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Category Archives: HECM Refinance

Can manufactured homes be HECM refinanced?

What about “trailer houses”???

“Yes!”

Since many Reverse Mortgage lenders refuse to refinance manufactured homes, it is necessary to report that we are happy to do most of them, singles, doubles and triples. The HECM HUD standards include mobiles all the way down to June, 1976 after which manufacturing was overseen by HUD government standards, so there is a wide envelope for refinances here at Patriot Lending USA. Yes, there are some complications in complying with foundation standards and often, upgrading (tiedowns) is required to make them compliant. No payments on this mortgage required in your lifetime as long as you live there as your primary home, pay taxes and insurance and maintain the home.

A MANUFACTURED HOME (FORMERLY KNOWN AS A MOBILE HOME) IS BUILT TO THE MANUFACTURED HOME CONSTRUCTION AND SAFETY STANDARDS (HUD CODE) AND DISPLAYS A RED CERTIFICATION LABEL ON THE EXTERIOR OF EACH TRANSPORTABLE SECTION. MANUFACTURED HOMES ARE BUILT IN THE CONTROLLED ENVIRONMENT OF A MANUFACTURING PLANT AND ARE TRANSPORTED IN ONE OR MORE SECTIONS ON A PERMANENT CHASSIS. Manufactured homes are considered for HECM refinance if constructed after June 15, 1976.

Call with your questions, 928 345-1200. (We consider manufactured homes as worthy of our effort to support senors who live in them comfortably.)

What is a “Home Equity Conversion Mortgage” ?

General Information About FHA Insured HECM posted on United States Federal Housing Association webpage for your review :

What is a Reverse Mortgage?

Reverse Mortgage was originally introduced in 1988 for homeowners, aged 62 and older.

It allowed the lender to be added to the title of your home in the early days of the unregulated program. But no longer is that true.

What is a Government Insured HECM program?

HECM stands for Home Equity Conversion Mortgage. It is the federally regulated, insured and guaranteed program by FHA since 1991. The HECM is a safe way for you to access the equity in your home without ever making a mortgage payment. No lender is added to title and you retain full home ownership rights.

How is this Program “safe” for Senior Homeowners?

No matter what happens in the economy, how much money you receive, or how long you live in your home you will never be required to make a mortgage payment. In addition, no matter what happens to your lender or your home’s value you have guaranteed access to your money.

Who owns the home if I proceed with FHA HECM?

You own the home. However, you pledge the home as collateral.

What happens if, in the future, the Loan exceeds the Value of the Home?

Your FHA HECM Mortgage will continue – thanks to the federal insurance. The line of credit will still be available and monthly disbursements you may have set up, will still be sent to you.

How are Reverse Mortgages different today?

Today’s reverse mortgage, the FHA HECM, is highly regulated by State and Federal laws to make it safe and to protect you. Among others, the following FHA HECM regulations apply: You retain title of the home.

– No equity share is allowed, meaning the lender does not slowly take over your home.

– Fees and costs are federally regulated. How does the FHA HECM compare to a Traditional Forward Mortgage? In a traditional forward mortgage, you make monthly payments to the bank eventually paying off the mortgage over time. With the FHA HECM, you receive cash from your lender as lump sum upfront, as monthly installments or as a line of credit that grows over time. As long as you live in your home you never have to pay off a single dollar of the loan.

What restrictions apply to the cash I receive from a FHA Insured HECM?

It is your money and you can use it the way you want. It’s non-taxable and does not affect Social Security payments. We do recommend that you talk to a competent financial advisor to determine the effect on any other benefits you may be receiving.

When does a FHA Insured HECM become due and what happens then?

When you no longer live in your home or when you pass away, the FHA HECM become due.

You or your heirs have two options:

1) Pay off the FHA Insured HECM including the accrued interest and retain ownership.

2) Give up ownership of the home and receive the difference between the net sales proceeds and the loan balance. You will not be liable for any shortfall if the sales proceeds do not cover the loan.

What are my obligations under a FHA Insured HECM?

With a FHA HECM you retain title to your home. This means that you also have all your obligations as a home owner. You are responsible for home owner taxes and insurances.

Warren Strycker, producer of this webpage, is a veteran licensed loan professional under the laws of the United States. He reaches out to support your questions and leads you through the application to the close. There is no obligation to complete the application once it is begun and borrowers can opt out  of the loan up until three days after “close”. See contact information on home page under “information” tab. Call with any questions, 928 345-1200. “I have witnessed the relief and satisfaction of those who have stepped up to use the home equity in their home to extend income in retirement. Is it a joy to see.”

25 plus ways to use a HECM; What would you do with all that money?

Fixing Retirement by “moving the needle”; “Son, take my advice”!

Nobel Prize economist recipient Robert C Merton explains how Reverse Mortgage is wise for families.

Full Transcript of Steve Chen’s Interview with Bob Merton

Steve: Welcome to the 11th podcast for NewRetirement. Today, we’re going to be talking with Nobel Prize winner Robert Merton, a nationally recognized economist and professor at MIT about the retirement planning landscape, why do we face an impending crisis and what kinds of changes can materially improve retirement outcomes for people.

He has a very big list of accomplishments some of which include:

He’s currently School of Management Distinguished Professor of Finance at MIT and John & Natty McArthur University Professor emeritus at Harvard University

His areas of research include lifecycle and retirement finance, optimal portfolio selection, capital asset pricing, option pricing, credit risk, and dynamics of institutional change

He received the Nobel Prize in Economic Sciences in 1997 for a new method to determine the value of derivative securities

He is past President of the American Finance Association, a member of the National Academy of Sciences and a fellow of the American Academy of Arts and Sciences. He holds honorary degrees from eighteen universities

He’s been recognized across the world for translating financial science into practice

He’s the Resident Scientist at Dimensional Fund Advisors, where he created Target Retirement Solutions

We’ll be talking about target date funds a little bit further down here.

With all that, Professor Merton, welcome to our show. I’m honored that you would take your time to join us.

Merton: Thank you. It’s a great pleasure to be here.

Steve: All right. I’m going to just jump in to some quick questions. First, I’d love to just learn a little bit more about your early life and your education and kind of what led you to economics, because I know that you started with applied math at Caltech.

Merton: Yeah. I started entering mathematics at Columbia and then I went to do a PhD in applied math at Caltech. I got two of my course work, passed my qualifiers and was thinking about a thesis. I bought my first share of stock when I was 10 years old. I’ve always been involved in the markets. Didn’t know what I was doing. Didn’t know I didn’t know what I was doing but learned a lot about markets from the experience and traded all the way through in lots of different things.

I had a lot of experience in all different kinds of financial markets. I never thought of that as a day job. I decided, at one point, I was thinking about what to do with my thesis on, water waves in the tank or plasma physics didn’t excite me. I was thinking about all the economics and things and I kind of felt I had a little flair for that and it’s what intrigued me, got me interested.

Then, I sort of heard of an economist speak in which he talked about solving the major problems of macroeconomics and how the impact of that. Of course, he was very optimistic but as a young person, I said, “Wow, if you could do something even a little something for so many people that would be really cool.” As I thought more about it, I did a crazy thing which was I decided to change fields and I opted and applied to many economics departments having essentially know of formal economics for PhD.

Everybody turned me down except for MIT, which is probably the best department in the world at that time. They gave me money so it made my decision easy. I switched to MIT to do economics and that’s where I did my PhD and now I’m here today.

Steve: Nice. You’ve been trading since you were 10 years old, have you continued to invest as a retail person, a retail investor in the stock market all the way through your life?

Merton: No, not really. I had enough of that. At various times, I guess, when I learned what I didn’t know and I found out what I did know, it just didn’t make a lot of sense for me. I’ve done it for a long time. I don’t trade individual shares or anything like that. I don’t trade options even though I made a big contribution there.

What I do is essentially help design solutions for big institutions, for retirement plans to help people. I find this makes much more sense to use what skills I have to help large numbers of people than what I can do for myself. I really think that this is big disadvantage for individual trying to do it. If it’s a hobby, well, okay. That’s not something I want to spend a lot of my time for myself.

Steve: Nice. I think it’s great that you’ve chosen to apply all of your math skills and economic skills to help as many people as possible. I know that a lot of people speak really highly of the solutions that you’re building at DFA. It’s awesome to see that. Before I move on, since you’ve got this unique experience of winning a Nobel Prize, I was just curious if you could share kind of what it was like at the moment in time when you found out and also how it affected your life once you won that?

Merton: In that case, I could start by saying, I highly recommend it. I mean the call always comes very early in the morning because this comes from Stockholm and I had no expectations to get it. I just actually was walking out the door to catch a plane when they called. When I found out, I was, I guess you could say, really quite surprised, shocked.

It was pretty good. I mean, if you’re a scientist in the area of your field and your field offers that prize. If you were fortunate enough to receive it, there’s really nothing comparable. It may not matter to other people but if you’re in the field where it happens, they only give one in the world every year. Of course, it’s a great recognition.

Also, you have to be lucky. It’s always good to be lucky in the … you have to be to win a prize like that as well. The recognition of your colleagues and others that they think the work was of that quality is really incomparable in terms of what it matters.

Steve: Just a quick question about kind of at the worldwide level. I know that some people look at Japan because it’s got a more rapidly aging population than we do. Do you think that there’s lessons that we can take from what’s happening with their society and economy as they face a much more rapidly aging population?

Merton: Sure. I don’t think Japan … I mean, Japan is a specialist and that it has almost no immigration. I think that people there live longer than almost anywhere else in the world. They don’t even start to think about that they are retiring until at least 75. It’s a different environment. They’ve had, in terms of their stock market over the last generation, I think in, off the top of my head in January of 1990, the Nikkei that’s index for the Japanese stock market was 39,000. Today is 21,000, 28 years later.

Obviously, they haven’t had a lot of growth in their stock market. The interest rates are very low there. Despite that, it’s still a very wealthy nation. I think many people live well certainly in the cities. I think there’s something to be learned but not much. I think the bigger picture is, it’s happening everywhere, the age is everywhere. The other thing I would say is, well, we want to look to the past to learn. Best practice is not good enough.

In other words, if we’re going to rebuild or redesign retirement systems to deal with the future, looking at best practice, which are legacy systems, is like driving your car looking in the rear view mirror. If what’s in front of you is the same as the bus behind you, that works. That’s not the world we’re in. We know the world itself is changing very much, Asia, the whole region that is growing very fast.

Even in the United States, things are changing, the way we work is changing, technology is changing. With all these changes, the way we provide for retirement, what we should be learning has to be on a prospective basis. Using everything we know in terms of available financial technology, in terms of computers and all the technology that we have for facilitating the management of resources and disbursement of them.

We need to use all of that. We can’t just look to the past and learn from who’s done the best job. That’s a starting place but it’s not close to being good enough. We have to be very careful not to just try to too much depending on looking at the different systems and then trying the best parts of them and say that’s what we should do going forward.

Steve: I think it’s pretty interesting when you … we are going through this or have been going through this transition from pensions where the risk was on the company or on some entity that was kind of taking care of the individual to define contribution, where individuals are responsible for saving and then investing properly.

All that risk has been shifted to them. What we are seeing right now is pretty bad metrics as we go through this transition. Right today, half the population essentially has almost nothing saved. The people that do have savings or an average, the savings rates are very low given what people … given the extending time horizons and lifespans, people need to fund.

I know you’ve written a lot about kind of what’s wrong. I want to introduce the idea that one thing you’ve mentioned is, everything has been kind of geared around accumulating assets but I know you believe that we’re looking at the completely wrong metric. We need to be looking at kind of lifetime income. I just want to get your take on how you think we got here and how we go forward.

Merton: Okay. That’s a very good question and a very important one. From now on, at least in terms of our discussion, let’s presume that we’re talking about a defined contribution plan because as you say already, the other types of plan, the members that really don’t have much to think about anything. It’s all run by the company or the sponsor and their responsibility is one way or another to provide what they promised.

If we’re talking about in the DC (Defined Contribution like a 401K plan) world, which is really likely to be the future almost everywhere, how do we think about what is a good retirement? That’s what the system is all about. I would say, this is not original with me for sure, a good retirement is that if you could sustain the standard of living that you’ve enjoyed in the latter part of your work life throughout your retirement for the rest of your life. That would be a good retirement.

We all like more but I’m telling you, someone who’s at that age, you don’t want less. If you accept that as a good goal target, what a good retirement would be is to be able to sustain your standard of living. Then the first question I’ll ask is how do I define a standard living? I have to have something financial to look at in order to decide how to manage the resources and what resources are needed.

If I can visit you in your hometown and I said, “Hey, this is a nice town. I like to move here.” Then, I looked at how you’re living and I said, “Well, I like the way you’re living. What would it take for me to live in your town like you?” I doubt you’d say to me, “You need $3,637,550 in the bank.” I think you’d say, “Well, if you want to live like me here, you have to be earning about so much a year, right?” That’s how people would say. “You got to earn about that amount, you can live like me.”

What is that saying? I was describing a standard living and your response was the amount of income, not a pot of money. I’ll give you another example, social security around the world. When you retire, what do they give you? What do they tell you they have? Do they tell you, you have a pot of money accumulated? No. They tell you, they will pay you so much per month for the rest of your life, and they will adjust it for inflation, right?

One again, an income concept. Then, we talk about defined benefit plans, which most employers, with the type of plan they’ve always had, pensions, they don’t tell you that you have a pot of money. They say, “Here’s what you have, the rights to this for the numbers of years’ worked and we will pay you this much a month, sometimes, protected for inflation, sometimes not, for the rest of your life.”

Again, an income scheme. The only place that I know of in any big place of where the amount of wealth or how much is in your pot as they say, how much you would have retirement money is the issue or even talked about or even used to measure things is in the case of DC plans. It’s the exception, not the norm. Why? There’s a bit of a historical reason and just briefly, when DC plans come in the United States, they grew out of a reason, creation of the whole pension system in the 1970s and it was really a footnote.

It was somebody who slip to one of those things in the big bill and it was really designed for supplemental above your social security and your pension for higher paid workers, who were capped out in their pensions and so forth but wanted to save more. It’s even questionable whether it was really for retirement or whether it was really more almost a nice savings account which had … they got tax benefits or there was tax benefit saving.

Because it was supplemental for hiring from people, nobody paid much attention to it. There wasn’t so much regulatory, I mean, there’s regulation but nobody spend a lot of time worrying about it. Because people already had lots of income in retirement from their social security and their pension plan, some said, “I don’t need to take income. I’ve already got plenty there. I want to have cash. Maybe I’ll just use it to say, get a boat, give some money to people,” or whatever.

That’s the history. That was fine. Now that it’s being used for full retirement, for working middle class people who are fine. They’re not poor, they’re fine. They just don’t have a lot of extra. That’s a very different use of that DC. Now, it needs a lot more attention because if this doesn’t work out, it’s going to be very painful for people.

That focus on money rather than income, it probably comes from that. If you have any doubt about income, I’ll tell you this, if you look at a corporate plan, big corporation, if you are the CFO, the chief financial officer, who’s usually the most senior person who reports about the pension to the board and the CEO. I’ll give you two stories that you could have to go in and ask, “What do you think the CFO would choose?”

Story number one. We made a 20% return on our pension assets but our funded ratio and that’s nothing more than a jargon for saying, the amount of retirement income we could buy with that money has gone down. Assets up 20% but the amount of return income we had plan we could get has gone down. Or, we made 4% on assets and the amount of retirement income that we’ll be able to have is going up.

I promise you, they always take the second one. Why? Because if it’s the first one, then he has to say or she has to say to the board and the CEO, the hundred million that you’re planning to spend on expanding the business, you got to need it for the pension plan. That’s not a good story. The second one, they could say, “Hey, you know the hundred million that you budgeted for the pension? We don’t need it this year. Go spend it on developing the company.”

I say that as the shorthand not into getting to base whether what people will think about. Sure, people want some cash for things but by and large, people like pensions. They always like pensions. I’ve known of no employee group in the world who’s marched in their employers and say, “Get rid of the DP plan.”

Overwhelmingly, I’m trying to make the case the thing that matters for retirement is the amount of income you get and not how big your pot is. Those are very different. Sometimes people say, “If I have enough money, I’ll get the income. It will be fine.” That’s reality. You want a quick reality, let me just give you a simple case I think everybody can imagine.

Ten, 12 years ago in the United States, you could walk into any bank in the United States and get a fully insured certificate of deposit. It gets 4%, 5% on your money. If you had a million dollars, you get 40 or $50,000 a year interest. Okay. Now someone says, “I want to keep you very conservative, so just keep your money in the safe CDs, your principal … your million dollars is absolutely safe, insured.”

Say three, four years ago just to keep it away from today, you go into the bank, what would you get? Not 4%. No, no. You get a tenth of 1%. Today, you can get it up there but you would have gotten the tenth of 1%. To put that for you, that’s $1,000 per million. My million has been absolutely safe, no risk, right? What happened to my income? It went from 40 or $50,000 a year to $1,000 a year. You’re in total trouble.

You’ve lost 98% of your income. If I lost 98% of your retirement wealth, you’d hang me. First, you sue me then you’d hang me. My point is that there’s a big difference between wealth and income. Knowing I have a million dollars doesn’t tell me the lifestyle that I can enjoy from that million and what we care about is the lifestyle. Let’s be clear the goal, the purpose for retirement. Not for the silly other things but for retirement is a stream of income sufficient to sustain standard living and that standard living is measured by income.

What matters for retirement is income not the value of the pot of money. If you measure the wrong thing as we are in DC plans, I’m required if I’m a provider. I have to show all the members the value of their pot. Every time you go in your accounts quarterly, whenever you get a report, it shows a green if the pot is bigger, it shows you a red if the pot is smaller.

If you see it go way up, you smiling. If you see it go way down, you’re frowning. In fact, that’s not really telling you how you’re doing for retirement because what you really want to know is, how much income could I get in retirement from what I have in my account? How far am I from where I would like to be? How far am I from my goal?

That’s the thing that really matters. Just like that CFO, he wants to know or she how close are they to funding what they’ve promised people in income. We’re showing people and we’re required to show people the wrong number. We’re showing them what’s happening to the value of their pot and what they should be and really are worried … should be worried about. Or what is the amount … how close am I to my goal?

If I need a replacement of $56,000 a year to sustain my standard living after I retire, where I don’t to save anymore. I say I was making 80,000 or something and now I need about 56,000 because I’m not saving. What I want to know is, how am I on track to getting that? How close am I in terms of the amount of income, risk-free income not hopeful income but risk-free income, guaranteed income could I buy with what I have.

If that’s 50,000, then I’m 6,000 short. If it’s 40,000, I’m 16,000 short. If it’s 20,000, I’m 36,000 short. Whatever amount of pot it takes to buy that is irrelevant. It’s where I am and how much I can actually buy. As you heard from my example, that depends on where interest rates are. If you look at the real world, the world we’re in, I can tell you that they vary a great deal.

The difference between the high, low and long term interest rates in the United States in the last 10 years, if you retired … with a given pot of money, if you retired and you got an income of a hundred, whatever that means, at the peak of interest rates, when they’re high, you get a hundred. At the trough, at the low end of interest rate, the same amount of money, you’d only get 74.

In other words, you’ll be 26% lower. Think about that, 26% less of income, that’s a big hit especially for working middle class people but for any of us. Just knowing the amount of money you have doesn’t tell you how you can live. That’s the message and we have to get that clear both so that savers and people in plans are trying to figure out how they’re doing. We need to tell them the amount they can buy as an indicator of how close to where they are.

The number of people when they say the pot, they say, “I have $500,000. That’s more money I’ve ever seen in one place. I’m rich.: Until you find out that the amount of money that you can get from that to live on is like $18,000 or $20,000 a year. They say, “Whoa, that doesn’t sound too rich to me.” That’s the kind of things that we have to get. It’s at many, many levels.

We have to have people to know where they are and therefore if they don’t like where they are, they’ll be able to take action to improve it. They need to have the right information so we need to show them the amount of income they can buy and they can relate to that. I just got back from South Africa where we do something like this.

They passed a law there that you got to have to show the amount of income that you could buy with your pot to people on regular basis. Just think of this, let’s say you were living on 10,000 rand a month which that’s about 1,000 US dollars, 10,000 rand a month. Then, you see you have a pot of, I don’t know, 500,000 rand. You say, “Oh, I’m rich.” When you show the amount of income, its 2,000 rand a month.

It doesn’t take anybody. Anybody can understand, they don’t need any education. They just have to have lived. That if they’re living on 10,000 and they’re making 10,000 a month, and that’s how they’re living and someone shows them that the amount they have with their pot will buy them retirement income of 2,000. They realize that they’ve got a long way to go.

A very few people can convert $500,000 or any amount of pot money into that relevant number which is, how am I to where I need to be? I know I’m emphasizing this very strongly because it’s really very important and it’s had some very unfortunate effects by looking at the wrong number, therefore, how we define risk is wrong. If we don’t measure risk correctly, we can’t possibly manage for people directly. That’s the core thing that has to change.

The only thing I would say is … not the only thing, the thing I would say so I don’t sound like Mr. Naysayer Doomsday is slowly but we are as an industry and people, we’re moving from the no attention to this that now more and more you see the discussion of income, the discussion of how much income, discussion of when people get to retirement, how can they convert this to income and what’s the ways to do that and so forth.

In effect, I think we are slowly moving in that direction as are the systems elsewhere in the world. It’s moving pretty slowly and we need to help it to pick up a little bit. That’s, I think, where we are.

Steve: Yeah, that’s great. It’s great to get that context and the history. It’s interesting when you step back and looked at it. Yeah, we’re all focused on wealth and building that number and how that focus has changed the entire ecosystem so now you have wealth managers and their whole job is to make that $500,000, two million bucks.

Then, the way that most of them are paid is strip of assets. If they can earn or get 1% of your million dollars in like 10,000 a year if you, together, grow it to two million, then they’re making $20,000 a year. They’re not having that discussion. Yet, their title itself, wealth manager, it’s not like income manager. It shows you how in grandness this focus is on just growing that top line number.

You’re saying basically we should … just to finish, we should refocus completely in terms of defining risk around the risk of not being able to achieve this income?
Merton: Yes. I don’t see inherently a conflict that people are getting paid on AUM. I think your point is right that we’re measuring the wrong thing. If we measured instead of measuring in dollars, how much is your account worth in dollars, if we just measure it in the amount of retirement income you could buy with your account using market prices. Okay.

Not income earned in the account but how much … if I took the money in the account and bought US treasury’s bonds, they started paying when I retire and paid the cash out throughout or we bought an annuity or something, we could look at those prices. If we measure things in terms of how much retirement income and you paid me a percentage of retirement income, then we could do that. If I increased your retirement income, you pay me more and then I’d be very happy too as a provider.

It isn’t an inherent conflict as so much as it’s … I believe, we’re showing people the wrong number and that has a bad effect. For example, if I do the right thing for you. You’re 62, you’ve done well in your retirement account and I say to you, “Hey, you’ve got enough money to basically lock in your goal. I can buy you inflation protect, US Treasuries with funding that will take care of you throughout retirement guaranteed full faith and credit, the government protected for inflation at this level income, that’s your goal. Then I say, “You do want to increase your goal?” You said, “No, I’m happy with that, that’s my lifestyle. If I have some extra money, I’ll do something with it but basically, I’m happy with that. That’s what I want to live on and the safety and security, that is what matters to me.”

The rationale thing for me, the right for me to do is to buy you those bonds. Your income is absolutely for sure safe but if I buy you those bonds and interest rates go up, the price of those bonds will go down, that’s how bonds work. Interest rates go up, bonds and prices go down, the income stays the same. Yes, the bond price is lower but because the interest rate is higher, you get more dollars of income for each dollar of your bond value. That’s the whole point.

Income is absolutely stable in a bond. Its value will fluctuate with interest rate. If interest rate, especially long-term bonds, which is what you would need for retirement, if the interest rates go up and let’s say your bonds go from 100 to 85 and I send you or put it on your account that your account has gone down 15% and you’re 62, you see that, you’ll go berserk. You’re going to say, “You told me you’re being safe for me and I’ve lost 15% of my retirement.”

In fact, that’s not correct statement. Your retirement is defined by how much income you get for life. That hasn’t changed. The value of that has, that example is the problem at the core. It’s misinformation because we show them the wrong number.

They get happy when it goes up but they’re actually no better off because if interest rates fall, the bond price will go up. They’re richer in terms of money but the bond doesn’t earn as much so their income doesn’t go up. Therefore, they don’t have any better retirement. They see it as, “Oh, I’m richer,” or “I’m poorer,” or “You’ve lost my retirement.”

That, from my experience, is the biggest problem. It’s not a conflict between the asset managers or anything. It’s just, we’re showing them the ruling number and we’ve taught people. They didn’t ask for that number, you didn’t ask for that number to see it when you put your money in.

You know what I’m saying? Most people don’t even know. It’s the number we show them so they get used to doing it. If you’ve been in a DC plan for 30 years, you keep getting the account, you figure they must be … they’re showing the thing with the green or the thing with the red. They’ll show it to you for a reason so that must be what you should look at.

Green means good and red means bad. We’re all that way. This does not have anything to do with I2 or training or anything else. This is just common sense. We’ve taught all the members in DC plans that that’s what they should look at and that they’re better off with that numbers up, green and they’re worse of if it’s red down.

The reality is, that isn’t true. It’s like showing people numbers that aren’t relevant and teaching them to look at them and that creates all kinds of complexity and then the management of the money, not because there’s a conflict in making money but because we’re measuring risk wrong, rules are being written which are … that supposedly reduce risk. All of them are written with the idea of risk of volatility, of the value of the account rather than volatility of the income.

Again, if you bought certificates of deposits or treasury bills for the last 12 years, your million dollars is still worth a million dollars. I don’t know what to say about inflation. The amount of income you’ve got has gone from four, 5% down to practically nothing. That is the message. We have to fix it in several levels but starting with, we have to agree that this is what we should be doing, we should change the way we’re required to present things.

Even if you’re required to show them the account balance, I would put it on page seven. By the way, if you want to liquidate your retirement account, it would be worth a thousand dollars today. Of course, that’s not what you’re going to do so it’s not relevant. What’s relevant is, how close are you to your goal of how much income you need to have a good retirement.

Steve: Got it.

Merton: That’s how it should be.

Steve: Right. We have to kind of retrain a few generations of people about what’s the right thing to focus on is. It’s interesting listening to you describe those. On the one hand, you compare how people talk about pensions, which is in many cases, they’re talking about, “Hey, pensions are have all these unfunded liabilities.” Then, that’s probably because lo and behold, maybe they’re measuring things right away.

They’re measuring what’s their ability to make good on their publications to pay a stream of payments. They’re actually measuring the right stuff and saying, “Oh, looks like we’re under funded.”

Meanwhile, you got all these people saving and they’re like, “I’m saving big piles of cash but I’m looking at the wrong metric. I don’t really know. How does that translate into me actually having enough income for life?” We’re not really saying exactly how big is that problem and people, I think, I’d rather say concerned about it, but it’s kind of interesting compering how we look at these pension plans through one lens and the DC plans as you’re describing it through another lens.

Merton: Yes. Again, I underscore for pensions with professional managers, CFOs or oversee, that CFO is asking for the right number. He’s asking for how much income or the plan assets be able to buy. That’s what he looks at, she looks at. This is not about when you say retraining people, this is not about retraining people who are professionally in the pension system. They understand that.

They understand that’s what matters is the income. Believe me, the problem in the DC world is for you and I and my 150 IQ brilliant MIT colleagues, three PhDs, nanotechnology designs and they don’t know what to do with their account either. No, that’s true. Why we would expect them to be able to do that?

I’ll give you an example, I have to give them the test history of all the mutual funds that they can invest in, okay? I’m required to give them that. Remember, these are some of the smartest, most curious people in the planet, okay? You won’t find any better educated, smarter, more curious people. I give them that, they don’t know what to do with it. I don’t know what to tell them to do with it. What are they supposed to do with it?

I’m required to give it. What are they supposed to do with that? How are they supposed to look at the past? Pick a good manager for the future.

If you’re in this industry, if you’re in the financial service industry, if you have the skill set to look at the past history, which is available to everyone, of mutual funds, returns and predict who’s going to have good returns in the future? You will get paid millions of dollars a year for that skill. People are, okay? Is it reasonable to expect even my super smart MIT people, in their spare time to be able to look at these things and figure out which managers are going to do well from that data, those data, and do anything meaningful?

Of course, not. It is so absurd to even suggest that. Yet, that’s what we do but we create frustration because then like my colleagues say, “Well, why are they giving it to me? These are serious people. This is retirement system. I must have to do something with it.” The answer is that some of them just get frustrated, they say, “I think, I’m a pretty smart guy or gal, but I don’t know what to do with it and I’m just frustrated.”

Others say, “Oh, I’m smart. I guess what I should do is find whichever funds were up the most the last 10 years and invest in full my money in them.” What else could I think to do? Of course, we all know as professionals, that’s called return chasing. That’s a terrible investment strategy. Chasing after whoever did best last time. We know that whatever is right, that’s not a good one.

Yet, what are they supposed to do? Some part of it, without overbearing this, is some part of it is we have to sit down and just use common sense. What do we expect people even very, very smart educated people? They’re very curious people. What do we expect them to be able to do with this? What decisions are meaningful and what are not? What choices are meaningful and what are not?

I think if you investigate, you’ll find most of what we ask people, what asset allocation they want? How much real estate? Do they want a conservative fund? All of that stuff is meaningless to people. They don’t know what to do with it. They don’t know how to calibrate it and they get frustrated with it. One of the things we can do in connection with getting the right information to people, mainly his income, is to have a rule. A rule says, “Only give people and clients meaningful information and actionable choices. Don’t ask them to make decisions about things that they don’t understand, can understand, don’t have the data and don’t have the experience and don’t have the time to evaluate and the skills.”

It’s like, if your doctor, if you’re going to surgery says, “Mr. Jones, would you rather have 12 or 16 sutures?” That’s a choice, right? Do you have any idea? No, I say to the doctor, “That’s what you’re supposed to do. I had to find you and I have to trust you to do it right. I can’t make that decision.” If you look at most of the financial positions that we ask people to make in DC plans, the choices of funds and risk aversion, all these kinds of things.

Most of it, most of it is of that nature. It’s really not meaningful. In fact, if you just go after the meaningful information, I believe, you can put the meaningful information and the meaningful or actionable choices on one page. Not a lot of complexity, not a lot of investigating funds and so forth and all that sort of things.

It’s a little bit like if somebody gave you all the parts list for your car and said, “Okay, here’s everything. All the information, here’s all the part and now you assemble your own car.” How do you think that would work?

Steve: Yeah, not too well.

Merton: Not too well.

Steve: Right. Do you see any organizations or, I guess, you mentioned South Africa but organizations of countries kind of making a lot more progress in moving down this path of helping people, one, measuring the right things and focusing on the right metrics, income and then making it simpler for people to actually have successful outcomes?

Merton: Yes. We’re talking about a lot in the United States whether we’ll implement it well and how long it will take to implement, I’m not sure. There is no question in my mind here and in the UK, for example. Actually, in most countries, in Hong Kong, Singapore, they’re all talking about that we should be thinking an income.

South Africa has taken this step, others are doing it. By the way, if you’re a provider today, you could put that number up if you wanted to. You still have to show the other, the AUM, but you could put that number up.

The problem is, you won’t train people right. Look, the way they’re training people is if you start putting that number, you have some explanation but people … it’s pretty intuitive to know. Look, you need income to live in retirement and here’s the level of income you can buy. That’s not a hard one. You don’t have to do any translating.
If it’s 2,000 rand you can buy and you’re living on 10,000 rand, you got a long way to go. You don’t need a whole bunch of other analysis. I think, if we start doing that as a rule and we actually de-emphasize the value of the account, you put that on page two or three and call it the liquidation value. That’s what I would say.

Liquidation value is X dollars. If you liquidate your retirement now, this is what you’ll get. That’s not what a retirement account is there for. It’s not there to be liquidated. It’s there to support you in retirement. You put this other number. I think it won’t take long for people to get very used to it because they’ll start … they’ll see their income go up. They’ll see a green arrow and they’ll be happy and they should be.

If they see their income go down, they’ll get on the phone and call up and say, “Why did my income go down?” They’ll get an answer. They may not like the answer but they’ll get it. In other words, they will look at things in the right way. I don’t think it would take that long if it’s uniform. If one provider does it, it’s not going to have the impact.

If we became the law, the regulation, and everybody had to do it and it was done probably, it’s no different from saying you mark portfolio assets properly. Put them on a wish. There are rules for it. You have rules for how you would mark the income. That’s just the detail. I think it wouldn’t take very long at all especially if we have little green and reds.

People will see. I think they’ll find it more intuitive. Just think about it. You know what you’re living on and you know what this will buy. That’s about the easiest thing for you to figure. It’s like someone says, “I give you a race,” you will understand that, right? You don’t need to have to have a financial engineer or a technician or an adviser to spell that one out to you. That’s what I’m trying to … we can do it, I think we will get here.

I hope we could do it better and sooner. This is absolutely a necessity. We can’t keep running a system on the wrong metrics.

Steve: Yeah. I think the reality is that it’s already been tested. I mean, people that had pensions or easily able to assess, “Oh, I’m going to get $40,000 a year starting at age 60 from my pension as being a firefighter.” They completely understand it. They can plan for it. That’s all they know. They can kind of know where they stand.

What I see a lot in our business is people kind of think about safe withdrawal rates. They’re still focused on piling up a bunch of money and then they’re starting to think, “Okay, here’s how I’m going to take this money down. How do I draw it down? What’s my safe withdrawal rate? What’s my sequence of return going to look like? Which assets will I tap at which time?” Then, they’re basically managing the drawdown.

Do you think that’s realistic for people to do, for a lot of people to do or how do you see that building?

Merton: Look, let me start with, first of all, the answers are at some level the same for everyone no matter whether they’re working class, middle class, upper middle class, mass affluent. The super wealthy or the very, very wealthy, this is not an issue period, okay? I mean, their retirement is just not a thing.

For the rest of us, it is different. I mean, if you’re a working middle class person, you’re fine but you don’t have a lot of extra. Then, you’re focusing … you don’t have a lot extra. Therefore, if something goes wrong on your income or like you put your money in stocks and the stock market goes down, that’s going to be very painful.

If you’re upper middle class, you probably have more reserves and if you’re mass affluent, you probably have other reserves, you have various goals maybe you have requests. You want to do some wealth management, intergenerational transfers, you may want to do some philanthropy. Modest. I’m not talking about gazillion dollars.

You have other goals besides a good retirement. That’s fine. People have that money. You have to be careful. I’m talking only … my job is to get you a good retirement. I’m not your financial planner and it’s a very bad thing to integrate into a financial, to a retirement solution like a pension or a retirement, integrate that in your other desires. Do you understand what I mean?

In other words, if you want me to be your financial adviser if you’re affluent or mass affluent, you have adviser, great. Then, their job is to look at your whole package of everything, all the things you want, all the things you wanted, you’re hoping to achieve, all of that stuff and integrate it. That’s great. If it’s retirement that you’re focused on, and as I say, for working middle class people, there really isn’t an awful lot extra beyond that, okay?

It depends on who you are. In every case, what you want to be looking at is drawdowns are risky. Say, “You could take 4% out a year and 96% of the time, you’ll be fine.” You think that’s pretty safe. Actually, what’s the penalty, the other 4%? You ran out of money. You’re there and you literally ran out of money. The 4%, is it a rolling 4% if your portfolio goes down, do you mean 4% of the lower value? That’s like having a floor which is a floor of an elevator.

If you mean literally 4%, so you retire with a million dollars, you say, “I’m going to take $40,000 out every year no matter what.” You could outlive that. If you put it in stocks, your million could become 600,000. That’s what happened between September of 2008 and March of 2009, less than a year, six months. Markets around the world more or less decline about 40%.

Now you’re taking 40% out of 600,000, 40,000 out of 600,000, that’s not 4%, that’s 7%. Do you see what I’m saying? There’s lots of nice rules of thumb and if you’ve got extra things, I say, “Look, if it doesn’t work out, I won’t give that gift to my favorite charity. I’m sorry, I was going to do it but,” if you got that kind of wiggle room, that’s a very different situation when you say, “You know, if my retirement income isn’t there, I’m going to have to move in with the kids or I’m going to have to do something maybe not quite so radical but I’m not going to be happy.”

To answer your question, the way I like to look at it is a little bit like when you get on a plane and they tell you all the things to do, seatbelts? Do you remember when those masks drop down? They always have a picture of a sweet little girl next to you and your natural inclination is to put the mask on her first, right? What do they tell you? No. Put the mask on yourself first. What’s the message?

First, take care of yourself because if you don’t take care of yourself, you can’t help anybody else. You’re going to end up having them having to help you. You’re going to be a burden. That’s the message. That’s my message on retirement.

You ask me about retirement, I say, “First, focus make sure you got your retirement.” One way to do that is if you have a standard living, which you’re happy with or pleased with and we’d all like more. You say, “That’s good enough for that.” Then, one way to do it is to lock that in by buying a life annuity. Life annuity will pay … and you can get ones that are next to inflation, if you want to keep your standard living.

If you lived 120, as all the good books promises or wishes, okay, and maybe your next generation or two will start living that long. Even if you live to 120, you get paid every month. There’s no chance you can run out. Any drawdown policy has a risk that you’ll run down, unless your drawdown is interest. The problem is that’s very expensive. You have to be very, very well off and that’s not the case to do that.

Let me explain to you that once you get to retirement, you have a certain amount of money. I mean, that’s the fact. If you just say, “I’m going to live on interest because I can’t … I don’t know how long I’m going to live. I can’t spend down on principal, because if I spend down on principal, I might outlive my money.” People, where everybody worries of retirement, I don’t care what your IQ is. Everybody worries that they’re going to outlive their money.

That’s why so many people, when they request something, they request it by saying, “You can have my house and you can have all my money, if there’s any, when I die.” I’m really saying, “I’m going to hang on to everything because I may need it and if I don’t need it, you can have it.” That’s not a request function. That’s just an inefficient market because certainly, your beneficiaries … beneficiaries, that’s not a good deal for them. They could use the money when they need it, not when you die and those are usually not the same time but anyway.

To go back to the point, if I just live on interest let’s say it’s, I’m going to give you numbers so you get an idea. I’m earning 2%, now, if I’m willing to buy an annuity with my money or not … you don’t have to put everything in that but let’s say you did everything. What happens? When I buy the annuity with the money, it agrees to pay me every month for the rest of my life.

In return, so they will pay me money for as long as I need money. Then, when I no longer need money, I’m going to some place where I don’t need money, some place better, I hope, okay? I give up money because I don’t need it. That seems to me a pretty good deal.

I’ll give your money for as long as you need money and in return, you give up your money when you don’t need it. If you see of it that way, what’s the amount that you get? Instead of 2%, you get 5%. The deal says, if you hold your bonds, you just spend the 2% interest or whatever, you get 2%. If you give up your money when you don’t need it, which could be tomorrow or 35 years from now, okay? I’ll pay you 5% as long as you need it.

Do you see? For the same amount of money by moving from just living off your portfolio, interest, to accepting that if I don’t need the money, when I don’t need the money, I give it up in return, I can increase my benefit for the rest of my life, even if I live 40 years by 5%. That’s the way to improve benefits without having more money. That’s what’s so powerful about that.

Steve: Right. I think what’s happening as you’re kind of running in … theories running into practice. The reality is a lot of people are uncomfortable giving up their liquidity and want to have access for psychological reasons, that chunk of cash. They don’t want to give it over to an insurance company to get that higher stream of payments.

Merton: Yeah. Okay. Let me just quickly say on that. If it’s expensive to buy, a lousy product, a lousy version of a product doesn’t mean the product is bad. You had a car that only starts one in four times and I ask you, “How do you like the car?” You’d say, “I hate it.” I don’t know whether they’re saying they don’t like it because it’s expensive.

If they say they want liquidity, fine. You keep 10% of your accumulation for liquidity. You don’t need a 100% for liquidity. That’s my point. Remember, what your choice is. You can live on 2% a year or you can live on 5% a year. Sometimes, liquidity is nice but that’s pretty expensive to have liquidity and be able to play in your sandbox with the money. That’s what I’m trying to say. If you’re working in middle class, the difference of getting two or five is huge.

It’s the difference of … and that’s the way you’ve got to look at these things. It’s not like I’ve got so much money, I would like to have this and I like liquidity and I like to have a boat and I’d like to be able to give money away. I’d like all those things too. The reality is, that’s why it’s a crisis. If people have that much extra money and was easy to get there, we wouldn’t be having a crisis. We wouldn’t be talking about this.

Let’s deal with the real world. In the real world, we’re going to have to have people annuitize just the same way they got a pension. They may not like it. They had wished they have more money. When they’re faced with a choice of having a very small fraction, I did an analysis using real numbers from groups that work on that here, work conventional on this.

I said, “For someone in the 75th percentile income in the United State, it’s like $86,000 or whatever it is I forgot the number precisely and if they have a replacement and they show like $56,000 and if they have accumulation of 300,000 in their DC plan and they have a house that they buy a reverse mortgage to it.” All right, I’ll just give you some quick numbers.

Just living on the interest on their accumulation plus social security, you always get social security. They would get to about roughly 50% of their goal. In other words, they would have only half of what they need to have a good retirement, half of the standard living, the replacement ratio they would like. If you annuitize, you get about another, you get from half to about 75%, okay?

Remember, it’s not up this much because we have social security, which is actually an annuity to begin with. Everybody starts with the social security annuity to begin with. That’s why it’s not just proportional as I said before. I will give you numbers. Fifty percent then you annuitize, now you’re 75%. If you do a reverse mortgage on your house and let’s say, you live in the Boston area and you’re that income bracket, you have a 500,000 or $600,000 house or apartment.

You do a reverse mortgage on that, you can get enough to buy an annuity, not to earn interest, to buy an annuity so that you get to the other 25%. You can go to 100% coverage. The difference of just living as you say, a drawdown. This is a drawdown where you’re not taking anything down, just interest. That’s zero withdrawal, you’re living on interest. That would give you 50.

The annuity plus the reverse mortgage in your house and use that money from your house to buy the annuity, which is safe to do because the annuity will pay you for the rest of your life and you don’t have to pay anything on the reverse mortgage until you leave the house, which is at the end of your life. It all works out. That’s the way to move the needle from 50% to 100% coverage.

I’m saying, as a practical matter, and this isn’t just for the United States because it turns out that the saving patterns around the world are very, very similar for working middle class people. The only personal saving they do, I’m not saying about retirement accounts, personal savings, is their house and a bank account. The house is usually the biggest asset that a family has at retirement, often bigger than their pension.

That house, this is true in China, this is true in Hong Kong, Singapore, you name it, Mexico even, believe it or not. That is such a big asset. It is a perfect asset to do this with because it’s an asset that people have. It’s an asset that gives them an annuity itself because they live in it and it’s the house they want to live in so it covers it. If you do a reverse mortgage on it and you do this, you can move yourself that far. Anything that big, in my view, has to be looked at.

