITY to aid SOCIAL SECURITY fund shortages?

By Warren Strycker

There are new people in charge of our government now. We suggest there will be battles ahead for home equity as it relates to the social security fund. Your home equity may not be as safe as you thought.

Wonder no more. A kind of “Brexit” is being presented for voters to ward off further government intrusion into private business. Seniors are among them concerned about social security income they depend upon.

And, President Trump may not be as conservative as you thought. (He is, after all, a populist first). And, in order to save the Social Security Fund, there will be a lot of discussion about home equity. (You can say you saw it here first, but it won’t matter in the long run who said it first because these kind of things start in the “back room” first. My bet is that those discussions have already been launched to trim the expanding national debt.

My concern, because I work with the seniors almost exclusively now, suggesting they use  home equity while they have control of it, that the time may come soon, when a more powerful than ever motivated government will suggest, and then order, homeowners to give up their home equity in lieu of receiving social security which continues to lose financial worthiness year by year.

If you find that some kind of outrageous conspiracy theory, not to worry. I’m just suggesting that a government upside down financially with a 22 trillion debt might resort to some unusual ways to balance its budget. (It’s happened before).

Can anyone with knowledge of our government budgeting process, suggest another more obvious view to balance the federal budget than to access home equity?

Blame me if I’m wrong, but I believe that a government may eventually “confiscate” home equity to balance out eventual  social security insolvency of that retirement account. Senior home equity is now viewed in the trillions, and growing. All that money in one place gets the attention of lawmakers who don’t balance their budgets. That is the reason you hear me say publicly now that if you have home equity, you should consider using it while you can, assuming you may not always have that opportunity.

You were told, as I was, that real estate (your home) would always grow by 6-7% annually, and then we learned it went the other way, after the 2000 financial crisis, and in many places, it is just now being valued at those 2000 levels. Sometimes, when values are high as they are again now, there is consideration of using the money while they are at those levels (much in the same way, investors would use their money when values are at peak levels as they are now. For many, a HECM decision was more difficult when home values were low because appraisals came in lower based on homes being sold at lower levels. Right now, that is not the case (again), but there is no guarantee your home equity will remain at the level it is now.

Don’t get us wrong. Government will not just steal your equity. They are smarter than that. Trump is a real estate guy so he knows equity pretty well, wouldn’t you say? Look for ways for you to be “persuaded” to use home equity or lose your social security benefit. More and more, there is less of us believing that you “earned” this benefit — there will be more talk of using it for the “benefit” of the nation, and less about your earned income benefit.

Just sayin’…

“Consider the use it or lose it mentally and consider this option — (equity) NOW while you can.”

Consider then now, how you would spend newfound money in retirement if you came to believe it would be a wise option? Consider that this discussion about government intrusion on home equity requires consideration on your part to take away the temptation government may have to block you from your own home equity by thinking of upstanding and wise ideas to spend the money before “they” do. Think about it.

See contact information in navigation bar for details.


Total costs of Social Security will exceed total income this year (2018); Will Gov’t fund deficits?

Social Security will inevitably need to be altered — O’Reilly

Social Security is running out of money — Stossel