I don’t say everyone should get a reverse mortgage. I’m not saying that. I’m saying you need to look at these two things because these are the only two things, the annuity and the reverse mortgage are the only two things for working middle class that will move the needle other than increasing mandatory contributions.

“I’m saying you need to look at these two things because these are the only two things, the annuity and the reverse mortgage are the only two things for working middle class that will move the needle other than increasing mandatory contributions.”

the Government of the United States says, everybody has to contribute, like in Singapore, 31% of the salary, we could do it that way too. I’m saying, under the conditions we are now as a practical matter, you’re not going to get there with the kinds of saving rates we have. We’re not going to change people’s saving behavior. We can mandate it, you understand.

The law says you have to, but if you think you’re going to psychologically prepare people to educate them to do it, forget it. That’s going to take a long, long time. It’s extremely hard to change behavior of that kind. That’s what their parents did, that’s what their friends did. We have to be practical here. They may not like annuities actually I’m saying it’s just like request. Request is a rich person’s consumption good.

If I’m rich enough to give a request then I don’t have a retirement problem. You know what I mean?

Steve: I also think that like for instance with annuities, you’ve got misalignment in the system where if you have a wealth manager who’s making a percent of your assets and then you go them and say, “Hey, I want to take half of my assets, say, a million bucks, I’ll take 500,000 bucks and buy an annuity.” Then, they’re going to stop being paid on that money because it’s going to be parked with an insurance company.

They may dissuade you from doing that because it’s going to drop their income. I also think with the house, a lot of children are probably interested in like, “Do I want my parents to get a reverse on the house when that means it’s going to be less money coming to me at the end.” I just wanted …

Merton: Yeah. Let me respond to that because you’re asked, this is a longer conversation, but I think I need to deal with that. I’ve actually worked a lot on, first of all, how to properly design a reverse mortgage, that’s a longer story. Even with these things, everybody always says this, first, if you were … let’s just start at the beginning.

Supposed you’re a retiree with no beneficiaries, no children. It’s great, right, because anything you leave is wasted. You leave the house it’s wasted. It goes to the state. Or it goes to your 14th cousin you don’t even know. Okay. This is great because what you want to do is get the most money you can from the house because you’re never have to pay anything on it and then you can put the money in annuity and for the rest of your life live better. That’s a pretty easy decision.

They say, “Oh yeah, but with the children they don’t like it.” Let me ask you this, if I’m 65, retiring, you’re my son, you’re probably 38, you’ve got a 9-year-old and 11-year-old. You reach your peak spending for your house, you’re moving in your children, double digit they’ve got more expensive and you also have college in front of you. You have the most housing you need and you have the biggest dispenses you probably need in your life cycle.

I say to you, “Son, when I die you can have the house. In fact, I’m going to give you the house.” That could be 30 days from now or 30 years. If I live to be 95, you will get it when you’re 68. That’s going to be really helpful for you, right, getting this house at 68. You’re not going to move in to it, you’re just going to sell it.

How about this one? Suppose you say, “Dad, don’t do a reverse mortgage because it’s bad for you and I’ll find plenty of literature to say that.” Then, you know how I would talk? I’d say to you, “Okay,” if I’m the person trying to convince your dad I’d say, “Dad, if you do what your son says you have no interest in this so leave the room.” Now I’m going to talk to you. I’m going to say, “Okay, if we did a reverse mortgage, if your dad did the reverse mortgage he would get $500,000 in cash.” I’m just picking a number, it’s a million dollar house, $500,000 in cash.

If he does what you would do, he won’t get any of that, right? He’ll be no worst off. Why don’t we give the $500,000 cash to you right now you’re 38 with two kids nine and 11 living in this house? Here’s the deal for you. You get the house when your father dies, your father and mother, in 30 years or 30 days. By the way, to win this lottery you got to have something bad happen to your parents and most people don’t like to wish for that. It’s not psychologically much fun but let’s follow it through.

Here’s your choice son, your dad is out of the room. Here’s your choice son, you can do what you told your dad and you’ll have this lottery, you’ll get this house someday. Or, I’ll give you $500,000 now today and you have a call option that when you get the house, you can either choose to pay principal and accumulated interest because remember, there’s no interest paid on the mortgage which falls out. There’s no way that you can default on the mortgage by not making a payment because there’s no payment to make. Okay?

Five hundred thousand now plus when the house comes to you whether it’s in 30 days or 30 years, you have the option. You have the option to say to the banker, whoever did this, keep the house forget it. You do that if the house is worth less than you owe, right, okay. You get nothing more, you have your $500,000. What if the house goes up like Southern California houses grew 20 years ago or Singapore houses the last 10 years.

It goes from a million dollar house to a $10 million house. Okay. What happens? You pay the mortgage principal and interest and you have all the upside. I’m offering a choice of $500,000 now, never has to be repay, it’s yours, do whatever you want with it, no matter what happens you got it. Plus, if there’s any big upside of the house, you’ll get it. Versus just getting the full upside in the house someday. I’ll bet you, there are an awful lot of 38-year-olds … and now, we’re not talking about wealthy, we’re talking about 38-year-olds in middle or even upper middle income families.

If you chose, I think there’d be a lot of 38-year-olds who would like to get the $500,000 now when they need it and still have the upside. They’re not selling the house and then they’re going to regret it when they say, “Gee, we sold the house back there at a million and now it’s worth 10.” Because they got the upside but now they have the 500 grand.

Of course, once if you as my 38-year-old person says, “Oh well, I like that I’ll do that.” What have I done? I moved you away from your original statement to your parents don’t do it, right, because now you think it’s a good idea to do. Then, I say to you, “Well, it’s like the old joke, once you establish the principal, we’ll haggle the price. Once I got you say that you’ll do the reverse mortgage, I say, “You know, how about giving dad 100 grand of the 500? You still get 400 and the upside. How about giving a hundred to your dad?

How far I’d go, I don’t know as what that makes. I know that if your dad gets a hundred, he’s better off, right, than if he did what the son said, you agree? He’s happy because he’s got 400 grand plus the upside which is he chooses to do it, that means he like that better than … so do you see, I’m just trying to tell you by showing you that request function that everybody says, “Oh that’s normal,” is so crummy I know I can get a deal.

I don’t want to sound like our president, but I know I can make a deal between the beneficiaries and the retiree, where both of them would be better off. By the way for, more affluent people, this is great. Think of a, what do you call it, I don’t know if you call them, mass affluent people, they’re well off. They’re not super rich but they’re well off. Typically, a big chunk of their net worth is a house that they live in. It’s a very nice house. It’s the one they want to live in the rest of their life. It’s at Florid coast or wherever part of the world or West Coast, whatever. A house is a big thing.

They’re looking at the new tax law, estate taxes and gift taxes and they say, “Hey, we can give away now an extra $5 million,” if that they have that much. We can give away a lot of money tax free and by the way, which is probably a good idea not just because the money would then appreciate outside of our state, but if the other political party gets in, they’re liable to reverse it. That’s happened before.

If you died in 2009, you pay the biggest state tax. If you died in 2010, you paid no state tax. If you died in 2011, you pay the state tax. Plenty of people who have extra money now are saying, “It’s going to be wise idea to take advantage of this new higher amount that you can give away because if you give it away they don’t claw it back if they change the law.”

A lot of people are going to want to give it away. You’re sitting there saying, “But I can’t give away that much money because, well, I’m quite well off a big chunk of my wealth is in the house. I can’t give them half the house. I can’t change the ownership, I’ll get a capital gain. It’s just a nightmare.” Instead, I get a reverse mortgage. I give the money to my children now. I’ve done the estate planning. I’ve gotten that out of my state, it’s like law changes, I’m okay.

What about me? I don’t have to make any payment on it. It’s not like borrowing on a house and then having to pay interest and principal, what happens if I lose my job? What happens if the market goes south? I’m making a leverage bet when I borrow. This thing, I never have to pay anything as long as I stay in the house. If this is house I’m going to live in … I’m trying to get you to see how powerful … and this is far better than getting an extra 50 basis points or a hundred basis points or the alpha or what do you call it, superior performance on your portfolio.

In terms of outcomes, this is the thing that this kind of using the tools that are out there effectively and efficiently is going to add so much more to the experience of people getting to a good place than getting a manager who can add, you’re just killing yourself to get an extra 1% by having a really sharp manager and so forth. I just try and get you to see this in a frame that … and if you don’t get a little of the lyrics of this, it’s like a good song.

If you’ve ever heard a good song that if you don’t like the song, you don’t care. Suppose it’s the song you like, I don’t know about you, but me, if I head a good song I say, “I really like that.” She’s sing and she’s gone what … I have no idea what’s she’s saying.

I like the song so I put it on replay over my machine and I hear it 10, 20, 30 times. I listen to it quite often. Guess what? By the end, I know every lyric. If everything I’ve said to you, you didn’t get all the lyrics, I hope you got the melody that there are many things we can do that are feasible with things that we have today. We can improve them and we should.

What we have today if we do it right, if we do the things, all kinds of things and don’t just sit there and say the same old same old same story, same reason can’t do it, can’t do it this is the way you used to it in the past da, da, da, da, da. That luxury, I’m just trying to point out to you, if you get the melody that we can solve this problem. I don’t consider solving the retirement problem a science problem. It’s an engineering problem. We know how to do it. We can get people to good places. We can’t do magic.

If people save 1% they’re not going to get here. We can get them there. We have the tools to do it. We can design things, we can do things, we can do it but we have to do it. It’s a big task. It’s doable so I guess you could call that overall for a crisis, it’s a crisis where I think we have a way to solve it.

Steve: Right. I appreciate that. Let me just reiterate. One, that 65% of people are worried about retirement and how to pay for it. It’s the number one worry from a financial perspective for people. I’m just going to try and playback to you my take away from our conversation here. One is, first measure the right thing instead of measuring assets, focus on income and what will your lifetime income be.

The second thing is give people simpler controls. Give them more actionable choices, don’t clutter up their heads with like every little detail about all the different fun choices and whatnot. It’s like more, “Hey, what do you need from an income perspective. How much risk are you going to take? How much are you going to save?” What are those big levers that they can pull and kind of illustrate for them what their future looks like based on those simple controls.

I think the third thing is make the whole mechanics of how the investing is done. Not necessarily hidden but just a lot … a more abstract from the person. Don’t make them get involved with every detail but make sure that it’s being done in an efficient way that is focused on this income at the end.

The last thing would be, really focus on … or, be open to using different or existing tools that out there today like annuitization, like accessing home equity through reverse mortgage, target date funds, whatever it is, use the products that are available today to actually realize income versus pulling your hair out trying to manage your portfolio in a perfect way for all these unknowns around inflation, life expectancy, volatility in the market, interest rate changes and everything else. Did I get that right?

Merton: I think so. I think the only thing I would want to underscore, you mentioned target date funds that I don’t think target date fund satisfies solution. I think because they have no goal and because they don’t update information about the person. The only thing that they do is give you a glide path based on your age.

If I know your age today, I know what your age would be a year from now or 40 years from now. That means, they have an investment strategy for you that is designed to manage your money with no updates because you learn nothing. The target date fund, the only thing it uses is age and I know in advance exactly what your age will be.

Would you really think that you could … that the best are approximately best strategy could be something … that something gets complex that you’re starting out at 28 and you’re working doing one thing and you’re going to retire at 68 and you don’t even know where you’re going to be and who you’re responsible for and all the things that will happen in between. Somehow that I don’t need to use any information about you such as for example, you and your twin start out exactly the same, same firm, same everything, the same income, the same job.

One day, you get called in by your boss and he says, “You’re doing a really great job. We think you’re very good. We’re promoting you, we’re going to bump your income up 20,000 a year from 35,000 or 40,000,” big jump, right, 50% income. Your twin didn’t get that. You and your twin were identical just before this, right, you’re getting everything to saying.

Now you’re 50% higher standard living than your twin, do you need the same amount retirement money as your twin? No. Do you have the same investment profile? No, Does the target date fund differentiate? No. You’re the same age, you were born 20 minutes apart.

Target date funds don’t use any new information. It is not conceivable in a world that we’re in that something that simple could solve the problem even closely. Is it better than other things? Oh yeah, I could find lots of things that are worst. Creating four X on your screen after work and your retirement account probably would not do very well, putting all your money in collectibles. I mean, I can find an infinite number of ways that poorly perform.

The fact that it’s better than some of the things we used to do, I give credit to but not much. The thing you need is diverse versions. I’m not going to advertise any but you need a system that adjust to both market and personal information and adjust what is best for you. If your goal changes because you get a big income increase because now you need to have a higher standard of living you’re going to have to do catch up. Why? Because you’ve been saving for one standard of living now you’re going to have to save for a higher standard of living. You have to make up for it for a while to catch up where your twin didn’t.

Target date funds don’t do that. I’m sorry, I won’t sign on to target date funds are good enough. They’re not. A target income fund, target date income fund is better than a target date fund because at least the target date income fund recognizes that income is the goal and puts your fixed income part in appropriate maturity bonds or annuities to match.

Let me be very clear, I do not think that target date funds qualify as a proper retirement solution. We can do much better than that. I just want to make clear, I’m not endorsing as good enough by a long shot from what we can do. One last thing, we all hear about Syntech and robos, well, I’ve been doing Syntech for almost century using computers and other things. It’s not new in that sense.

What it will do is just going to accelerate all of this because we can now do much more complicated things than just look at your age, which requires nothing. Therefore, people are going to get … just by competition, you’re going to find people providing things that allow you to adjust to changing circumstances. They’re going to put in on computers. They’re going to make these services available eventually with trust created by whoever does it. That’s important. They’re going to have it.

You’re sitting there telling people, “It’s good enough. I knew you when you were 28, I know your age when you’re 68. That’s good enough to manage your money for the next 40 years.” I don’t think you’re going to find yourself competitive. I think that it’s not that Syntech is going to be the thing, Syntech is certainly part of the enabler. My guess is that this is going to accelerate the process in which management of money takes place.

I think if you’re a professional on the management side, you better start to realize that life as usual isn’t going to stay that way. Which is, to me, just fine because I think we can build much better things.

Steve: Totally.

Merton: All right. Sorry, I run off on that but I wanted to make sure …

Steve: No, no, no. Yeah, no I appreciate that. It will have to … In another 30 days I’m going to have to ask you, I’ll send you what we’re doing with our planning tool because it does let people build kind of high fidelity or a pretty precise picture of where they are today and then the ideas that it’s a living plan. It does let them kind of model different switches like, “Okay, what if I delay social security? What if I work longer? What if annuitize half of my assets at a certain point? What if I sell my house and downsize or get a reverse mortgage?”

There’s all kinds of things they can model in your tool. We totally agree. Technology is going to enable hopefully better decision making, simplify this for people, make it more efficient, lower cost, which I think everybody wants. Hopefully, lead to much better outcomes, which is what you’re trying to solve and we’re working towards that as well.

Merton: Yeah. Just also, on what you sent me. I had created target retirement solution but somehow it was referred to as target date income funds.

Steve: Target date income funds. Right, is that not correct?

Merton: No, dimensional does have target date income funds and yes because I brought income, l concept and everything to dimensional and so forth, in that sense, I am also at least part creator of that. I do not say that’s a solution. I say it’s better than a target date fund. Target retirement solution is the thing that you know a version of what you know because you did all the programming.

I mean, so you know that it does adjust to changing goals, change personal situations as well as market conditions. I just want to be clear on that because sometimes, if something gets in print or put on the podcast, it never goes away and then someone pulls a clip and says, he said target date funds are fine. I don’t want that ever on the record because that’s not true.

Steve: Yeah. We’ll definitely be clear about it. I will make sure it’s clear. Is the target retirement system, is that live?

Merton: I say we. I just got back from South Africa where it was aversion, it’s a South African version but it was just launched by Alexander Forbes, which is the largest institution for DC in the country. I think it is 25% of the market and DC is the entire retirement system in South Africa. In other words, the safety net is so small you can’t see it and there is no, in that sense, no social security except what you put in your DC plan.

In that sense, it’s kind of similar to Australia but without the safety net. I think the name of their product version of this is called Clarity. It does all the things that I said. Can you improve it? Yes. Does it have to satisfy South Africa law today? Yes. In fact, it does adjust to both personal as well as market conditions. It does focus on income. It does put people’s income part of their portfolio into indexed proper maturity done. It’s essentially immunized based on their retirement dates.

They’re doing it. South Africa, as you know, I don’t know if you’ve looked at it but it’s actually got a fairly sophisticated financial system. It has linkers out to 2050. It’s got a very well developed annuity market. Alexander Forbes is a huge full service thing. It has annuities, it has everything, it has platforms, it has custodian. It’s a very big entity in South Africa. They’ve launched it.

Steve: Awesome. I’m glad to see it getting used out there.

Merton: Yeah. It’s going to launch in some other countries too. It’s a little slower in the US. We got it here but it’s a little slower in the US partly because of regulation but any case.

Steve: Okay. Hopefully it gets fully realized because I think that would be awesome. Thanks Professor Merton for being on our show. Thanks Davorin Robison for being our sound engineer. Anyone listening, thanks for listening hopefully you found this useful. Our goal at NewRetirement is to help anyone plan and manage their retirement so they can make the most of money in time.

We offer our powerful retirement planning tool and educational content that you can access at newretirement.com. We’ve been recognized as best of web by groups like the American Association of Individual Investors.

Talk to veteran professional, Warren Strycker at Patriot Lending for an informed discussion. (See “information” tab on the home page for contact information.)

What? Children are ruining their parents retirement — and it’s getting worse????

Raising children has never been inexpensive. But the costs go well beyond daycare and college today, extending far into young adulthood—and that could pose a problem for parents’ retirement plans.

Parents spend $500 billion annually on their adult children—about double what they put into their retirement accounts, according to a study released on Tuesday by Bank of America Merrill Lynch and aging consultancy Age Wave. Nearly 80% of U.S. parents give some financial support to their early-adult children, from helping them with groceries to shelling out substantial sums for weddings, first homes, or even granchildren’s college educations.

“We sense that this cost is increasing because the life stage of early adulthood has elongated,” Ken Dychtwald, head of Age Wave, said in an email. “Adult children take longer to leave home, get established personally and in their careers, and establish financial independence in part because many are saddled with student loan debt.”

Often, the price tag associated with children is the base cost of raising them to 18—about $234,000 in the United States. That estimate doesn’t account for the less visible costs. Only a quarter of households with children use paid childcare. For the other three-quarters, caregiving is typically done by a family member—often a woman.

About 54% of women surveyed took a leave from work when they first became a parent, compared with 42% of men, according to the Merrill Lynch/Age Wave study. Women were also more likely to switch to a job with more flexibility or work from home after the birth of a first child. Men were almost twice as likely to switch to a job that paid more, or take on more hours for greater pay. These dynamics often contribute to the so-called gender gap in pay, which feeds into the gender retirement gap, leaving women with less in savings than men for what often is a longer life.

When it comes to retirement savings, the conventional wisdom has often been that parents will ratchet up their savings in the final sprint to retirement, once they are empty-nesters, to make up for the leaner years when kids took up much of the budget. But the study finds that the priciest phase of parenting is when the children become adults. Other research has supported that finding, with a 2015 paper by the Center for Retirement Research showing less than a percentage-point boost in 401(k) contributions when kids leave home.

It is a difficult situation with few easy fixes. One tip from the study: Parents should continue to contribute to health-savings accounts, 401(k)s and IRAs—even when they take time out of the workforce.

The good news is that with retirement, at age 62, comes a new income source in the HECM mortgage where home equity shells out considerable cash to eliminate forward mortgage payments and sometimes provides a nice  cash contribution to back up the meager savings parents are left with after the family uses up a big part of the retirement savings.

“So, hmmmmm, call me,” says Warren Strycker veteran financial professional, “Let’s talk. Who knows, I might have answer for you” (See contract information under the “information” tab on the home page here.

Also consider these stories for your retirement education:

Reverse mortgages provide access to cash without monthly pmts.

Home Equity HECMs Protect Women’s Retirement Choices

 

Retirement Planning Steps For Everyone; Consider income

By Jamie Hopkins

In my book, “Rewirement: Rewiring the Way You Think About Retirement,” I lay out a detailed ten-step process that everyone can use while doing retirement income planning. This is also the same process that is taught to thousands of financial advisers in the Retirement Income Certified Professional education program.

However, in reality, many people are not even taking baby steps to pave the way for a financially secure retirement. For some, retirement planning seems too difficult; for others it seems like retirement won’t ever apply to them. The facts are that most workers will retire someday and, by taking a few basic steps now, they can vastly improve the outlook for their future retirement security.

A secure retirement plan is more than just savings, it’s about generating income. As Managing Director of Clear Path Financial, Brandon Levithan, CFP®, ChFC®, stressed, “many pre-retirees have a plan to accumulate retirement assets, however, they do not have an efficient plan to distribute assets over their lifetime.  There are decisions that can be made many years before retirement to create more robust and more efficient income options for retirement.”

Teaching Retirement Planning
THE AMERICAN COLLEGE OF FINANCIAL SERVICES

Envision Your Retirement: To get anywhere in life and achieve success, you need a vision of success. Start by envisioning what you see as a successful and financially secure future in retirement. This technique of creating a mental image of the desired outcome is used by many of the most successful professional athletes and business entrepreneurs. Athletes mentally envision how the perfect race or game will play out long before they take the field. Of course the plan doesn’t always go perfectly, but imagining the future can at least help you develop a game plan. By adopting this technique, you can set goals and realize that the future you want is achievable. Do you want to have financial independence? What does that look like for you? Does that mean you will live independently or with family? Do you want to travel or would you prefer to stay in your community? Any retirement plan starts with setting your own goals and envisioning your desired outcomes.

Review Your Current Situation: After you envision where you want to go, you then need to take a look at where you are today. We can’t get anywhere without first acknowledging and knowing where the starting line is. If you are in the early stages of your career and just getting started with savings, how are you going to handle your investments and debt management? If you are mid-career, is now the time to really ramp up your savings? Or are you in your peak earning years? As State Farm Agent Jen Sias-Lyke points out “many people hit their peak earning years in their 50s and early 60s.” But she also notes that “The closer you get to retirement, the more focus you’ll need on planning.” So as you near retirement, you need to see if your debt is under control, do you know what you are spending each and every year, and do you have a retirement date in mind?

But, for all career and life stages a few important questions always stand out. First, are you managing your debt? Second, and usually tied to the first, are you managing your expenses? The answers might mean you need to set up a more detailed budget and stick to it. And lastly, are you saving and investing appropriately? This means that you are both setting money aside for retirement and investing in assets that will provide you with returns that match your risk tolerance level. At a younger age, you should be willing to take on more risk and be more heavily invested in stocks.  As you near retirement, you can take some risk off the table and invest in more bonds, CDs, and annuities.

Review Your Income Sources:

Now that you have examined your income needs in retirement, you can figure out if you will have an adequate retirement income stream. If you realize that you need $50,000 a year in retirement to achieve your goals, you will want to see if you can generate that much income. Make sure you consider all your income sources including Social Security, investment portfolios, home equity (see editor’s footnote for clarification), and possibly remaining longer in the workforce at some level.  Social Security benefits depend on how much you have paid into the system, and at what point you begin collecting benefits.

Average benefits are typically around $1,500 a month but can be as high as $3,500. Making an informed and appropriate Social Security claiming decision is crucial. Another decision will be determining how to turn your savings into income, and determining how much income your investment portfolio can provide in retirement.

The 4 percent safe withdrawal rate is a good start, but it is not the solution for everyone. The 4 percent rule says that historically a 50 percent stock and 50 percent bond portfolio mix could generate 4 percent of available funds each year. If adjusted for inflation, this would last for 30 years before the retiree would run out of money. This means if you have $500,000 saved, you can safely generate $20,000 a year from it and not run out of money in retirement. You can get more income from this savings if you are willing to make adjustments to spending in down market years, but it provides a good starting point.

A financially secure retirement starts with planning. Research shows that those who have retirement plans in place have a happier, less stressful, and more financially secure retirement. While earning more money and saving regularly are important factors, you can improve your situation by cutting expenses, prioritizing expenses, and sticking to a good plan. You don’t have to buy into all the doom-and-gloom retirement predictions. Decide to be more proactive, take the first few planning steps, and begin to take charge of your financial future.

I am the Co-Director of the American College’s New York Life Center for Retirement Income and an Associate Professor of Taxation at the American College where I helped develop the Retirement Income Certified Professional® (RICP®) designation.

Statistics…

Is it time to reset your compass?

Proverbs 12:13

Lies will get any man into trouble, but honesty is its own defense.

John 8:32 and ye shall know the truth, and the truth shall make you free.

James 3:14

But if ye have bitter jealousy and faction in your heart, glory not and lie not against the truth.

“Exagerated truth is a lie, going in”, Warren Strycker

And then, there’s Ben Shapiro…

Ben Shapiro has made a name for himself in conservative circles, appearing daily on radio, TV, and at events around the nation. His off-the-cuff and rapid retorts have solidified him as a favorite commentator among politicos — but what’s Shapiro’s backstory? He recently sat down with “The Billy Hallowell Podcast” to talk about free speech, culture, and the roots of his career.

Shapiro, whose signature line is, “Facts don’t care about your feelings,” decried the crisis of truth that seems to be plaguing the American conscience, explaining his worries that people seem more motivated today by emotion than facts.

“I think that folks now treasure the subjective over the objective,” Shapiro said, adding that this dynamic is the biggest cultural problem of the day. “I think that there are a lot of folks who, the facts don’t make them feel good about themselves — they don’t make them feel good about the narrative that they tell about their own lives.”

As a result, he believes people tend to disown the facts and then avoid viable debate, turning what should be factual arguments into character arguments. This naturally results in the demonization of ideological opponents — something that has plagued culture of late.

Listen to Shapiro discuss abortion, free speech, civility and more:

“Right now, people are getting a lot of pleasure, particularly in the social media era, from just smacking people, and it’s easy to do that from behind a screen,” Shapiro said. “It’s hard to do that when you’re actually in person, and this is one of the problems with having an online society — it’s easier to be mean and nasty when you don’t actually have to look in the face of the person you’re being mean and nasty to.”

Meanwhile, civility and healthy debate aren’t the only casualties, as Shapiro argues that people continue to exchange truth for their own opinions.

“People [are] deciding that facts are significantly less important than self interpretation,” he said. “People using phrases like ‘my truth’ as opposed to ‘the truth’and me saying, ‘Well there’s no such thing as ‘your truth.’ There’s just facts and then there’s your opinion and it’s fine, you’re allowed to have opinions, but let’s not pretend that your opinions are sacrosanct.’”

What does Strycker say about this?

MY FIRST go around with a compass happened in the Boy Scouts, there is “true north” and then there was a “declination” — our own location wherever we are — and so it goes. My dad had a compass in his head, could tell which way was north in the bottom of a well, not looking up.

Not me.

When I learned how to fly, many years after (and “ago”), the compass was even more important to getting where we wanted to go. On an airplane, there is at least two compassses, a “mag compass” always points to “true” north being attracted by the magnetic power of the North Pole, (Over time, the location of the North Pole changes slightly. Earth’s axis has a slight wobble, and since the pole intersects with the axis, it wobbles along with it. Scientists have calculated that the pole wobbles about 30 feet over seven years. The precise point of the pole at any given moment is known as the instantaneous pole. (So you thought “north” is a fixed location, right?)

We learned to fly the “other” compass because the “real” compass was harder to read and when we took time to correct the one we flew by, we often found we were “off course”, usually  more than we wanted to admit.

Now, of course, more of us depend on the GPS  to find the street we need to turn on to get to grandma’s house.

Like typing this here on my laptop in a darkened room and getting at least one hand on the wrong position by at least one key and noticing how misspellings were created. My mindset knew where the keys are, but my fingers, well, they were thumping on the wrong keys. Once we realize what is happening, we stop and reset our fingers on the right keys.

Once in awhile, we are benefitted by taking a new reading on the “real” north pole and it can be a baffling recognition how far “off” we can be,  believing we are “on course”.

So, taking a “reading” on the current “situation” in Congress, it is pretty obvious we are on the wrong “track” — well, isn’t it? A regular visit to Twitter will establish that soon enough. Folks I know have obviously lost their way — and don’t care (but to be fair “they” look at me the same way and at least one of us is obviously lost  — could be we are looking at different poles. OK, there’s some truth to that if not much).

So, let’s consider taking time now to reset our compass.

What I see happening to us is not “true” north, nor is it even close by — and the cliff isn’t far ahead. The time to correct our direction is being reduced day by day.

I choose “truth” for my “true north”. That’s not an easy choice because to choose it will create difficult resets in our belief system, This setting will correct a lot of your misgivings and get you back on course — a road to reconciliation with those who are disagreeing with us,

If the course is on spiritual matters, we need to agree on the source of “our truth” to have a truthful negotiation. Which bible? What translation? What method of worship. Otherwise, we are operating on the idea that north is really east, or maybe even northeast.

If the course is about America, we need to agree on the basis of our country to have a “progressive” discussion. Up until recently, the country has relied on the constitution for a basis of agreement. Some will never agree that the constitution sets the direction of our country decisions. Most of us may be lost somewhere in the middle blaming our condition on interpretation of the documents we were founded on. (Oh yes, that’s why we have a supreme court to wrestle over.

This trail to truth has gotten fuzzy with disagreement on the foundation we rely on. Today, we are being asked to compromise the source of our information, giving credence to others who do not share our “truth”.

As long as that issue prevails, citizens are asked to choose whatever way they wish to go. The confusion is catching up with us, Meanness to “correct” the discussion has entered in and it becomes a “dust storm” of confusion, which may just overwhelm this entire discussion.

Probably a great time to reset our compass, realizing that even the north pole “wobbles” a little to make agreement a little more difficult.

As we have learned, not everyone celebrates Christmas. Some believe in other systems of government. Some drive Chevys and some drive Fords — and there are those who drive Volvos and Mercedes… and we are all stuck here together, forming little clicks of agreement here and there but all expected to drive the same freeway to work swearing at each other to get down the road to our destination.

Somehow, we have to create a unified agreement to pursue our own belief systems, and as you can see, so far, we are lame in finding a peaceful way to do that…

…and meanness is creeping in and chaos is getting even more out of line now.

This is…

(NOT THE END).

We’ re going to have to live together peaceably sooner rather than later if I’m correctly reading the way the “grass is bent” (We need Tonto for that).

In the meantime, you can contribute to this “diatribe” by writing to warren.strycker@patriotlendingusa.com. Please try to be peaceful just for the sake of civility and I promise to be the same.

Surely we can find a better way without bloodshed.

 

 

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Widowhood: The Loss Couples Rarely Plan for—and Should


“See my personal story at the end of this article,” Warren Strycker

No one is ever ready, emotionally, for the death of a spouse. But you can prepare financially for the decision-making and reduced income you may someday face.

ONE PERFECT FALL MORNING IN 2012, Erin was waiting for her husband to return from dropping off their twins at preschool. He never came home—her 42-year-old husband suffered a massive heart attack in the parking lot of the preschool, and by the time Erin got to the hospital, he had passed away. At the age of 41, Erin found herself a widow with four children, ages 7, 6 and the 4-year-old twins.

Losing her husband at such a young age places Erin in the minority—only 6% of the 1.4 million people who lose their spouses every year are under 441—but the shock and grief she felt are universal emotions that all widows and widowers experience. On top of her grief, Erin very soon found herself dealing with such issues as filing for life insurance and her husband’s Social Security benefits, removing her husband’s name from their joint accounts, and worrying about how she would plan for her children’s financial future—alone. Recalls Erin, “Beyond meeting our day-to-day needs, I was most worried that our c

While older widows and widowers may not be burdened with similar concerns about their children’s financial future, they often find themselves dealing with another serious consideration: Will they be able to afford the care they might one day need? This can be particularly worrying for those who’ve gone through a prolonged and expensive period of caregiving for their lost loved one—a situation many widows find themselves in.

To better understand this profoundly difficult—but for most couples inevitable—life event, Merrill Lynch partnered with Age Wave, a thought leader in the study of aging, to conduct research on widowhood and how this loss can affect the surviving spouse’s life and finances. Among the key findings: Men and women who prepare for losing a spouse fare much better in terms of stress and grieving, but a full 53% of current widows and widowers say they had no plan in place for what to do if one of them died.1

Plan Ahead to Help Your Spouse Manage Loss

A Practical Guide to Moving Forward Alone

A widow’s financial journey

The financial burdens that come with the loss of a partner are immense and immediate. Erin’s position as assistant headmaster for Institutional Advancement of a private boarding school gave her an advantage that few widows have. “I was fortunate that as part of my compensation the boarding school offered housing,” Erin says. According to the Merrill Lynch/Age Wave research, 60% of men and women who lose their spouses are immediately burdened by financial expenses, including housing costs such as mortgages or rent. The fact that 50% of those who lose a spouse also face a 50% reduction in income only compounds the problem.2

“Most widows and widowers—78%—describe the loss of their spouse as the single most difficult and overwhelming life experience.”—Maddy Dychtwald,co-founder of Age Wave

In addition to the financial demands, critical paperwork and decision-making begin their steady creep right away. “Most widows and widowers—78%—describe the loss of their spouse as the single most difficult and overwhelming life experience,” says Maddy Dychtwald, co-founder of Age Wave. “And two-thirds say that they had so many things to do, they were not sure where to even start.” That’s when help from a knowledgeable professional can be invaluable.

For instance, in consulting with her Merrill Lynch private wealth advisor, Richard Salvino, as well as Lilia Shemesh and Matthew Saland of her advisory team, Erin learned that decisions she made about managing the benefit from her husband’s life insurance policy could affect her children’s eligibility for future financial educational aid—a major need for her with four young children.

“Only 14% of widows and widowers say they were making financial decisions by themselves before their spouse died,” Dychtwald says. “But once they are widowed, the overwhelming majority—86%—report having to do so.” 3This is even more daunting when you have dependents at home. “Research suggests that any financial decision that isn’t time-sensitive should be put off until you’re feeling less emotionally vulnerable,” adds Dychtwald.

“The most difficult thing is the constant worry,” notes Erin, pictured with her children at left. “That started early on, and it continues nearly six years later.” Over time, Erin’s advisor helped her work through issues involving her return to full-time work and saving for retirement. “We looked at all sorts of expenses and what decisions would need to be made in order to achieve the goals I had for the kids. What’s realistic; what isn’t. What would need to take place to achieve my family’s goals.”

Erin recalls that the day-to-day financial pressures were so great that she told her advisor she might cut back on what she was setting aside for retirement. “And he advised me not to—that retirement needed to be one of my first priorities so I could take care of myself in the future,” she says.

“Seventy-two percent of widows and widowers say they now consider themselves more financially savvy than other people their age, and that is empowering”—Lisa Margeson,head of retirement client experience and communications at Bank of America Merrill Lynch

Salvino made her long-term financial health a focus. “Given that she was young, continuing to contribute to her retirement plan was important,” he says. “She had many years ahead of her to save and let the compounding effect of wealth work in her favor. You can always borrow for your children’s education, but you can’t borrow for your retirement.”

Finding the courage—and financial confidence—to go on alone
Amid all the pain and difficulty that losing a spouse brings, there is also healing. The Merrill Lynch/Age Wave research found that 77% of the widows and widowers they interviewed said they discovered courage they never knew they had.

“They’re forced to jump into complex financial matters from the start of their journey and adjust to making financial decisions alone,” says Lisa Margeson, head of retirement client experience and communications at Bank of America Merrill Lynch. “In fact, 72% say they now consider themselves more financially savvy than other people their age, and that is empowering,” she says.

Gaining financial confidence can help sustain you through a difficult time. Erin’s private wealth team helped her stay true to her and her husband’s core priorities, she says. “They helped me see myself financially in a bigger picture than I could see myself. It’s been those discussions that have helped me the most.”

The FHA regulated HECM mortgage can put widows and widowers back on the road to security. “Use the time you have to consider it now. Call me when you are ready to talk about it,” says Warren Strycker, veteran mortgage professional. “I became a widower after 49 years and 9 months of marriage, two children and four grandkids, My wife became ill with chronic acute leukemia over a few days. She passed away in a distant city after two weeks, and I was alone. Other than my elderly father who lived with me and my dearest poodle, Sophie, I was alone and devastated. 

“I remember feeling like she was the lucky one and here I was alone, swinging in the wind. I know what it’s like to lose a spouse and what happens afterwards. Feeling sorry for myself for awhile, I realized that I only had one income and the bills were coming in. I would soon be broke and there were house payments to make. After a few months, I obtained a HECM mortgage, paid off the house and reduced my cost of living. It was some time before things were more normal. I went over those times when I was angry with her, losing my temper for her lack of cooperation, treating her unkindly to get my way — all that stuff. Eventually I accepted her forgiveness and survived, but it was as tough as this story explains.” See more and contact information on the home page under “Information” or call now 928 345-1200. “Let’s talk about the HECM mortgage. I’ve had one for some years and have confidence it was the right choice to make for me.”

 

Baby boomers are struggling to downsize — and it could create the next housing crisis

Deborah Kearns

Published 3:16 PM ET Tue, 11 Sept 2018  Updated 22 Hours AgoBankrate.com

Veronica Dy and her husband had their retirement plan all mapped out.

They recently sold their large family home in San Gabriel, California, for $850,000 and walked away with $250,000 in net proceeds to put toward a smaller home in Los Angeles to be closer to their son’s family. They figured it would be easy to find a quaint, two-bedroom home where they could age in place without overspending on housing.

They thought wrong. The couples’ home search came up empty week after week, and the few properties within their budget – about $550,000 – are selling well over asking price almost immediately, Veronica Dy says.

Now, the couple spends roughly $3,200 per month – nearly half of their monthly household income – on rent and other housing-related expenses farther out from the city as they keep looking. While they’re trying to remain optimistic, the uncertainty of their situation makes Veronica Dy, 61, doubt that they’ll retire anytime soon.

“I was waiting to retire when I’m 62 but with our current circumstances, now we’re playing it by ear,” says Dy, who works in health care. “I look every day for houses, but there’s nothing on the market that’s affordable. I wanted to live closer to our son and help them with our grandchildren, but it’s going to be hard.”

The Dys’ struggles are shared by a growing number of older Americans who wrestle with whether to downsize or age in place. The answer, as it turns out, isn’t so simple.

In its just-released 2018 Survey of Home and Community Preferences, AARP found that 76 percent of Americans age 50 and older prefer to remain in their current home, and 77 percent would like to live in their community for as long as possible. However, just 59 percent of older Americans think they’ll be able to stay in their community, either in their current home (46 percent) or in a different home still within their area (13 percent).

Rising mortgage rates, sky-rocketing home prices, and inventory shortages at the lower end of the market are converging to create a new housing crisis – this time for baby boomers, housing experts warn.

Aging in place vs. downsizing: Which is best

By 2016, there were roughly 74.1 million baby boomers (people born between 1946 and 1964) in the U.S, according to a Pew Research analysis of U.S. Census Bureau data. By 2030, when all baby boomers will be between 66 and 84 years old, Census predicts boomers’ numbers will drop to 60 million people.

As boomers age, an alarming trend has emerged: they’re entering their golden years with mortgage debt. Americans over the age of 60 were more than three times as likely to carry mortgage debt in 2015 compared to 1980, according to an analysis of Census data by the Center for Retirement Research at Boston College. Much of the increase in seniors’ mortgage borrowing is in households with below-median incomes and assets, and no pensions, the analysis found.

Generally, past generations aimed to have their mortgage paid off before retirement to better manage their reduced incomes later in life.

Carrying mortgage debt may offer one explanation as to why many baby boomers prefer to remain in their current homes. Other factors, such as retaining home equity, staying in familiar surroundings, or a lack of affordable options, also drive the decision to stay put.

Aging in place, however, can be harder to do if boomers’ homes aren’t equipped to meet their future needs, says Jennifer Molinsky, senior research associate at the Joint Center for Housing Studies of Harvard University.

“There’s a growing linkage between housing and health care, and being able to stay in your house longer,” Molinsky says. “Making your house accessible for [in-home health care] is ideal, but this is harder to manage in lower density areas because of limited transportation and accessibility to doctors in rural areas. Communities need to think about how these services interrelate with housing, because that’s a real challenge for the future.”

Tapping equity to stay put

Mobility and health issues pose the greatest barrier to seniors who want to stay in their current homes. Older homeowners may need to add amenities, such as bathroom grip bars, walk-in showers, wheelchair ramps, and wider hallways and doorways to accommodate walkers or wheelchairs as their mobility declines. Some of these improvements are simple, but when you start redoing bathrooms, for example, remodeling projects can add up quickly.

Seniors who own their homes outright or have significant home equity typically borrow against their homes to help pay for modifications, says Sam Preis, regional director of sales with BBMC Mortgage.

Several loan products can help older homeowners pay for improvements that will make their homes livable for years to come. Preis recommends the following options:

Home equity loan – A home equity loan makes more sense if you have to make several modifications at once and need an upfront lump sum to pay for them.

Home equity line of credit, or HELOC – A HELOC works like a revolving line of credit that lets you withdraw on the line as often (or as little) as you need it for improvements in stages.

VA financing – Many older veterans who served in the military mistakenly think their VA benefits expire, but that’s not true, Preis points out. The VA offers cash-out refinancing, typically with no down payment requirement, to pay for home improvements. The VA also provides special grants for adapted housing for veterans with a service-connected disability. The grants help pay for a remodel or the purchase/building of a new home that accommodates their disability.

Reverse mortgages – A federally insured Home Equity Conversion Mortgage, or HECM, is the most common type of reverse mortgage. Insured by the Federal Housing Administration, HECMs allow people who are 62 or older to tap a portion of their home equity without having to move. You also can use a HECM to buy a home.
Low inventory, rising rates create barriers to downsizing
At the crux of boomers’ dilemma is the shortage of affordable homes on the market. That, along with rising mortgage rates – a trend that’s expected to continue – can create significant barriers to downsizing, says Laurie Goodman, vice president of housing finance policy and codirector of the Housing Finance Policy Center at the Urban Institute.

The national average rate for a 30-year fixed mortgage hit a record low of 3.41 percent in July 2016, according to historical data from Freddie Mac. As of Aug. 30, 2018, the average 30-year fixed rate was 4.52 percent – more than a full percentage point higher.

“Higher rates have a huge effect on mobility for everyone,” Goodman says.

Baby boomers who plan to stay in their current communities are likely to have the upper hand in competing for a smaller, less expensive home if they’ve paid off or have significant equity in their current home thanks to inflated appreciation. The key question is whether they’ll find the right home for their needs amid inventory shortages in the lower end of the market.

Seniors’ mobility could be impeded if they try to relocate to more expensive markets to be closer to family than where they currently live, especially given higher rates and rising prices, Goodman points out.

“There’s a limited supply of homes, along with rising prices – that’s a problem that’s not correcting and it’s getting worse and worse,” Goodman says.

Restrictive zoning laws and higher land costs are pushing builders to focus on producing luxury single-family homes (rather than economical multifamily projects) to remain profitable, Goodman says. The key to encouraging more building is a revamp of local zoning rules to enhance the variety of new housing projects, she adds.
Older Americans thinking outside the traditional housing box
In a lot of U.S. communities, a lack of housing variety complicates the picture for baby boomers who are seeking affordable options. And for some older folks, economic necessity is giving rise to creative solutions that buck tradition.

The AARP survey found that adults age 50 and older are open to housing alternatives, such as home sharing (32 percent), building an accessory dwelling unit (31 percent) and villages that provide services that enable aging in place (56 percent).

Whether it’s for economic viability or to gain companionship, seniors’ willingness to think outside the box is driving the growth of unconventional housing solutions, says Danielle Arigoni, director of livable communities with AARP. The “Golden Girls” style of roommates is one shared-housing arrangement gaining steam. There’s also intergenerational home-sharing; an online platform called Nesterly, for example, matches older adults with college students who are looking for roommates.

“An affordable housing crisis is brewing and, in many places, it’s already here,” Arigoni says. “[These solutions are] becoming less taboo and more accepted. And that’s partially just recognition of the financial realities we’re all accepting.”

The appetite for home-sharing is being driven by a resurgence in accessory dwelling units. An accessory dwelling unit is a smaller, secondary building that’s attached to the primary home or located on the same lot. This type of housing (think granny flat or mother-in-law suite) offers a livable solution for seniors who want to age in place and generate rental income, live near family, or eventually bring in-home care help down the road, Arigoni says. The key roadblock to add accessory dwelling units, though, is securing approval from local zoning or building authorities, she notes.

Whether downsizing or staying put is in your future, housing expenses will undoubtedly play a huge part of your overall retirement picture. Preis, with BBC Mortgage, suggests crafting a financial plan for retirement (if you haven’t already). Sit down with a financial advisor, a mortgage lender (if you plan to finance a home purchase or tap your home’s equity), and your accountant to figure out what options will help you live comfortably while maximizing your retirement income, Preis says.

The decision to downsize or age in place isn’t just about affordability or the place you call home. Consider how close you’ll be to family, friends, doctors, hospitals, transportation, parks, cultural attractions, and other key amenities that make a community truly livable, Arigoni says.

“You can talk to me anytime about this”, says veteran loan officer, Warren Strycker, representing Patriot Lending USA in Arizona. See contact information on the navigation bar on the home page or call me direct, 928 345-1200.

 

THE REAL LAWS OF NATURE YOU DON’T BELIEVE is TRUE..

Stolen by Warren Strycker for your rights to failures you’ve had.

UPSIDE DOWN TRUTHS YOU DON’T BELIEVE. You can add these to those other things you don’t believe and wait for the results. Sometimes, it takes a long time for these issues to reinsert themselves into today’s ups and downs. Be brave. Others around you have already accepted the results of these tenants. They blame this on the Devil, as I sometimes do.

 

I DIDN’T BELIEVE THESE LAWS AT FIRST, BUT HAVE FOUND THEM TO BE TRUE FROM ACTUAL EXPERIENCE!

1. Law of Mechanical Repair – After your hands become coated with grease, your nose will begin to itch and you’ll have to find the facilities.

2. Law of Gravity – Any tool, nut, bolt, screw, when dropped, will roll to the least accessible space.

3. Law of Probability – The probability of being watched is directly proportional to the stupidity of your act.

4. Law of Random Numbers – If you dial a wrong number, you never get a busy signal and someone always answers.

4. Supermarket Law – As soon as you get in the smallest line, the cashier will have to call for help.

6. Variation Law – If you change lines (or traffic lanes), the one you were in will always move faster than the one you are in now.

7. Law of the Bath – When the body is fully immersed in water, the telephone rings.

8. Law of Close Encounters – The probability of meeting someone you know increases dramatically when you are with someone you don’t want to be seen with.

9. Law of the Result – When you try to prove to someone that a machine won’t work, it will.

10. Law of Biomechanics – The severity of the itch is inversely proportional to the reach.

11.. Law of the Theater & Hockey Arena – At any event, the people whose seats are furthest from the aisle, always arrive last. They are the ones who will leave their seats several times to go for food, beer, or the restroom and who leave early before the end of the performance or the game is over. The folks in the aisle seats come early, never move once, have long gangly legs or big bellies and stay to the bitter end of the performance. The aisle people also are very surly folk.

12. The Coffee Law – As soon as you sit down to a cup of hot coffee, your boss will ask you to do something which will last until the coffee is cold.

13. Murphy’s Law of Lockers – If there are only 2 people in a locker room, they will have adjacent lockers.

14. Law of Physical Surfaces – The chances of an open-faced jam sandwich landing face down on a floor, are directly correlated to the newness and cost of the carpet or rug.

15. Law of Logical Argument – Anything is possible if you don’t know what you are talking about.

16. Brown’s Law of Physical Appearance – If the clothes fit, they’re ugly.

17. Oliver’s Law of Public Speaking – A closed mouth gathers no feet.

18. Wilson’s Law of Commercial Marketing Strategy – As soon as you find a product that you really like, they will stop making it.

19. Doctors’ Law – If you don’t feel well, make an appointment to go to the doctor, by the time you get there you’ll feel better… But don’t make an appointment, and you’ll stay sick. This has been proven over and over with taking children to the pediatrician.

Consider the upside values of the HECM (Reverse Mortgage) to make lemons into lemonade and turn LIFE around for you. See “information” in the home page navigation bar for Warren Strycker’s contact information.

 

 

 

“Warming up to HECM mortgages”, Mike Taylor

FINANCIAL ADVISOR CHANGES HIS MIND ABOUT HECM MORTGAGES

By Michael Taylor — Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules For New College Graduates.” (Click on this link for more on Taylor’s credentials).

August 24, 2018 Updated: August 24, 2018 7:20am

A reader named Jesse, 73, called to relay his experience trying to get a reverse mortgage on his house, and to ask for my advice.

He’d seen advertisements by Tom Selleck for a company called American Advisors Group and it seemed to fit his financial circumstances. A reverse mortgage, sometimes called a home equity conversion mortgage, is only available to homeowners over age 62.

Home equity, I should clarify, is the difference between the value of a house and the amount of debt on the house. That means a $300,000 house with a $100,000 mortgage has $200,000 in home equity. A reverse mortgage is a kind of home equity loan, specifically to borrow in old age without having to make payments, if you don’t want to. For Jesse, his idea was to use the money he could pull out of his house to help pay for taxes and insurance in the coming years.

I had never paid much attention to reverse mortgages, although I’d previously had a vaguely negative feeling about them.

In the course of following up on Jesse’s inquiry, I learned two unique and kind of awesome features of reverse mortgages which I have never seen in any other loan product.

First, a borrower can decide to never make any principal and interest payment on the loan. For life! The debt accrues interest of course, meaning it grows over time, but the borrower can choose to never pay on that interest or principal. The lender gets paid back eventually, when the house is either sold or the owner dies, but in the meantime the loan doesn’t require any payments. Ever. I’ve never seen that loan structure before.

Second, as long as the homeowner complies with the mortgage agreement – which means staying current on taxes and insurance – neither the homeowner nor the homeowner’s spouse can be evicted from the house. Ever. It’s a bank loan backed by collateral, but the bank can’t take the collateral for the life of the borrowers. This is also something I’ve never seen before.ll describe my three previous issues with reverse mortgages, as well as my evolving views.

My first worry was that as a relatively unusual loan product, consumers could be more likely to make bad choices about a thing they don’t understand very well. Even a traditional home mortgage can seem complex but it resembles other products we’re familiar with, like an automobile loan or a personal loan.

A reverse mortgage, by contrast, acts a bit like a retirement account or annuity, in that you can take money out over time as you get older. It’s also a bit like a credit card or home equity line of credit, in that it “revolves,” meaning you can take money out but also pay it back as often as you like. But it’s also different than a credit card or home equity loan, because you don’t have to pay it back with regular or even any payments (until you die). One of my guiding principles of finance is simplicity. Reverse mortgages may be a complicated form of debt for some people, and complicated is the enemy of the good.

Somewhat reducing my fear, however, is that every prospective reverse mortgage borrower must take a financial counseling course by phone, mandated by the Federal Housing Authority (FHA), which regulates reverse mortgages. Guy Stidham, owner of Mortgage of Texas and Financial LLC, a San Antonio-based mortgage broker who offers both traditional and reverse mortgages, says these courses cost about $150 and take a few weeks to schedule, which serves as a kind of “cooling off” function for prospective borrowers. (Disclosure: I have done consulting projects for Stidham in the past.)

My second worry was that reverse mortgage would be niche-y, high cost products for borrowers. This fear turns out to be somewhat unfounded, although there’s some nuance to the cost issue.

Joe DeMarkey, Strategic Business Development Leader of Reverse Mortgage Funding, a reverse mortgage lender, estimated fixed rates now between 4.375 and 5.125 percent, in the same ballpark as a traditional 30-year mortgage. So, I should not have been so worried about high interest rates on fixed loans.

Technically, however, DeMarkey points out that 80 percent of reverse mortgages have floating interest rates. With floating rate loans, the initial interest rate often starts out reasonably low but there’s always a risk that future higher interest rates make that same debt more expensive later.

Also, Stidham allows that a broker like him can be compensated more by the lender to sell a reverse mortgage in part because they are a less competitive product. His fee for brokering a reverse mortgage could be up to 3 times higher than with a traditional mortgage.

My third problem with reverse mortgages was that they clashed with my traditional view of the incredible wealth building potential of home ownership – a way to automatically build up a store of wealth by making affordable monthly principal and interest payments on your house over a few decades. Because reverse mortgages drain that value over time, they made me want shout “Wait…But that’s…that’s not how it’s supposed to work!”

But, you know, I can evolve. It remains a noble goal to fully pay off your home mortgage, and we should all aspire to do that. But that’s not reality for everyone in retirement. Reality for many is that accessing the equity built up in our house, without selling it, might be a key to living comfortably in old age.

As my wife reminded me recently, one of my other long-standing theories of personal finance is that kids shouldn’t inherit stuff. Since we don’t intend to bequeath our house to our girls, I shouldn’t be opposed to draining the house of our home equity once we hit our 70s or 80s. At that age, the goal shouldn’t be to continuously build up assets (For what? For whom?) but rather to spend money to make our lives better.

If we planned to stay in our house, my wife and I recently agreed we’d be open to a reverse mortgage in our 70s.

Does this seem like your circumstances?”

For detailed information about whether you should entertain a reverse mortgage (Home Equity Mortgage Conversion (HECM)), open the “information” tab on the home page for contact information, and answers to your questions. There’s lots of information on this webpage designed to help solve your questions. Thank you for considering HECM. “I’d be happy to support you — talking to me won’t cost you anything at all,” Warren Strycker, veteran mortgage professional. (928 345-1200)

 

 

Half of retirement savers are “Chasers” who are behind on savings goals

July 31, 2018

Anxious Savers Want to Catch Up, but Worry They May Be Too Late

Key Findings Snapshot:

85% of Chasers worry that if they don’t increase savings soon, it will be too late for them to have a comfortable retirement

54% of Chasers say they have too many other expenses right now to save for retirement

84% of Chasers say they are interested in a financial product that offers growth potential with some protection from loss

MINNEAPOLIS, July 31, 2018 – Although 90% of active retirement savers agree that accumulating enough savings is an important factor in their ability to enjoy their future retirement, a significant subset of these Americans is worried they’re already too far behind to reach their savings goals. According to the Chasing Retirement Study* from Allianz Life Insurance Company of North America (Allianz Life®) of Americans age 45-65 actively saving for retirement, these “Chasers,” who make up half (49%) of the total respondents, think they need to catch up on their retirement savings but need help to understand potential solutions to close their savings gap.

For the purposes of this study, Chasers are defined as those who are saving but have either fallen behind on where they should be, wish they could accumulate savings faster, or worry that if they don’t increase savings soon it will be too late to have a comfortable retirement. More than eight in 10 (85%) Chasers feel they have fallen behind where they should be in saving for retirement compared to just 4% of non-Chasers, and the same percentage worry it will be too late for them to have a comfortable retirement if they don’t increase their savings soon (versus 2% for non-Chasers). The vast majority of Chasers (98%) also say they wish there was a way they could accumulate funds faster to make up for lost time versus 41% for non-Chasers, but nearly two-thirds (63%) of Chasers also say they can’t take the risk of investing in high risk/high reward financial products.

“Among those Americans actively saving for retirement, our study finds a dramatic difference between those who feel on track and those who feel behind, with this subset wishing for ways to catch up but without taking on too much risk,” said Paul Kelash, vice president of Consumer Insights for Allianz Life.  “While it’s a positive that they are actively saving for retirement, the level of anxiety is concerning and many are simply not aware of potential solutions to help them catch up.”

Despite having a mean retirement portfolio of more than $400,000, Chasers struggle to keep up with their retirement savings goals and may need more education about financial products. More than half (54%) say they have too many other expenses right now and one in five say they are saving for other financial goals. As a result, two-thirds of Chasers fear they will run out of money in retirement, and more than six in 10 (61%) believe they will need to keep working instead of retiring.

In addition, Chasers own fewer financial products. Only 53% of Chasers have an individual retirement account (IRA), and even fewer own individual stocks (35%), mutual funds (35%), have a pension (37%) or own an annuity (14%). In contrast, a full 70% of confident savers own an IRA while more also own individual stocks (56%), mutual funds (51%), have a pension (53%) or own an annuity (28%).

Although the fastest way to accumulate funds may be to take on more investment risk, Chasers are not very interested in that approach. Only 34% of Chasers said the only way to save enough for a comfortable retirement is “to invest in high risk/high reward financial products.” Instead, Chasers gravitate toward protection as part of their growth options. More than eight in 10 Chasers (84%) say they are interested in a financial product that offers growth potential with some protection from loss, and 71% of Chasers are willing to trade off some upside growth potential to have some protection from losses.

“Although Chasers will likely need to be more aggressive in order to catch up on their retirement savings goals, they still need to maintain some focus on protection because they are closer to retirement,” noted Kelash. “A financial professional can help them determine the right mix of financial products.”

In fact, Chasers are less likely than non-Chasers to say they are currently working with a financial professional. Only 39% of Chasers are currently working with a financial professional, compared to over half (53%) of their more confident counterparts. “Working with a financial professional can help Chasers understand how they could take on more risk, yet still have protection in their portfolio,” added Kelash.

For those behind on their retirement goals, consider the HECM for a big part of your solution. This mortgage rids you of past mortgages, cleans the deck so to speak and doesn’t hold you accountable. Your home/property will stand the debt after you are gone. No one else is held accountable. The lender has his protection too. Using home equity for retirement is smart, legal and available if you have built a home equity wall of security against the very thing you fear. Use it in pride — like much of the citizens worldwide are doing. Give this solution a chance to get you back on the road to solvency. Don’t let the worry warts rule your decisions” says veteran mortgage professional, Warren Strycker. See “Information” tab for additional contacts. “This solution has been tried and tested and brings the USA government into the mix to make sure it protects your interests. All it takes is your attention and trust that you have done the right thing,” says Strycker. “Stop your hand wringing. The time to act is now”, Strycker concludes.

 

Is Social Security Sustainable? Consider Home Equity Assist

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.

SOCIAL SECURITY COSTS WILL BEGIN TO EXCEED INCOME IN 2018
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.

HOW MUCH DO WE HAVE IN SAVINGS?

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.

DOES THIS MEAN PEOPLE WON’T RECEIVE BENEFITS AFTER 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)

HOW MANY PEOPLE WILL BE AFFECTED BY REDUCED BENEFITS?

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

ARE THERE SOLUTIONS?

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.

NOTES

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.

 

Social Security is running out of money — Stossel

John Stossel

Posted: Aug 15, 2018 12:01 AM (Stossel works nights).

Social Security is running out of money.

You may not believe that, but it’s a fact.

That FICA money taken from your paycheck was not saved for you in a “trust fund.” Politicians misled us. They spent every penny the moment it came in.

This started as soon as they created Social Security. They assumed that FICA payments from young workers would cover the cost of sending checks to older people. After all, at the time, most Americans died before they reached 65.

Now, however, people keep living longer. There just aren’t enough young people to cover my Social Security checks.

So Social Security is going broke. This year, the program went into the red for the first time.

Presidents routinely promise to fix this problem.

George W. Bush said he’d “strengthen and save” Social Security. Barack Obama said he’d “safeguard” it, and Donald Trump said that he’ll “save” it.

But none has done anything to save it.

“There is a plan out there to save it, but it requires some tough choices,” says Heritage Foundation budget analyst Romina Boccia.

Heritage proposes cutting payments to rich people and raising the retirement age to 70.

Good luck with that. Seniors vote. Most vote against politicians who suggest cutting benefits.

This summer, interviewing people for my new video about Social Security’s coming bankruptcy, was the first time I had heard the majority of such a group say they were aware there is a problem. One said, “We’re already at a trillion dollars (deficit) … (I)t’s almost like a big Ponzi scheme.”

Actually, more like a pyramid scheme. Ponzi schemes secretly take your money. But the Social Security trick is written into the law — there for anyone who bothers to look.

Social Security isn’t the only hard choice ahead of us. Medicare will run out of money in just eight years. At that point, benefits will automatically be cut. Social Security hits its wall in 15 years.

Amazingly, as we approach this disaster, Democrats say — spend even more.

Sen. Elizabeth Warren, D-Mass., proudly announced, “Nearly every Democrat in the United States Senate has voted in favor of expandingSocial Security.”

How would they pay for it? “Raise taxes on the wealthy!” is the usual answer.

I tried that on Boccia: “Just raise taxes on the rich!”

“There isn’t enough money, even that the rich would have,” she countered, “to pay for the $200 trillion in unfunded liabilities.”

One partial solution proposed by Heritage and others is to let younger workers put some of their Social Security money into their own personal retirement accounts.

“Imagine being able to own and control your own retirement dollars,” urged Boccia, with genuine excitement. “You could invest it in businesses, grow the economy, whatever rocks your boat.”

If history is any guide, private accounts would almost certainly pay retirees more than Social Security will ever pay.

“Even a conservative portfolio of stocks and bonds that got you about a 5 percent annual return, you would make many times more,” said Boccia.

Editor’s Note: “A recent effort by the President’s daughter (She’s a “well heeled” boomer it’s not her fault) aims at draining social security even more — tapping social security to pay mother’s to stay home when babies are born to them, so the world’s mother’s will vote against you if you take Social Security, Consider HECM here. Tap into home equity as soon as possible.”

Big GDP numbers impact housing market, drive up appraisals, cash benefits

August 10, 2018 by Korene Clopine-Seaman

Positive economic growth numbers are always cause for celebration and the second quarter GDP just went vertical. After nearly four years of sub-par growth, the real GDP hit 4.1 percent in the second quarter.

While that economic news has everyday Americans excited that we may be entering a new age of prosperity, drawing a concrete link to the real estate market may be difficult. But by looking long and hard at this uptick and its potential impact on housing, you may get a better idea about buying, selling or standing pat on residential and commercial property.

GDP Report Points To Demand

Among the positive measures from the recent economic report, consumption enjoyed a positive increase. The first quarter numbers were disappointingly sluggish in this area at a modest 0.5 percent. The second quarter took off like a rocket, by comparison, at 2.25 percent.

Although that figure shows an upwardly mobile economy, some experts are calling it discouraging given the extraordinary consumer confidence that has risen to record highs of more than 101.0 since November 2017. This opinion begs the question: why are economy gurus disappointed?

The first part of that answer has to do with the implementation of the Tax Cuts and Jobs Act that is putting more money in American paychecks and rolled back income tax liability. Many economists forecast that this personal wealth growth would turn into solid consumption. While working families have enjoyed a breather in terms of scratching from paycheck to paycheck, home purchases have not gone through the roof.

Home availability remains relatively low. With Millennials scooping up many of the starter-home listings and Baby Boomers downsizing, a significant housing shortfall exists. If you have ever heard the term “seller’s market,” this is it.

Inventory Shortage Means Buy Quickly

There are always naysayers that point to lower than expected consumption and claim the economy is weak. The facts in the GDP report clearly dispute any such ideas.

Business investment spiked to a powerful 11.5 percent and then 7.3 percent in the first two quarters. Fixed business investment is on fire based on deregulation, soaring profits and confidence.

That’s why real estate resources are saying that the only thing holding the market back is inventory. Home sale data is not keeping pace with other sectors of the economy because there simply is not enough inventory to keep up with demand. For first-time buyers, this means get prequalified and act swiftly if you find a dream home. It won’t stay on the market long.

Prospective homebuyers may be relieved to know that positive construction indicators are trending. New homes are expected to improve the inventory shortage heading into 2019. Still, demand is likely to stay ahead of inventory.

Editor’s note: If you are thinking about a HECM Reverse Mortgage to draw some cash out of your home equity,  you may be favored with a higher appraisal resulting in a larger cash benefit. The fact that you will get rid of a mortgage payment may be enough to take the bait now. You can discuss this with your HECM lender. That would be Warren Strycker for Patriot Lending. Contact and credential information can be found on the information tab on the home page. Call 928 345-1200 with your questions.

 

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

By Tara Siegel Bernard

Aug. 5, 2018

For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy.

The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years. Now, new research sheds light on the scope of the problem: The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.

Driving the surge, the study suggests, is a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks.

The transfer has come in the form of, among other things, longer waits for full Social Security benefits, the replacement of employer-provided pensions with 401(k) savings plans and more out-of-pocket spending on health care. Declining incomes, whether in retirement or leading up to it, compound the challenge.

Cheryl Mcleod of Las Vegas filed for bankruptcy in January after struggling to keep up with her mortgage payments and other expenses. “I am 70, and I am working for less money than I ever did in my life,” she said. “This life stuff happens.”

As the study, from the Consumer Bankruptcy Project, explains, older people whose finances are precarious have few places to turn. “When the costs of aging are off-loaded onto a population that simply does not have access to adequate resources, something has to give,” the study says, “and older Americans turn to what little is left of the social safety net — bankruptcy court.”

“You can manage O.K. until there is a little stumble,” said Deborah Thorne, an associate professor of sociology at the University of Idaho and an author of the study. “It doesn’t even take a big thing.”

The forces at work affect many Americans, but older people are often less able to weather them, according to Professor Thorne and her colleagues in the study. Finding, and keeping, one job is hard enough for an older person. Taking on another to pay unexpected bills is almost unfathomable.

Bankruptcy can offer a fresh start for people who need one, but for older Americans it “is too little too late,” the study says. “By the time they file, their wealth has vanished and they simply do not have enough years to get back on their feet.”

The data gathered by the researchers is stark. From February 2013 to November 2016, there were 3.6 bankruptcy filers per 1,000 people 65 to 74; in 1991, there were 1.2.

Not only are more older people seeking relief through bankruptcy, but they also represent a widening slice of all filers: 12.2 percent of filers are now 65 or older, up from 2.1 percent in 1991.

The jump is so pronounced, the study says, that the aging of the baby boom generation cannot explain it.

Although the actual number of older people filing for bankruptcy was relatively small — about 100,000 a year during the period in question — the researchers said it signaled that there were many more people in financial distress.

“The people who show up in bankruptcy are always the tip of the iceberg,” said Robert M. Lawless, a law professor at the University of Illinois and another author of the study.

The next generation nearing retirement age is also filing for bankruptcy in greater numbers, and the average age of filers is rising, the study found.

Given the rate of increase, Professor Thorne said, “the only explanation that makes anysense are structural shifts.”

Ms. Mcleod said she had managed to get by for a while after separating from her husband several years ago. Eventually, though, she struggled to make ends meet on her income alone, and she fell behind on her mortgage payments.

She collects a small Social Security check and works at an adult day care center for people with intellectual disabilities and mental health problems. For $8.75 an hour, she makes sure clients participate in daily activities, calms them when they are irritated and tries to understand what they need when they have trouble expressing themselves.

“When I moved here from Los Angeles, I was wondering why all of these older people were working in convenience stores and fast-food restaurants,” she said. “It’s because they don’t make enough in retirement to support themselves.”

Ms. Mcleod said she hoped that filing for bankruptcy would help her catch up on her mortgage so she could stay in her home. “I am too old to move out of here,” she said. “I am trying to stay stable.”

For about one in three older people who receive Social Security benefits, their monthly check accounts for 90 percent of their income, according to the Social Security Administration. Spending by those over 65 by income is based on Medicare beneficiaries, most of whom are 65 and over; the remainder are younger and disabled. | Source: Kaiser Family Foundation

The bankruptcy project is a long-running effort now led by Professor Thorne; Professor Lawless; Pamela Foohey, a law professor at Indiana University; and Katherine Porter, a law professor at the University of California, Irvine. The project — which is financed by their universities — collects and analyzes court records on a continuing basis and follows up with written questionnaires.

Their latest study —which was posted online on Sunday and has been submitted to an academic journal for peer review — is based on a sample of personal bankruptcy cases and questionnaires completed by 895 filers ages 19 to 92.

The questionnaire asked filers what led them to seek bankruptcy protection. Much like the broader population, people 65 and older usually cited multiple factors. About three in five said unmanageable medical expenses played a role. A little more than two-thirds cited a drop in income. Nearly three-quarters put some blame on hounding by debt collectors.

[The Times’s guide to retirement savings answers your questions about financing life after you stop working.]

The study does not delve into those underlying factors, but separate data provides some insight. The median household led by someone 65 or older had liquid savings of $60,600 in 2016, according to the Employee Benefit Research Institute, whereas the bottom 25 percent of households had saved at most $3,260.

That doesn’t provide much of a financial cushion for a catastrophic health problem. Older Americans typically turn to Medicare to pay their medical bills. But gaps in coverage, high premiums and requirements that patients shoulder some costs force many lower-income beneficiaries to spend more of their own income on those bills, the Kaiser Family Foundation found.

By 2013, the average Medicare beneficiary’s out-of-pocket spending on health care consumed 41 percent of the average Social Security check, according to Kaiser, which also estimated that the figure would rise.

More people are also entering their later years carrying debt. For many of them, at least some of the debt is a mortgage — roughly 41 percent in 2016, compared with 21 percent in 1989, according to an Urban Institute analysis.

And those who are carrying debt into retirement are carrying more than members of earlier generations, an analysis by the Employee Benefit Research Institute found.

Perhaps not surprisingly, the lowest-income households led by individuals 55 or older carry the highest debt loads relative to their income. More than 13 percent of such households face debt payments that equal more than 40 percent of their income, nearly double the percentage of such families in 1991, the

Older Americans’ finances are also being strained by the needs of those around them.

A little more than a third of the older filers who answered the researchers’ questionnaire said that helping others, like children or older parents, had contributed to their seeking bankruptcy protection. Marc Stern, a bankruptcy lawyer in Seattle, said he had seen the phenomenon again and again.

Some parents, Mr. Stern said, had co-signed loans for $10,000 or $20,000 for adult children and suddenly could no longer afford them. “When you are living on $2,000 a month and that includes Social Security — and you have rent and savings are minuscule — it is extremely difficult to recover from something like that,” he said.

Others had co-signed their children’s student loans. “I never saw parents with student loans 20 or 30 years ago,” Mr. Stern said.

“It is not uncommon to see student loans of $100,000,” he added. “Then, you see parents who have guaranteed some of these loans. They are no longer working, and they have these student loans that are difficult if not impossible to pay or discharge in bankruptcy, and these are the kids’ loans.”

Keith Morris, chief executive of Elder Law of Michigan, which runs a legal hotline for older adults, said the prospect of bankruptcy was a regular topic for his callers.

“They worked all of their lives, and did what they were supposed to do,” he said, “and through circumstances like a late-life divorce or a death of a spouse or having to raise grandkids, have put them in a situation where they are not able to make the bills.”

For Lawrence Sedita, a 74-year-old former carpenter now living in Las Vegas, the problems began when he lost his health insurance about two years ago. He said he had been on disability since 1991, when a double pack of 12-foot drywall fell on his head at work.

After his union, the New York City District Council of Carpenters, changed the eligibility requirements for his medical, dental and prescription drug insurance, he lost his coverage.

Mr. Sedita, who has Parkinson’s disease, said his medical expenses had risen exponentially. (A spokesman for the union declined to comment.)

A medication that helps reduce the shaking — a Parkinson’s symptom — rose to $1,100 every three months from $70, Mr. Sedita said. “I haven’t taken my medicine in three months since I can’t afford it,” he added.

He said he and his wife, who has cancer, filed for bankruptcy in June after living off their credit cards for a time. Their financial difficulty, he said, “has drained everything out of me.”

Gofinancial’s chief editor, Warren Strycker, is in that age group and works to help people in a financial bind in retirement years. He has a HECM mortgage on his own home to verify his belief system that using home equity is smart and safe for seniors who live longer than their retirement plan provided. The HECM plan is regulated by FHA/HUD and currently serves some 50,000 elderly homeowners annually, aged 62 or more,  in the United States.

“It seems to me,” Strycker says, “that a pretty solid case can be made to seniors that using home equity to defend these families from bankruptcy, comes with a lot of logic — talk to me.” For contact information, press  the “Information” tab on the home page.

Patriot Lending meets Struggling Middle Class seniors with innovative financial tools

Editor’s Note: Patriot Lending and Capital Solutions of Miami Lakes, FL has stepped up their lending to support middle class seniors who are entering retirement now and to give them financial tools when financial ends don’t meet as the cost of living continues to rise against an income that doesn’t. Patriot Lending is launching a capital branch to support seniors who need financing to Fix n Flip real estate and other projects that will fill in the income gaps during retirement years. The HECM mortgage opens up home equity to support reduction of debt and income shortages. This in an effort to provide solutions to tight budgets and limiting income. The following describes the fix a lot of elder retirees find themselves in coming out of (or not) the recent recession.

 

America’s wealth gap between middle-income and upper-income families is [the] widest on record.”  So reads the title of a Pew Research Center analysis by Richard Fry and Rakesh Kochhar that sheds new light on the persisting anxiety of middle-class Americans.

The analysis offers a useful definition of wealth as the difference between a family’s assets and debt.  Wealth is an important dimension of household well-being, notes Fry, because “it’s a measure of a family’s ‘nest egg’ and can be used to sustain consumption during emergencies (for example, job layoffs) as well as provide income during retirement.”  Wealth is an index both of resiliency in the face of shocks and of preparation for the future.

In the 30 years that the Federal Reserve Board has been collecting these data, the gap between upper-income and middle-class families has rough doubled.  In 1983, the median net worth of upper-income families was 3.4 times that of their middle-income counterparts.  In 2013, that figure stood at 6.6 times.  Although the increase occurred by fits and starts throughout the past three decades, it accelerated dramatically during the Great Recession and its aftermath.

The key point, however, is not that the ratio doubled but why.  Corrected for inflation, the median wealth of upper-income families has doubled since 1983, from $318,000 to $639,000.  By contrast, the median wealth of middle-class families has stagnated during that period–$94,000 in 1983, $96,000 today.  To be sure, middle-class wealth increased to $158,000 between 1983 and 2007 but the Great Recession reversed that gain, and the middle class has not participated significantly in the stock market surge that began in mid-2009.

While we should welcome the increased pace of job creation and early signs of wage gains, the middle class is unlikely to regain a sense of security until the nest eggs of average families reclaim the ground they have lost since the onset of the Great Recession.

 

To have a conversation with a Patriot Lending professional, access contact information on the home page navigation bar.

 

Record Number of Older Americans Working; Why, do you think?

As life expectancy gets longer and longer, the age of retirement is getting pushed back, too, with the highest number on record of Americans aged 85 and up working, an analysis in the Washington Post presented.

“Overall, 255,000 Americans 85 years old or older were working over the past 12 months,” writes Andrew Van Dam. “That’s 4.4 percent of Americans that age, up from 2.6 percent in 2006, before the recession.

According to the analysis, United State Department of Labor figures show U.S. residents are working or looking for work at the highest rates on record for every year of age above 55.

“Baby boomers and their parents are working longer as life expectancies grow, retirement plans shrink, education levels rise and work becomes less physically demanding,” Van Dam writes.

The highest percentage of older workers is in the farming and ranching profession, with most of the other workers scattered in just 26 of the 455 occupations that the Census Bureau tracks. Interestingly, less than a third of the total workforce is in those 26 occupations.

“Workers age 85 and older are more common in less physical industries, such as management and sales, than they are in demanding ones such as manufacturing and construction,” Van Dam writes.

The odds are better that you are over 85 if you are a crossing guard, a musician, work in a funeral home, or are one of the “product demonstrators like those you might find at a warehouse club store,” the article states.

While the article did not cite any specific reasons why an older person would work into their 80s, a photo and caption with the article shows an 87-year-old man who said he is thinking of becoming a truck driver to help pay for his wife’s medical bills. This is one common way that a reverse mortgage can help retirees who qualify, loan originators have said.

Written by Maggie Callahan

“You can talk to me about this,” says Warren Strycker, veteran financial professional at Gofinancial. net. “See contactinformation’ on the home page under ‘information’ tab. I’ll be waiting for your questions.”

 

So, you’re retired and you want to “fix & flip” a house for sale or rent?

Some of you are retired and  you’ll need some extra cash to make ends meet. You can build some rentals or build to sell. But you will need some cash to pay the construction bills.

Construction loans for new-built homes are either obtained by the homebuilder or prospective owner. In pre-recession days, small builders had greater access to capital but now must frequently put the onus on the buyer to get the loan. That’s one reason most new homes rising today are simply “specs” built by big, high-credit corporate conglomerates.

The basics of construction loans

Let’s proceed on the assumption that you’re taking out an individual construction loan. Such loans, which can be tough to get without a previous banking history because of the lack of collateral (a finished home), have special guidelines and include monitoring to ensure timely completion so your repayment can begin promptly.

Construction loans are typically short term with a maximum of one year and have variable rates that move up and down with the prime rate. The rates on this type of loan are higher than rates on permanent mortgage loans. To gain approval, the lender will need to see a construction timetable, detailed plans and a realistic budget, sometimes called the “story” behind the loan.

Once approved, the borrower will be put on a bank-draft, or draw, schedule that follows the project’s construction stages and will typically be expected to make only interest payments during construction.As funds are requested, the lender will usually send someone to check on the job’s progress.

Construction-to-permanent arrangement

Upon completion, which is defined by a certificate-of-occupancy issuance and full payment of contractors (and often their signatures on lien releases), the borrower’s loan liability will typically roll over into a mortgage, ideally in an arrangement where the borrower pays closing costs only once. Of late, lenders have been combining the two into a single 30-year loan with one closing, called construction-to-permanent financing. Because of the bank’s greater loan-to-value risks in these, I might add, be prepared to put a little more skin in the game: The lender may offer only 80 percent of project costs or even less. If you already own the land, that can serve as equity.

Construction delays due to weather and material/labor availability are fairly common. Be sure to build some allowances for this into the construction timetable.

Why is there so little information or competing lender offers on construction loans online? For starters, these loans represent only a very small percentage of home loans. Plus, they’re a bigger risk. Hence, such financing isn’t the type of thing lenders aggressively market online; you have to hit the streets for it. Regional banks and credit unions are typically the best sources.

But then, there’s Patriot Lending in Arizona that can do it quicker and with less hassle and at less cost. Call me with your questions, 928 345-1200 or check out information tab on home page for contact information.

Without impeccable credit or a strong existing lender relationship, you may be challenged to find an affordable construction loan in today’s lending climate, though a booming local housing market and substantial family income tend to grease approvals.

 

 

Financial Planners “Remiss” to Not Suggest Reverse Mortgages

April 18th, 2017  | by Alex Spanko (as edited here)  | HECM, News, Reverse Mortgage

CNBC included reverse mortgages in a list of “innovative approaches” to protecting retirees’ portfolios in down times, citing a financial advisor who said he and his colleagues would be “remiss” if they didn’t suggest Home Equity Conversion Mortgages as a potential option.

Rob O’Dell, a certified financial planner in the Naples, Fla. office of the Coyle Financial Counsel wealth management firm, told the network’s website that the reverse mortgage industry has “cleaned up this space to benefit the end consumer.”

“The HECM positions the portfolio for longevity, O’Dell said, by having the client tap the line of credit instead of assets when the market is down,” the post notes, echoing an increasingly popular angle for promoting the reverse mortgage. “In this way, assets are preserved and have the opportunity to keep growing through the years.”

The post warns consumers that HECMs still require HUD insurance premiums and lead to the accrual of debt, but generally positions the product as a tax-free way to diversify consumers’ retirement plans.

“The HECM allows the borrowers to be in control of their loan and payment terms, not the lenders,” O’Dell told CNBC.

God Bless the USA

Lennie Reisch

This whole immigration thing is insane. I am a political refugee who exiled to the USA as an 8 year old child along with my 4 year old sister. My parents sent us to the USA alone when they couldn’t attain the proper immigration papers needed to enter the USA LEGALLY. They remained behind in Cuba until they were able to enter LEGALLY into the USA and apply for political asylum.

My sister and I were placed in a holding camp the USA had set up for the other children like us who were being airlifted to the USA escaping the brutal and oppressive Castro regime. My father was jailed several times by Castro for political dissent, and his business was confiscated. My parents, sent us to safety and freedom, hoping someday soon they could join us. Fourteen thousand Cuban children from the ages of 3-16 sought refuge in the USA in what eventually was called ‘The Pedro Pan Program’.

We were placed in a foster home several weeks after being vetted in the detention center. Because we had left Cuba with very little personal belongings do to Castro’s strict orders, (No toys, 3 sets of clothes, 1 piece of jewelry) and no money, we were provided all our physical needs. We were fed, schooled, clothed, and given shelter in an abandoned military base. We all ate together in the cafeteria, and were assigned to barracks. School rooms were set up.

I was 8 years old, too young to really understand what and why this was happening to us. My parents made me promise I wouldn’t cry so that my little sister would not be scared, so all my fears and sadness were suppressed. It was a trauma I cannot explain to anyone who has not lived through it. However, I can now completely understand the reasons my parents made this tremendous sacrifice, and I still clearly recall my parents faces watching our luggage being ransacked by the armed Cuban soldiers, and the look of sadness knowing they might never see their precious little daughters again.

Thankfully, my parents were able to escape Cuba a year later, and we were reunited with them s couple of weeks after they arrived. They got out of Cuba just in time before the diplomatic relations between the USA and Cuba were suspended due to the October Missile Crisis. We were one of the fortunate families who were able to reunite. Many families remained separated for many years, their children having forgotten even how to speak Spanish.

I am appalled by the way the liberals and the media is portraying what’s happening at our borders. The USA is the most generous, hospitable country in the world. This country has provided so much assistance, shelter and hope to so many in its young existence. ‘The beacon on the hill’ like Reagan so eloquently said.

To see and hear the hatred they use to malign and discredit President Trump simply because he’s attempting to permanently resolve the mess previous administrations have ignored and precipitated, absolutely breaks my heart. I have no words to express the outrage and the sadness I feel watching and hearing them lie, disrespect and show such disdain for this country I love so much.

I love this country and the shelter, opportunity and FREEDOM it provided my family since we were welcomed. Watching the tv images of children being cared for by the overwhelmed border officers and the immigration staff, and the way these anti-American news outlets are using this crisis to advance their anti-Trump hatred campaign is completely out of control. It is frightening. The fact American masses are being manipulated by this constant left-wing indoctrination methods is alarming. Having been subject to brainwashing as a kindergartner in Cuba I recognize the radical tactics. I grew up in a home where political discussion and how precious freedom and opportunity found in the USA is what every person on earth deserves, I am appalled by the recognition of the Marxist ideology this left-wing is aspiring to inject into the USA government.

They are gradually and persistently eroding the strong fiber the USA forefathers so wisely founded this country on. They use emotional sabotage to achieve their objectives. What’s more heartbreaking then exhibiting outrage over children being separated from their parents? Who wouldn’t feel a tug on their heart if all this were the real and complete facts?

However, they are only telling us the part of the story that promotes and advances their narrative. They fail to tell you these immigration laws have been around for decades. I know. I am a recipient of those policies. Do I consider myself a victim? NO!!! AND NO!!!

I am infinitely thankful and grateful for the generosity and kindness this country bestowed on us. I could never find the words to express my gratitude and my love for the country which has given the world’s oppressed the HOPE for SELF DETERMINATION. EQUAL OPPORTUNITY. FREEDOM OF SPEECH to even yell obscenities, mock, and besmirch a leader who has done nothing to deserve it except stand up for the country he loves, the people who volunteer to protect it, the flag and national anthem that represent it, and affirm the constitution many of his fellow citizens seem determined to overthrow and eliminate.

God forbid he should strive to defend its sovereignty. God forbid he should put the citizens he was freely elected to represent above all others. God forbid he should insist on respecting the flag that proudly waves its Stars and Stripes. God forbid he has made a commitment to honor life, even the lives of those unborn innocents. God forbid he should stand up proudly for American exceptionalism and the American way of life. God forbid he has made capitalism work again by lowering taxes, giving entrepreneurs new hope to succeed, jobs to the unemployed.

President Trump has been in the public arena for decades. You would think at some point, while a well known celebrity, somebody might have accused him of racism, fascism, naziism, homophobia, etc.etc.etc. But no. His biggest scandals? Divorce. Sad, but hardly uncommon in today’s world. Bankruptcy. And then recovery, success and wealth regained. Pomposity. True, perhaps. Narcissism. True, but what person confident enough to run for the US presidency can claim humility? None, I would argue.

The abject hatred and rhetoric directed at this man is illogical and crosses the line of normal and acceptable social behavior. I fear for his life, his family, and his supporters. The rancor and violent outbursts of complete and utter disdain is palpable. Frankly, I can no longer justify trying to understand the irrationality of the vitriol. It has surpassed my ability to accept and/or understand. All I am capable of at this point is prayer for protection, strength, guidance and favor for Mr. Trump, his family and those of us who support him.

I believe with all my heart that this man was ordained by God to lead us at this critical time in our history. God picks the most imperfect and unworthy to achieve His biggest purpose and His plans. It’s always darkest before the storm, but I firmly believe in the creator who promised a rainbow at the end of the storm.

The storm is raging. We need to stay strong, faithful and prayerful. Many of us will confront strife and violent stormy weather.

But the rock upon which this country was established on is strong, solid and deep. Those of us who know this are being called to be faithful to speak the message, and courageous enough to stand firmly on the principles that determine and established who we are as individuals and as a nation.

In the Declaration of Independence it clearly and radically affirms that we are to rely on our Creator, and all our rights come inalienably from Him. No power on earth can separate us from Him upon whom our nation has been blessed by throughout the last 250 years.

I pray incessantly for those who mean us harm to cease and desist. I pray for all our representatives to find compromise, guidance and peaceful resolution. I pray wisdom for all those who are blinded by the lies to seek the truth. I pray our flag continues to wave proudly and waves over those who volunteer to secure peace, safety and freedom for us to live by.

God bless the USA!🇺🇸🙏🏽

Financial advisors increasingly recommend Home Equity Conversion

March 5th, 2017  | by Alex Spanko  | Reverse Mortgage

As financial planners and scholars increasingly advise certain borrowers to take out Home Equity Conversion Mortgages as early as possible as part of their retirement plans, some loan originators are noticing increased interest for the products from younger borrowers. At the same time, many in the industry are working to adapt their strategies to target individual age subsets of the consumer marketplace for home equity conversion marketplace, each with their own set of concerns.

Laurie MacNaughton, a reverse mortgage specialist at Southern Trust Mortgage in northern Virginia, says an age gap has become more and more apparent in her business as financial advisors increasingly recommend HECM loans for younger borrowers as a retirement-planning option, while elder law attorneys continue to refer clients in their 80s who may applying to meet immediate financial needs.

But for those who didn’t explore HECMs as an option in their early 60s, there may not be a sense of urgency, MacNaughton said — especially as people in their 70s remain active longer and may not think they’ll run into financial issues in the future.

“In the ‘60s, [people in their] 60s were the old people, but now they’re still working and running marathons — it’s kind of an Indian summer,” MacNaughton said, noting that in her home region of the Washington, D.C. suburbs, many who work in government and politics remain on the job as consultants or contractors into their mid-70s. She terms consumers in their 70s the “silent generation” for HECM borrowers — not to be confused with actual Silent Generation, a term for people who were born between 1925 and 1945.

National data from the Department of Housing and Urban Development doesn’t quite back up MacNaughton’s anecdotal observation around the nation’s capital: Borrowers aged 70 to 79 accounted for 39.3% of all HECM loans in fiscal 2016, up from 37.1% in fiscal 2015.

But the age gap in MacNaughton’s practice made sense to Mike Gruley, who highlighted the different approaches he generally uses when reaching out to baby-boom borrowers and older potential clients. Gruley, an executive vice president of reverse mortgage lending at 1st Nations Reverse Mortgage in Ann Arbor, Mich., says people in their 80s tend to be far more suspicious of credit in general, having been raised in a generation where mortgages and other loans were seen as burdens that needed to be retired as quickly as possible.

“We don’t hear about many baby boomers having mortgage-burning parties,” Gruley says, noting that people in their 60s have fewer qualms about using home equity to both cover necessary expenses and pay for indulgences such as vacations and second homes.

As a result, Gruley doesn’t usually take the home-equity approach when working with older borrowers, instead focusing on the practical benefits of securing additional funds to help pay bills and other necessities.

“We don’t need a second house,” he said, summarizing their attitudes. “This one just got paid for.”

See contact information in navigation bar for details.

 

Give gifts from your home equity “BANK” and never make a payment or lose your home.

Do you realize you are sitting on a pile of money you could spend after 62 hiding in your home equity — money you wouldn’t pay tax on and for whatever reason you can imagine? (what a relief it can be). So, it sounds too good to be true and you don’t believe it. That’s OK, that’s the way with this kind of deal — it’s hard to believe it — and you’ll be pinching yourself to see if you are awake.

Hmmmmmmmm. The critics will tell you it’s a crock and you shouldn’t do it. Yes, there is critics and they don’t believe it. What about you? Will you let us explain how it works. That will help you get your feet back on the ground?

The HECM plan came in with President Reagan and a million of your U.S. neighbors have already done it.

You could do something well beyond the norm and feel good about it in this lifetime, watching it spent on things that matter to you.

One of the ways to contribute to charity is to open up home equity to pay for it and then settle up after you leave when your house is sold.

Many of our neighbors have no family to leave this pile of wealth to and can’t imagine what they would fund with this money.

There are so many  ways to contribute to causes you care about.

Here are some you may not have thought about.

American Red Cross.

Help refugees get a start in your favorite country.

Support missionaries around the world.

Invest in a family business to support people that matter to you.

How much money is sitting there in your house? (“I can help”, Warren Strycker 928 345-1200.)

Talk to me about this. See “information” tab on home page for contact information.

 

 

 

 

 

 

Retired homeowners are using property wealth

Equity Release May 9, 2018

By Rosie Murray-West

Retired homeowners are increasingly using their property wealth to get family members onto the property ladder, or to pay for university, a new study has shown.

Figures from Key Retirement showed one in four pensioners were using their homes to help their family, with money going to house deposits, university fees, debt repayments and business start ups.

The percentage using property wealth for gifting increased to 26 per cent from 22 per cent in the first quarter of 2017.

“Gifting is a major motivation for equity release and our data shows it is more a case of parents and grandparents wanting to gift rather than children asking for help,” said Dean Mirfin, chief product officer at Key Retirement.

“They’re motivated by the desire to help when the money is really needed and being around to see the difference that it makes. In addition, equity release enables them to have some control over how the money is ultimately used.”

The figures showed that while many are giving away money from equity release, pensioner debt is also a factor. More than a fifth (21 per cent) of people used proceeds of equity release to pay down mortgages, while 30 per cent using it to clear credit cards and loans.

The average retired homeowner took £74,000 from their home, and the total amount released in the first quarter of the year was £777m. The south east of England accounted for more than a quarter of all equity release sales and nearly 30 per cent of total lending.

The most popular use of the cash was to fund home and garden improvements with 63 per cent of retired homeowners spending money on their houses. But the size of the average amounts being released means 31 per cent were also able to pay for holidays.

The figures showed many more people were taking advantage of more flexible equity release mortgages. Around 68 per cent of all sales were drawdown plans, including 16 per cent in enhanced drawdown which offers enhanced terms to people with health or lifestyle conditions.

Single advance lifetime mortgages accounted for 32 per cent of sales, of which 17 per cent were enhanced products.

Pensioners (retirees) on this side of the pond can learn about the Home Equity Release program by searching on the home page for the “information tab”. The publisher of this webpage is also a veteran mortgage loan officer in Arizona and can give you details to get started including a free analysis to discuss with you the qualifications needed.

 

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

The total costs of Social Security will exceed total income this year for the first time since 1982, according to the annual Social Security and Medicare trustees report released on Tuesday, as funds for Medicare are expected to run dry earlier than expected.

 

While costs have exceeded net income since 2010, this is the first time in more than three decades that spending is expected to outweigh total income, by about $2 billion, meaning asset reserves will decline. Asset reserves as of 2017 were $2.9 trillion.

The trustees forecast that 100% of benefits will be covered through 2034, after which the trust funds for Social Security, which also cover old age and disability insurance programs, will only be able to cover about 79% of benefits.

Meanwhile, Medicare’s hospital insurance trust fund is expected to run dry in 2026, three years earlier than what the trustees had predicted in last year’s report. At that time, funds will be sufficient to cover just 91% of Medicare Part A costs.

Talk to a veteran mortgage professional about social security and home equity release to make up for social security shortages — See “information tab”.

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

Without Fixes, Social Security Benefits Would Drop to 1950s Lows

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

We worry about social security — do you?

How Can Older Workers Stay in the Game?

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

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

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

By  Sue Shellenbarger

Updated May 22, 2018

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

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

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

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

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

Jeff Fuerst, 52

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

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

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

Karen Alber, 54

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

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

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

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

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

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

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

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

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

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

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

SAVVY MOVES

To improve your survival chances late in your career:

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

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

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

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

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

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

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

Update your professional credentials via training or refresher courses.

Stay involved in professional organizations or your college alumni network.

WORK & FAMILY MAILBOX

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

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

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

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

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

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

 

What can you do if you haven’t saved enough for retirement? (HECM it!)

Americans say this is their biggest financial regret; Is there a fix? (see editor’s note at the end of this story).

Taylor Tepper @TaylorTepper

May 16, 2018  in  Savings

Romona Robbins Photography/Getty Images

Brian Dooley wanted a recreational vehicle.

He and his wife, Brooke, liked to travel and didn’t want to leave their two cats and a dog behind. Brooke is a veterinarian. They were looking forward to cross-country drives to stay with family for weeks at a time, or just picking up and heading out into the country for a long weekend.

Four years ago, the then-San Antonio couple decided to plop down $20,000 in cash for their RV. The sum pretty much ate up their entire $25,000 emergency fund, but with no debt beyond their mortgage, Dooley, now 35, felt comfortable they could replenish it soon.

Ten days later, though, Brooke, 31 at the time, was diagnosed with breast cancer. After half a year of treatment, including chemotherapy and a double mastectomy, Brooke’s cancer was contained and removed. The couple had been able to replenish their savings in less than a year, even after paying $10,000 for an IVF-type procedure that wasn’t covered by insurance, to ensure their ability to one day have children.

“We learned the unexpected can happen, and an RV purchase is far from an emergency,” says Brian, who works in medical marketing.

Millions of Americans understand that lesson.

For the third consecutive year, according to a Bankrate survey, adults most regret not saving for retirement early enough – 18 percent of respondents – and not saving for emergency expenses (14 percent).

Debt was a secondary concern, with 1 in 10 respondents lamenting too much credit card debt and another 8 percent citing high student loans. Seven percent wish they saved more for their child’s college education, while 2 percent cite buying more house than they can afford.

Nearly a quarter said they regretted something else, and 15 percent had no financial regrets whatsoever.

While mild wage gains and rising housing costs have burdened Americans across the country, there exists no perfect moment to get serious about saving.

“Time is your greatest ally when saving for the future,” says Greg McBride, CFA, Bankrate chief financial analyst. “To workers of all ages, there is no better time than the present to increase your 401(k) contribution or fund an IRA.”

Saving in America

There are two savings crises among American households: short-term and long-term.

In the here and now, most adults do not have enough stowed away in a savings account to adequately protect them from going into debt, should disaster (lost job, health scare) occur.

Financial planners recommend an emergency fund comprising six months’ worth of essential expenses in a savings account. That’s about $23,000 for the average household living in a major metropolitan area, according to a recent Bankrate report.

How much does the average American have? Less than $4,000, according to Federal Reserve data, which is why 39 percent of adults wouldn’t pay from an unexpected $1,000 expense out of savings.

And then there’s retirement.

Half of working-age adults, according to Boston College’s Center for Retirement Research, may not be able to maintain their standard of living once they stop working.

Americans, as the latest Bankrate survey finds, simply are nervous about their lack of retirement savings. Just half of middle-income Americans own a retirement account, according to the Fed, with a median holding of only $25,000.

The figures are even more scary if you look at households helmed by someone between the ages of 55 to 64, or the decade before retirement. Only 60 percent of those Americans, who are about to be out of the workforce, are saving for retirement, with a median amount of $120,000. Financial planners estimate you need about 11 times your final paycheck to retire securely.

How you can avoid financial regret

“I’m not surprised the biggest regrets in your survey are about not saving enough,” says Chantel Bonneau, a San Diego-based Northwestern Mutual wealth management adviser and CFP professional. “So many are woefully behind schedule on savings.”

Bonneau sees two distinct problems among her clients who haven’t amassed adequate savings: incentives and anchoring.

Incentives: This issue revolves around the lack of a clear goal. What’s the point if you don’t have a story in your mind to account for why you’re saving? These clients may intellectually understand why saving is better for their finances than spending, but without a clear number in mind, they lose enthusiasm and focus.

“It’s just hard to get excited without a goal,” Bonneau says.

So, create a goal. Make it real. If you want to buy a house, label your savings account “down payment” and start building toward a specific number that will help you afford a home in your price range.

Anchoring: The other issue, especially for retirement, is not adjusting the amount of your savings when your income rises. Some of Bonneau’s clients contributed, say, $50 a month to an IRA when they were 22, but hadn’t increased their contributions as their incomes rose.

“People are locked in on numbers,” Bonneau says. “For instance, I just believe my cable bill should be $80 a month. I’m comfortable with that. The same thing happens with savings.”

The trick is to break yourself of that anchor. Fifty bucks may have made sense on your first salary but is insufficient later in life. In effect, you are living beyond your means by decreasing your savings rate.

Instead of thinking in terms of dollar amounts, then, use percentages. Get used to saving 10 percent of your pay in an employer-sponsored 401(k) including any match, or in an IRA.

You’ll have less to regret later in life.

This study was conducted for Bankrate via landline and cellphone by SSRS on its Omnibus survey platform. Interviews were conducted from May 2-6, 2018, among a sample of 1,004 respondents. The margin of error for total respondents is +/- 3.70% at the 95% confidence level. SSRS Omnibus is a national, weekly, dual-frame bilingual telephone survey. All SSRS Omnibus data are weighted to represent the target population.

So, what to do about it now? The HECM mortgage utilizes home equity to balance the budget in retirement when other income sources fail to cover deficits. Merton and others are now saying it will be the wave of the future in retirement planning. And, while not all those should be based on the numbers in this article, more are weighing in to recommend the HECM mortgage to clean up budget imbalances.

Consider the implications of the HECM mortgage as you browse this website.

Consider the implications of using it for yourself as you near your sixty second birthday by opening up dialogue with Warren Strycker, HECM veteran of many years. See Information tab on the home page for contact information. (https://gofinancial.net/home/)

Also, since many of you believe this is a bad decision, consider what the truth is vs the fake news you’ve been hearing by downloading this brochure for your consideration. (https://gofinancial.net/hecm-brochures/)

 

Life: The Long and the Short of It — Telomeres

AMARA ROSE MAY 7, 2018 

 “What we have done for ourselves alone dies with us; what we have done for others and the world remains and is immortal.”

—   Albert Pike

May is Older Americans Month, and in recognition of this year’s theme, Engage At Every Age, Americans are growing older than ever before. What’s their secret? Possibly telomeres.

What we learned from astronauts 

Telomeres — the protective endcaps of our chromosomes, which shorten over time as we age — appear to lengthen in space, a NASA study reveals.

Researchers compared a number of psychological and physiological factors affecting identical twin astronauts, one of whom spent a year in orbit aboard the International Space Station while his brother remained on Earth as a control. Testing confirmed that the off-planet brother returned to Earth with significantly longer telomeres.

While his telomeres shortened again after just a few days back on Earth, it begs the question: is living aboard a spacecraft the ultimate anti-aging tonic?

Ripe for disruption

It’s not just space that affects longevity; there’s a lot of health disruption happening right here at home. We may not be able to lengthen our telomeres (yet) but healthcare innovation has just taken a quantum leap forward: Amazon hired a geriatrician.

Isn’t that a bit odd? What does Amazon know that other businesses don’t?

According to MedCity News, “Healthcare — especially for seniors — is at its breaking point and is ripe for disruption. The old ways of doing things have not been working for patients or providers. That’s why the geriatricians who have been on the front lines are actually some of the most innovative minds who could shift the paradigm.”

Dementia without stigma

We’re also starting to remove the ignominy of memory loss. The inaugural “Dementia Village”, based on the pioneering Netherlands model, opened last month in Chula Vista, California. An adult day care center, known as Town Square, is a simulated town designed for reminiscent therapy, featuring everything from a 1959 car to a working diner and black-and-white movie theater.

While senior residences have seen the benefit of yesteryear-themed design, what’s intriguing about this dementia village is that it’s staffed with seniors, via a national home care franchise. They hope to scale the concept to 100 locations throughout the U.S.

Like Amazon hiring a geriatrician, having seniors support seniors makes perfect sense. Just as Japan is gearing up to care for its burgeoning number of older adults with Alzheimer’s through the concept of “dementia towns”, where residents take responsibility for seniors who need assistance rather than leaving this to immediate family or the medical establishment, dementia villages create a welcoming, immersive experience for elders who need memory care. And it’s stigma-free — inviting, even. The whole environment sounds quite appealing for any nostalgia buff!

For love of the game

For some seniors, working at what they love, whether it involves caring for their cohorts or ushering at a beloved ballgame, keeps those telomeres and the person they pilot in fighting trim to the very end.

That was the ticket for Phil Coyne, a Pittsburgh Pirates fan who retired in April just a few weeks prior to his 100th birthday after — wait for it — 81 years on the job, besting Elena Griffing’s 71-year record (of course, Ms. Griffing is almost a decade younger than Coyne, so she may catch up!)

Whatever their game, when elders love life, and when industry giants such as Amazon and the creators of Town Square continue to focus on the benefits of making senior wellness a priority, life for your reverse mortgage clients and prospects promises to be better than ever. Enjoy honoring your clients this May!

As seniors take on more debt, retirement income is reduced unless it’s paymentless”non recourse” like HECM

What does that mean: “non-recourse”??? Ask Warren — see footnote at the end of article on “Information tab”.

Debt of the Elderly and Near Elderly, 1992–2016

By Craig Copeland, Ph.D., Employee Benefit Research Institute

AT A GLANCE

Much of the attention to retirement preparedness focuses on asset accumulation in individual account retirement plans as well as the presence of defined benefit plans, but the other side of the balance sheet—debt—can potentially have a significant impact on the financial success of an individual’s retirement. Any debt that an elderly or near-elderly family may have accrued entering or during retirement can offset any asset accumulations, resulting in lower levels of retirement income security.

This Issue Brief focuses on the trends in debt levels among older American families with heads ages 55 or older (near-elderly families are defined as those with family heads ages 55–64 and elderly families are defined as those with family heads ages 65 and older), as financial liabilities are a vital but often ignored component of retirement income security. The Federal Reserve’s Survey of Consumer Finances (SCF) is used in this article to determine the debt levels.

Debt is examined in two ways:

 Debt payments relative to income.

 Debt relative to assets.

 

Each measure provides insight regarding the financial abilities of older American families to cover their debt before or during retirement. For example, higher debt-to-income ratios may be acceptable for younger families with long working careers ahead of them, because their incomes are likely to rise, and their debt (related to housing or children) is likely to fall in the future. On the other hand, higher debt-to-income ratios may represent more serious concerns for older families, which could be forced to reduce their accumulated assets to service the debt at points where their peak earning years are ending. However, if these older families with high debt-to-income ratios have low debt-to-asset ratios, the effect of paying off the debt may not be as financially difficult as it might be for those with high debt-to-income and high debt-to-asset ratios.

This study by the Employee Benefit Research Institute (EBRI) found various results about the debt holdings of families with heads ages 55 or older.

 A higher percentage of American families with heads ages 55 or older have debt, and families with the oldest heads are seeing the greatest increases. In 1992, 53.8 percent of families with heads ages 55 or older had debt and by 2010, 63.4 percent did so. This number continued to increase through 2016 reaching 68.0 percent. After 2007, the increase in debt has been most prevalent among the families with the oldest heads – ages 75 or older – where the percentage having debt has increased by nearly 60 percent (from 31.2 percent in 2007 to 49.8 percent in 2016).

ebri.org Issue Brief • March 5, 2018 • No. 443 2

 However, debt levels have decreased from their peaks in 2010, but the oldest families still have debt levels above their 2001 levels. The average debt amount for families with heads ages 55 or older was $82,968 in 2010, but this amount stood at $76,679 in 2016 (both amounts in 2016 dollars). Furthermore, debt payments as a percentage of income fell from 11.4 percent in 2010 to 8.2 percent in 2016. In addition, debt as a percentage of assets declined from 8.4 percent in 2010 to 6.5 percent in 2016. While the overall percentage of families with heads ages 55 or older having debt payments in excess of 40 percent of income (a common threshold for determining if a family has issue with debt) decreased in 2016, the percentage of families with heads ages 75 or older with debt payments in excess of 40 percent of income increased by more than 23 percent from 2007-2016.

 Housing debt has been driving the change in the level of debt payments since 2001, while the nonhousing (consumer) debt-payment share of income has held relatively stable since that time. Housing debt payments have been 1 to 3 times larger than those of nonhousing debt payments since 1992. In 2016, housing debt payments fell below both the 2010 and 2013 levels.

 Younger families, those with heads younger than age 55, have had a higher probability of having debt and higher debt payments as a percentage of income than older families. However, families with heads ages 55–64 have been more likely to have debt payments in excess of 40 percent of income than any other age group.

 While improving in many respects in the most recent years, the overall trends in debt are troubling as far as retirement preparedness is concerned, in that American families just reaching retirement or those newly retired are more likely to have debt—and higher levels of debt—than past generations, specifically those in the 1990s. Furthermore, the percentage of families with heads ages 75 or older whose debt payments are excessive relative to their incomes is near its highest levels since 1992. Consequently, more families that have elderly heads are placing themselves at risk of running short of money in retirement due to their increased likelihood of holding debt while in retirement.

**Editor’s Note: “At the ‘HECM TABLE’, debt is postponed and dealt with after you move, die or choose to pay it off. The debt itself is referred to as “non recourse” meaning the loan is tied to the house — not the owner — and never needs to be paid in his lifetime as long as the homeowner keeps his taxes and HOI paid up” says veteran mortgage professional, Warren Strycker. (See contact information at the home page under “information” — call with questions).

For those concerned about losing their inheritance, read https://gofinancial.net/2015/12/inheritance/ on this webpage. Those worried about losing their house, check out this tab on the home page: https://gofinancial.net/hecm-brochures/ Better yet, call Warren at 928 345-1200 (it’s probably quicker).

 

 

CoreLogic: Home prices increase again; Spikes HECM Principal Limit

Western states see double digit increases.

(See editor’s note at the end of this article for impact on Reverse Mortgages)

Kelsey Ramírez

April 3, 2018

Home prices continue to surge, rising for their seventh consecutive month in February, according to the latest Home Price Index from CoreLogic, a property information, analytics and data-enabled solutions provider.

Home prices increased 6.7% across the U.S. from February 2017 to February 2018, and increased 1% from the month before, according to the report.

And this increase was even higher in western states, which continue to have hot housing markets, CoreLogic explained.

“A number of western states have had hot housing markets,” CoreLogic Chief Economist Frank Nothaft said. “Idaho, Nevada, Utah and Washington all had home prices up more than 11% over the last year.”

“With the recent rise in mortgage rates, affordability has fallen sharply in these states,” Nothaft said. “We expect home-price growth to slow over the next 12 months, dropping to 5% to 6% in Idaho, Utah and Washington, and slowing to 9.6% in Nevada.”

For the U.S. overall, CoreLogic’s HPI Forecast shows prices will slow to an increase of 4.7% by February 2019. California, on the other hand, will continue to surge, rising 10.3% year-over-year.

The CoreLogic HPI Forecast is a projection of home prices that is calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

An analysis of the country’s top 100 largest metros based on housing stock shows that 34% are now considered overvalued as of February, CoreLogic reported.

The market conditions indicator analysis categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals, such as disposable income.

As of February, about 30% of the top 100 metros were undervalued while 36% were at value, the report showed.

“Family income is rising more slowly than home prices and mortgage rates, meaning that the mortgage payment takes a bigger bite out of income for new homebuyers,” CoreLogic President and CEO Frank Martell said. “CoreLogic’s market conditions indicator has identified nearly one-half of the 50 largest metropolitan areas as overvalued.”

“Often buyers are lulled into thinking these high-priced markets will continue, but we find that overvalued markets will tend to have a slowdown in price growth,” Martell said.

Editor’s note: The HECM benefit rises with the Principal Limit tied to home values — so this is good news for those ready to consider the HECM reverse mortgage now. If the market goes back down (as it did recently), less benefit is available. Don’t forget — this mortgage does not require payments in your lifetime as long as you keep taxes and homeowner’s insurance current opening up a great opportunity to reset your budget in retirement, says Warren Strycker, veteran HECM professional. Call 928 345-1200 for a HECM analysis to determine what these facts could mean to you. See “information” tab on home page for contact information.

 

Lots of seniors will run out of money in retirement. HECM helps.

By Mike Brown, LendEDU · 6,599 views · More stats

Loose management of finances, such as taking on too much debt or not saving enough, could lead to irreversible damage when it comes to retirement.

What’s more, you often don’t find out if you’ve made a financial mistake until much later in life. That’s why we decided to survey senior citizens to see what they would change about their financial planning if they could go back to their youth when they first started working. It might be too late for them to make changes, but others certainly can benefit from their advice and benefit of hindsight.

In our latest survey of 1,000 senior citizens, LendEDU sought to uncover how older Americans are faring financially and if they made the right decisions throughout life to live comfortably in their later years.

Are today’s senior citizens sufficiently prepared for retirement or have past financial mistakes impeded their progress? What did older Americans wish they knew about managing finances when they were younger?

Here were a few key takeaways from the study:

55% of senior citizens said they have not saved enough for retirement, 18% were not sure if they had enough saved, and 27% felt as if they did

21% of older Americans, the plurality, indicated that their biggest financial regret from their twenties was not saving enough for retirement

69% of respondents stated that Social Security benefits are a critical part of their financial strategy while 47% said the same regarding life insurance

More Than Half of Senior Citizens Underprepared for Retirement, Most Wish They Started Saving Sooner

To gather the data for LendEDU’s story, we surveyed 1,000 Americans, all of whom were at least 65 years of age.

One of the first questions we asked the respondent pool was the following: “What is the biggest financial regret you have from your twenties?”

Data source: LendEDU. Chart created with Onomics.

The plurality of the respondents, 21.4 percent, indicated that the biggest financial regret from their twenties was not saving enough for retirement. Other popular answer choices included spending too much money on nonessential things (17 percent), not investing (12.3 percent), and getting into too much debt (10 percent).

Circling back, it was quite telling that senior citizens regret not saving enough for retirement in their twenties. Getting a jumpstart on retirement is essential to living a comfortable life in one’s later years. Due to compound interest, the earliest possible start to retirement saving will be the most beneficial as your money will have more time to grow.

Professor Timothy Wiedman of Doane University, 66, agreed with most senior citizens who took this survey in that his biggest regret was not getting a jump on retirement while in his twenties.

“I put off starting to save for retirement and didn’t open my first IRA until I was a bit over 31 years old. I justified this by telling myself that I could always “catch up” later on my long-term financial plans after establishing a solid career and seeing my income increase,” said Wiedman.

Wiedman soon realized the delay had a substantial impact on his ability to save and earn.

“But the earning power of compound interest is based on time, so an initial delay can have severe consequences. Thus, for young folks these days, opening a Roth IRA as early as possible is vital,” he said. “For example, if a 23-year-old fresh out of college puts $3,000 per year into a Roth IRA that earns a 7.8 percent average annual return, 44 years later at retirement, that $132,000 of invested funds will have grown to $1,009,275. On the other hand, starting the same Roth IRA 20 years later will yield very different results.”

So we know that many older Americans seriously regret not saving for retirement early enough. But were they able to salvage that lost time? Are they prepared for retirement?

The following question was proposed to all 1,000 senior citizen respondents: “As of today, do you believe that you have saved enough for retirement?

The strong majority of older Americans, 54.6 percent, admitted that they do not believe they have saved enough for retirement, while only 26.6 percent think they are on the right track, and 18.8 percent are still unsure.

It came as quite a surprise that so many senior citizens believe they are not aptly prepared for life after work when they should be enjoying warm weather and leisure activities.

But once again, it goes to show the potentially crippling effects of not saving enough for retirement at a younger age. Quite a few senior citizen respondents wished they had saved more in their twenties and that sentiment transferred over to this more black-and-white question.

For reference of what is to come, a LendEDU study found that of 500 millennials who consider themselves to be saving for retirement, 41 percent are using a savings account to save for retirement. A savings account – even a high interest savings account – likely won’t produce anywhere near the growth delivered by a 401(k) or individual brokerage account, which 59.4 percent of respondents used.

If those millennials wish to find themselves in a better position than more than half of the baby boomers at the age of retirement, they should probably switch from a savings account to a robo-advisor401(k), or brokerage account.

Additionally, when we asked our senior citizen respondents to answer what they know about personal finance today that they had not known at 25, 15.68 percent of the answers were: “I know how to save for retirement.”

The plurality of answers, 28.68 percent, pertained to learning how to live within one’s means, while 25.95 percent of answers were: “I know how to budget.”

Dr. John Story, a 60-year-old college professor at the University of St. Thomas, Houston, summed up this question quite well and further reinforced the importance of getting a jump start on retirement.

“I wish I had known the true cost of debt, and the flipside, the real value of long-term saving.”

With a Lack of Retirement Funds, Many Seniors Relying on Social Security and Life Insurance

As one gets older, there are two components that are thought to be key to achieving a sustained financial comfort. One is life insurance, a product, while the other is Social Security, a benefit.

Life insurance and Social Security benefits become all the more crucial for senior citizens when they have not saved enough for retirement, which is the case for over half of our respondents.

Not surprisingly, many poll participants indicated that they are relying heavily on both things to live their later years comfortably due to a lack of sufficient retirement savings.

In comparison to life insurance, older Americans were more likely to list Social Security benefits as important to their financial strategy. A majority, 69.1 percent, stated that Social Security benefits are a critical component, while 18.7 percent said the opposite, and 12.2 percent were still undecided.

Whereas life insurance must be purchased, Social Security is a benefit that can be qualified for by being of age and by working for a certain number of years (usually 10).

Life insurance is purchased by many senior citizens because it can solidify the financial security of loved ones should the buyer pass away.

While a majority was not achieved, 46.9 percent of senior citizens indicated that life insurance was an important part of their financial strategy. 34.1 percent said that the insurance product does not hold much weight for their financial plan, while 19 percent were unsure.

Considering many of LendEDU’s respondents are not sufficiently prepared for retirement, having life insurance or access to Social Security benefits could become quite pivotal for living comfortably in their later years. Note: Complete survey data and methodology available here.

“Here at Gofinancial, we have prepared for this event. Lots of seniors will run of money in retirement. The HECM insured program ushers in the use of home equity to support shortgages for seniors beginning at age 62.

Yes, you will get to open your home equity “bank”.

Open “information” tab on the home page to access contacts for Patriot Lending, a leading HECM lender where mortgage payments are eliminated and cashflow restored,” says veteran HECM loan officer, Warren Strycker.

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.

See contact information in navigation bar for details.

FIRST STEP: Home equity belongs to you; SECOND: Dream some; THIRD: Take ADVICE while you can.

Posted by Free Kindle Books on April 4, 2018

Common misconceptions, assumptions, and behavioral biases often prevent people from building robust and flexible retirement plans—and this is an enormous problem. If you don’t know your decisions are based on false assumptions, how can you avoid making serious mistakes?

Rewirement: Rewiring the Way You Think about Retirement! offers a solution. Under the expert guidance of Jamie P. Hopkins, Esq., CFP®, RICP®, you’ll learn to identify problems that might sabotage your savings while learning how to build and implement the retirement plan you need.

Considered one of the top forty financial services professionals under the age of forty by InvestmentNews, Hopkins provides an accessible and actionable ten-step process for building your retirement income plan. You’ll discover the basics of retirement planning, how to tap into home equity, and how best to use employer-sponsored plans. At the same time, you’ll learn how to prepare for long-term care while protecting yourself against market risks.

Essential reading for anyone who needs to make quality financial decisions, Rewirement lays out the process needed to develop a retirement income plan in easily understood steps. Do you need to rewire your retirement thinking? Would you know if you did?

Download From Amazon: DOWNLOAD LINK 

Good input on HECM mortgages, get a free kindle book if it’s your first. Then, come back here for your questions. See “Information” tab to get started. Contact information.

 

Perilous Debt Levels Put Half of Elderly Households at Risk

Study: Perilous Debt Levels Put Half of Elderly Households at Risk

New research from the Employee Benefit Research Institute shows that the percentage of households headed by someone 75 and older carrying debt in retirement grew by 60 percent over the past decade from 31.2 percent of households to 49.8 percent.

Another troubling statistic contained in the report, Debt of the Elderly and Near Elderly, 1992–2016, is that 75+ households with debt payments exceeding 40 percent of annual income increased by 25 percent over the same period.

“The percentage of the oldest families whose debt payments are excessive relative to their incomes is near its highest levels since 1992,” according to the study’s author Craig Copeland, Ph.D. “Consequently, more families that have elderly heads are placing themselves at risk of running short of money in retirement due to their increased likelihood of holding debt while in retirement.”

Housing debt has been driving the trend of increased debt in the last decade. The amount of money people are borrowing for first and even second mortgages seems to be where people are getting into trouble, Copeland told Forbes.com writer Ashlea Ebeling, in her article The New Reason to Pay Off Your Mortgage Now.

Our take here at Gofinancial is a simple — get a HECM mortgage which uses home equity without payments for the rest of your life. Scale down your debt while you can. See information on Information tab on the home page for details.

Consider reading How large is your mortgage “bite” in the household “apple” on this page about mortgage debt in retirement. See https://gofinancial.net/2016/12/payments/

 

10 REASONS why you should consider a HECM if you don’t have a mortgage (and more so if you do).

Think of all the things you’ve WANTED to do.

DO THEM, without payments.

  1. Get a new car without payments.
  2. Remodel the house without payments.
  3. Take a real vacation without payments.
  4. Consider solar without payments.
  5. Buy a vacation house without payments.
  6. Put money in your account without payments.
  7. Get a new air conditioner without payments.
  8. Get a line of credit that earns significant money without payments.
  9. Pay off credit cards and other nagging debt without payments.
  10. Take a vacation from stress without payments.
  11. (Editor’s note: If you have a mortgage, HECM pays it off first.)

Take a “ride” on this webpage.

https://gofinancial.net/2018/02/i-wish/

Consider talking to a veteran (licensed) loan officer to answer your questions. See “information” tab on home page.

“I wish I had known about this before I had taken out the home equity line of credit.”

When developing a new television spot, Reverse Mortgage Funding decided to take page out of the Cola Wars handbook, inviting real consumers to take “the HELOC Challenge.”

(A HELOC promotion is included at end of this study for your comparison. Watch for what it doesn’t say about the cost of the HELOC).

Decades after Pepsi famously dared soda drinkers to see whether they preferred its flagship product over Coca-Cola in a series of iconic commercials, RMF undertook a similar experiment with Home Equity Conversion Mortgage-eligible borrowers. But instead of two cups of cola, the borrowers received information about a traditional home equity line of credit (“Product A”) and a HECM line of credit (“Product B”).

All the participants know upfront are the facts presented, and that they’re being asked to compare two types of home equity loans. And just like the participants in a recent RMF-supported study conducted by the National Council on Aging, they ended up liking the reverse mortgage far better than the HELOC.

In the two-minute commercial, an announcer explains that participants were told some of the basic differences between the two products, including the “flexible payment options” available for HECM lines of credit — echoing another recent RMF ad — and the government insurance feature.

“Product B almost sounds too good to be true,” one participant says in a voice-over.

“That was a no-brainer,” says another.

The commercial then transitions into the big reveal, showing the stunned faces of participants who overwhelmingly selected the reverse mortgage product over the traditional HELOC.

“I wish I had known about this before I had taken out the home equity line of credit,” says one participant.

“I haven’t heard yet any reason why I shouldn’t pick this product,” says another.

The ad also shows the homeowners admitting that they had negative or incomplete impressions of the reverse mortgage prior to attending the focus group, but that the side-by-side comparison — minus the name — helped them become better informed.

“I don’t think I ever, for some reason, fully understood that a reverse mortgage was, in fact, line of credit,” says one man, shortly before a graphic reveals that 85 of 88 focus group participants selected the HECM line of credit over the HELOC.

The results certainly weren’t surprising to RMF, according to chief marketing officer Jean Noble. The Bloomfield, N.J.-based lender had been conducting similar focus groups around the country since 2016, and after hearing an enthusiastic response from participants, Noble and RMF decided to bring the groups into viewers’ living rooms.

“You’re sitting behind the glass, and they’re like: ‘This product sounds phenomenal!” Noble said. “What better way to debunk the myth of the product by having real people take this HELOC challenge and airing it on TV?”

The filmed spot came from a series of focus groups in Rochester, N.Y., and the participants knew that they could potentially end up in marketing materials or corporate training videos. But they weren’t paid for their time, Noble said, and the reactions were completely genuine.

RMF first began airing the commercials Monday as part of a “soft launch” on cable networks such as CNBC, CNN, and the Smithsonian Channel. And while it’s still too early to determine firm results, Noble said consumers have responded positively on RMF’s website and social media pages.

“This is a great awareness campaign with something completely different than we’ve ever executed before,” Noble said.wq

Consider now, talk to a 12 year HECM veteran loan officer. Access through “Information” tab on home page here. Thanks for taking the HELOC challenge.

The following is taken from HELOC promotional materials and misses the cost of it. You’ll notice above that not only does one not have cost (in one’s lifetime because it is a HECM product) but the LOC actually earns significant growth if left to amortize.

“HELOC brochure…

Homeowners who have equity built up in their homes can tap into that equity using a home equity line of credit, or HELOC. This financial tool can be a great way to accomplish a number of financial goals.

Here are four excellent uses of a HELOC for homeowners to consider.

Consolidating Costly Debts

Credit card debt and other types of consumer loans are costly, unless a debtor is lucky enough to have a no-interest card. Borrowers can consolidate that debt into a HELOC, which is much more affordable because it is a secured debt.

This advantage only works if the borrower stops adding to the debt problem. A HELOC becomes a valuable tool to get rid of debt quickly when used properly.

Create An Emergency Fund

Most people do not intend to end up in credit trouble, but emergencies happen. Emergency home repairs, job loss, or car repairs can quickly add up to unwanted debt.

A HELOC provides homeowners the option to have an emergency fund. Should one of these emergencies pop up, the homeowner can use the HELOC for an affordable source of funds.

Home Repairs That Add Value

Some home repairs add value to the property, but are also expensive. A HELOC can provide a source to fund these repairs. Because they put value back into the property, homeowners may be making wise use of their equity when using the HELOC in this way.

To make this work well, homeowners should choose repairs that do add to the home’s value. Since the cost of the repairs comes from the equity, the home’s owner should recoup the costs later when selling the home.

Funds For Investing

Finally, homeowners can use funds from a HELOC to get started in investment. This is risky, because the loan is paid regardless of how successful the investment is, but it can give a homeowner the chance to start investing for the first time.

Similarly, retirees can sometimes use HELOC funds to supplement retirement income if investments are struggling. This is a temporary solution to give investments a chance to recover, but for those living on a fixed income it is very helpful to have this option.

The HELOC is a valuable tool for homeowners that allows them to tap equity when it is needed. Since they have spent years building up this equity, homeowners should not fear using it when it can help with their financial goals.

 

 

 

 

 

 

 

4 Percent Retirement Rule Is Broken — Next up?

By Dave Copeland on January 10, 2018

For decades, the mantra of retirement advisers has been that people need to start saving early and often for a happy retirement.

But it’s only been in recent decades that they have turned their attention to how to best manage those savings once you’re no longer accumulating wealth and living off the proceeds of a life’s work.

The focus on making sure you don’t run out of money before you run out of years started in 1994, when William Bengen developed the “safe withdrawal rule,” more commonly known as the “4 percent rule.”

Editor’s note: Since that, a lot of folks have lived longer and ended up in virtual poverty because they had a problem using home equity to finish well. The HECM Reverse Mortgage was designed for that, and people in retirement mode should know that the thinkers believe you should use home equity to support early in retirement and complete the cycle using home equity resources. Fifty thousand American senior homeowners attest to their home equity support each year. More are expected to join that group as they grow older and wiser in retirement mode.

The “4% rule” doesn’t work.

It is our conclusion that home equity is fair game and should be used more often than it is. More economists and financial planners are dealing with reality. Americans are not carrying enough savings and pensions into retirement to cover the risk of running out of resources. More information on the home page under the “Information” tab.

 

Restart your conversation in 2018. Frequently Asked Questions about HUD’s #HECM62 Mortgages

The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more. It is smart to know more about reverse mortgages, and decide if one is right for you!

Or, if you prefer, call or email Warren Strycker, senior veteran mortgage lender representative to review your thoughts about this amazing product. Call 928 345-1200 or email warren.strycker@patriotlendingreverse.com. Strycker is responsible for this information webpage, Gofinancial.net where informational articles investigate the HECM Reverse Mortgage. Strycker recommends the HECM to get your affairs in order.

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA’s HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.

3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?

Yes.  You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5. What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

7. How much money can I get from my home?

The amount varies by borrower and depends on:

If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.

8. Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing.   Services rendered by HECM counselors are free or at a low cost.  To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you

9. How do I receive my payments?

For adjustable interest rate mortgages, you can select one of the following payment plans:

For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.

 10. What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.

Consider HUD secretary Ben Carson’s support of the HECM reverse mortgage on these pages. https://gofinancial.net/2017/11/carson/

Expensive homes and the reverse mortgage

By Jack M Guttentag  — (The Mortgage Professor)

(TNS)–As a federally insured reverse mortgage program under the Federal Housing Administration, the home equity conversion mortgage program is not designed to help the wealthy. In calculating maximum draw amounts, the highest property value it will recognize is $625,500 (new limit $679,650.00). If your house is worth $1 million or $10 million, you can’t draw more than the amounts available on a home worth $625,500 (new limit $679,650.00). Further, although higher value properties reduce the risk of loss to the FHA, the mortgage insurance premium is the same for a property worth $1 million and one worth $625,500 (new limit $679,650.00).

This does not mean, however, that owners of pricey homes can’t use the HECM program to their advantage. They can, and I’ll explain how in this article.

The key question, which is the same for all senior homeowners, is whether the withdrawable amount available on an owner’s house can make a significant difference in her lifestyle. If the answer is yes, the case for the HECM is as strong when the house is worth $1 million as when it is worth only $679,650.00. The reason is that the owner of a pricey house, who has excess equity upon entering the program, will retain it when leaving the program, whether by selling the home, moving out of it permanently or dying.

An owner with excess equity whose intent is to leave the equity to her estate, can do exactly that. What she cannot do is convert all equity into spendable funds for her own use unless she decides at a future time to downsize by selling her existing house and paying off the HECM. She can then buy a less-pricey house with a new HECM, converting the excess equity into investable funds.

Here are three examples of 65-year-olds looking ahead 12 years who own a million dollar home but have different needs.

Sam Wants to Eliminate a Monthly Payment
Sam is 65 with a home worth $1 million that has an outstanding mortgage balance of $300,000. His objective is to rid himself of the monthly payment by paying off the balance with the HECM, while retaining as much of his equity as possible. The HECM he selects is an adjustable with an initial rate of 2.975 percent and origination fee of $3,500. This combination of rate and fee will result in the lowest HECM debt after 12 years, which was his target period.

Sam’s equity after 12 years is the value of his home at that point less his HECM debt. Assuming an annual appreciation rate of 4 percent, which is the figure that the U.S. Department of Housing and Urban Development uses in calculating draw amounts, Sam’s home will be worth about $1.6 million. His HECM debt will be anywhere from $532,000 if the initial rate of 2.975 percent remains unchanged for 12 years, to $884,000 if the rate immediately jumps to the maximum of 7.975 percent. Sam’s estimated equity, therefore, will be somewhere between $717,000 and $1,072,000. This is the amount Sam would realize if he sold the house and paid off the HECM at age 77, and it is also the amount that would go to his estate if he died at that age.

Let’s now assume that Sam is alive and kicking at 77 but no longer needs the house with the HECM. As is the case with many seniors, he wants to downsize. So he sells the house and pays off the HECM, realizing (on the most conservative assumption) about $717,000. If his new house costs $600,000, he can draw about $358,000 on a purchase HECM at age 77, and will pay the balance of $242,000 out of his sales proceeds. That would leave at least $475,000 for investments.

Sue Needs Additional Income Now
Sue selects an adjustable HECM at 4.725 percent with a $6,000 origination fee that offers the largest tenure monthly payment—one that lasts as long as she lives in the house—of $1,844. Sue uses less equity than Sam over 12 years because her draws are spread out over the period rather than upfront. Her equity at the end of the period is between $1 million and $1.2 million. Sue has the same option as Sam to downsize by paying off the HECM and taking out another one to purchase a less costly home.

Sheldon Wants Protection against Running Out of Money
Sheldon selects the same HECM as Sue because it generates a larger credit line over 12 years than any of the other available HECMs. The line at that time will range from $671,000 to $1,113,000, depending on what happens to his HECM interest rate. This is the amount Sheldon will be able to draw in order to invest in income-earning assets. After this draw, Sheldon would still have equity of anywhere from $451,000 to $908,000. As with Sam and Sue, Sheldon could also downsize if that was where he wanted to go.

In sum, seniors with houses worth more than $679,650.00 retain their excess equity when they take out a HECM reverse mortgage, and if they decide to downsize at some point, they can convert the equity into investable funds. No two seniors, of course, are exactly alike, and each requires a plan that is hand-tailored to their needs, their preferences and their outlook. My HECM calculator was designed for that purpose.

tributed by Tribune Content Agency, LLC.

©2016 Jack Guttentag

 

Rules Have Changed For Buying a House with a HECM Reverse Mortgage

By Jack M Guttentag  — (The Mortgage Professor)

December 30, 2017

When I wrote about purchasing a house with a HECM reverse mortgage earlier this year, a major issue faced by borrowers was whether to pay a penalty insurance premium in order to maximize the cash draw on the HECM. A few months after the article was written, HUD eliminated the option of paying a lower premium if the borrower drew less cash. The upfront mortgage insurance premium is now 2 percent of property value regardless of how much the borrower draws.

The advantage of buying a house with a HECM has not changed. It remains the case that the HECM does not impose a monthly payment burden on the borrower. The only disadvantage is that the reverse mortgage will cover only about 50-60 percent of the house price, depending on the borrower’s age, requiring the purchaser to find the remaining needed cash elsewhere. The most common source is asset liquidation.

Seniors who go this route have two decisions to make. First, they must decide whether they want an adjustable rate or a fixed-rate HECM. Second, they have to select the lender offering the best terms. I will illustrate these decisions with the case of Charles, who is 72 and wants to purchase a $400,000 house on December 18, 2017.

Fixed Rate or Adjustable Rate?

Most seniors will select the option that provides the larger cash draw. Among five lenders quoting a price to Charles on my website, the largest cash draw on an adjustable rate was $201,800 whereas the largest draw on a fixed-rate was $194,600. The adjustable provided $7,200 more, which could settle the matter.

Or perhaps not. If Charles is concerned with the size of his estate, he will also look at how large his future loan balance would be. Looking ahead 10 years, for example, the balance of the adjustable will be $389,356 compared to a balance on the fixed of $406,386. He will owe $17,030 less on the adjustable.

This is not quite the slam-dunk it may appear, however. The future loan balances are calculated at the interest rates on December 18, which were 3.21 percent on the adjustable and 3.99 percent on the fixed. While the rate on the fixed will remain at 3.99 percent over its life, the rate on the adjustable could rise as high as 8.21 percent if market rates increase. Were that to happen in the near future, the balance on the adjustable would quickly come to exceed the balance on the fixed. It is unlikely that the risk of future rate increases will dissuade Charles from selecting the adjustable, but it could.

Selecting the Lender

The reverse mortgage market is extremely inefficient. Except for those seniors who make their way to my website, few try to shop. As a result, the prices of identical transactions can differ materially from one lender to another.

Even on my website, where participating lenders know that their price quotes will be compared to others, price differences are large. For example, on the day my hypothetical house purchaser was quoted an adjustable rate of 3.21 percent with a cash draw of $201,800, another lender on my site quoted a rate of 4.76 percent and a cash draw of $172,005, or $29,795 less. That was the worst quote among five lenders who lend in California. The quotes of the other three lenders were in-between the best and the worst.

Bottom Line

Seniors who want to purchase a house with a HECM and who have no concern regarding the amount of home equity they leave to their heirs can easily shop lenders for the largest cash draw. They can shop multiple lenders with one visit to my site, or by contacting individual lenders one lender at a time. If they shop by contacting individual lenders, the process should be completed within a week ending on a Monday because HECM lenders reset their prices on Tuesday.

Purchasers who do have a concern for what their heirs will inherit will want to see not only cash draws but also projections of future loan balances that are consistent from one lender to another. My site is the only place they will find that.

Those who choose this mortgage loan officer will have the opportunity to make the choices in much the same way as the Mortgage Professor. Access contacts at the “information” tab on the home page. Thanks for asking for Warren Strycker, who manages this information webpage and is a fully licensed veteran (12 years) Arizona loan officer.

 

 

HECM from HELL — one that got away, or did it?

A true story by Warren Strycker.

This is the story of a HECM loan gone bad — to be more accurate, it was the HECM that got away after every thing imaginable was tried to keep it in.

It was a simple solution, I thought, or was it???

Gentleman called to ask me to come talk about Reverse Mortgage with he and his wife. They were both in their early 90’s (can it be that “early” can ever refer to the 90’s?? Probably not).

Anyway, I went and did my best presentation and they decided to get the required counseling, and so they did.

The home was a modest 3 bedroom, appraised well above a hundred thousand. The “fix” was in, more than $70,000 in cash would be placed in their accounts, well, until the discussion centered on which of the two would get the money in their account.

Life was about to be better for them (or so we thought).

The couple had a trust, only she wasn’t in it. It’s OK, she said, she just needed a place to live and they needed to pay  some bills. Lender wouldn’t stand for an unborrowering spouse living in the house without a trust adjustment which would say she had rights to live in the house after he passed, and in the process of writing the paragraph that gave her the rights, his family (and him) halted all discussion as he headed to the hospital for open heart surgery.

That’s when his family entered in. Hmmmm. All negotiations came to a halt while he had bypasses installed (at 92 years of age).

Mrs Stars waited in his hospital room for days on end to see him through the surgery and then she was invited to stay home because… well mostly it was about making sure she didn’t get any rights to the house. One story counted the time she had with him alone in the hospital to talk about all this. It wasn’t about the reverse mortgage that caused the ruckus. It was because she was left out of the proceedings altogether and I was invited to “cease and desist” by the lawyers now filing for divorce. Coming out of the hospital, he moved into the home of his son and daughter in law and she lived in the “big house”.

Oh yes, then she was served with divorce papers for “irreconcilable differences” and partially because she threw a pitcher full of water on the son in law who was staying in their house to protect his dad from his step mother who was still trying to work out an agreement with her husband to stay in the house which now had all locks changed to prevent unagreed entry.

The divorce is set for two days after Christmas.

I’m pretty sure this is a HECM that wasn’t supposed to close. The positive message here is that this not-always-nice lady is now threatened with divorce two days after Christmas when she will be legally invited to leave her home soon after the holidays is now inviting us to eat her chicken soup, and it’s good.

It’s the HECM from HELL that didn’t happen. I am thankful for bunches of others that did. Don’t let this happen to you.

After several months have passed, the nice lady lives in the big house and the husband of eight years lives with his son to protect him from his spouse. The divorce is apparently on hold. Happiness doesn’t live here even with three quarters of a hundred thousand in cash available.

No, it’s not just about the money but it did play a major role. People in their nineties have a sense of stubborn pride that they still play a major role in the family thing — and concession is not an easy thing.

If you live in Arizona and wish to consider a HECM to shore up your finances and take some pressure off, it will be OK to call me for help, but don’t wait until you’re 92 on the way to a heart bypass. See “Information tab” on the home page for particulars.

 

Steps for Getting your Affairs in Order

 

Steps for Getting Your Affairs in Order

  • Put your important papers and copies of legal documents in one place.You can set up a file, put everything in a desk or dresser drawer, or list the information and location of papers in a notebook. If your papers are in a bank safe deposit box, keep copies in a file at home. Check each year to see if there’s anything new to add.
  • Tell a trusted family member or friend where you put all your important papers. You don’t need to tell this friend or family member about your personal affairs, but someone should know where you keep your papers in case of an emergency. If you don’t have a relative or friend you trust, ask a lawyer to help.
  • Give permission in advance for your doctor or lawyer to talk with your caregiver as needed. There may be questions about your care, a bill, or a health insurance claim. Without your consent, your caregiver may not be able to get needed information. You can give your okay in advance to Medicare, a credit card company, your bank, or your doctor. You may need to sign and return a form.
  • https://www.nia.nih.gov/

Consider HECM Reverse Mortgage to use some of your home equity to shore up finances for this “leg” of your finances. Call HECM veteran Warren Strycker, 928 345-1200 or email/write warren.strycker@patriotlendingreverse.com for professional friendship through the process.

Restart your conversation in 2018. Frequently Asked Questions about HUD’s #HECM62 Mortgages

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To make retirement free of financial woes. Our dedicated, diverse, and determined staff are available to you 24/7 to hone in on the financial product that most fits your needs. The managerial staff at Patriot Lending has been able to compile a team of qualified professionals to assist you in any way possible.

The financial tools we offer are available at many other financial institutions but, we believe that the service we offer here at Patriot Lending is unparalleled.

Are you ready to embrace the flexible, affordable, hassle-free benefits of a reverse mortgage? Call us today to begin the journey towards the home of your dreams!

Consider talking to a reverse mortgage specialist here in Arizona 928 345-1200 or email warren.strycker@patriotlendingreverse.com, or access more HECM reverse mortgage information to get started — click here:

www.patriotlendingreverse.com

6 questions — Take time to get affairs in order — 928 345-1200

Let’s have a conversation today. If you are looking for some answers to the HECM puzzle… answer some of ours — call me (Warren Strycker) 928 928-1200 to start this conversation — let’s talk about HECM. (Strycker is a veteran fully licensed HECM advisor — you’ll get some valuable insights from him).

  1. What year were you born?
  2. Which income streams (will) fund your retirement? a. Pension income; b. 401k distributions; c. Selling home to access equity;  d. An annuity or another income vehicle. Will any of these income streams provide a credit line that grows and doesn’t have cost?
  3. Are you or your spouse currently receiving Social Security? yes or no
  4. Are you still working? Are you retired from working?
  5. How secure do you feel in your current retirement portfolio to provide monthly income you need to support ideal lifestyle? 1 through 5.
  6. Do you currently own your home? Are you making mortgage payments now?

 

Yes, I have one of these on my own home (and it’s OK to talk to me about it).

 

Seniors spend less and less as they age. True or False?

by Wade Pfau, Ph.D., CFA

August 3, 2011

Today’s classic withdrawal rate study is Ty Bernicke’s “Reality Retirement Planning: A New Paradigm for an Old Science,” from the June 2005 Journal of Financial Planning.

A common assumption for retirement withdrawal rate studies, which I’ve used in all of my own research, is that retirees will adjust their withdrawal amounts for inflation in each year of retirement.  The assumption is that retirees will want to spend the same amount in real, inflation-adjusted terms for as long as they live.

Ty Bernicke challenges this assumption in a rather significant way.  If he is right, then we are playing a whole different ballgame and the 4% rule falls by the wayside. His argument is that as retirees get older and older, they voluntarily reduce their spending. They are just not as interested or able to travel as much, go to so many restaurants, and so on.

I’m not sure if he is right or not, but this is a matter I would like to explore some more, as it is quite important. What percent of the population maintains constant spending?  What percent do voluntarily reduce their spending? What percent are forced to increase spending due to entering a nursing home or experience large medical bills?  What is the appropriate default assumption? Mr. Bernicke says that reduced spending is true for his clients, which I can fully believe.  People who use financial planners are probably more on top of their finances and may find that they can voluntarily reduce spending.  But I’m not necessarily convinced that this will be true for everyone or that do-it-yourselfers should rely on the notion that they will not need to spend as much as they get older and older.

Mr. Bernicke uses evidence from the Consumer Expenditure Survey (CES) to show that those aged 75+ spend less than those aged 70-74, who spend less than those aged 65-69, who spend less than those aged 60-64, who spend less than those aged 55-59.  This particular results seems hard to dispute, though like all of his results, it is based on aggregate numbers.  These are just the averages by age group, but how much variation is there within each age group?

One possible explanation for this reduced spending is the cohort effect: different age groups just happen to spend differently for reasons unrelated to age.  He checks this as well by comparing the 1984 and 2004 CES surveys and finds further evidence for the reduced spending.

In order to argue that these reductions are voluntary, he refers to data on median net worth by age and household income quintile to show that older people have more wealth than younger people within each income quintile. If older people are wealthier but are spending less, he concludes that the spending reductions must be voluntary. Again, these are all still just averages. Jonathan Clements brings up a valid criticism of this, though, in a 2006 Wall Street Journal article. These income quintiles are defined for the whole population, and a much higher percentage (43%) of the 75+ individuals are in the bottom income quintile.  This makes the comparisons somewhat meaningless. As well, Mr. Clements notes that the median net worth of those aged 75+ is $100,100.  But after removing home equity, the median net worth is only $19,205.  This would explain lower spending levels very well.

Beyond this as well, since Social Security is adjusted for wage growth prior to retirement but inflation after retirement, older retirees will naturally have lower benefits than younger retirees, another reason for less spending. I haven’t used household data very much in recent years, but a paper that I wrote as part of my dissertation does also show that poverty rates are higher for the older retiree age groups than the younger retiree age groups.

Getting back to the results of Mr. Bernicke’s paper, he then explores the implications of lower spending with a Monte Carlo simulation example.  Assuming 3% inflation, he assumes that retirees increase their spending by inflation, but at the same time tend to reduce their overall spending as well.  Spending fluctuates, but these two effects mostly cancel out so that nominal spending stays close to its initial value. This allows the failure rate in this “reality case” example to be 0% compared to 87% for the traditional case of constant inflation-adjusted spending.

If we can assume that a retiree’s spending stays the same in nominal terms, the initial withdrawal rate can be higher.  Here is a figure I made before with Trinity Study data comparing the inflation-adjusted case with the no inflation-adjustments case.

With no inflation-adjustments, the SAFEMAX (lowest sustainable withdrawal rate in history) was a little above 5.5%, as experienced by the 1929 retiree.  However, this is a bit misleading, because the Great Depression was also a time of sustained deflation, with prices falling 24 percent between the start of 1929 and the start of 1933. The January 1929 price level was not seen again until 1943. Thus, even though nominal spending stayed the same, the spending in real terms would have grown.  Aside from the deflation-case of the Great Depression, we are looking at a SAFEMAX of more like 6.5 percent.  Retirees who plan to reduce their spending as they get older and older can withdraw more at the beginning.

But what is the best assumption to use: constant inflation-adjusted spending, or decreased spending as one ages more?  This is a big question that I think is still not fully resolved.  I’d like to find a Ph.D. student willing to dig more into the household survey data and to classify different retirees by their spending patterns over time using surveys that do indeed track the same households over long periods.

Retirement Researcher is owned by McLean Asset Management Corporation (MAMC), which is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.

The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.

Editor’s Note: So, our question is this: If seniors had more income available, would they spend more or less? And, another question: Do seniors stick by their “guns” on the opportunity that reverse mortgages offer, because they are proud of their decision to spend less and not more when they could? And another question comes to mind: Are seniors being honest when they quickly respond with a “we’re fine” response when they are truly “not fine at all”, going through much of their retirement cycle, “payday to payday” hoping to escape the pressures that such a lifestyle offers, without responding stubbornly to any kind of fix at all — even when it’s offered as a transition to a much more peaceful replacement such as using a HECM reverse mortgage to smooth out the spikes in income from home equity?

My aged father once set me straight on this. He remembered 1929 when there wasn’t any money so he refused to spend what he had for fear he would run out. As it worked out, I spent his money on his heirs as distributor of his estate, taking my share of it in stride because he wouldn’t budget when he could have.

Those who consider a HECM reverse mortgage will have more to spend. That’s the point of this. See contact information on the tool bar “Information” on home page to further this discussion.

 

CUT through Gov’t CRAPOLA on HECM Reverse Mortgages.

What the 2016 Survey of Consumer Finances tells us about senior homeowners — take a look for yourself…

‘Impediments to extracting home equity (HECM Reverse Mortgage) can be attributed to factors that include an aversion to debt and a general desire to stay financially conservative (Kaul and Goodman 2017), a desire to leave a bequest or save for emergencies, fear of losing the home, product complexity, high costs, and fear of misinformation and fraud directed at the elderly.’ (Editor’s note: these same people can have what they want with a HECM Reverse Mortgage —

 

 

Click on this link to gather up this story online. what-the-2016-survey-of-consumer-finances-tells-us-about-senior-homeowners

HECM Reverse Mortgage accesses equity safely.

In this age of FAKE NEWS, you might be listening to the jaded misinformation of the forward mortgage industry who may well have told you how they can get you into another mortgage with payments and leave you with a little cash for your trouble. Don’t do it until you hear one of us HECM guys explain what can happen to you. First of all, you may not be eligible for a HECM for another year after you do that.

Those who prevail will find truth and WIN HECM BENEFITS. Consider from what source you heard about HECMs and then hear the oft played tune of the competition: “Oh, you DON’T WANT TO GET A REVERSE MORTGAGE” as if they cared what you want if you aren’t buying in to what “they” want. (Be careful — it’s a slippery slope).

And, for proof, these five myths are played for you, hoping you will refinance with them instead of the HECM originator who promises a much better scenario. MAKE NO MISTAKE — If you hook up with another cycle of  mortgage payments, you will often disqualify yourself of obtaining the HECM benefits.  Read on, and call with your questions, Warren Strycker. See “Information” tab on the home page for credentials and contact information. “I’ve been around the block now with HECM so you’ll soon see the differences.”

Here are some of the most common misconceptions about Home Equity Conversion Mortgages (HECMs)— also known as reverse mortgages — and the truth behind these myths.

1

“A HECM mortgage requires giving up ownership of your home.”

False.

As the borrower, your name remains on the title and the home is still yours—just as it would be with any mortgage. You’re required to continue paying real estate taxes, homeowner’s insurance, and providing basic maintenance to your home. Once you no longer live in the home as your primary residence, the loan balance, including interest and fees, must be repaid.* This is usually done by the homeowner or their estate selling the house.

2

“A HECM mortgage should only be used as a last resort.”   *If the borrower does not meet loan obligations such as taxes and insurance, then the loan will need to be repaid.

False.

How you use your HECM mortgage proceeds is up to you. Among the most common uses are paying off an existing mortgage or other debt in order to eliminate monthly debt payments; creating a cash reserve; supplementing monthly income; paying for home improvements; or covering medical bills or long-term care expenses.

3

“I could wind up owing more than my house is worth with a HECM, and leave my heirs with debt.”

False.

A HECM (Home Equity Conversion Mortgage is insured by the Federal Housing Administration. This insurance feature guarantees that you will never owe more than the value of your home when the loan becomes due. No debt will be left to your heirs. And if the loan balance is less than the market value of the home, the additional equity is retained by the homeowner/heirs (if the home is sold).

4

“There are restrictions on how I can use the money from a HECM mortgage.”

False.

How you use your HECM mortgage proceeds is up to you.

Among the most common uses are paying off an existing mortgage or other debt in order to eliminate monthly debt payments; creating a cash reserve; supplementing monthly income; paying for home improvements; or covering medical bills or long-term care expenses.

5

“I could wind up owing more than my house is worth with a HECM mortgage, and leave my heirs with debt.”

False.

If you understand how a mortgage works, you’ll quickly understand the HECM — except there are no monthly payments — that’s the major difference. A HECM (Home Equity Conversion Mortgage) reverse mortgage is insured by the Federal Housing Administration. This insurance feature guarantees that you will never owe more than the value of your home when the loan becomes due. No debt will be left to your heirs. And if the loan balance is less than the market value of the home, the additional equity is retained by the homeowner/heirs (if the home is sold).

6

“Reverse mortgages are too complicated.”

Not.

With most financial products, there are a number of factors to consider before you can choose what’s best for you. You can rely on your Senior Loan Officer to be a trusted resource for clear information and responsible guidance. In addition, before you apply for a government-insured Home Equity Conversion Mortgage, you are required to receive HECM mortgage counseling from a third-party counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD). These independent counselors are not affiliated with any mortgage company and their only job is to ensure you fully understand every aspect of your HECM mortgage.

Consider the information on this webpage before you make any decisions, and then see contact information in home page “information” tab and ask for the HECM facts. We’ll not mislead you — that is the truth.

‘New Rules Change Math On Reverse Mortgages.’

HUD shores up fund to stop “bleeding”, supports HECM financial strength

New federal rules that took effect Oct. 2 will raise upfront costs for some homeowners seeking a reverse mortgage, and reduce maximum loan amounts for most, raising the question: Is a reverse mortgage still worth considering?

Most experts say yes, although the increasingly popular strategy of taking a reverse mortgage line of credit—known as a standby reverse mortgage—may become less useful because credit lines will now grow more slowly.

That type of reverse mortgage “is a much less appealing option moving forward,” says Jamie Hopkins, associate professor at the American College of Financial Services in Bryn Mawr, Pa.

A reverse mortgage is a federally backed loan against a home’s equity that requires no monthly payments and is available to homeowners 62 and older. Proceeds can be taken as a lump sum, monthly income for life or line of credit. Interest charges are added to the debt, which doesn’t have to be paid off until the borrower dies or no longer uses the property as a primary residence. As long as the borrower keeps up with taxes, insurance and maintenance, the lender cannot call the loan, and the lender can never recover more than the home fetches in a sale, even if the debt is larger, protecting the borrower’s other assets.

To protect lenders against loss, the federal government limits the initial loan amount and maintains an insurance fund with premiums paid by borrowers. The Department of Housing and Urban Development, which oversees the dominant reverse-mortgage program, has moved to shore up that fund.

The Gofinancial.net input to this news is that different borrowers will have different results, so wait until you get a HECM analysis to weigh in on HECM.

Access a qualified loan officer to furnish this analysis. See contact information under “Information” on the navigation bar.

 

https://www.wsj.com/articles/new-rules-change-the-math-on-reverse-mortgages-1508724300

 

 

 

 

 

 

 

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

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

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

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

Executive Summary

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

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

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

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

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

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

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

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

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

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

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

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

Home Equity and Retirement Savings

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

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

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

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

Types of Retirees Considered

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Assumptions and Background for the Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

The Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Key Findings

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

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

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

Observations Regarding Cash Flow

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

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

Detailed Results

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

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

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

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

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

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

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

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

Limitations and Caveats

The analysis presented has the following limitations and caveats:

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

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

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

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

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

Implications for Planners

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

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

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

Endnotes

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

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

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

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

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

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

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

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

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

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

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

References

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Citation

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

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

 

Strategic Uses of Reverse Mortgages for Affluent

While the refrain that reverse mortgages aren’t just last resorts for cash-strapped older homeowners may be canonical within the industry, many higher-income retirees may not be familiar with the Home Equity Conversion Mortgage and its potential uses.

Writing on his retirement-planning blog, financial planner and HECM advocate Tom Davison provides an all-in-one resource for explaining the product to more affluent potential borrowers.

“Reverse mortgages have evolved over the years, including significant improvements after 2008’s housing crisis, resulting in enhanced consumer protections, refined federal oversight, reduced costs, and better balance amount the interests of clients, lenders, and the Federal Housing Administration’s insurance backing,” Davison writes by way of introduction.

Davison’s post features a handy table that shows the “highest and best use” of the product for a variety of potential scenarios. For instance, a homeowner looking to buy a vacation home would be best off with a lump sum HECM, Davison writes, while those seeking a safety net for health care emergencies or down markets would be best off with a HECM line of credit. But for higher-income individuals, Davison — based on his experience managing investment portfolios between about $500,000 to $4 million — lays out two “most common” uses of a HECM: improving an existing retirement plan to facilitate increased spending, or adding a rainy-day safety net to an already robust portfolio.

Perhaps the most valuable passage in Davison’s extensive post concerns the HECM line of credit option and its growth over time.

“A line of credit is the most flexible way to access cash and takes advantage of a unique and powerful feature: the borrowing limit grows every month,” Davison writes, adding that the fact the limit can’t be reduced or cancelled — as long as the borrower maintains his or her tax and insurance obligations — represents a major benefit over a traditional home equity line of credit.

Using a graph to illustrate his point, Davison gives the example of a hypothetical $300,000 home, plotting the home-value appreciation against the compounding growth in the line of credit.

“The obvious result is more cash is available later — and in an amount that’s likely to grow substantially more than inflation,” Davison writes. “It may grow faster than most fixed income investments, especially those with guarantees like the FHA backing.”

Davison also points out research showing that using the reverse mortgage line of credit can increase a borrower’s entire estate size, calculated as the investment portfolio plus “housing wealth” minus the loan balance.

“Perhaps the rule of thumb is: when spending is pushed to the max, estate sizes suffer, but when housing wealth is used judiciously, both sustainable spending and estate size can improve,” Davison writes.

Read Davison’s full piece at his blog, ToolsForRetirementPlanning.com.

How large is your mortgage “bite” in the household “apple”

As the years go on, more seniors are entering retirement with home mortgage payments.

Soon, if not eventually, they become a burden.

How large is your mortgage “bite” in the household “apple”?

New research now points to an increase of baby boomers entering retirement with house payments. Consider what a HECM mortgage can do to free up household budget by eliminating the mortgage payments you have. Ask for a free look at the mortgage “pie” by requesting a HECM ANALYSIS here. See navigation bar tab “information” for contact details.

CONSIDER:

Paying off the mortgage, once a widespread rite of passage for homeowners approaching retirement, has become less common in recent years. Concerns are mounting that the increased prevalence of housing debt among older homeowners could compromise financial security in retirement by expanding housing affordability problems, crimping essential non-housing spending, increasing vulnerability to home loss through foreclosure, or limiting the accumulation of housing wealth.

These concerns are amplified by the fact that the large Baby Boomer generation, which includes about 33 million owner occupants, has begun to reach retirement age. Although multiple studies have documented the rise of housing debt among older homeowners, prior research has not focused on how Boomers’ mortgage status has changed as they’ve approached retirement age. Importantly, previous research has not investigated whether Boomer homeowners have begun to extinguish their housing debts more rapidly as the economy and housing market have emerged from recession.

The leading edge of the large Baby Boom generation has reached retirement age with a greater likelihood of carrying housing debt, raising concerns about the retirement financial security. The oldest Boomers, who were aged 65-69 in2015, were 10 percentage points less likely to own their homes outright than were pre-Boomer homeowners of the same age in 2000.

Enter the innovative Home Equity Conversion Mortgage (or HECM), a mechanism for eliminating the payments without payments, utilizing home equity to fill the income gap.

We can make this happen for you if you are 62 or more, have 50% (or more) home equity and the desire to free yourself from these menacing payments.

See contact information in navigation bar for details.

 

The POWER of HECM62; 10 steps on how it works; This is the winner’s circle

The power of 62 is an age, like 21, or 65; For the HECM, it means you are “of age” — eligible.

Mark it on the calendar. Make a star for 60, because that means you are only 2 years away from launching a HECM use of home equity to survive retirement in one piece. It means you might qualify for a big bonus. You can get a HECM, and there are bunches of benefits on this webpage about HECMs. Walk through these expected steps to be familiar.

If you are already 62, have at least 50% home equity, it’s time to get a move on. You have the makin’s of a winner. Use what you have to move up now. Loser’s quit. They get discouraged. They don’t think positive anymore. But that role doesn’t fit you, does it?

Think how much more money you’ll have if you don’t pay all that interest on your mortgage — get rid of the mortgage. Take that money you saved and do something you’ve been wanting to do for a long time. That’s what winners do, they plot with their opportunities and win because there’s still room in the winner’s circle. Now, they are thinking ahead — and they are alive with new ideas — and they won’t be planning to live in the rest home. They’ll still be looking ahead. That’s what life is, but unfortunately, a lot of us are lazy and depressed without much hope for the future. We say “no” because we don’t have courage to say “yes” when we want to or have the power to believe in our dreams.

  1. Buy a house, make payments, watch equity grow.
  2. Plan retirement utilizing (about 50%-100%) home equity and other sources you have created.
  3. When you are 62, pay off your forward mortgage with a HECM, establish your HECM line of credit (You won’t need a HELOC which requires payments).
  4. Determine how much of your HECM will come as a lump sum. Use the lump sum to pay off as many bills as you can to eliminate debt and increase cashflow.
  5. Cashflow increases as payments are phased out.
  6. Use your line of credit to cover emergencies, long term care, watch it grow without payments.
  7. Thru appreciation, your home value will continue to grow over time.
  8. Line of credit will grow — like the real growth savings account you never had and without payments so long as taxes and homeowner’s are paid current.
  9. Laugh your way to the bank, pass “go” and collect combined wealth.
  10. Plan your legacy with an inheritance for your family. It could exceed all your imagination.

Talk to your loan officer about the POWER of HECM — see “information” (https://gofinancial.net/home/) in navigation bar, ask questions, get government mandated counseling, get the wheels turning.

Think win win.

HECM Reverse Mortgages: Now or Last Resort?

Pfeiffer, Schaal & Salter

By Tom Davison on November 15, 2015

(This is an unchanged repost of an earlier contribution)

Does it pay to get a reverse mortgage early in retirement, or is it better to wait until it’s absolutely required – a “last resort”? New research shows early is better. In the most challenging case nearly twice as many homeowners who got a reverse mortgage early still had money at age 92  than those who waited until their investments were gone to use their home equity.

The authors said: “Early establishment of the HECM line of credit in the current low interest rate environment is shown to consistently provide higher 30-year survival rates than those shown for the last resort strategies.”  The May 2014 study by Pfeiffer, Schaal and Salter was published in the Journal of Financial Planning. It is another article from the team (Salter, Pfeiffer and Evensky) who investigated the “Standby Reverse Mortgage”.  Monte Carlo simulations of many lifetimes analyzed investment portfolio withdrawal rates of 4%, 5% or 6% starting at age 62 and running for 30 years. To help improve retirement success a Home Equity Conversion Mortgage (HECM) reverse mortgage line of credit (LOC) was obtained one of two times: either at age 62 or later when the portfolio was completely spent. In either case the LOC was tapped only after exhausting the investment portfolio.

The authors designed the study thoughtfully and describe various conditions affecting LOC. The results are measured by the client’s sustainable withdrawal rates and net worth after 10, 20, and 30 years. To develop an intuitive feel for the results the graphs below show the study’s LOCs. The long brown line show the LOC starting at age 62 and three conditions when established late (short green lines). In the study the “late” LOC is  in each simulated lifetime is set up at the age when the portfolio runs out – the graphs show age 82 as only one example. The study looks at low, medium and high interest rates in effect when the late LOC is set up. Interest rates and LOC sizes are inversely related: when interest rates are high the homeowner gets a smaller LOC, and conversely a larger LOC when interest rates are low. HECM regulations are designed to balance risks and benefits among borrowers, lenders and the FHA insurance program by adjusting the actuarial chances that the HECM loan value will end up exceeding the value of the home. Once a line of credit is in place, higher interest rates lead to higher loan balances, so those starting balances are reduced. Among the three green “late” lines, the bottom dark green line is for the highest interest rate, so it has the lowest starting point and fastest growth. The tradeoff between starting loan size and the loan’s growth rate leads to the late LOC lines converging after about 10 years. (Note: this discussion blurs the distinction between the two different interest rates used to determine initial loan size and to determine the LOC growth once it is set up).

The tan columns show the house appreciating at 3% or 5% a year. The early (brown) line of credit is naturally the same in the two graphs as the home value at the start and grwoth is the same regardless of future home appreciation. The second graph shows the house appreciating faster so the “late” green lines of credit start at higher values, so are closer in value to the early LOC. The top graph’s “later” credit lines start around $200,000 while the bottom graph’s start around $300,000 due to the higher home value at age 82. You can see the advantage of getting the LOC early is smaller when the house appreciates faster.

What does “later” mean? “Later” means what it does to you. It’s your retirement and you can adjust quickly or put it off. In the end, you will prosper with a HECM if it is still available at whatever level it is when you “later” it.

See “Information” on home page for contact information.

The graphs show the people with the early LOC (the long brown line) had the most reverse mortgage resources later in life to fund spending, and the simulation results confirm that. For example, the “early” people who exhausted their portfolio at age 82 had close to $600,000  in their LOC.

Six groups got their LOCs late. Out of those, the highest green line starting at age 82, and therefore closest to the “early” brown line, were those in the bottom graph where the house appreciated the most, and in the low interest rate environment – the highest start of the three green lines. They got close to $400,000 to help their spending. The worst group to have been in were the people in the top graph where the house appreciated the least, got the LOC late, and found themselves in a high interest rate environment – the bottom darker green line. They got under $200,000 to help their spending.

In their conclusions the authors suggest considering postponing setting up the HECM line of credit when there is good reason to believe that home occupancy after loan origination is likely to be less than 15 years. This recommendation is well founded, but should be understood to be based only on this paper’s specific use of the LOC. A variety of other uses of the LOC would have shorter minimum expected stays. (And of course many applications have immediate use of HECM funds!)

The study did not evaluate other homeowner uses of the LOC, such as unplanned health care expenditures. At the lower 4% and 5% withdrawal rates the early LOC would often have untapped capacity, and would have been completely untouched in a number of lifetimes. A similar observation was median wealth at age 92 did not reflect any untapped line of credit above the home’s value. The authors are to be commended for judiciously conservative assumptions and circumspection in their recommendations. Examples of conservative assumptions were the LOC”s cost included a $35 monthly fee which many lenders don’t charge, using the maximum allowable loan origination fee, and setting closing costs near the top of the expected range.

Returning to the author’s focus on using the LOC once the portfolio has been exhausted, the early line of credit’s advantages are highest with:

longer stays in the house, thus more time for the LOC to grow

higher short-term interest rates after the early line is set up, creating faster growth of the line of credit’s borrowing limit

higher long-term interest rates later in life, resulting in lines of credit set up later being smaller (dark green lines in the graph)

slower home appreciation

Other reasons an early line of credit may be advantageous in aiding spending from investment portfolios include:

ability to draw from the line of credit rather than the portfolio in times of significant market downturns

if long-term investment returns are lower, due either to the client’s very conservative asset allocation or lower market returns

when the client has higher tax rates, as the line of credit draws are tax-free, while investment portfolio withdrawals are generally tax-burdened

locking in the current HECM program rules, as there has been a trend to increasing restrictions

creating a larger contingency fund, potentially exceeding the future value of the house

For a much more complete discussion of the study with thoughtful insights please see the original paper!

References:

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

 

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

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

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

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

Who is Robert Merton?

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

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

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

The Global Retirement Crisis

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

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

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

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

Rethinking Retirement

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

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

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

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

Finding a Solution

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

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

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

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

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

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

Overcoming Obstacles

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

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

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

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

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

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

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

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

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

Global Acceptance

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

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

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

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

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

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

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

HECM spectrum“We endorse HECM, the reverse mortgage, for senior age future”, said Warren Strycker this week as it takes the stage in financing retirement. Other efforts to dominate retirement trust have failed to do that, leaving seniors short of cash in their closing chapters forced to resorting to another forward mortgage with payments they can’t afford”, he added. We believe the HECM is a trusted tool as seniors are rewarded for their focus on home equity. This tool will revolutionize the mortgage industry as the reward for good mortgage planning.”

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

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

 

With Similar Retirement Stresses, U.K. Poised for Reverse Mortgage ‘Boom’

July 25th, 2017

Retirement-planning shortfalls, trillions in built-up home equity, and fears over rising long-term health costs are stoking rumors of a reverse mortgage renaissance — only this time, it’s happening across the pond. Circumstances are conspiring to make “equity release mortgages” increasingly attractive to borrowers in the United Kingdom, according to a recent story from the Financial Times.

Though the Home Equity Conversion Mortgage market in the United States remains a small part of the overall domestic lending landscape, it still dwarfs its British counterpart, which the Financial Times pegs at five times smaller than the American marketplace. Still, major players such as Santander have made moves to enter the market, the publication notes, and they could soon expand the overall equity release picture.

Equity boom, pension bust

Writer Patrick Jenkins lays out an eerily familiar scene, noting that U.K. homeowners aged 65 and older control £1.7 trillion in home equity, or about £340,000 per homeowner; for reference, based on Tuesday’s exchange rate, that’s about $2.2 trillion, or $443,000 per house. American homeowners aged 62 or older, meanwhile, have anywhere from $3.6 trillion to $6.3 trillion in available home equity, depending on who you ask.

And though the pension system is notably different in the U.K., British seniors face a similar dilemma as their American counterparts: The World Economic Forum declared Britain’s “pension gap,” or the gulf between what retirees actually have and what they need to maintain 70% of their pre-retirement income, to be one of the worst in the world, totaling £25 trillion, Jenkins writes.

“The government has duly responded. This month, it announced the retirement age would rise to 68 for anyone born after 1970,” Jenkins points out. “A large gap will remain, though — fertile ground for insurers to sell equity release mortgages.”

Jenkins also explains renewed concerns over health care costs for older Britons, another common worry for American seniors. The ruling Conservative Party, which suffered unexpected losses in the nation’s recent snap election, had campaigned on a policy that would require seniors to tap into their personal assets above  £100,000 to cover long-term health care expenses, a figure that would include the value of any owned property.

“Although the party rowed back on the no-cap idea, experts believe individuals will have to take more responsibility for funding their own old age care in the future,” Jenkins writes.

Key differences

Of course, the British products differ greatly from domestic Home Equity Conversion Mortgages. “Typical” equity release mortgages in the U.K. allow borrowers to tap into 25% of their home values, either upfront or in an “income drawdown format.”

Echoing similar problems with the U.S. program, Jenkins notes that the British equity release mortgage industry had grappled with issues in its early days, but has since improved.

 

See the full look into the U.K.’s equity release marketplace at the Financial Times.

See “Information” tab on the home page for access to origination consultant, Warren Strycker, who can explain the program in the United States.

 

Without Fixes, Social Security Benefits Would Drop to 1950s Lows

July 19th, 2017

It’s a refrain that Americans approaching their retirement years have heard for years now: Social Security is poised to run out of reserve cash in 2034, which could potentially trigger a sharp decline in benefits. But a recent research brief implies that a solution could be simpler than many in industry observers imagine — assuming Congress can somehow agree on a compromise.

Writing for the Center for Retirement Research at Boston College, director Alicia H. Munnell summarizes the most recent 2017 Trustees Report, which presents the state of the Old-Age, Survivors, and Disability Insurance (OASDI) trust fund.

“The bottom line remains the same,” Munnell writes, noting that the exhaustion year of 2034 has not changed for several years. “Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes.”

Munnell, a Boston College management professor who has advocated for the use of reverse mortgages as a part of some Americans’ overall retirement strategies, makes the somewhat surprising assertion that fixing the problem is easy — and that the “problem” itself wouldn’t be as devastating as it seems at face value.

“The exhaustion of the trust fund does not mean that Social Security is ‘bankrupt,’” Munnell writes. “Payroll tax revenues keep rolling in and can cover about 75 percent of currently legislated benefits over the remainder of the projection period,” which stretches all the way to 2091.

Still, that would mean that recipients’ Social Security income would decline to levels not seen since the Eisenhower administration: Instead of covering 36% of a 65-year-old worker’s pre-retirement earnings, Munnell writes, that number would drop to 27%, its lowest point since the 1950s.

For the tax wonks out there, Munnell then dives into detailed plans to fix the coming crisis, including a Republican-sponsored proposal to cut benefits, and a Democratic-led effort to raise payroll taxes. She concludes that they “bracket the range of options,” presenting two extremes with the answer likely falling somewhere in the middle.

“These are useful bookends, highlighting that policymakers need guidance about how Americans want the burden of fixing Social Security allocated between benefit cuts and tax increases,” Munnell writes. “Finding a mechanism to communicate those preferences to Congress is the big challenge.”

She ends on an optimistic — perhaps overly so, given the current political climate — note.

“Once the preferred allocation is determined, filing in the specifics is relatively easy,” Munnell writes.

Read her full brief here.

Editor’s note: Beware of this logic. Congress would have to agree on something, but it’s pretty clear they are pledged not to.

 

 

Related

Obama’s Budget Plan: Not Looking Any Better for RetireesFebruary 26, 2012In “News”

Average Retirement Age Ticks Up, But Not MuchMarch 4, 2015In “News”

Senators Aiming to Solve Retirement Crisis Hear About Reverse MortgagesMarch 15, 2015In “News”

 

U.S. home prices were 6.6% higher in May 2017

July 5th, 2017

U.S. home prices were 6.6% higher in May 2017 than the same point in 2016, pulling home equity up along with it.

“For current homeowners, the strong run-up in prices has boosted home equity and, in some cases, spending,” said Frank Martell, the president and CEO of real-estate research firm CoreLogic, in its latest report on nationwide home price trends.

The list of states that saw the biggest gains in CoreLogic’s Home Price Index — a proprietary metric that takes into account various single-family home price factors — should be familiar to RMD readers who follow equity trends: Washington State home prices jumped 12.6% year-over-year, followed by Utah with 10.4% and Colorado at 9.7%.

Those states have frequently topped recent lists of states with the greatest home equity gains, and have also generated significant Home Equity Conversion Mortgage growth: As RMD reported yesterday, reverse mortgage endorsements in Colorado between January and April 2017 are running 69% higher than at the same point in 2016, while Washington and Oregon saw jumps of more than 30% each during that span.

Denver also claimed the top spot among metropolitan areas, with 9.2% year-over-year home price growth. Las Vegas, San Diego, Los Angeles, and Boston rounded out the top five.

“The market remained robust with home sales and prices continuing to increase steadily in May,” CoreLogic chief economist Frank Nothaft said in the report. “While the market is consistently generating home-price growth, sales activity is being hindered by a lack of inventory across many markets.”

Though these trends generally spell good news for homeowners and those potentially looking into tapping home equity in retirement, the same forces work against renters and first-time homebuyers, CoreLogic noted: Rents for affordable housing units are rising significantly faster than inflation, and new buyers are facing higher-than-expected sticker prices.

Read CoreLogic’s full report here.

 

25 plus ways to use a HECM; What would you do with all that money?

The New HECM Reverse Mortgage is a versatile retirement funding tool that can be utilized in many ways. Here are just some of them:

  1. Pay off your forward mortgage to reduce your monthly expenses.
  2. Re-model your home to accommodate aging limitations.
  3. Maintain a line of credit (that grows) for health emergencies and surprises.
  4. Cover monthly expenses and hold on to other assets while their value continues to grow.
  5. Cover monthly expenses and avoid selling assets at depressed values.
  6. Pay for health insurance during early retirement years until Medicare eligible at 65.
  7. Pay your Medicare Part B and Part D costs.
  8. Combine life tenure payments with Social Security and income generated by assets to replace your salary and maintain your monthly routine of paying bills from new income.
  9. Pay for your children’s or grandchildren’s college or professional education.
  10. Maintain a “standby” cash reserve to get you through the ups and downs of investment markets and give you more flexibility
  11. Combine proceeds with sale of one home to buy a new home without a forward mortgage and monthly mortgage payments.
  12. Pay for long-term care needs
  13. Fill the gap in a retirement plan caused by lower than expected returns on your assets.
  14. Pay for short term in-home care or physical therapy following an accident or medical episode.
  15. Pay for a retirement plan, estate plan or a will.
  16. Convert a room or basement to a living facility for an aging parent, relative or caregiver.
  17. Set up transportation arrangements for when you are no longer comfortable driving.
  18. Create a set aside to pay real estate taxes and property insurance.
  19. Delay collecting Social Security benefit until it maxes out at age 70.
  20. Eliminate credit card debt and avoid building new credit debt.
  21. Cover monthly expenses in between jobs or during career transition without utilizing other saved assets.
  22. Cover expenses and avoid capital gains tax consequences of selling off other assets.
  23. Purchase health-related technology that enables you to live in home alone.
  24. Pay for an Uber or Lyft account so you have mobility and access to appointments and social activities.
  25. Help your adult children through family emergencies.
  26. Use home equity to purchase solar panels to make electricity / no payments.

Reverse mortgages provide access to cash without monthly pmts.

Reverse Mortgages: Many Users, Many Uses

BY TOM DAVISON ON JUNE 18, 2017

Reverse mortgages provide access to cash. Cash is the most flexible financial resource of all. In turn, access to cash makes a reverse mortgage a very flexible resource. Many homeowners could qualify for an FHA Home Equity Conversion Mortgage (HECM).

Reverse mortgages provide access to cash without monthly pmts.

Steven Sass, a research economist at the Center for Retirement Research at Boston College,  in his recent research brief “Is Home Equity an Underutilized Retirement Asset?” observed that while “retirement planning generally focuses on the use of financial assets,” he finds that “home equity is the largest store of savings for most households entering retirement.” And indeed, “for many households, particularly those with less wealth, home equity is larger than financial assets.” He analyzed home equity and financial wealth across households ages 65-69 for 2012 and expresses it in thousands of 2015 dollars.

For financial planning purposes, I overlay the concept of how adequately funded a homeowner is for retirement. “Fundedness” reflects how well a family’s financial resources match their retirement needs and desires. Many in the top wealth quintile would be Well Funded, as would part of the third and fourth wealth quintiles. Constrained and Underfunded describe a broader range of households.

While the distribution of wealth is not surprising, it provides context for appreciating the range of homeowner’s needs and how their home equity may contribute by using a reverse mortgage.

Reverse mortgages provide access to cash without monthly pmts.

The value reverse mortgages could bring to the aging US population starts with the breadth of users and uses. The value and breadth also challenge homeowners, financial professionals, and the reverse mortgage industry to find good matches between an individual homeowner’s situation and their highest and best use of a reverse mortgage.

What’s not to like? — HECM line of credit “may be a far better choice”

July 12th, 2017

Pitching the benefits of a reverse mortgage over a home equity line of credit has emerged as a major marketing strategy for Home Equity Conversion Mortgage professionals, and now a prominent retirement blogger has added his voice — and some helpful charts — to the mix.

On his Tools for Retirement Planning blog, Tom Davison explores why a HECM line of credit “may be a far better choice for many retirees” than the traditional “forward” line, starting with some familiar facts: the amount of cash available grows over time, regular payments aren’t required, and the lender can’t freeze or cancel the line unless the borrower fails to meet the basic obligations.

While Davison writes that he regularly discussed HELOCs with his clients during his time as a financial advisor — and even maintained one himself as a standby hedge against emergencies — he firmly comes down on the side of the so-called “ReLOC,” which in his telling can stand for either a “reverse” or “retirement” line of credit.

He uses the example of a 63-year-old homeowner who decides to tap into $200,000 of home equity on a $400,000 home. With a “forward” home equity loan, that $200,000 of availability remains steady for the life of the loan, which eventually comes due at the end of a 10-year draw period. Starting at age 73, Davison writes, the borrower must pay $1,212 per month, for a total of $14,544 per year, at an interest rate of 4%.

“With those payments, it would take until the homeowner is 93 years old to pay it off,” Davison notes. “The HELOC repayment works the same way as a traditional mortgage: no draws and can’t skip payments. The HELOC’s flexibility ends when the loan switches from the draw to the repayment period.”

Had the same homeowner selected a HECM line of credit instead, she’d be able to access up to $120,000 during the first year and then the remaining $80,000 starting in the second year of the loan period. But if the borrower does nothing, the major potential advantage begins to appear.

“By the time our homeowner turns 80, if they had not tapped their $200,000 ReLOC, they could withdraw $400,000,” Davison writes. “Or nearly $600,000 at age 90, and $800,000 at age 97.”

He goes on to point out that this growth could end up outpacing a retiree’s investment portfolio depending on the circumstances, and that unlike with a HELOC, repayment isn’t required unless the borrower leaves the house or passes away.

“The homeowner may find making payments very beneficial,” Davison writes, echoing a new “flexible payment” pitch adopted by some reverse mortgage professionals. “A payment both reduces the loan balance and increases the amount that grows and can be borrowed again. More flexibility stems from the fact that the maximum amount owed on the loan is limited to what the house is worth when the homeowners leave it.”

To read Davison’s full post, as well as to check out some visuals illustrating the differences between the two types of loan products, visit Tools for Retirement Planning.

See information on this product in navigation bar in the home page. I urge you to investigate, Warren Strycker, 928 345-1200.

Researcher: No “Rational Reason” to Avoid HECM

As the American population ages, experts have increasingly pointed to home equity as a key source of retirement income — even as many older homeowners remain hesitant to tap into it for reasons that continue to confound both academics and players in the mortgage industry.

Steven Sass, a research economist at Boston College’s Center for Retirement Research, has studied the behavioral roadblocks to home equity extraction, and concluded in a recent Boston College brief that the main culprits are lack of understanding and fear, as RMD recently reported.

“There’s not really a rational reason to avoid a reverse mortgage,” Sass told RMD in a recent phone interview. “It might be a fairly sophisticated analysis, but it makes sense for a lot of people.”

Sass pointed a finger at some familiar targets, including the deep-seated aversion to going into further debt among older folks, as well as the sense of accomplishment and satisfaction that can come from owning a home free and clear. But he also mentioned distrust of financial institutions in general, as well as a general inability to imagine a need for future cash early in retirement — a key reason many retirees don’t think to open a reverse mortgage line of credit soon after turning 62.

“If you have a sufficient income to cover your expenses, is there any great need to go out and secure this line of credit or get the money?” Sass asked rhetorically. “So I think people might need some impetus to use a reverse mortgage.”

That impetus could be the only way to convince older homeowners that a Home Equity Conversion Mortgage is a good idea, and Sass said the breaking point might start coming earlier an earlier. Social Security benefits could retract in the future, he said, and more and more boomers are entering their retirement years without sufficient cash or investment savings.

“The elderly will be increasingly dependent on savings to support their standard of living, maintain their consumption needs,” Sass said, noting that many of them won’t have employer-paid pensions or extensive Social Security benefits. “As households increasingly need to use their financial assets, at that point, home equity might be viewed as another store of savings and more households will consider using home equity in lieu of, or in combination with, financial outlets.”

While many seniors typically consider traditional “forward” home equity lines of credit as well as reverse mortgages, Sass said they shouldn’t necessarily be used to tap into home equity for retirement.

“A traditional HELOC is just a credit card, cash-flow kind of thing,” Sass said. “It’s not really good for eating your home equity.”

Sass said seniors could use HELOCs to cover specific smaller expenses that might come up during the retirement years — for instance, if a boiler breaks — but because they must be repaid within a set period of time, they’re a less attractive option for people who intend to stay in their homes for an extended period of time.

“It’s a different beast,” Sass said of the HELOC. “To really access your home equity, the two primary ways are to downsides or to take out a reverse mortgage.”

 

USA Today: Reverse Mortgages Could Hold Key to Secure Retirement

June 1st, 2017

Joining the chorus of popular media outlets that have covered home equity’s role in retirement, USA Today ran a lengthy piece this week about ways homeowners can tap into their wealth — including with a Home Equity Conversion Mortgage.

Quoting experts such as reverse mortgage researcher Wade Pfau and wealth advisor Randy Bruns, the national newspaper provided an uncritical forum for a high-level discussion of the HECM program and its potential benefits for seniors.

“Reverse mortgages have become a critical component of retirement planning,” Bruns told the paper. “A reverse mortgage line of credit can greatly reduce sequence of return risk by providing timely access to cash so you won’t have to sell investments until after markets have recovered,” he continued, explaining an increasingly popular pitch for the HECM: Use your home equity in down markets so you don’t have to deplete your nest egg just to cover basic living expenses.

“The hope is that a reverse mortgage line of credit can act as a standby source of liquidity in the kinds of instances that would otherwise lead to financial ruin for your portfolio,” Bruns told USA Today.

The paper built its story around a recent brief from the Employee Benefit Research Institute — which RMD covered last month — showing that the vast majority of the average American’s retirement war chest lies in home equity.

EBRI senior researcher Craig Copeland looked at households’ retirement investments relative to their overall wealth, including home equity, and determined that built-up home value accounted for pretty much all of what the average American will have to fund his or her retirement.

“Consequently, when measuring families’ financial asset holdings at retirement, it is overwhelmingly the case that just [retirement account] assets plus home equity represent almost all of what families have for retirement outside of Social Security and defined benefit pension plans,” Copeland wrote in his brief for EBRI.

In addition to reverse mortgages, USA Today’s piece suggests that  workers start funneling money into an employer-sponsored 401(k) or a private IRA as soon as possible, and also consider purchasing a home if possible — with the goal of paying down the mortgage quickly to build equity rapidly.

“It might seem obvious, even simplistic,” USA Today writer Robert Powell notes. “But having home equity and retirement accounts are key to most families’ financial assets and — by extension — retirement security.”

Read Powell’s full piece at USA Today.

80% of seniors could benefit from HECM

March 17th, 2016  | by Jason Olive Published in HECM, News, Retirement, Reverse Mortgage

Not only do seniors’ ages and net worth determine their eligibility for a reverse mortgage, but these factors also play a significant role in the likeliness of older households obtaining Home Equity Conversion Mortgages, a recent study suggests.

Past studies on reverse mortgage utilization have indicated that as much as 80% of seniors could benefit from getting a HECM.

Furthermore, while previous research has found that households with low incomes and modest wealth were most likely to benefit from reverse mortgages, the opposite may actually be true, according to research from the University of Georgia’s Department of Financial Planning, Housing and Consumer Economics, published in the International Journal of Financial Studies this month.

To determine the factors influencing elderly households’ participation in the reverse mortgage market, lead researcher Swarn Chatterjee used the 2012 Health and Retirement Study (HRS) for this empirical analysis, as well as to provide a nationally representative dataset of households age 50 and older.

The HRS dataset, which is maintained by the University of Michigan and is funded by the Social Security Administration and the National Institute of Aging, contains information on the respondents’ participation in the reverse mortgage market, as well as their household assets, and their demographic and socio-economic characteristics.

The HRS study included 10,625 respondents, however for the purposes of the University of Georgia’s reverse mortgage analysis, Chatterjee used homeowners age 62 and older. Age played a significant factor in the probability of having a reverse mortgage, with older adults more likely to have a HECM than their younger peers.

Seniors ages 74-79 had the highest likelihood of having a reverse mortgage (42%), followed by those ages 68-73 (36%) and 80-104 year-olds (13%). Meanwhile, the youngest cohort between ages 62-67 were least likely to have a reverse mortgage (9%).

“It is possible that at a later stage in their retirement many households understand the potential inadequacy in their retirement savings and thus explore options, including reverse mortgages, to supplement their income later in retirement,” Chatterjee writes.

While previous studies have suggested that reverse mortgages could be useful financial products for people with modest savings, poor health and unmarried people, the University of Georgia study finds that households with higher net worth, higher education levels and higher income were more likely to obtain reverse mortgages.

“The results of this study indicate that households with a greater stock of human capital—higher net worth, better educational attainment, and higher income—were more likely to have reverse mortgages,” Chatterjee writes.

As the Baby Boomer generation continues to age and enter retirement, reverse mortgages have the potential to benefit this large cohort of the American population. And as numerous retirement studies repeatedly underscored the financial unpreparedness of this group, the need for additional solutions and resources is now greater than ever.

A lack of awareness, however, continues to hamper reverse mortgage utilization among potential qualified seniors who would benefit from getting a HECM. The study’s authors conclude that further research is also needed to examine reverse mortgage awareness and demand for the HECM product.

“This provides an opportunity for financial planners, non-profits, the government, and advocacy groups for retirees to educate elderly households about the potential benefits and pitfalls of using reverse mortgages as a retirement tool,” Chatterjee writes.

Written by Jason Oliva

See contact information in navigation bar for details.

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Reward is to see “financial stress leave,” says HECM LO

April 30th, 2017

In recent years, the reverse mortgage program has undergone substantial policy changes as the product has been revamped and fine-tuned to better meet the needs of older Americans. Many of those who have made a living originating HECM loans have weathered the changes, but it hasn’t been without its challenges. For seasoned HECM loan officers, the work is not what it used to be.

“Tighter regulations have resulted in tougher underwriting standards that have made most HECM loans far less routine,” says Bill Smith of Reverse Mortgage West. “Complaints from my colleagues that ‘every loan is a problem loan’ are much too frequent and clearly not what used to be when I started.”

Smith, who has been originating HECMs for 15 years, says regulatory requirements have added considerable length to a loan’s turn time.

“The requirement that counseling precede the application has made the sales cycle far less efficient. Prior to the regulatory change, I was able to qualify most prospects over the telephone and arrive at the first appointment with an application ready to sign. Probably 90 percent of my loans were one-time visits to close. Now, two home visits are required, making the process less efficient,” he says. “This aggravates me because I do not see any clear advantage for the borrower.”

Less Originating, More Explaining

Beth Paterson of Reverse Mortgages SIDAC, a division of Greenleaf Financial, agrees. “A lot more work and a lot more time are involved in closing a loan,” says Paterson, who has been in the business for 18 years. “Now, with Financial Assessment, we spend a lot more time trying to get the documents needed. We need to explain what a LESA [Life Expectancy Set-Aside] is. There are a lot more conversations and much more legwork involved.”

Some LOs say explaining all the rules and regulations to a borrower can be a challenge.

“Putting FA into layman’s terms for my clients can be tough,” says Mark Draper, a 10-year HECM LO with Amity Mortgage. “They just want to know they are being treated fairly and it’s going to help them.”

Smith says reverse originators now need to do a lot of legwork to close just one loan, a fact others outside the profession may not recognize.

“People may think we are well paid for doing little,” he says. “In truth, they cannot know how many homeowners we must advise and counsel just to secure one loan that actually closes.”

Seeking New Audiences

Florian Steciuch, a HECM specialist with Retirement Funding Solutions who has been originating for seven years, says he has altered his approach in order to adapt.

“I’ve turned my focus to financial planners and estate planners, who are open to learning how a HECM can be used for retirement planning. Rather than marketing to the general consumer, I reach out to specific professionals,” Steciuch says. “Most advisors welcome the Financial Assessment and feel the HECM is a safer product with these changes. With a booming real estate market, serving Realtors and builders has become a larger part of my efforts.”

But getting through to these professionals can be difficult. “The greatest challenge is getting the commitment from financial planners other professionals, like Realtors and builders,” Steciuch says. “They still view the HECM as a last-resort option, even though that changed years ago.”

Outcomes Worth the Extra Work

While increased regulations may have complicated the loan process, HECM specialists are traditionally invested in helping their clients, and this aspect of the work has not changed.

“We are more than loan officers who calculate DTIs or chase conditions. We listen to the sometimes very urgent and sensitive needs of our older borrowers,” Steciuch says. “We understand retirement planning, cash flow, home safety. Of course, we never provide financial, legal or health care advice, but we do understand them. That makes us more than just an LO. We are professionals who can provide life-changing solutions.”

Though some may enumerate the challenges of the work in today’s post-FA world, they are just as quick to list the rewards of the job as well. For many reverse mortgage originators, helping clients solve their financial problems offers a reward great enough to outweigh the challenges faced along the way.

“The reward for me is and always will be that feeling of satisfaction when you’ve helped someone obtain a reverse mortgage and see the financial stress leave their body,” Draper says.

Steciuch says seeing his clients’ relief motivates him to keep at it. “At my last closing, the borrower clasped her hands over mine and said, with a tear in her eye, ‘Thank you. The pressure is lifted from us.’ All the no’s I face each week are worth that one yes.”

Paterson says helping seniors incites a passion that is her driving force. “As the saying goes, if you love your job, you never work a day in your life. That’s how I feel. It’s not work to me; I’m really passionate about it. To me, it’s a ministry.

“… and to me,” Warren Strycker

 

 

Finding a HECM Use for Every Income Bracket

June 19th, 2017

While reverse mortgages have long been seen as a product of last resort, professionals in the industry know that opinion is changing — and now a new blog post shows the different ways that people can use Home Equity Conversion Mortgages no matter their financial situation.

Over at Tools for Retirement Planning, personal finance blogger Tom Davison maps out Home Equity Conversion Mortgage strategies for three types of potential borrowers: “well funded,” “constrained,” and “underfunded.”

For instance, a “well funded” borrower may have planned well for retirement, but could use a reverse mortgage to buy a new home — either larger or smaller than the current property — or remodel his or her existing home to age in place safely and comfortably. On the other end of the spectrum, an “underfunded” retiree could take out a HECM and pay down high-cost debt, cover the cost of necessary medications, or even just keep the heat on in the winter.

In the middle, “constrained” borrowers could potentially use reverse mortgage proceeds to defer Social Security payments, supplement required minimum distributions from retirement accounts, or just to have a little extra cash to spend on small luxuries like visiting grandchildren, Davison writes.

Davison based these categories on a recent report from the Center for Retirement Research at Boston College, in which economist Steven Sass found that consumers will increasingly need to tap into home equity in retirement, but remain reluctant due to “strong behavioral and informational barriers.”

In his March 2017 brief, Sass split households aged 65 to 69 into five groups based on equity and financial wealth, and found that traditional savings only exceeded home equity for the richest fifth of the U.S. population — while home equity accounted for the overwhelming majority of retirement wealth for the second and third quintile of older Americans.

“The value reverse mortgages could bring to the aging U.S. population starts with the breadth of users and uses,” Davison writes. “The value and breadth also challenge homeowners, financial professionals, and the reverse mortgage industry to find good matches between an individual homeowner’s situation and their highest and best use of a reverse mortgage.”

Read Davison’s full piece here.

 

“HECM Mortgage Worked For Dad” says Personal Finance Columnist

May 30th, 2017

A Chicago-based personal finance columnist doesn’t just suggest reverse mortgages to her readers — she helped her father get one, with positive results.

Terry Savage, whose columns appear in the Chicago Tribune and other papers around the country, wrote this week about her father’s experience with a Home Equity Conversion Mortgage, which she says helped him age in place with dignity.

She describes an almost perfect HECM scenario: After taking out a reverse mortgage on his condo at age 80, Savage’s father remained at home for the next 15 years, only needing to use his long-term care insurance shortly before his death at age 95. In that time, Savage writes, her father wound up borrowing more than the condo was worth.

“My dad worried about how the balance of the reverse mortgage ‘loan’ was building up, including the interest that was charged on the money withdrawn,” Savage writes. “I had regularly reminded him that they could never force him to move out. I urged him not to worry, live longer — and beat the odds! He certainly did.”

Upon her father’s death, Savage’s family elected to allow the lender to foreclose on the property and handle its sale.

“The family had agreed at the start that we wanted Dad to live there in dignity as long as possible, and we wouldn’t worry about losing the property in the end if he outlived his equity,” she writes. “This is the way a reverse mortgage should work.”

Savage then goes through a detailed description of the reverse mortgage program, advising potential borrowers to only seriously consider a HECM if they plan to remain in the property for at least five years, and if they have savings or income to cover the mandatory obligations. She also points out that the proceeds from a HECM are not typically taxable, and that like her father, borrowers can’t “run out” of home equity or lose their homes as long as they hold up their end of the bargain.

Savage’s column marks another milestone in a streak of positive coverage in the Tribune from syndicated financial columnists; the paper ran a piece by Benny L. Kass extolling the virtues of the HECM line of credit over a traditional “forward” home equity line in March. These articles also represent a contrast from the paper’s recent news coverage of reverse mortgage fraud in Chicago, with the return of noted alleged scammer Mark Diamond to the headlines last week.

“A reverse mortgage is worth considering,” Savage concludes. “I know that firsthand.”

 

Get up, and get on…

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

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

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

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

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

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

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

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

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

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

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

 

 

CBO’s Crystal Ball to 2047: Older Population, Higher Interest Rates

May 9th, 2017

The United States of America, 2047: The population bumps up against 400 million people, with a full 22 percent of folks aged 65 and older — or 85.8 million seniors. The national debt rises so high that the country spends more money on interest payments than all of its discretionary programs combined, a scenario that’s never been seen in a half-century of tracking such metrics. And that’s all assuming that elected officials even find a way to keep Social Security and Medicare funded at their current levels.

This stark vision comes courtesy of the Congressional Budget Office and its most recent Long-Term Budget Outlook. The nonpartisan CBO looks into its crystal ball and predicts the economic picture for the next 30 years, and the results could prove fascinating for folks who work in financial planning and lending — or, perhaps, send them screaming into the night.

Interest Rates Creep Higher, But Not Historically So

For instance, the CBO joins the chorus of other financial analysts by projecting steady increases in interest rates over the coming decades as the economy improves and the Federal Reserve moves away from the historically low federal funds rates instituted during the depths of the Great Recession. But mirroring the attitudes of many in the reverse mortgage industry after the Fed last hiked its interest rate target back in March, the office also puts these trends in the larger context of recent history,

“CBO anticipates that interest rates will rise as the economy grows but will still be lower than the average of the past few decades,” the report notes. “Over the long term, interest rates are projected to be consistent with factors such as labor force growth, productivity growth, the demand for investment, and federal deficit.”

As RMD reported at the time, rising interest rates have diverse effects on Home Equity Conversion Mortgage originators and lenders, potentially hampering needs-based borrowers with lower principal limits, but also providing opportunities to market the growing HECM line of credit and strengthening the HECM-backed securities market.

Though the CBO doesn’t address specific numbers for federal funds rate targets, the office offers projections for the interest rate on 10-year Treasury notes, predicting a rise from 2.1% at the end of last year to 3.6% in 2027 and 4.7% in 2047. That’s still a percentage point below the average of 5.8% recorded between 1990 and 2007, a period that the CBO notes was free of major fiscal crises or spikes in inflation.

The current federal funds rate target of 0.75% to 1% still falls on the historically low side of the spectrum; prior to the economic collapse in the late 2000s, the number sat at 5.25%, and it climbed as 20% during the inflationary malaise days of the Carter and early Reagan administrations.

Rising interest rates could spell bad news for the federal government, however, as they also determine the amount of money that Uncle Sam must pay on his debts. According to the CBO’s estimates, the amount of federal debt held by the public will balloon to 150% of the gross domestic product, up from 77% now — reaching figures never seen in the history of the United States. For reference, the national debt has only ever exceeded GDP during and after World War II, when the government embarked on an unprecedented defense spending spree.

A Changing Population

In the CBO’s estimate, a variety of factors will conspire to expand the American population to about 390 million as compared to around 320 million today — while simultaneously making it grayer.

The net immigration rate, which balances out the amount of people leaving and entering the U.S., is expected to rise ever-so-slightly from 3.2 per 1,000 in 2017 to 3.3 per 1,000 in 2047, while the fertility rate for folks already in America will sit at an average of 1.9 births per woman for the next 30 years, down from the pre-recession level of 2.1.

Couple that with declines in mortality rates and gains in life expectancy, and you’ve got the recipe for an older America: A baby born in 2047 can expect to live an average of 82.8 years according to the CBO’s estimates, compared with 79.2 for children born this year. And good news for readers born in 1982: You can expect an average of 21.5 more years on this mortal coil once you turn 65 in 2047, as compared to 19.4 more years for those celebrating their 65th birthdays by the end of 2017.

The Takeaway

Interestingly, the CBO notes that it bases its entire report on the assumption that the two key pillars of Social Security and Medicare will remain funded “even if their trust funds are exhausted” — a formidable “if” given political realities and the general pitfalls of making assumptions about the future of government from 30 years out.

As Jamie Hopkins, an associate professor of taxation at the American College of Financial Services, recently told a HECM industry event, Social Security and Medicare will remain funded through 2034, and any attempts to make unpopular decisions that could benefit their long-term health — such as raising the retirement age — would spell political disaster for those who attempt a change.

Perhaps none of this comes as a surprise to originators, lenders, and others who work in the reverse mortgage space: Americans as a unit are getting older, the economic outlook remains uncertain, and no one’s really sure what’s going to become of the social safety net. Meanwhile, down on the micro level, this growing crop of seniors will need to figure out ways to remain comfortable and safe in their retirement years.

 

The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.

Home Equity HECMs Protect Women’s Retirement Choices

Due to the fact that women live longer than men and that women still are only making 79 cents for every dollar men make, they have a more difficult time achieving retirement security. Even with statistics not in their favor, women do still have options when it comes to financially securing themselves as they age.

The first step is to get a financial plan together as early as possible, Jocelyn Wright, director of The American College State Farm Center for Women and Financial Services and assistant professor of women’s studies, said in a recent webinar hosted by the American Society on Aging and sponsored by the National Reverse Mortgage Lenders Association (NRMLA).

And part of that financial plan could include a reverse mortgage, Wright points out.

There are major life events that a large portion of older women go through, which include divorce and becoming a widow. These two life events are tough enough to get through, but they also can derail retirement savings.

One way women can get through these life events and other events similar to them is by tapping into their home equity through a reverse mortgage, Lorraine Geraci, vice president of the training division at Finance of America Reverse (FAR), explained during the webinar.

“I feel it’s imperative that we collectively provide choices to assist older adult women by sustaining financial longevity and establishing peace of mind,” Geraci said.

Obtaining a reverse mortgage will not play out the same for each woman nor will each woman use a reverse mortgage in the same way.

There are many different strategies when it comes to figuring out how to use a reverse mortgage to its fullest potential. The first step is to choose between a fixed rate and an adjustable rate home equity conversion mortgage (HECM), Geraci shared.

“An adjustable rate HECM is similar to a home equity loan line of credit except that amount of line of credit is accessible to them whenever they want and also grows while it’s in the credit line, which can increase the amount of equity available to the borrower as times goes on,” she said.

Once the borrower has chosen either a fixed rate or adjustable rate HECM, setting a strategy should be addressed next. A strategy could be anything from using the proceeds to manage long-term care payments, social security planning, income planning or to purchase a new home altogether.

“There’s a lot of folks in the baby boomer generation who would like to move to a different location and with the HECM for purchase program, they can have that option,” Geraci said.

These strategies, if implemented correctly, can change the financial situation for women who do not have an adequate amount of retirement savings and can also help them age in place.

For those new to the idea of a Reverse Mortgage, we call it a HECM to more specifically define it, please consider the magnitude of the information on this page and then call Warren Strycker for additional information, an analysis of your own opportunity and followup through the process. Call 928 345-1200 in Arizona warren.strycker@patriotlendingusa.com

 

Selleck Asks: ‘Why Not’ Use Home Equity?

June 20th, 2017  | by Alex Spanko  | American Advisors Group, HECM, News, Reverse Mortgage

American Advisors Group this week debuted its latest television commercial starring actor Tom Selleck, who this time asks older Americans why they aren’t using the equity built up in their homes.

Set in the same finely appointed loft apartment as a previous Selleck-centric spot, the new ad finds the “Blue Bloods” star telling seniors that they’re sitting on more than $6 trillion in total home equity, citing a statistic from the National Reverse Mortgage Lenders Association’s Reverse Mortgage Market Index.

As in a previous commercial for the Orange, Calif.-based AAG, Selleck directly addresses potential borrower concerns head-on in the two-minute advertisement, titled “Why Not Use It?”

“I think reverse mortgage loans are misunderstood sometimes. Maybe some retirees just don’t trust them,” Selleck says.

“They can sound too good to be true. But the fact is, in some ways, a reverse mortgage loan is not that different than a traditional mortgage,” he continues, calling the equity that the homeowners have already paid into their properties “kind of a savings plan.”

The new ad — along with a shorter 60-second version — began running Monday on the big four broadcast networks as well as a variety of cable channels, according to a release from AAG. It marks the third time that the 72-year-old Selleck, also famous for his starring role as TV’s “Magnum, P.I.” from 1980 to 1988, has appeared in a spot for the reverse mortgage lending giant; in previous ads, Selleck has likened retirement planning to a “three-legged stool” and told viewers that, like them, he once thought a reverse mortgage was too good to be true.

“The new campaign direction focuses on the fact that many older American homeowners are struggling to fund their retirement despite the enormous amount of home equity that’s available to them,” AAG chief creative officer Teague McGrath said in the release. “Tom Selleck has a deep appreciation of this problem and understands how reverse mortgages could be a critical component in many seniors’ retirement funding.”

Selleck himself agreed.

“Reverse mortgages have been undervalued and underutilized for too long in this country,” the actor said in the release. “Senior homeowners should have a way to use their hard-earned home equity to help fund their retirement.”

“I’m one of those seniors now,” said Warren Strycker, longtime loan originator now with Patriot Trust Lending, “and I’ve had a reverse mortgage for a long time now with no regrets”.

“Come, let us reason together,” Strycker added. “Why not Patriot Lending” he adds. (See “information” tab on the navigation bar for contact information.)

 

HOUSING WEALTH has come forward to center stage thinking

RISK MANAGEMENT survive and thrive in retirement requires new thinking and a clear understanding of all the options.

Over the past 12 months, the Department of Labor ruling has made it abundantly clear that all advisors have a responsibility to do what is in the best interest of their clients. Part of that responsibility means staying informed about current thoughts, trends and legitimate tools that could have a positive or negative effect upon their ability to help their clients’ meet their overall goals.

Housing wealth has become one such tool. No longer can it be relegated to the back room or basement strategies. It has come forward to center stage thinking. Retirement Planning Has Changed Financial planning in the generic sense is a recent phenomenon. Retirement, in its current context, is fairly new.

For centuries, most people worked for as One Simple Strategy Every Advisor Should Know Don Graves, RICP At first glance the article title seems to suggest that a home equity conversion mortgage (HECM), also known as a reverse mortgage can be used to hedge or mitigate some of the more common risks of retirement.

But I realize that for some advisors, the very notion of reverse mortgages being implemented in financial planning is absurd. Suppose the oft-maligned and seldom suggested, red-headed stepsister of financial planning had more to her than you imagined? Could her beauty and brilliance be veiled by mythology and misperception?

What if the lowly 30-year-old reverse mortgage could help your clients preserve more assets, improve cash flow, ensure liquidity and mitigate risk? What if it allowed you to differentiate your practice, impact more clients, and make more money, would you want to take a closer look?

In a moment, you will discover two couples that did everything the exact same way, but had two completely different outcomes primarily due to their advisors’ beliefs about reverse mortgages. Historically, the more affluent retiree and their advisor have either simply dismissed the reverse mortgage or relegated it to use as a last resort. However, much has changed in the last few years.

Recent research suggests that the appropriate and strategic use of the newly restructured reverse mortgage may be helpful in positively impacting retirement outcomes. For many in the boomer generation, to Can Reverse Mortgages Hedge the Most Common Retirement Income Risks?

  • Same Savings at Retirement • Same Withdrawal Strategy • Same Amount on Same Days • Same Investments COUPLE A Ran out of savings in 23 years COUPLE B Had $1.1 million in savings 30 yrs. later long and hard as they could and then died soon thereafter.

The contemporary notion that you stop working with enough saved money to last 20, 30, 40 years is a product of modernity. For the last 75 years (at least since the advent of Social Security), people were expected to live on their personal savings, a company pension, and Social Security during retirement.

But the erosion of private pensions, the dismal lack of personal savings, and the strain on the current Social Security system has created an outlook for today’s retirees that will require financial ingenuity and new tools in order for them to protect and preserve their nest eggs. Born just after midnight, on January 1, 1946, Kathleen Casey-Kirschling, will forever be known as America’s first baby boomer.

Nearly 70 million more after her would be born up until 1964. No other group has so thoroughly changed the landscape of America quite like the boomers. Now nearly 10,000 boomers a day are turning 62.

In the middle of this last year, Kathleen was the first of the boomers to take her required minimum distributions. The boomers will leave a legacy both positive and negative, the historians opine. At the onset of retirement, there are three issues they must confront.

They will live longer than previous generations, have not saved enough to sustain their longer life span, and are more in debt than any other known previous generation. It is estimated that nearly 68 percent of new retirees will be carrying some sort of mortgage servicing debt into their retirement. This does not take into account credit cards, car payments, or student loans for which they served as a cosigner.

Surprisingly, there is one thing that boomers have in their favor–87 percent of them own a home. As a matter of fact, the average, married, retiree today will have $92,000 in savings but $192,000 in home equity. This “housing wealth” as my friend, Dr. Sandy Timmerman, founder of the Met Life Mature Market Institute, says, “will become the boomers’ salvation!”

Now if all of this was not bad enough, the new retirement paradigm is filled with unforeseen dangers. In times past, retirement was likened to ascending to the summit of Mt. Everest. Clients braved the elements and proceeded with discipline until finally they set foot atop the grand mountain of accumulated assets.

There they pulled out their flag and staked it in the ground, proclaiming “mission accomplished,” thinking the danger had passed and the hard part was over.

Unfortunately, that is not the true danger in climbing Mt. Everest. Nearly two-thirds of all mountain climber deaths transpire on the descent. Similarly, the most dangerous part of the retirement mountain occurs after the flag is planted when our clients begin to live on what they accumulated.

This is the true threat in retirement and the opportune place where skilled financial Sherpas showcase their knowledge. Good retirement income planning focuses on the dangers of descending the mountain and using all available tools to help the client arrive safely back at base camp.

Risks in Retirement

As baby boomers move into retirement there are significant apprehensions and a slew of frightening questions. Will they have enough money to last through their golden years? Will they be able to enjoy the lifestyle they imagined? Will unexpected expenses throw off their retirement plan? Could a market crash decimate their carefully built nest egg and leave nothing for the next generation?

These concerns are considered to be the 4Ls:

  • Longevity: Will I have enough to meet my basic needs?
  • Lifestyle: Will I have enough to get a steak instead of a hamburger?
  • Liquidity: Will I have access to tax-advantaged money for possible spending shocks?
  • Legacy: Will I leave a good financial memory? There are more than just those four concerns.

There are genuine and perilous risks underlying each one of them. The Retirement Income Certified Professional RICP® course that I teach at the American College lists and clarifies the 18 risks in retirement income: • Longevity risk • Inflation risk • Excessive withdrawal risk • Health expense risk • Long-term care risk • Fragility risk • Financial elder abuse risk • Market risk • Interest-rate risk • Liquidity risk • Sequence-of-return risks • Forced retirement risk • Re-employment risk • Employer insolvency risk • Loss of spouse risk • Unexpected financial responsibility risk • Timing risk • Public policy risk You can download an expanded summary of these risks at www.18Risks.com.

Four Risks in Particular

Clearly identifying and managing risks in retirement income is on every advisor’s mind. Let’s look at four risks in particular and see if the reverse mortgage can add value. Longevity Risk In 1935, when Social Security was first established, the average life expectancy was only about 61 years.

Today, it has risen to in excess of 78 years and is growing steadily. Living to age 100 could soon be the norm. The necessary financial preparedness for such a length is daunting. Running out of savings in retirement is the number one concern of most retirees because of all the unknowns that exist.

In consideration of all the risks that exist in retirement, longevity is the most significant because it is a risk multiplier that only serves to magnify the others. Inflation Risk The inevitable increase in the cost of goods and services will slowly erode your client’s purchasing power.

With as little as a 3 percent a year inflation rate, your clients would see a 50 percent reduction of purchasing power over 20 years. Excessive Withdrawal Risk Life is short and capricious. Retirement for most will be long, expensive and yes, unpredictable.

Clients will face emergencies, unexpected expenses or simply want to experience some extra enjoyment. They may be forced to choose to cannibalize and/or annuitize assets prematurely.

Consequently putting increased pressure of their ability to have those funds when needed most—later in retirement. Sequence of Returns/Market Risk Sequence risk involves the actual order in which investment returns occur. When you regularly invest in a retirement plan the movement of the market up or down will not have nearly as much significance as it will when you begin to withdraw funds.

Unfortunately, when you withdraw money from your portfolio during retirement, the volatility of markets can inflict substantial damage. If you take a set amount in distributions each month, you end up selling more shares when the market is Risk Management

LONGEVITY Enough savings to meet my basic needs for life

LIFESTYLE Enough to enjoy retirement on my terms

LIQUIDITY Access to tax advantaged money when I need it

LEGACY How will I and my money be remembered low—locking in your losses rather than giving the market a chance to recover.

Let’s take a look now at how a reverse mortgage can help. Reverse Mortgages Have Come of Age If you ever wanted to ruin a good barbeque, family reunion, office party, or Thanksgiving dinner, just let someone mention that they are thinking about getting a reverse mortgage and watch what happens.

Once considered the “Rodney Dangerfield of financial products,” this lowly and maligned resource is now coming center stage. For nearly two decades, I have shared the simple truth that a reverse mortgage “is just a mortgage!” That’s it. When we boil it down to its essence, that’s all it is.

Quiz: Which Client got a Reverse Mortgage? Two clients go to their respective advisors and ask about the wisdom of obtaining a home equity loan or home equity line of credit (HeLOC) so they don’t have to use savings for emergencies, expenses, or simple things they want to enjoy. The advisor responds that setting up a HeLOC is very common and wise. So each of the retirees finds a lender, produces qualifying documents and obtains a $100,000 line of credit. They both go out and promptly spend all of the money and the following month, they both begin to make the same monthly payment at the same interest rate.

Finally on the same day, with their final payment, they both pay off the loan balance and the accounts are closed. Does anything seem unrecognizable or spooky so far?

Here’s the truth: One of those clients got a reverse mortgage and the other one did not. Can you tell the difference? A reverse mortgage is a federally insured loan for people aged 62 or better that allows them to convert a portion of their home’s value into tax-free money. They are not required to make a monthly mortgage payment or be removed from the title to their home. They must continue to pay all property related charges such as taxes and insurance. The amount of money they receive is based on their age, the home’s value (up to the lending limit of $636,150), and the current interest rates.

Today a 65-year-old could receive around 50 percent of the home’s value. For more information on rates, go to www.HECMAdvisorsGroup.com.

What’s So Special about the Line of Credit

The proceeds of a reverse mortgage can be received in a lump sum, monthly payments, or as a line of credit. The difference with the reverse mortgage line of credit (ReLOC) versus a traditional HeLOC is that the reverse mortgage has a built in contractually guaranteed growth factor. (Currently, the rate is around 6 percent.) This means the unused portion of the ReLOC will continue to grow year by year. As long as the borrower lives and maintains the home and keeps their taxes and homeowner’s insurance in force, the line of credit cannot be frozen cancelled or reduced. This is regardless of the home’s future value, the income, assets or credit of the borrower. Don’t miss that line. The ReLOC has a: • Built in contractually guaranteed minimum growth factor • Allows the unused portion of the line to grow • Regardless of the home’s future value That is the secret, the one mechanism that changes it all, the eighth financial wonder of the world, the Swiss Army knife of financial planning, and the one truth that encouraged FINRA to change their position that reverse mortgages should be used only as a “last resort.”

The table on page 5 shows a $200,000 home creating a $100,316 line of credit that grows to $608,000 over a 30-year period; $204,000 grows to $1.2 million; and $311,000 grows to nearly $1.9 million. How the HECM Line of Credit Can Mitigate Retirement Income Risks Longevity Risk and Inflation Risk To guard against inflation and protect from longevity risks, advisors have traditionally moved clients into more aggressive allocations measures or inflation-protected securities and annuities etc. Imagine adding a ReLOC, early in retirement with a strategy to simply “set it and forget it” allowing it to grow for future use down the road.

Today’s ReLOC is growing at around 6 percent (with a minimum guarantee growth factor of 4 percent). With inflation at 2 to 3 percent today and perhaps averaging 4 percent over time, the HECM line of credit not only gives tremendous growth potential but is also nearly 3 percent greater than today’s inflation rate. This is a powerful hedge against both longevity risk and inflation risk. The chart on page 6 developed by my teaching colleague, Dr. Wade Pfau, shows a $250,000 home growing at 3 percent (top line) and a $125,000 ReLOC growing at 6 percent (middle line) with the lower line showing the impact of setting up the line of credit later in retirement. This data highlights the advantages of establishing the ReLOC as early in retirement as possible.

As noted recently by Dr. Pfau, “There is great value for clients in opening a reverse mortgage line of credit at the earliest possible age, particularly in a low-interest-rate environment like today.”

Older Americans Have Home Equity, mortgage payments, no pensions and WORRY about retirement. Why?

March 26th, 2017

A pair of recent surveys reveal the facts that many in the reverse mortgage industry know all too well: Seniors worry about how they’ll pay for retirement, don’t have pensions, and are sitting on significant quantities of home equity (some of which can be turned into cash contributions to living expenses in just a few weeks with a HECM mortgage).

Perhaps the most interesting revelation in the Employee Benefit Research Institute’s annual Retirement Confidence Survey, however, is the disparity between those who are approaching retirement and Americans who have already exited the working world. According to the institute’s data, about 60% of active workers in the United States feel confident that they can fund a comfortable retirement, while nearly 25% are “not too confident” and 16% are “not at all confident.”

That’s a significant contrast from the optimism among the already-retired set, 79% of whom feel very or somewhat confident that they’ve properly planned for a financially comfortable retirement; a full third reported feeling “very confident,” while only 8% said they weren’t confident at all.

This gulf pervades the group’s findings, with consistently higher sentiment about a variety of retirement planning topics — including the ability to pay for basic needs, medical expenses, and long-term care — among retirees than active workers, though even retired Americans had a great deal of concern about the latter metric: Almost half reported being “not too or not at all” confident about covering nursing home or home health care expenses in retirement, compared to 57% of those still in the workforce.

Meanwhile, a separate report issued by the Department of Health and Human Services’ Administration on Aging — “A Profile of Older Americans: 2016” — illustrates the vast amount of home equity in the hands of adults over the age of 75. According to the HHS report, which reflects data through the end of 2015, a full 76% of Americans in that age group own their homes, but median income among that cohort was only $31,000 per year. Of the age-75-and-up folks who owned their homes in 2015, 78% of them had no mortgage and owned their homes free and clear.

Americans in that age group tended to own older homes — with a median construction year of 1969, as compared to the overall median of 1978 — but interestingly, only 3.5% of those homeowners reported “moderate to severe” problems with regular upkeep, such as plumbing and heating systems. Those homes had a median value of $150,000, as compared to a median original purchase price of $53,000; for the overall population, those numbers were $180,000 and $127,000, respectively.

Among all Americans older than 65, including both homeowners and renters, the median income in 2015 was $31,372 for men and $18,250 for women, with only 21% of those reporting incomes of more than $50,000 — and 15% with incomes of $9,999 or less.

These stats plainly illustrate that home equity remains a vital potential source of retirement funding for older Americans. The lingering question for those in the reverse mortgage industry, though, remains how to convince a larger percentage of them that tapping into it can often be a prudent retirement option.

Quick hits

Both reports are worth checking out in full, but if you don’t have time to wade through the impressive amounts of data, here’s a bite-size encapsulation of some of the more interesting facts from each.

34% The increase in the 60+ population in the United States between 2005 and 2015, from 49.8 million to 66.8 million

69% Americans with a retirement plan who feel very to somewhat financially secure

32% Those without a plan who feel the same way

98 million The projected amount of Americans aged 65 and older in the year 2060

8.8% Percentage of older American below the poverty line in 2015

19.4% Proportion of people 65 and up in Florida, the highest in the country; nationally, that number is 14.9%. Only six other states had a percentage of 65+ residents greater than 17.0%: Maine, Vermont, Pennsylvania, Delaware, West Virginia, and Montana.

47% Percentage of workers who report less than $25,000 in retirement funds, including savings and investments

24% Workers who have less than $1,000 of any kind of retirement savings

Those interested in pursuing a FREE HECM ANALYSIS can proceed to the navigation bar “CONTACTS” and ask for one. The “ride” is free of cost and obligation, but the results will give/offer your own personal review of the facts. (Gofinancial.net — Warren Strycker).

Incorporating Home Equity into a Retirement Income Strategy

Wade Pfau’s article Skip Navigation LinksIncorporating Home Equity into a Retirement Income Strategy was published in the Journal of Financial Planning in April 2016.The article’s Executive Summary:

CBS MoneyWatch Calls Reverse Mortgages “Smart” for Seniors

March 30th, 2017

Citing the growing cabal of pro-reverse mortgage academics and the story of one Mississippi homeowner, CBS News’ MoneyWatch called Home Equity Conversion Mortgages “a smart way for seniors to tap home equity” in an article published yesterday.

MoneyWatch writer Kathy Kristof tells the story of Richard Blackmon, a 70-year-old Magnolia State retiree who initially thought that a reverse mortgagee was a scam after seeing an advertisement for the product. But faced with growing debts and unwilling to leave the “three-acre compound” where he lives, he learned more about the program and took the leap.

“Honestly, about this time last year, I was contemplating having to file for bankruptcy,” Blackmon told CBS. “I can’t rave enough about this program.”

Kristof’s piece nods to the HECM’s shadier past, but emphasizes that the reverse mortgage’s bad reputation stemmed from “some unscrupulous advisors” acting before the Great Recession. She also cites some familiar academic faces in the HECM world, Wade Pfau and Steven Sass, as well as American Advisors Group executive vice president of retail sales Paul Fiore, who told CBS about his father’s experience with a reverse mortgage loan.

Like many other popular sources, Kristof explains the growing use of reverse mortgages as pillars of a larger retirement plan, a fail-safe in case other investments experience a downturn at an inopportune time. But unlike mainstream news outlets, she frames reverse mortgages as a low-cost option in certain circumstances.

“The fees depend on your home’s value and the amount of equity you need to tap,” she writes. “However, they can be as little as 0.5 percent of the home’s value. Thus a reverse loan on a $250,000 home might cost $1,250.”

She touts the growing line of credit option, terming it a “smart” option and encouraging readers with considerable amounts of home equity to take out the loans as early as possible.

“So those who use the loans as a line of credit, borrowing sparingly — or not at all — in the early years pay virtually nothing,” Kristof writes. “Meanwhile, the amount available to borrow rises each year according to a formula. So the longer you have a reverse mortgage outstanding and unused, the more equity you’ll be able to tap.”

Naturally, Kristof counsels that the loans are not for everyone, specifically calling out borrowers under 62 — who, of course, can’t take out a government-backed HECM loan — as well as “rich” people who have no need to tap into home equity and people who intend to leave their homes within the coming few years.

Still, Kristof’s piece provides a simple, straightforward explanation of the HECM and its potential benefits from a trusted news source, along with a human success story to put a face on its positive uses.

“This was a win-win situation for me,” Blackmon told CBS. “I only wish I’d known about these loans sooner.”

Gofinancial gives you the opportunity to learn about the HECMs now. And, there’s a chat line to ask questions. See “HOME” in navigation bar to investigate.

Strategic Uses of Reverse Mortgages for Affluent

Affluent clients of financial planners can use their housing wealth a variety of ways to enhance retirement, including boosting sustainable portfolio withdrawals and delaying social security claiming. As strategic users affluent clients are quite different from many traditional users – often desperate homeowners who grabbed any remaining home equity after exhausting all their other resources. Focusing on affluent clients, this post summarizes key features of reverse mortgages and uses to increase retirement spending and reduce risks in retirement. A growing body of research on reverse mortgages in financial planning goes into depth on many of these topics.Reverse mortgages have evolved over the years, including significant improvements after 2008’s housing crisis, resulting in enhanced consumer protections, refined federal oversight, reduced costs, and better balance among the interests of clients, lenders and Federal Housing Administration’s insurance backing. The refined design is a Home Equity Conversion Mortgage (HECM). The Federal Housing Administration (FHA) administers it following rules laid down by the United States Department of Housing and Urban Development (HUD).

FHA HECM Reverse Mortgages and Affluent Clients

The new view of a FHA HECM reverse mortgage for wealth management firms is that the “Highest and Best” use of HECM reverse mortgages is to improve a client’s retirement plan – not rescue it. It is a view I’ve come to share after diving into FHA HECMs and their applications. There are a variety of ways to use them strategically to good advantage, and hopefully very rarely as a client’s last resort. My perspective comes from working with wealth management clients going into retirement with investment portfolios in the $500,000 to $4,000,000 range. Many of these clients could benefit from FHA HECMs.

Most common strategic uses:

  • Improving retirement plans: A client has a workable or nearly workable retirement plan, but desires an improvement. Increased retirement spending is an example of improved plan, as is planning to age in place at home.
  • Increasing contingency: A client has a workable retirement plan but little contingency for the unexpected and undesirable: prolonged poor markets, health-related costs, or the need for home modifications or in-home assistance.

Less common uses for wealth management clients, but valuable if the need arose:

  • Rescuing retirement income: A client’s retirement plan needs a rescue. Something they didn’t plan for happened – perhaps a spouse planned to work longer but couldn’t, or a spouse took a single life pension payout and now wishes they had elected 100% Joint and Survivor payout.
  • Absolute last resort: Clients are in dire circumstances and have no other assets or income left.

FHA HECMs Provide Guaranteed Access to Cash

Fundamentally FHA HECMs provide guaranteed access to cash made available as a loan against their housing wealth. There are three ways to access cash:

  • Line of Credit (LOC)
  • Lump Sum
  • Fixed Monthly Payments

Or they can buy a new home using a HECM to pay for around half of up to a $625,500 home, or a smaller part of an even more expensive home.

Guaranteed Access to a Growing Line of Credit

A line of credit is the most flexible way to access cash and takes advantage of a unique and powerful feature: the borrowing limit grows every month. The borrowing limit can’t be reduced or cancelled as long as the homeowner is in their home and meeting basic obligations of paying real estate tax, keeping homeowner’s insurance in force and doing basic maintenance.  That’s different is several ways from a traditional Home Equity Line of Credit (HELOC).

The graph shows a $300,000 home and the borrowing limit of a HECM Line of Credit over 30 years. The vertical bars show the home’s value growing at 3%. The loan’s compounding growth rate applies equally to the overall borrowing limit, the current amount borrowed, and the amount yet to be borrowed.  The compounding rate resets set monthly. It is the sum of the current short-term interest rate (1-month LIBOR) and a fixed component of around 4%.  Details on the compounding rate are at the end of this post.  The compounding rate is shown in the graph at short-term interest rates of near zero, 2.5% and 5%, so the compounding rates shown are 4%, 6.5%, and 9%. The graph’s acceleration as the years go by is due to the compounding effect.

The obvious result is more cash is available later – and in an amount that’s likely to grow substantially more than inflation. It may grow faster than most fixed income investments – especially those with guarantees like the FHA backing. Adding usefulness is tax treatment – any amount borrowed from the LOC is tax-free as it is loan proceeds. On a repayment an income tax deduction may be available. The tax treatment makes the LOC particularly useful for people in the 25% and higher state and Federal tax brackets.

An interesting challenge for the financial advisor and their homeowner clients is to choose what the “highest and best” use (or uses) is for their LOC. One use is to increase spending from investment portfolios. The “Highest and Best Use” section below suggests other uses. (Fungible is a delightful word that doesn’t get used often, as in “cash from a HECM LOC is fungible”: cash can easily be used for one purpose or another.)

loc growth

HECM Line of Credit growth with short-term interest rates near zero, low, and moderate

Access Cash with Monthly Payments or Lump Sum

Other ways homeowners can access cash are by a lump sum distribution or monthly income. Monthly income is a payment guaranteed to last long as the owner occupies their home, or for a period the client chooses.

At any time the homeowner can change the way they access cash. For example they could stop a planned monthly payment and get a lump sum. And they can combine access methods: a lump sum for immediate needs combined with a line of credit for later use. They can choose when, if at all, they pay down the loan balance before they leave the home. The loan becomes due when they leave their home.

Purchase a New Home

A HECM may be used to buy a new primary home. For a home valued up to $625,500, around half the purchase price can come from the HECM. (For a higher priced home, only $625,500 is considered for the HECM). The balance of the purchase price would come from other resources, including proceeds from selling a current home.

Key Facts about FHA HECM Home Equity Conversion Mortgages

  • Homeowners or their heirs have title to the home, not the lender.
  • A HECM is a non-recourse loan. The homeowners or heirs can never owe more than the home is worth. When the homeowners leave the home, if the home’s value were less than the loan’s balance, FHA mortgage insurance steps in. That’s the purpose of the FHA mortgage insurance pool, paid for by a borrower’s upfront fee and part of the monthly charge to the outstanding loan balance.
  • All owners must be at least 62 years of age.
  • HECM applies to the primary home. A minimum of 50% equity is needed.
  • The homeowner has three obligations:  pay real estate tax, keep homeowner’s insurance in place, and do basic maintenance.
  • No interest or principal payments are required, but may be made. The loan becomes due when the home is sold, the borrower changes residence, the last borrower dies or the last borrower is in a continuing care facility for 12 consecutive months with no prospect of returning home.

How Do Reverse Mortgages and Portfolios Work Together to Increase Retirement Spending?

The catalyst for attention to HECMs by the financial planning community was work by Salter, Pfeiffer and Evensky (2012, 2013) after the 2008 market downturn. They combined a HECM LOC with portfolio withdrawals in a strategy they call Standby Reverse Mortgages. In a severe market downturn, clients lived on a HECM LOC instead of withdrawing from their investment portfolio. After the market recovery repaid the HECM so it would be available if another severe downturn happened, or if the portfolio were exhausted. Client’s sustainable withdrawals improved dramatically. Using a HECM LOC as small as 8% of the portfolio ($40,000 LOC and $500,000 portfolio) noticeably increased spending. When the line of credit was larger compared to the portfolio ($200,000 LOC and $500,000 portfolio) sustainable spending increased over 200%!

Sacks and Sacks (2012) and Wagner (2013) tested six other ways to augment portfolios with reverse mortgages, such as living on the reverse mortgage first until it ran out, using it last if the portfolio ran out, using it after weak portfolio gains, or doing fixed monthly payments throughout retirement. All ways they tested improved retirement spending. Two other teams (Sacks and Sacks, and Wagner) investigated many ways of augmenting portfolio withdrawals with reverse mortgage withdrawals. In every case the client’s sustainable spending levels increased substantially!

The reasons FHA HECMs improve retirement spending include:

  • HECM line of credit provides access to a line of credit that is guaranteed to grow
  • A HECM draw is tax-free. A reverse mortgage dollar is “bigger” than a portfolio dollar by its tax burden
  • More assets are available for retirement spending when housing wealth is included
  • Sequence risk in early years is controlled when reverse mortgage funds are available early

The biggest improvements to retirement spending come when the HECM:

  • Is a larger part of cashflow: more precisely the larger it is compared to the portfolio
  • Is used for clients with high tax rates, and higher portfolio tax burdens (e.g., IRAs)
  • Is available earlier instead of later in retirement. Ideally if used early, is repaid to grow for use later.
  • When portfolio returns are lower during the client’s retirement
  • When short-term interest rates are higher, increasing borrowing limit

 Total Net Worth (Estate Value)

For some clients an important consideration may be the impact on their total net worth and not just their spending levels. The traditional desperate user tapped their home equity as their only remaining asset, so naturally depleted their estate. Affluent clients may have the opposite result, depending on how they use their housing wealth. For example, Wagner’s results 15 years into the plan showed estate sizes (portfolio + housing wealth – loan balance) were often 10 to 30% higher depending on which of five reverse mortgage scenarios were used. Perhaps the rule of thumb is: when spending is pushed to the max, estate sizes suffer, but when housing wealth is used judiciously both sustainable spending and estate size can improve.

 What is A Client’s Highest and Best Use of a FHA HECM?

As cash is flexible, HECMs can be used across a wide spectrum of client wealth and circumstances.

The four categories of HECM applications described above were:

  • Improved Retirement Plan
  • Improved Retirement Contingency
  • Retirement Rescue
  • Last Resort

Examples of specific uses a homeowner may have for a HECM:

highest-and-best-use

Consider this information carefully — then talk to me — Warren Strycker 928 345-1200 — see more under “information” tab on home page.

Why This AARP Columnist Changed Her Mind on HECMs

Quinn pic
January 4th, 2016

Thanks to various program changes in recent years, reverse mortgages have been winning over everyone from financial advisors to community banks and the mainstream press, and even one nationally recognized personal finance commentator who has recently changed her view on the product.

Few personal finance writers are as widely read as Jane Bryant Quinn. For 30 years, she published a biweekly column for Newsweek magazine, and for 27 years she published a twice-weekly column that was syndicated by The Washington Post Writers Group to more than 250 newspapers. Quinn has also written columns for Bloomberg.com and has appeared on nationally-aired TV shows such as “CBS Morning News,” “The Evening News with Dan Rather,” “Good Morning America,” among many other programs. In her current gigs, Quinn contributes a regular column to the AARP monthly Bulletin and blogs on her own website JaneBryantQuinn.com.

Over the course of her illustrious career, Quinn has established herself as one of the nation’s most reliable voices for people trying to manage their money well. But it wasn’t until recently that she shifted her perception of reverse mortgages and the role they can play in retirement planning today.
Now onto her sixth book on personal finance titled “How to Make Your Money Last” (Simon & Schuster), Quinn chatted with RMD to discuss her new book, the biggest challenges retirees face today and the factors contributing to her change of heart on reverse mortgages.

RMD: What spurred you to write “How to Make Your Money Last”?
JBQ: Making your money last is the biggest worry people have. When they are in their pre-retirement years or early retirement years, they say, “How can I be sure not to run out of money?” That’s the thing that has scared them the most.

We are all living to much later ages than we expected and we might not have saved as much as we intended, which is the problem the Baby Boomer generation is facing—partly because of the stock market in 2007-2008, or problems with the economy where they weren’t able to retire as soon as expected.

They [Boomers] are saying, “I have X amount of savings, so how do I invest and parcel out those savings so I can be reasonably sure they can last 30 years?”

What do you hope this new book will accomplish?

JBQ: First, I hope it will help alleviate worries, because if you really don’t know how to parcel out your money in a reasonable way, you’re always going to be afraid you will run out.

My hope with this book is you can figure out what a reasonable lifestyle is—I call that “right-sizing” your life, which is matching your expected income to your expected expenses and seeing how much of your savings you can withdraw every month or every year.

There are two things with this book. The first is the financial part, which is the bedrock on which a comfortable retirement is built. The other is the emotional part.

Let’s say you’re a teacher, lawyer or reporter and then suddenly you don’t have a paycheck anymore. So you not only have to figure out the financial part, but you also have to figure out the emotional part—going from a working person to an engaged private citizen retired. That is something I look ahead for myself. How do you make that transition?

You need a financial base to work from , but you also need to think about what you’re going to do for the rest of your life. “How to Make Your Money Last” also talks about the various ways of addressing that question, because that is a huge question.

Apart from those aspects, what are some other key areas of discussion included in the book? What can readers expect to learn?

JBQ: I cover the kinds of things that people need to know. There is something about the joy and challenge of life after work, and also how do you work out right-sizing your life. Doing these projections is more complicated when you’re retiring than when you are doing a normal working budget, because you have to look at the income you get from investments and savings.

I also cover when to claim Social Security, life insurance, health insurance and annuities. Then there’s retirement savings plans and what you should be doing especially if you’re part-time employed, a freelancer, or a member of the “gig economy.” There’s another section on retirement spending, retirement investing, and what are reasonable withdrawal rates from savings to have your money last 30 years.
I also talk about your home and reverse mortgages.

On the topic of reverse mortgages, how in-depth does “How to Make Your Money Last” cover these products?

JBQ: I am very positive about reverse mortgages, but I wasn’t always. I have taken a new view on them, partly as a result of the new regulations passed last year.

There was an issue with people who took lump sum reverse mortgages later in life; they went through the money, found they couldn’t pay taxes and insurance and faced the risk of losing their homes. By and large, there was an issue for people later in life when they didn’t really understand what they were getting [with a reverse mortgage].

These new regulations, however, which look at people’s income compared with what they will get with a reverse mortgage, are very valuable and they have erased my concerns that there are dangers here for people in their 70s and 80s.

Reverse mortgages have been a controversial topic in the past, with the product suffering from a negative perception. What made you change your mind, so much as to include reverse mortgages into your new book?
JBQ: The fact that older people are now being protected from themselves, or aggressive sales people who might inappropriately tell them to take out a lump sum when they’re 80, only to find out they ran through the money and are now stuck—that should not happen any more with these rules.

There has also been a sort of discovery among financial advisers using the [reverse mortgage] line of credit. It’s a wonderful hedge against inflation to give yourself future borrowing power.
If you take a reverse mortgage credit line at age 62, you could probably increase the withdrawal rate from your savings [above the classic 4% rule] because now you have one more pool of money from which you can draw from. If the market is bad, you can draw money from the credit line. This can help you increase your income in retirement from your savings and investments.

But I caution, [reverse mortgages] are only for people who intend to stay in their homes for 15-20 years, because you have to amortize those upfront costs. If you are settled in your house, want to stay there and increase your annual income, you can do that with a reverse mortgage credit line.

In your opinion, what do you view are some of the biggest hurdles or challenges facing retirees today?
JBQ: Saving money. This is particularly true with people who don’t work for companies that have 401(k) or 403(b) plans. People who tend to retire with sufficient savings are those who have company plans where money automatically comes out of their paychecks. Those are the people most likely to acquire decent retirement savings.
The other half—and it is roughly half—are people who work for employers who don’t have retirement plans, or are freelancers working in the “gig economy.” They have much more trouble saving because it’s not automatic. There’s no easy way to have money slipped out of their paycheck and set aside for them every time it comes. They are living paycheck to paycheck, but they’re spending everything.

For the average person who’s working freelance, or working where there isn’t a 401(k) plan, they can start an IRA. However, to make it saving automatic, they need to have money taken out of their bank account every month. People who are living paycheck to paycheck might be afraid to do that.

It’s one of the great virtues of our Social Security system; that if you pay taxes, you’re automatically getting a retirement plan. The same is true for people signed up for 401(k)s. But people who don’t have those employers are stuck and it’s a disgrace that how much you can save depends on where you work and not who you are.

So how does home equity fit into the equation? Home equity has long-held this reputation of being a “sacred cow,” but will it become a vital component of retirement planning for more retirees today and in the future?

JBQ: Now that there’s been a big loss of home equity and it’s on the rise again, people might be taking a different view of it because they don’t expect home equity to rise rapidly. On the whole, I think people have just gotten over the idea that their home equity will go up by large amounts, so they’ll be more inclined to treat it more sacredly than they did in the past.

I’m in favor of paying off the house before you retire. I think it’s a very valuable thing. If you don’t have mortgage expenses when you retire, that is a huge plus going ahead.

GF footnote: That’s always better (HAVING NO MORTGAGE EXPENSES) when you get a HECM too – it means more money for you. But, you can get rid of your mortgage with a HECM so that’s one more plus for you. Our take on Quinns remarks is about the same as always. She gets into the middle of the fight with her name recognition and doesn’t help anybody make a good decision. If you want the truth about reverse mortgages (HECMs) call us for the help you’ll need and get government mandated counseling (without obligation).

Jane changed her mind about HECM. What about you?

928 345-1200. Serving HECM focus nationally.

 

Using Reverse Mortgages to Fund Long-Term Care

January 10th, 2017

Longevity in America is at an all-time high, which means many people will be living for much longer after they retire. But this also means they will need to have more money to pay for things like long-term care.

There are numerous ways people can pay for health care in their later years, but one option worth exploring is a reverse mortgage line of credit, NerdWallet reports.

The line of credit in particular can be especially helpful for those homeowners who may not need extra funds right away, but may need to tap into them down the road if their health declines.

“As you use this available money, you don’t have to pay a monthly bill as you would with traditional home equity loans; the money is just subtracted from the equity in the home,” the article says. “The line of credit comes due either when you move out of your home or die, in which case you heard or estate could pay the loan back either through the sale of the home or other means.”

There is another case though in which the loan would become due and payable and that is if the borrower were to stop paying property taxes and homeowners insurance, or if they let the home fall into disrepair, which the article did not point out.

In addition to having the line of credit available to the borrower in case of medical emergencies, there are advantages of getting a reverse mortgage over a home equity line of credit (HELOC), the article points out.

Though a HELOC is a similar concept to a reverse mortgage line of credit, with a reverse mortgage the borrower doesn’t have to make monthly payments at all. The credit line with a reverse mortgage also has the opportunity to grow over time, but with a HELOOC it is usually a fixed amount that the lender could freeze or cancel at any time.

“Having as many resources as possible to cover long-term care needs is an important part of a holistic financial plan,” the article says. “A reverse mortgage line of credit can ensure you’ll have funds readily available at the time of need.”

When Does a Reverse Mortgage Become Due and Payable?

Whether you have a HECM or NOT, this reminder is that as one gets older, sometimes we forget important stuff — like property taxes. Counties aren’t very good about keeping you informed. It’s always smart to check into county records from time to time and make sure your taxes are paid. Consequences can be horrific.

Such is also true if you have any kind of mortgage.

Once a triggering event occurs, the reverse mortgage loan becomes due and payable. A reverse mortgage loan becomes due and payable when one of the following circumstances occurs:

All borrowers have died. When this happens, the heirs have several options. They may choose to:

  • repay the loan and keep the property (generally, with a HECM, the heirs may pay the lesser of the mortgage balance or 95% of the current appraised value of the home)
  • sell the property (for at least the lesser of the loan balance or 95% of the fair market value of the home in the case of a HECM) and use the proceeds to repay the loan
  • deed the property to the lender, or
  • abandon the property and let the lender foreclose.

(If you take out a HECM and have a non-borrowing spouse, your spouse may be able to remain in the home after you die, and the loan repayment will be deferred, so long as certain criteria is met. The rules are different depending on whether you took the loan out before or after August 4, 2014. Learn more in Nolo’s article New Rule – Spouses Not Named on Reverse Mortgages Are Protected From Foreclosure.)

The property is sold or title to the property is transferred. If the home is sold or title transferred, the loan becomes due and payable. Generally, if the property is sold, the escrow company will accept the purchaser’s money and pay off the reverse mortgage along with any other liens on the property. If you transfer ownership of the home—for example to a relative—the loan becomes due and payable.

The borrower no longer uses the home as a principal residence. The borrower can be away from the home (for example, in a nursing home facility) for only up to 12 months due to physical or mental illness; however, if the move is permanent, then the loan becomes due and payable.

The borrower fails to meet the obligations of the mortgage. The terms of the mortgage will require the borrower to pay the property taxes, maintain adequate homeowners’ insurance, and keep the property in good condition. (In some cases, the lender might create a set-aside account for taxes and insurance.) If the borrower does not pay the property taxes or homeowner’s insurance, or if the property is in disrepair, this constitutes a violation of the mortgage and the lender can call the loan due. The lender must usually allow the borrower to cure the default to prevent or stop a foreclosure. Though, reverse mortgage lenders are known for foreclosing on elderly homeowners for relatively minor mortgage violations.

After the Loan Becomes Due and Payable

Once the loan becomes due and payable, the borrower owes the lender:

  • the amount of money the lender has disbursed to the borrower, plus
  • interest and fees accrued during the life of the loan.

To avoid a foreclosure, the borrower must

  • correct the default
  • pay off the debt
  • sell the property for the lesser of the loan balance or 95% of the appraised value (or an heir may satisfy the debt by paying the lesser of the loan balance or 95% of the current appraised value), or
  • deed the property to the lender.

“Let’s talk about it”, says veteran loan officer, Warren Strycker. (See contact information under “information” on Home Page or call 928 345-1200. “Foreclosure on your home is a scary scenario and can be triggered by forgetting to pay your property taxes. Whether you have a mortgage or not, Pay your taxes.

Understanding Reverse Mortgages: An Interview with Shelley Giordano

SOA research has shown that non-financial assets are the biggest part of retirement assets for many middle American families. The largest part of non-financial assets by far are home values. Housing is the largest item of spending for older Americans, and housing costs vary greatly by geographic area and type of housing. Reverse mortgages offer a way to use some of the value of the home while still living in it. The SOA post-retirement risk research has indicated that few retirees are taking into account home values in their retirement planning.

The 2015 focus groups indicated low interest in reverse mortgages. People thinking about planning have been asking the question: how do we take housing values into account in retirement planning? What are the options? How do we evaluate them? This interview with Shelley Giordano provides information about reverse mortgages and how they are being used today.

Can you tell us a little bit about yourself and the Funding Longevity Task Force? Yes, thank you, I always welcome the chance to brag a little about the task force. After 15 years of experience in various aspects of reverse mortgage lending, and thanks to Torrey Larsen, CEO of Synergy1 Lending, I had the chance to invite a group of distinguished academicians to meet together to see what could done about improving understanding of reverse mortgages.

So in 2012, they took the leap, flew to San Diego, and just sat around a table to discuss their emerging interest in the role of housing wealth in retirement. It was becoming clear that in a DC world, where many people are poised to be underfunded in retirement, cash flow was going to be a problem. While just about every retiree has a home, there was a dearth of serious research on how the home could be monetized. This group of respected thinkers catalyzed an accelerating interest in research that measures how the home asset can positively impact a retirement plan. The members and I volunteer our time.

Our core group includes Marguerita Cheng, CFP®, Thomas C. B. Davison MA, PhD, CFP, Wade D. Pfau, PhD, CFA, Barry H. Sacks, PhD, JD, John Salter, PhD, CFP®, AIFA®, and Sandra Timmermann, Ed.D. Recently, the task force aligned with the American College of Financial Services. Associate Professor of Retirement Income and Co-Director of the New York Life Center for Retirement Income Jamie Hopkins, JD, MBA, and I were privileged to hold our first joint meeting at MIT with Dr. Deborah Lucas, Sloan Distinguished Professor at the Golub Center for Finance and Policy.

Our stated mission is to develop and advance, for retirees and their financial advisors, a “rational and objective understanding of the role that housing wealth can play in prudent planning for retirement income.” Before 2012, the comments in the financial press, and even the pronouncements of the Financial Industry Regulatory Authority (FINRA), about the use of housing wealth as part of retirement income were not based on any serious quantitative analysis. Instead, these comments were rather “offhand,” and consistently propagated a conventional wisdom that the use of housing wealth as part of retirement income planning should only be a “last resort.” In 2012, two significant research papers were published and a well-respected blog was written, all demonstrating quantitatively that, for a sizable number of retirees, the conventional wisdom was incorrect. Indeed, for many of those retirees, their financial well-being would potentially be adversely affected by treating housing wealth as a last resort. An objective and rational approach, i.e., the quantitative analysis, used in the research revealed that housing wealth should be considered early in their retirement years and not as a last resort. The potential to help improve retirements affects a significant number of people.

We estimate that those most likely to benefit from this approach, known in the financial planning community as the “mass affluent,” total between 10 million and 15 million households, of the approximately 75 million “Baby Boomers.” How important is home equity as a retirement resource? Why is it often invisible in the retirement planning process? Well, first of all, as Dr. Robert C. Merton, Nobel Laureate in Economics and Distinguished Professor at MIT, is fond of saying, the house is an EXISTING asset. Nothing new needs to be created, people have spent their lives building wealth by paying down their mortgages but now have a financial asset that is only realized at their death. Retirees have built a retirement pie of Social Security, qualified plans, savings, perhaps long term insurance, but when it comes time to retire, 65 percent of their wealth, which is bound up in their homes, is just flat out ignored. For some, it is like trying to retire on 35 percent of their wealth.

That may be okay for wealthy people but leaves most retirees dangerously short. We have to admit that the reluctance to use home equity has some cultural basis, but is probably more influenced by the bad reputation reverse mortgage lending suffers. Although much has been done to improve consumer safeguards, most recently with the Reverse Mortgage Stabilization Act of 2013, there is 56 | FEBRUARY 2017 PENSION SECTION NEWS Understanding Reverse Mortgages:

An Interview with Shelley Giordano widespread misinformation that hampers greater uptake. Sadly, financial advisors are often times even less aware of the features of reverse mortgages than their clients who see TV commercials. Financial advisors do not get paid on initiating a reverse mortgage, their compliance officers often forbid a conversation about home equity at all, and financial planning software does not yet include reverse mortgage payments, much less illustrate sophisticated strategies. A homeowner cannot expect an enthusiastic, or even particularly informed, reception from most advisers when seeking advice on how to release equity from the home. What are the key features of common reverse mortgages? What are the common differences in products?

Around 95 percent of all reverse mortgages in the United States are Home Equity Conversion Mortgages, or HECMs, and are insured by FHA. There is a small market for jumbo mortgages for very expensive homes. But what all reverse mortgages share is a nonrecourse feature. This means that regardless of what the loan balances become, the house stands as the sole collateral. Even if the house is underwater, no deficiency judgment may ever be taken against the borrower or his heirs.

This is the crucial safeguard for retirees but shockingly, even some financial advisers continue to believe that the “bank gets the house.” This is simply not true, and has not been true since President Reagan and the 100th Congress provided for modern reverse mortgage lending with the 1987 Housing and Community Development Act. Clients can choose between fixed or variable rates, trade higher interest rate margins for lender credits on closing costs (resulting in a somewhat lower initial credit capacity), or choose in some cases to limit their first year distribution in order to reduce the FHA mortgage insurance premium from 2.5 percent to .5 percent.

Regardless of what structure they choose, these safeguards are inviolate:

1. The borrower never relinquishes title. The bank does not “get the house.” Just like any mortgaged home, the house will pass to the heirs. The heirs can pay off the mortgage or sell the house and keep the remaining equity.

2. The borrower never owes more than the house is worth. Every borrower is assessed FHA mortgage insurance premiums (MIP) that protect the borrower, as well as the lender, if the house value is underwater at loan’s end. In fact, no deficiency judgment may be taken against the borrower or his or her heirs.

3. The borrower never has to move even if he or she no longer has access to more credit. Even if the HECM loan balance exceeds the home value and/or there is no remaining new credit available, the loan is in effect as long as one member of the couple remains in the home as a principal residence and homeowner obligations such as tax and insurance are met.

4. The borrower never has to make a payment on the principal or the interest until the last one remaining dies, moves or sells. Voluntary payments are accepted but never required. Some reverse mortgage strategies include paying down the loan balance when the portfolio regains value. It may be advisable to make voluntary payments on the interest early in retirement, if convenient, in order to restrain the buildup on the load balance from tacked-on interest. Compounding interest accumulation may not have as much impact later in retirement when life expectancy is shorter and home values are likely to be higher, but managing interest in early retirement years may be a prudent strategy.

FHA does not impose a prepayment penalty. Note that all homeowner obligations must be met, such as tax, insurance and maintenance, during the life of the loan, as will any other mortgage.

Source: The 4 Nevers. (2000). Giordano The initial credit capacity is based on the younger borrower’s age, the current interest rate environment, and the housing value. A rough guide is 50 percent (for the minimum age of 62) and reaches as high as 75 percent of home value at today’s rates, but only to the current FHA lending limit of $636, 150. Higher home values are accepted but for purposes of calculating credit the lending limit represents the highest initial credit calculation possible.

Current mortgages are allowed at time of application as long as the reverse mortgage (plus other funds if needed) extinguishes the lien/s at closing. Borrowers must attend third party independent counseling before a loan may be originated. Normally, interest accumulates and for the HECM is based on the one year or one month Libor. Upfront insurance (MIP) is either .5 percent for 60 percent or less initial utilization, or 2.5 Generally, a reverse mortgage is appropriate for those who are fairly certain they will stay in the home for as long as possible.

FEBRUARY 2017 PENSION SECTION NEWS | 57 housing without the need for monthly payments or dipping into savings in order to avoid a monthly mortgage payments.

Recently we discovered that the HECM product could be used in two different scenarios to restore equivalent housing to both sides in a gray divorce! This is an option divorce lawyers need to learn. The most conservative and popular use of a reverse mortgage is to set it up as a standby line of credit to meet future unexpected spending shocks. Interest does not accumulate on the unused credit, just like a traditional HELOC. However, unlike a HELOC, the line of credit grows every month at the exact same rate the borrowed funds are compounding. For example, if the monies borrowed are compounding at the annual rate of 4 percent in any given month, the remaining line of credit will compound at the smae 4 percent rate. This increase happens regardless of the value of the underlying asset, the home. Over many years, it is possible the LOC can exceed the home value, which provides valuable diversification for an asset that has idiosyncratic risk. In addition, a HECM line of credit cannot be frozen, cancelled or reduced. The client is free to make any payments he wishes, or no payments at all. percent if greater amounts are drawn at closing. The ongoing MIP accrues at the annual rate of 1.25 percent and is assessed on current loan balance monthly. The loan may be prepaid at any time without a prepayment penalty.

How can reverse mortgages be used? What are the principal strategies? Are reverse mortgages used much to generate more regular monthly income?

Reverse mortgages can be set up as an annuity on the house, known as a tenure payment option. This provides a monthly paycheck that will continue until the last borrower dies, moves or sells. The advantage to this payment, besides meeting cash flow needs, is that since funds from a reverse mortgage are not taxable, the tax equivalent withdrawal from a qualified account is avoided. In other words, not having to draw from an account that needs to accommodate taxes can significantly reduce early depletion of precious portfolio assets.

The HECM can be used to convert a traditional mortgage with monthly principal and interest payments into a mortgage without mandatory debt service.

In addition, very few people are aware that a HECM can be used to actually purchase a new home. This allows retirees to move to a more appropriate Traditional HELOC vs. HECM Line of Credit Comparison Traditional HELOC HECM Line of Credit Line of credit (LOC) cannot be frozen, reduced or canceled if the ongoing terms of the loan are met.

✔ Line of credit grows each month, regardless of home’s value.

✔ Allows homeowner to access the equity in their home for funds they can use for purpose while owning their home.

✔ ✔ No monthly payments required.*

✔ Minimal credit requirements. ✔ Minimal income requirements.

✔ Age-based loan: Homeowners 62 and older.

✔ Government-insured loan.

See: https://gofinancial.net/2016/06/merton/

JOIN THE HECM “CLUB” — We are ready to help. Call 928 345-1200.

By Warren Strycker, licensed loan originator

“I am a fully licensed Mortgage loan originator in the state of Arizona, a member of the Yuma County Chamber of Commerce and a trusted 12-year veteran in the mortgage industry. My job has been to assist neighbors 62 years or older to extract cash, equity dependent, to assist in retirement income without requiring monthly mortgage payments as long as you reside in the home as your principle residence, maintain taxes, homeowner’s insurance and HOA (if applicable).

I have a HECM loan and have helped many others acquire one. If you are interested, please contact me, Warren Strycker, 928 345-1200 and ask questions. I can do a HECM loan evaluation to see if you qualify. I’ve been a “neighbor” for a long time. Thanks for taking the time to consider how a HECM loan could benefit you now.”

I am not rich or famous, but I am focused and ready to help when I am needed — 928 345-1200. I have an iPhone and a Bluetooth on my ear. You can call now. I know what to do for you, and if you and God wills, I happily will.

I work with the United States Government on a program called the Home Equity Conversion Mortgage (HECM), a focus on retirees and their incomes and the HUD program, now resuported by HUD secretary Ben Carson — a program you can trust to put you on a firmer financial footing if you are 62 and have home equity you want to spend now. My lender is Patriot Lending and they are super to work with.

And, you don’t have to feel lesser because you firm up your resources in retirement. This is not a free government program and there is EVERY reason to be proud to move into it.

This is not a free lunch. Private money makes this program run. Investors get involved because the government guarantees the result. It works because a lot of good people work together for the common good, including me.

HECM, as it is called, has more than 50 years of history, begun then by President Reagan and reaffirmed by every president since, most recently by HUD Secretary Ben Carson.

I have worked HECM with people to reorganize their finances for 12 years now, so I have a pretty clear picture of what it takes to use it. I hope you’ll believe me when I talk about some of the following people I’ve worked with lately …

Bill and Jackie…

… had to borrow money on their credit card for a $5000 AC they needed.  It’s often hot in Arizona and they didn’t have the money — so they put it on their credit card. The payments got in the way and we paid off that balance on their card. Life is better for them now and they have no more payments to make. Yes, it feels good to have helped them.

Deana…

…lost considerable money in the market and needed more money in her budget to get by. The HECM helped her pay her bills and put some money aside to back up her budget which had depended on income from market profits now missing. I notice she made a few improvements on her nice little home in Yuma.

Marybeth and Jack…

…had a car payment in the way and the budget was so slim, every month was a nightmare making ends meet. The HECM paid off the car loan and the budget was balanced with money to spare. That loan closes this week, and these folks are happy with the results — just happened that their home is a singlewide manufactured so there was the problem with foundation. Most lenders wouldn’t touch it – but we did. The loan will close in a couple of weeks and they won’t have to pay the big car payment. Life will be better for them.

This is not rocket science. So many of these stories have happy endings. I hope you’ll look for one of  your own now. Tell me your story — let’s get started.

If you are one of those, I hope you’ll join me on this webpage and learn what you can to help make your life more secure financially. I’ve done this many times for folks here in Arizona – many times, so I know what to do for you. A recent client told me she trusted me. Best news I get these days.

This webpage is a focus on the HECM – now two years old this month – these pages contain information from the financial experts in this industry who explain the program we call the Home Equity Conversion Mortgage – what you probably call the Reverse Mortgage.

I’ve had one of these HECMs for a bunch of years now and I know quite a bit about the program after twelve years here in Arizona explaining it so many times to folks just like you, eager to get a new approach to their retirement finances.

What I’ve done on Gofinancial webpages is record for you what others of far greater wisdom than I have said and written about the Home Equity Conversion Mortgage – now more than 50 years of history being improved and promoted by so many just like me to help people work through their retirement finances more efficiently.

We agree with President Reagan, the HECM is an important retirement tool — and I have become a licensed loan officer to help people try one of these on for themselves. I hope you will think it is important enough to look into it.

That’s what this webpage is all about. Hands on HECM education from some of the strongest leaders in the industry – authentic information you can use to make a good decision.

I hope you will make regular visits to this webpage and that you will unload your questions on me by phone or email, so we can answer them promptly.

In the end, my hope is that I can help you make life better because you were able to put a HECM in your life that will relieve the financial pressures of retirement some of you are beginning to feel now.

I want to do a HECM ANALYSIS for you that gathers information about equity, loan costs and benefits. You’ll learn a lot and I’ll be able help you understand just what a HECM can do for you.

I hope you’ll get to know more about me as you truly consider a HECM. I’m waiting for your call now… will you ask me to help?

I’m Warren Strycker. I will serve in this capacity as long as I can be faithful, honest and trusted.  You can call now. I will keep the door open as long as I can.

928 345 1200

“This is going to become one of the key means of funding retirement in the future.”, says Merton https://gofinancial.net/2016/06/merton/

 

 

 

 

 

 

 

 

HUD Secretary Ben Carson Praises Reverse Mortgage Program

Secretary Ben Carson affirmed his commitment to the reverse mortgage program in a Monday speech to a major advocacy group for older Americans, lauding recent program improvements and emphasizing his desire to help homeowners age in place.

“This is a top priority for my department: To give seniors more opportunities, more alternatives, more choices, and, if desired, to help more people age in place,” the Department of Housing and Urban Development secretary said in remarks at LeadingAge Florida’s annual convention in ChampionsGate, Fla.

Carson called financial health one of “three essential initiatives for our nation’s seniors,” and dedicated a large portion of that discussion to the Federal Housing Administration-backed reverse mortgage program.

“As reverse mortgages have become more popular, we have learned more about the needs of seniors,” Carson continued.

He then went on to give a detailed history of the Home Equity Conversion Mortgage program, acknowledging previous issues with the product such as imprudent draw amounts and the lack of non-borrowing spouse protections.

“These problems have lingered and need to be addressed,” Carson said, according to his prepared remarks. “Adjustments needed to be made.”

Carson ran down the recent regulations designed to help make the products safer — including amendments to the non-borrowing spouse rules, Financial Assessment, draw limits, and mandatory housing counseling programs — and promised guidance for lenders and servicers on the recently-issued HECM Final Rule over the coming months.

The remarks represent a rare deep dive into the HECM program before a wide audience by a sitting HUD secretary, and a signal that Carson’s previous commentary on self-reliance translates into a firm commitment to the reverse mortgage program.

“The Founding Fathers wanted you and me to determine our needs and our spending, not some far-off monarchy in Europe or some self-interest in Washington,” Carson said. “And our freedom is a continuous struggle. Every day we fight for freedom, looking for ways to have more choices, to make up our own minds, and to use our resources for our needs, in our own way.”

The secretary’s comments also included praise for housing counseling programs, which HUD recently supported with $50 million in grants.

“Housing counseling helps people buy a home and helps many people stay in their homes,” Carson said. “They will be able to age in place. There will be more financial freedom, more responsible practices, and greater security for seniors.”

Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, praised the secretary’s comments in a statement released Monday.

“We appreciate Secretary Carson’s articulation of all the important changes to the HECM program and HUD’s efforts to implement them,” Bell said. “NRMLA and our members stand ready to assist the Department in continuing to enhance the utility and viability of the HECM program, which has served over one million senior households since President Reagan signed the program into law.”

And just like many average Americans who have learned about the products through television spots, Carson couldn’t resist the opportunity to shout out the HECM’s most famous supporter.

“Under certain conditions senior homeowners age 62 and over could access a portion of their equity in their homes,” Carson said in explaining the program to his audience. “You’ve seen the TV commercials with Tom Selleck.”

 

 

These are perilous times — are they not?

by Warren Strycker, Gofinancial publisher

  1. Social Security creates doubt, now being referred to as an entitlement???
  2. Congress in disarray — can’t agree on anything? Can’t keep control.
  3. People coming into retirement are short on funds.
  4. Seniors are living longer than ever.
  5. Cost of medical services is rising day by day.
  6. Congressional leaders are looking at “Medicare for All”. Will you be in the “all”?
  7. HUD supports HECM to keep seniors “in place”.
  8. HECM uses home equity to balance senior income and expense.
  9. More seniors in retirement with mortgages — payments getting harder to make.
  10. “Users” are swarming this website to get acquainted with HECM.

“Finish retirement with HECM” or “Resist” — the choice is yours. The discussion trends to HECM.

 

See home page navigation bar for support.

But Wait, Doesn’t the Bank Own the House? “Well, that’s false” — known as fake news

March 12th, 2017

If you read the trade press, you might be led to believe that the Home Equity Conversion Mortgage industry is experiencing a kind of public-relations renaissance, as popular media outlets begin to present a more balanced picture of reverse mortgages and their potential benefits for Americans aged 62 and older.

It’s certainly true to an extent — as RMD reported last week, the vast majority of HECM mentions in the media over the past year have been either positive or neutral, according to PR tracking data obtained by the National Reverse Mortgage Lenders Association, and originators across the country have seen a shift in the tide of public perception. But of course, as even HECM boosters and several passionate RMD commenters have pointed out, everything isn’t sunshine and rainbows on the ground, and reverse mortgage professionals around the country continue to face the same nagging set of misconceptions.

Steven Sless, branch manager at Home Point Financial Corporation in Owings Mills, Md., recently related a story to RMD about sitting down with a Certified Financial Planner to purchase a life insurance policy. After opening with some small talk about their lives and finding out that Sless was in the reverse mortgage industry, the planner still had the same questions he fields from average consumers.

“There’s not a lot of knowledge, and not a lot of want, to really dive deep and understand the product and how it works,” Sless says.

That knowledge gap lies at the heart of the problem. Loren Riddick, branch manager at the Loren Riddick Team of Peoples Home Equity, Inc. in Alcoa, Tenn., says he didn’t trust reverse mortgages up until very recently, despite not knowing all that much about them.

“About six years ago, I thought it was the biggest crock of bull I’d ever heard of,” Riddick told RMD. But after taking the time to learn about the product and see how it could help certain borrowers, Riddick became a believer, and he says he’s closed more than 100 HECMs — and he’s now been around the industry long enough to have heard all of the misconceptions himself from the other side of the table.

But Wait, Doesn’t the Bank Own the House?

If your typical reverse-mortgage originator had a crisp $10 bill for every time he or she heard this question from potential borrowers, inquisitive fellow party guests, or skeptical journalists, he or she probably wouldn’t have to be working in the first place.

Riddick says this problem stems from an understandable confusion on the part of the borrower about why a bank would ever offer such an arrangement. A typical consumer understands how a bank makes money off of a forward mortgage, Riddick notes, charging interest over time on a loan used to pay for a house. But when it comes to a reverse mortgage, receiving money from a bank with seemingly nothing in return is often too much to process, and consumers thus naturally assume the bank has to take ownership of the home.

“Folks just can’t get their arms around: How does the bank make money?” Riddick says.

To combat this, Riddick generally tries to marry the concepts of forward and reverse mortgages in his clients’ minds, first asking them where they sent their forward regular mortgage payments, then inquiring as to whether or not that bank owns their home. More often than not, he says, they believe that the forward-mortgage lender also retains ownership until the loan is fully paid off.

“Well, that’s false,” Riddick says, slipping into the pitch he gives inquisitive clients. “Because if the bank owns the property, then the bank would have to sign the purchase contract. The bank would have to give you permission to build a deck, or paint a room.”

Aren’t Reverse Mortgages Expensive?

Sless called out the “stigma” of reverse mortgages as high-cost loans as the top misconception he faces on a daily basis, despite declines in the mortgage insurance premium and closing fees that aren’t all that different from those required for a forward loan, and note .

His solution: Be as clear as possible about all fees upfront, and emphasize that it’s a one-time expense. “We have to communicate effectively the benefits to the borrower — even if they’re at a 2.5% MIP due to their equity position, you’re still going to be able to recoup your costs relatively quickly,” Sless says.

Isn’t a Reverse Mortgage Only for the Desperate?

Larry Waters, a senior reverse mortgage consultant at Resolute Bank in Hayden, Idaho, says he can’t still shake the perception of HECM loans as a product of last resort — a misunderstanding that, unlike the other ones discussed in this article, may actually result in willing applicants being turned away. Waters notes he frequently receives interest from potential borrowers that have run out of savings, but who eventually cannot receive a reverse mortgage due to the Financial Assessment and other reforms that have made it significantly harder for underqualified applicants to close.

“With these last-resort cases today, it may not work,” Waters said in an e-mail to RMD. “If they have a large existing mortgage balance, combined with bad credit results, they may now be required to have a LESA [life expectancy set-aside], and then they may not have enough equity to qualify for the loan.”

Waters says the industry should focus on promoting the loans as a supplementary product for the financially healthy.

“The new message today is that people need to be more proactive and be in good financial shape to obtain this loan,” Waters says.

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

 

 

On my honor

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

Boy Scout Law

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

HECM — 53 years of U.S. history — get aboard!

HECM = Home Equity Converson Mortgage

The reverse mortgage is one of the most well-developed loan products in the mortgage industry. From its birth in 1961, the reverse mortgage has been through many developmental milestones to make it the safe financial tool it is today. According to The Reverse Review, the product has seen rapid growth, expansion of additional innovative loan products, improvement of practices, increased consumer awareness, and a redefining of the options available to seniors. Take a moment as we look back at the major turning points and milestones in the history of the reverse mortgage.

In 1961, the reverse mortgage is born. The very first reverse mortgage is written to Nellie Young in Portland, Maine by Nelson Haynes of Deering Savings & Loan. Haynes designs this very unique type of loan to help the widowed wife of his high school football coach to stay in her home after losing her husband.

At a congressional hearing in 1969, the concept of a reverse mortgage intrigues the Senate Committee on Aging. When a UCLA professor named Yung Ping Chen states his support for an “actuarial mortgage plan in the form of a housing annuity” that would allow homeowners to stay in their homes while enjoying their saved home equity, the chairman expresses great interest.

During the first congressional hearing concerning reverse mortgages in 1983, the Senate approves a proposal by Senator John Heinz to have reverse mortgages insured by the Federal Housing Administration (FHA). Heinz also suggests that the idea of home equity conversion should be further explored.

In 1984, American Homestead sets the foundation for government-insured reverse mortgages when it unveils the Century Plan, which is the first mortgage that keeps the loan in place until a borrower permanently leaves the residence.

In 1987, Congress passes an FHA insurance bill called the Home Equity Conversion Mortgage Demonstration, which is a reverse mortgage pilot program that insures reverse mortgages.

In 1988, HUD gains the authority to insure reverse mortgages through the FHA when President Ronald Reagan signs the reverse mortgage bill into law. The reverse mortgage government insured loan is established.

In 1989, the first FHA-insured Home Equity Conversion Mortgage (HECM) is issued to Marjorie Mason of Fairway, Kansas by the James B. Nutter Company of Kansas City, Missouri.

In 1990, the HECM program has its 1 year anniversary, with HUD reporting to Congress that the program is steadily growing.

In 1994, Congress begins requiring lenders to disclose to borrowers the total annual loan costs at the start of the application process. This allows borrowers the chance to compare lender prices and shop around.

In 1996, the reverse mortgage program is adjusted to allow for loans on residences that have up to four units as long as the borrower occupies one unit as their primary residence.

In 1997, HECM reverse mortgage lender participation is at its highest number at 195.

1998 marks the year that the HECM is officially permanent! The HUD Appropriations Act makes the program official while Congress allots funds for counseling, outreach, and consumer education. Safeguards (like full disclosure of fees) are implemented to protect borrowers from unnecessary charges.

In 2000, HUD announces an increase in origination fees to either 2% of the Maximum Claim Amount, or $2000. HUD hopes this change will encourage more lenders to participate in reverse mortgages because of the higher revenue.

In 2001, HUD and the American Association of Retired Persons (AARP) team up to begin testing and training approved counselors. They also begin the establishment of consistent HECM counseling policies and procedures.

In 2004, the FHA implements rules of HECM refinancing. HECM refinancing allows existing HECM borrowers the chance to refinance and pay only the upfront Mortgage Insurance Premium and the difference between the original appraised value and the new appraised value/FHA loan limit.

In 2005, the First HECM refinances are made.

In 2006, the national loan limit of $417,000 is established. Also that year, AARP conducts its first national survey of reverse mortgage borrowers which reveal that the primary motivation for getting a reverse mortgage for borrowers is to plan for emergencies and to improve the quality of life.

In 2008, the first baby boomers turn 62, which results in a surge of loans which exceed past records. The SAFE Act is also established that year, which requires states to implement consistent procedures when licensing and registering HECM loan originators. Also, the Housing Economic Recovery Act puts up a few safeguards for consumers such as a limit on origination fees, rules against cross-selling, and guidelines for counseling independence.

In 2009, The HECM for Purchase is introduced. For the first time in reverse mortgage history, borrowers are allowed to purchase a new home without paying monthly mortgage payments. That year, Congress also increases the HECM loan limit to $625,500; meanwhile borrower proceeds are reduced when the FHA lowers principal limits for HECM’s by 10%.

2010 proves to be a busy year for the reverse mortgage. HUD introduces a new reverse mortgage option called the HECM Saver. Characterized by lower upfront Mortgage Insurance Premiums and closing costs, the HECM Saver makes the reverse mortgage more affordable by allowing homeowners to borrow a smaller amount than the standard reverse mortgage.

Also that year, AARP conducts another national survey of reverse mortgage borrowers which reveals borrower’s motivation for getting RM to be has changed from “quality of life improvement” to “debt alleviation”.

In addition, the Federal Housing Administration makes two changes:
– They increase Mortgage Insurance Premium from 0.25% to 1.25% per year
– They lower the interest rate floor from 5.5% to 5%, which is the first time in Reverse Mortgage history.

In 2013, HUD releases new HECM policies that make the product safer, stronger, and less risky for the borrower. These changes include a policy that allows borrowers to tap into only a portion of their equity the first year. They can then tap into the rest of their equity after the first year.

In 2014, HUD began to finalize guidelines for Financial Assessment, which will begin to be implemented in 2015. Financial Assessment will require lenders to analyze potential borrowers’ income sources and credit history to determine whether or not borrowers must have a mandatory set-aside of funds from proceeds to cover necessary expenses such as property taxes and homeowners insurance. These steps are expected to yet again protect consumers and reduce the number of borrowers who might fall into default from failing to comply with loan terms like continuing to pay for taxes and insurance.

In 2017, the loan limit for HECM reverse mortgage loans increased from $625,500 to $636,150. This is the first time the HECM lending limit has been raised since President Barack Obama signed into law the American Recovery and Reinvestment Act in 2009. Announced by the FHA on December 1, 2016, it went into effect on January 1, 2017 and will continue through December 31, 2017. The increase is 150% of the national conforming limit of $424,100 and is due to rising home prices.

In its 53 years from its birth in 1961 to present day, the reverse mortgage has developed significantly, and there’s no end in sight. December 2016 saw the Federal Reserve raise interest rates for the first time since 2009, indicative of a strong economy. While higher rates can decrease the amount available from a reverse mortgage, home values have continued to climb leading to increased home equity for many homeowners. The reverse mortgage has a bright future of continually improving and getting only better with time.

Retirement is Risky Business – Here’s a List

 

Monday, July 3, 2017

Retirement is Risky Business – Here’s a List

After we develop a set of major personal retirement goals for our mission statement as I described in A Mission Statement for Retirement and then review them with an advisor to identify any glaring omissions, there are a large number of financial risks that every plan should contemplate. Many of these won’t come to mind when we consider a list of major retirement goals for our mission statement, but one major goal of the mission could be to mitigate as many applicable common retirement risks as we can identify.

A list of common financial risks in retirement can provide a good starting point, though this list is not exhaustive.

Let’s start with a list of retirement risks the American College developed for the Retirement Income Certified Professional® (RICP®) certification because it is the most extensive I’ve found. A little too extensive for my taste, actually. I’m going to combine risks 3 and 11 because they’re both essentially sequence of returns risk. (See the table at the end of the post for definitions.)

I have also omitted Risk 17 from my list. Timing risk is the risk that you will choose a time to retire just before the next few decades suffer economically. While that is clearly a risk everyone takes, it isn’t one over which we have any control making it relatively useless for planning purposes.

Eighteen Retirement Risks from RICP®
RISK 1: LONGEVITY RISK

RISK 2: INFLATION RISK

RISK 3: EXCESS WITHDRAWAL RISK

RISK 4: HEALTH EXPENSE RISK

RISK 5: LONG-TERM CARE RISK

RISK 6: FRAILTY RISK

RISK 7: FINANCIAL ELDER ABUSE RISK

RISK 8: MARKET RISK

RISK 9: INTEREST RATE RISK

RISK 10: LIQUIDITY RISK

RISK 11: SEQUENCE OF RETURNS RISK

RISK 12: FORCED RETIREMENT RISK

RISK 13: REEMPLOYMENT RISK

RISK 14: EMPLOYER INSOLVENCY RISK

RISK 15: LOSS OF SPOUSE RISK

RISK 16: UNEXPECTED FINANCIAL RESPONSIBILITY

RISK 17: TIMING RISK

RISK 18: PUBLIC POLICY RISK

Adam Cufr, an RICP, created a list of 27 risks that largely builds on the RICP list. Some of these seem redundant to me. Nonetheless, there are some that clearly should have been added to the RICP list in my opinion, including:

Asset allocation risk, though I could also argue this is market risk,

Legacy risk, and

High debt service risk, important because it is a major cause of elder bankruptcy.

I’ll split Legacy Risk into Legacy funding risk, the possibility that a retiree’s desired bequests will not be adequately funded because the household depleted its wealth and Estate Planning risk, the possibility that the retiree’s estate will not be distributed as he or she had intended.

 

For a third source, I like to include a list of cited reasons for elder bankruptcy from research by Deborah Thorne, Ph.D. (I wrote about this in Why Retirees Go Broke.) These include:

Credit Card Interest and Fees, or High debt service risk, as Cufr refers to it.

Illness and Injury, also called Health care expense risk,

Income Problems, such as losing a part-time job in retirement (Reemployment risk in the RICP list),

Aggressive Debt Collection, whereby retirees are unable to negotiate a settlement and feel bankruptcy is the best option. I’ll roll this under High Debt Service risk, and

Housing problems, such as the mortgage payments increased, the respondent wanted to refinance the mortgage to lower the payments but could not, or a lender threatened to foreclose.

 

Retirement is risky business – here’s a list.

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Housing problems is one category I believe is not already on the RICP list and should be, but I cite the Thorne study for two other reasons.

First, if a risk is one of the five major causes cited for bankruptcy then it should be given extra attention in a retirement plan.

Second, the main point of the Thorne study is that bankruptcy is most often the result of a series of interconnected financial problems that cascade into ruin. In other words, it is less likely that a household’s ruin will result from a single risk on this list than to multiple risks. These losses might occur simultaneously and be unrelated, but it is more likely that one will cause another, which may cause even more. Most survey respondents reported more than one cause for their bankruptcy. A few cited all five common reasons.

Source: Thorne, Generations of Struggle.

I’ll add Overspending risk to my list. Overspending risk is different than Excess withdrawal risk, which refers to withdrawing from a savings portfolio faster than the portfolio can recover with market gains. A household can overspend its way into crisis without even owning an investment portfolio. It is also different than High Debt Service risk or Credit Card Interest risk in that overspending is a risk whether or not it is financed spending.

I’ll also add Interconnect-ed loss risk to my list to call attention to the possibility that individual risks are not necessarily independent of one another.

From a planning perspective, this means that we can’t simply consider the possibility that the household will succumb to each risk on the list, but we must consider the possibility of simultaneous losses or even multiple, simultaneous losses that begin with a single loss.

The simultaneous collapse of the housing market and the stock market in 2007-2009 provides a recent example. For some households, foreclosure and market losses might also have led to unemployment and income loss for workers in these fields. The struggling household, in turn, might have increased credit card debt as the last remaining financial option creating a row of dominoes that tumbled into ruin.

Every retirement plan should consider all of the applicable risks on this list and their potential correlations.

The following table is my consolidation and “pruning” of the three lists discussed above. Links to the lists I curated are provided in the reference section below. Some of the explanations were taken from the RICP list (my edits are underlined.)

You can download a Word document containing this list and edit it as you like. Use it as a starting point and add risks that I missed. Risks that are unique to your household might warrant inclusion in the mission statement.

 

Major Cause of Elder Bank-ruptcy Risk Explanation
1 Health Expense Risk For those who had employer health care coverage, retirement may mean paying more for medical insurance (Medicare Parts B and D and Medicare Supplement policies). Even with insurance, some expenses will be paid out of pocket. Also, chronic or acute illnesses may mean more significant and unexpected out-of-pocket expenses.
2 Income Loss Risk Many retirees plan on working in retirement. Income loss risk is the inability to supplement retirement income with employment due to tight job markets, poor health, and/or caregiving responsibilities.
3 High Debt Service Risk The risk of bankruptcy resulting from an inability to service debt, especially consumer debt. May result from spending beyond budget.
4 Housing Problem Risk Risks to housing including mortgage payments increase, inability to refinance the mortgage to lower the payments, unpayable increase in property taxes or a lender threatening to foreclose. Includes reverse mortgage risk.
5 Interconnected Loss Risk The risk that a loss due to one risk might cause losses due to other risks.
6 Longevity Risk No one can predict how long he will live. This complicates planning since a retiree has to secure an adequate stream of income for an unpredictable length of time.
7 Inflation Risk When working, inflation is often offset by an increased salary. In retirement, inflation reduces the purchasing power of income as goods and services increase in price, impeding the client’s ability to maintain the desired standard of living.
8 Excess Withdrawal Risk When taking withdrawals from a portfolio during retirement to fund income needs, there is a risk that the rate of withdrawals will deplete the portfolio before the end of retirement.
9 Long-Term Care Risk Chronic diseases, orthopedic problems, and Alzheimer’s can restrict a person from performing the activities of daily living, which will require financial resources for custodial and medical care. Includes Lack of Available Facilities or Caregivers risk, Change in Housing Needs risk and Uninsurable Medical Conditions risk.
10 Frailty Risk Frailty risk is the risk that as a result of deteriorating mental or physical health, a retiree may not be able to execute sound judgment in managing her financial affairs and/or may become unable to care for her home.
11 Financial Elder Abuse Risk The possibility that a family member or caretaker might steal assets.
12 Financial Advice Risk The possibility that an advisor might recommend unwise strategies or investments or embezzle assets.
13 Fraud Risk The risk of losing one’s assets as the result of fraud or identity theft.
14 Market Risk The risk of financial loss resulting from movements in market prices.
15 Interest Rate Risk Technically, this is the risk that arises for bond owners from fluctuating interest rates. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market.
16 Liquidity Risk The risk that the retiree’s assets cannot be converted to cash quickly and inexpensively enough to meet short-term expenses or debt.
17 Sequence Of Returns Risk Investment returns are variable and unpredictable. The order of returns has an impact on the how long a portfolio will last if the portfolio is in the distribution stage and if a fixed amount is being withdrawn from the portfolio. Negative returns in the first few years of retirement can significantly add to the possibility of portfolio ruin.
18 Forced Retirement Risk There is always the possibility that work will end prematurely because of poor health, disability, job loss, or to care for a spouse or family member. This event can quickly derail a retirement plan.
19 Employer Insolvency Risk Employer-provided retirement benefits are an important part of retirement security for many. If the employer has financial problems, employees may lose their jobs and in some cases their benefits.
20 Change of Marital Status Risk The loss, divorce or separation of/with a spouse is a major personal loss, but without planning can also result in a decline in economic security.
21 Unexpected Financial Responsibility Risk Many retirees have additional unanticipated expenses during the course of retirement, in many cases due to family relationships and obligations.
22 Overspending Risk The risk that a household will spend beyond its means and prematurely deplete savings or an investment portfolio.
23 Public Policy Risk An unanticipated change in government policy with regard to tax law and government programs such as Medicare and/or Social Security can have a negative impact on retirement security.
24 Legacy Funding Risk The risk that planned bequests are not funded.
25 Estate Planning Risk The risk that one’s estate will not be distributed as he or she had desired.
26 Asset Allocation Risk The risk that one’s asset allocation does not achieve expected results or is inadequately diversified.

 

REFERENCES

Retirement Risk Solutions, Dave Littell, RICP® Program Director, American College.

27 Retirement Risks: Which Is (Arguably) Most Damaging?, Adam Cufr, Fourth Dimension Financial Group, LLC.

The (Interconnected) Reasons Elder Americans File Consumer Bankruptcy, Deborah Thorne Ph.D.

Generations of Struggle. Deborah Thorne (Ohio University), Elizabeth Warren (Harvard Law School), Teresa A. Sullivan (University of Michigan).

Common Risks That Can Ruin Your Retirement, Ken Hawkins.

 

“We are consultants first”, Warren Strycker — see “information” in navigation tab. ADVICE: “Don’t start a mortgage you can’t finish”.

 

 

 

Calculate HECM benefits…

Doubleclick the link below and get started…

The amount of proceeds you receive is based on the appraised current value of your home, your age and current interest rates. DOUBLE CLICK (the colored line NEXT) to access CALCULATOR.

Yes, we’ll help. Call 928 345-1200 anytime day or night  — Warren Strycker, (born with a great sense of humor until 8 pm).

*NRMLA is the initials of the HECM industry trade association.

 

Product vs. Process — a case for “good vibes”.

By Stephen Kelley, CSA

Updated:   08/07/2017 08:04:50 AM EDT

I have said it several times and written it in dozens of places, including books, columns, radio scripts (such as they are) and workshops: A good financial plan must be both financially and emotionally sound. I can create the most financially secure plan the world has ever seen, but unless it makes you feel emotionally secure it’s worthless.

There are many factors that cause people to worry about their money. These can be the vast unknowns, the conflicting advice people get from others who have a stake in their money, fear of losing money, fear of missing opportunities, and not knowing how to start. In my mind, these factors are in one way or another about the same thing, losing control. When we are working and have regular income, we can be more sanguine about things like market volatility. However, once we have gotten into that convertible with Thelma and Louise and driven over that ledge, it’s much more difficult. Everything that happens can have a significant, and in many cases damaging, impact on our livelihoods.

Our goal is to not only provide better outcomes for people as far as lifestyle and cash flow are concerned, but to also provide better quality of life. Fortunately, the tools we use and the philosophy behind our planning process fit this objective very nicely.

Job one in any planning process is to determine what a client really wants out of life.

Far too often, people spend all their time thinking about products and strategies, rather than process and outcomes. I believe this is a sure road to failure.

You see it in our media all the time. Many of the financial “gurus” on TV or radio get stuck in this trap. You might have heard one on TV saying, “we will never sell an annuity,” or another claiming permanent life insurance is the worst product ever sold, or another opining about avoiding reverse mortgages at all costs. My question is why? They would say because they are “bad products.” I would say they are just products that are frequently misused because they are misunderstood.

Here’s an example that just happened today, right before I sat down to write this. A man who has had some tough luck in his life came in to try and figure out how to make the best out of a very tough situation. He has a house worth around $225,000 on which he owes $80,000. In addition, he has a rental unit that brings in about $600 a month, and a Social Security benefit of $1,550 per month at full retirement age. He works in a manual job making around $16 per hour, is 64, and didn’t know what to do.

His need is about $2,000 a month. I recommended he work as long as he can and delay Social Security until at least full retirement age. If he can get to 70, that would be $2,100 a month. It turns out he has another 17 years to go on his $80,000 mortgage with a payment of $550 per month. I asked what his goal for the house was, and after he told me it was to be there for the duration, I recommended he consider a reverse mortgage.

The result of these moves would be an extra $550 per month in his pocket from paying off his house, plus about $33,000 in cash from the reverse mortgage. The delay in Social Security benefits brings that to over $2,000 a month. His final numbers would be $1,500 per month in expenses, with $2,100 a month in Social Security plus any rent he gets from his unit, which is now about $600 per month.

Of course, we then had the conversations about delaying his Social Security payouts and the desirability of the reverse mortgage. He mentioned a friend had urged him to start receiving Social Security right away, or else he could “lose” his benefits. His friend was also quick to point out how “bad” reverse mortgages are, and how he should avoid them at all costs.

Let’s look at each. First, what’s the real benefit Social Security provides? Is it about the money you can collect early, when you are working, just to make sure you get what’s coming to you? Or is it about establishing a lifelong income plan that will make you financially and emotionally secure for life? I would say it’s very much the latter. As for the reverse mortgage, his objection was, “but when I sell it there won’t be any money left.”

My response, so what? He has no kids and is never married. He wants to live in the house until he can’t any more. And while he’s living, his number one issue is cash flow. These needs are supported by the reverse mortgage, in fact, all of these are exactly what they were designed for.

When you hear the noise about various products being good or bad, pause for a moment. Ask yourself what outcome you are looking for. If the products being suggested support that outcome, and that outcome really is what you want, go for it. After learning everything you can about it, of course.

Stephen Kelley can be heard, along with his co-host Mark Perkins, on the Free-to-Retire Radio Hour on Saturday at 7 a.m. on 610 WGIR and Sunday at 12 p.m. on 980 WCAP. Steve conducts workshops on Maximizing Social Security and The Other 60% – More Now, More Later. He is the author of several books, his latest ones being “Ready-Set-Retire” and “Tell Me When You’re Going to Die and I’ll Show You How Well You Can Afford to Live.” His financial planning practice, Safety First Financial Planners is located at 33 Main St. in Nashua. He can be reached at 603-881-88a11.

EDITOR’S NOTE: Yes, there is a case for a thing called “vibes”. I sat in a Lincoln MKZ and the seat “felt good” to me. I bought it right there. A lady recently bought a car and said she could stand outside with the door open and just sit down on the seat. She didn’t have to stretch to get in. The car “felt good”. Those looking at the Reverse Mortgage may “feel good” or “not” and that may explain the entire process for them. Others knew it from the first. A Reverse Mortgage made perfect sense to them. A new spiritual quality has entered the HECM discussion.

 

6.75 Trillion dollars in DEAD Equity; HECM is safe for seniors

by Rob Balmer. (Posted recently on Linkedin)

40 Million Seniors, age 62+, with over “6.75 Trillion dollars in DEAD Equity” qualify for HUD’s FHA Insured & Regulated HECM program today. Yet, only 2% understand the benefit for them and how it works because of the misconceptions created by the early days of the Reverse Mortgage test, pilot, draft or beta program.

Yesteryear is over. For over 25 years now, the Government has regulated the HECM to make them safe for seniors. By year 2020, over 50 million seniors will qualify. Our mission is to have the opportunity to educate them about the HECM with an open mind. There are No two scenarios alike.

You owe it to yourself and family to explore every possible HECM option available to discover a possible “Fit and Timing” regarding your retirement which provides Peace of Mind to offset inflation.

With a HECM, the Portion of the Credit Line that is not used actually Grows at nearly 7% today, can Never be “Frozen” by a lender and there is No Monthly Payment Required. Make Deposits or Take Withdrawls on the Fly with No Tax or Penalties. You CANNOT do that with a HELOC.

You can decide with No Pressure or Obligation. No Senior should have a house payment on a fixed income today. Why make payments if you don’t have to? With the HECM, you can ELIMINATE monthly house payments and you retain full home ownership rights. No lender is added to title. FHA does not want your house, they already have enough empty houses.

Your only obligation is what you already do now, live there 6 months out of the year, maintain home, pay your property taxes & hazard insurance.

See “information” tab for details.

Baby Boomers Need a Reverse Mortgage Reality Check in Retirement

December 29th, 2015  | by Jason Oliva Published in NewsRetirementReverse Mortgage

When it comes to retirement, Baby Boomers are vastly unprepared, and not just financially as many have expectations that are in need of a reality check, suggests a recent survey comparing the retirement outlook of workers age 50 and older with the actual experiences of current retirees. And in some circumstances, HECMs may help Boomers bridge the gap to make their retirement expectations a reality.

While many Baby Boomers (b. 1946-1964) have yet to reach their sixties, the time when retirement becomes an impending life decision, the perceptions of pre-retirees do not align with the realities of those who are actually retired, according to the nonprofit Transamerica Center for Retirement Studies (TCRS) report “The Current State of Retirement: Pre-Retiree Expectations and Retiree Realities.”

With the help of Harris Poll, TCRS conducted its online retiree surveys between July 6-24, 2015 among a nationally representative sample of 2,012 U.S. adults age 50 and older, who consider themselves fully or semi-retired, and who were employed by for-profit companies of 10 or more employees during their working careers.

Meanwhile, the worker survey was conducted between February 18 and March 17, 2015 among a sample of 4,550 full-time and part-time workers, including 2,191 workers age 50 and older.

Anticipated retirement age, the expected length of retirement and the decision to continue working even after retiring differed considerably between pre-retirees and retirees.

Most working Boomers (51%) responding to the survey indicated that they expect to retire after age 65, however, retirement arrived sooner than planned for most retirees. Among the fully retired, 61% of respondents retired before age 65, while only 23% retired after age 65.

Reasons for retiring earlier than expected included employment-related causes such as organizational changes at their place of work, job loss, unhappy with their job or career, or receiving a retirement incentive or buyout (66%). About 37% cited health or family reasons as their main cause to retire early. Only 16% said their financial ability allowed them to retire earlier than planned.

Just 7% of retirees said they retired later than planned, with most who did so (61%) citing the need for income and benefits. Another 44% said their reason to continue working was because they were enjoying their work or wanted to stay active.

“The retirement landscape is changing, with many workers planning to work past the traditional retirement age of 65,” said Catherine Collinson, president of TCRS, in a written statement. “This new vision of retirement among workers is a tremendous departure from the experiences of those already in retirement. Many retirees stopped working before age 65, largely for reasons outside of their control. Their financial realities serve as a cautionary tale for workers, employers, and policymakers.”

Retirees are also expecting a long retirement of 28 years on average, with 41% expecting a retirement of more than 30 years. But their finances may not be enough to sustain them for that length of time.

Nearly half of all retirees and age 50+ workers (46% vs. 48%) agreed to some extent that they have built a large enough retirement nest egg. Meanwhile, 47% of retirees and 45% of pre-retirees disagree that their savings are sufficient enough.

“Today’s retirees envision spending decades in retirement, albeit with limited savings and means,” said Collinson.

Most retirees are reliant on Social Security and the TCRS survey supports this claim with 89% of retirees indicating that Social Security is one of their current sources of retirement income (compared to 83% of pre-retirees). Additionally, 61% of retirees say Social Security is their primary source of income throughout retirement.

But for many retirees, a major unexpected expense or the need to pay for long-term care could prove financially devastating, Collinson said.

Though the study does not bother to mention, here is where reverse mortgages may come in handy. Financial planners, in touting the benefits of reverse mortgages, have highlighted the ability to delay claiming Social Security benefits, as well as drawing from other assets like IRAs and 401(k)s.

“Using a reverse mortgage is no longer just for the cash poor and house rich,” said Jamie Hopkins, an associate professor of taxation at The American College in Bryn Mawr, Pa., in a Forbes article earlier this year. “Instead, reverse mortgages can be used strategically as one part of a retirement income plan designed to build a buffer against sequence of returns risk early in retirement, help defer Social Security benefits or reduce cash outflow from traditional mortgage payments.”

Another indicator of the shifting retirement landscape, retirees (42%) are more likely to cite income from a company-funded pension plan than age 50+ workers (31%), according to the TCRS survey. On the other hand, age 50+ workers are more likely than retirees (67% vs. 37%) to expect income from self-funded retirement accounts such as 401(k)s, 403(b)s and IRAs.

As further evidence of the changing times, the survey noted 39% of age 50+ workers are expecting income from working in retirement, compared to only 6% of retirees.

Not helping the retirement situation are the myriad of competing financial priorities retirees identify, including covering basic living expenses, which is a priority for 42% of retires; paying health care expenses (37%); paying off mortgages (21%); paying off credit card or consumer debt (25%) and continuing to save for retirement (20%).

Only 16% of retirees said one of their financial priorities was creating an inheritance or financial legacy.

Despite the financial challenges retirees are facing, many (84%) report a strong sense of enjoyment with life and most (70%) consider themselves to be in good health.

In terms of living arrangements in retirement, most retirees (61%) live in the same home as they lived in when they retired. This bodes well for the reverse mortgage industry, especially considering long-cited statistics that more than 90% of people age 65 and older want to stay in their homes as they age.

But among the 39% of retirees who have moved, their reasons have been to downsize (34%), reduce expenses (29%) start a new chapter in life (28%) and move closer to family and friends (27%).

“Retirees may be facing formidable financial challenges; however, they are also finding meaningful ways to spend their time and enjoy life,” said Collinson.

If pre-retirees want to experience similar satisfaction with their quality of life and make their retirement dress a reality, and not simply just expectations, then proactive measures need to be taken. And that may include exploring reverse mortgages and how they can fit into retirement income planning.

“One of the most important things within reach that retirees and pre-retirees can do is formulate a financial plan to identify opportunities, vulnerabilities, and ways to address them,” said Collinson.

However, only 10% of retirees and 14% of pre-retirees have a written strategy in place, which may include government retirement benefits like Social Security and Medicare, ongoing living expenses, a budget, savings and income needs, health care costs and other factors.

“Mathematically, the notion that people can work for 40 years to save enough and accrue sufficient benefits to fund a 30-year retirement does not add up,” Collinson said. “Solving this equation requires change in how we think about aging, employment and retirement itself. It also requires the highly coordinated efforts of employers, policymakers, nonprofits, the private sector, and individuals and families.”

View the Transamerica Center for Retirement Studies report.

Anyone interested in a HECM mortgage should call Warren Strycker, 928 345-1200 for national service.

 

We worry about social security — do you?

Consider what a downward adjustment of social security benefits would mean among those well into the retirement cycle, or those on the edge of joining up.

Following is a non political digest of what is really going on in the economy. Take you brain to the top floor and look around where the following leads. You’ll be concerned about your own stake in this discussion — social security — and you have every right to worry.

Some people reading this have jobs, some don’t, but regarding last week’s 156k nonfarm payroll number I received a note asking, “Back in the Bush I and Clinton eras we supposedly needed to create 325,000 jobs per month just to break even. Where did that 325k number come from or where did it go to? If we are happy about 156k jobs being created, aren’t we about 175k short every month? Did the Department of Labor change something? Am I missing something?”

I have my opinion, but for an answer I turned to the noted MBA economist Mike Fratantoni who replied, “US labor force growth had dropped by more than half over the past decade or so. This is largely a result of baby boomers reaching retirement age while subsequent generations are not big enough to fill their slots and continue rapid growth. Moreover, immigration has slowed considerably. Older workers are working at a higher rate than previous generations. But the labor force participation rate for someone in their 60s or 70s is still a fraction of someone in their 40s or 50s. And as baby boomers push into those age cohorts, the aggregate participation rate is dropping. All in, we now need just about 100k employment growth to keep the unemployment rate steady – so the 156k is good. The proof is that wages are now growing at their fastest pace in a decade. Demand exceeds supply, wages getting bid up.” (*A term often used by learned economists.)

While we’re on the economy, in Friday’s commentary I included a piece on the direction of rates. (“Are you positive that rates are going higher? Me neither, and there are reasons why rates may stay here or actually slide back down a bit. No one has a crystal ball…”) The write-up prompted Tom C. to contribute, “Rob, the reasons that interest rates may not go up as expected are complicated and are evolving. Your report discusses near term aspects to the markets and interest rates but does not get into the longer term economic issues like retiring/aging Baby boomers here, and an aging population in Japan and Europe, negative interest rates here and all over the developed world, Keynesian economics influence here, and in most of the major economies that increases the size of government and regulations that interferes with the growth of private enterprise.”

His note went on. “In the short run the 10-year range will be in the 2.00-2.75% range through mid-2018. That is, IF Trump achieves real tax reform, both corporate and individual, dramatically cuts superfluous business killing regulations, cuts down the size of government through his different cabinet appointees cutting their departments down, and killing bad regulations, if we get a good immigration plan that allows in needed immigrants, and keeps out the poorly skilled, and he does not start a trade war with China. Then we could see real GDP hit 3 plus percent by 2019 and interest rates on the 10-year could hit 4-5% by 2020. The real long term question is do we end up looking more like Japan/Europe or can we regain the entrepreneurial, free enterprise energy that propelled the US economy after WWII? Too many people want the world to be fair – but we cannot depend on government to save the day!” Thank you, Tom.

What about the overall job market in residential lending? I asked Jim Boghos, President of The Boghos Group. “With volume off as much as 40%, underwriters who moved for higher end comp plans are now at risk for layoff as most originators have operational capacity. The current mortgage job market is squarely focused on adding originations people. Competition for established producers is about to become as fierce as we have seen in recent years. In 2017, look for acquisition of small to medium size originators, recruitment of top performing branches and mortgage brokers continuing to convert to the lender side. Top shelf retail branches and regions originating north of $8 to $10 million per month are the main targets right now. Smaller branches have equal opportunity but the larger branches will be targeted as priority for its impact. Companies that offer excellent support, operational execution and financial transparency will control the deck. Also, make sure you have a compelling story to tell. If you don’t have one, you need to develop one because there are a ton of “me too” companies out there saying the same things hoping to recruit the same people.” Thanks Jim!

Recently the commentary mentioned a $45,000 settlement in Minnesota between a title company, which had a boat/dinner cruise for clients, and the Minnesota authority. Is taking clients on a cruise illegal? It prompted Louisiana attorney Marx Sterbcow to write, “The RESPA enforcement does seem to be getting extreme as I’m seeing state attorney generals in conjunction with provincial regulators issuing subpoenas or opening up actions involving really innocuous things such as…. a tin foil container full of ribs or hot dogs. This is starting to have a chilling effect as I’m seeing companies withdraw from all legally permissible marketing & Advertising because they are seeing their friends who provided 20 ribs or 50 hot dogs cost wind up having to pay $40k-100k in ESI document production and attorney’s fees. It’s a different environment and I don’t see this slowing down regardless of who heads up the CFPB.

“Here are two different cases involving different lead regulators however the same supporting regulator is the back-seat driver: one involves a bank/mortgage company and the other involves a real estate brokerage. Readers should pay close attention since if you bought someone a hot dog or threw down the ‘buy one get second hot dog free coupon’ you just violated the law under these and need to produce a receipt to the government so you can self-incriminate yourself in your own document production. And in both cases this is exactly what the government is seeking one simple pricing differential.

“Your readers should always remember that social media is the regulators best friend so those fun pictures you posted on Facebook or Instagram just cost you $50k in ESI production because you posted a picture of you and another settlement service provider eating a hot dog at the same event and the other settlement service provider posted, ‘Thanks for the hot dog!'” Thanks Marx!

Sleuthing around a little shows some state-level differences. For example, “Documents sufficient to show the value and frequency of any rebate, discount, abatement, credit, reduction of premium, special favor, advantage, valuable consideration or inducement, fee, kickback, or thing of value, including but not limited to free or discounted meals, provided to XYZ Mortgage in XXXXXX, Alabama. In lieu of providing the actual documents, you may provide a sortable Excel spreadsheet containing the date, value and description of the specified benefits provided.”

And in Florida, “Documents sufficient to show the value and frequency of any rebate, discount, abatement, credit, reduction of premium, special favor, advantage, valuable consideration or inducement, fee, kickback, or thing of value, including but not limited to free or discounted meals, provided to REALTOR Suzy Q or XYZ real estate company in XXXXXX, Florida. In lieu of providing the actual documents, you may provide a sortable Excel spreadsheet containing the date, value and description of the specified benefits provided.”

The topic prompted attorney Brian Levy to contribute, “While ‘anti-inducement’ laws that directly impact title and insurance companies in many states can be like RESPA on steroids, under RESPA itself, an enforcement authority needs to not only prove that the hot dog was a ‘thing of value,’ but also that it was ‘in return for referrals.’ As a native Chicagoan, I have deeply held opinions on what would constitute a hot dog that could be a thing of value (none of which would involve ketchup). I also believe, given the right narrative, that even if a hot dog is a thing of value, that it could be provided as a legitimate marketing expense (or even in response to a social convention) and not simply as a kickback for referrals. Frankly, (pardon the pun) the ‘hot dog as RESPA violation’ is a ridiculous case to bring and a hard one to win for the regulator. Still that doesn’t mean that a regulator with an axe to grind can’t make life tough on regulated entity by imposing huge discovery and legal defense costs to prevail.” Thank you, Brian!

Real estate agents are home buyers’ most important source of information about new homes after the Internet. Last year, 33% of buyers learned about their new homes via a real estate agent. Agents’ influence is not declining despite consumers’ use of the Web, and for most new home transactions, Americans still prefer a real estate agent. Last year, 87% of buyers purchased their home through a real estate agent or broker-a share that has steadily increased from 69% in 2001, per the National Association of Realtors.

And bankers and lenders have thoughts on this. “Together, realtors and MLOs can ease buyer concerns around confusing paperwork and unexpected costs, making the home buying process as seamless as possible,” said Ryan Bailey, Head of Mortgage, TD Bank. “We’re invested in making a positive impact, and this is part of what makes our bank different.”

As it turned out, TD Bank released the results of its Triple Play Conference Survey, which uncovered that despite realtors’ strong home buying outlook for 2017, they are losing sleep over the home buyer experience. As a value add for their buyers, realtors should partner with mortgage loan officers (MLOs) to offer a more seamless home purchase process, especially for first time homebuyers, who are expected to be driving the market in 2017.

Key findings of the survey include that Realtors expect sales to increase in 2017. Most (55%) realtors expect home sales to increase in 2017, and 70 percent of the realtors surveyed are expecting single-family homes to be the highest type of home in demand this year (versus condos/townhomes, multi-family homes and apartments). Technology is imperative to the home search. 44% of real estate agents said online home shopping via Zillow, Trulia and/or Realtor.com will be the biggest technology influence on the home buying process in 2017.

Realtors brought up buyers’ top concerns. The survey showed that the top two concerns for realtors in 2017 are home inventory and mortgage qualification. Realtors said that buyers’ top concerns are confusion around paperwork, followed by unexpected costs and concerns over financing.

What do agents value most in a mortgage loan officer? Most realtors (79%) look for efficient communication and responsiveness when working with an MLO, followed by guidance with navigating the finance process, competitive rates and expertise on managing the regulatory landscape.

A little boy returned from the grocery store with his mom. While his mom put away the groceries, the little boy opened his box of animal crackers and spread them all over the kitchen table.

“What are you doing?” asked his mom.

“The box says you shouldn’t eat them if the seal is broken,” said the little boy. “I’m looking for the seal.”

If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Are You Sure that Rates are Going Higher?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2017 Chrisman LLC. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.

“Those concerned about the facts here as it relates to  your own social security might want to talk to me about what you might do when social security tanks. This is just the facts. I think we have a solution to your worries — HECM EQUITY MORTGAGE WITHOUT PAYMENTS.” Warren Strycker NMLS247179, 928 345-1200. See “information” tab on home page for contact information.

 

 

The case for Gofinancial in the HECM discussion — ‘digital component’

While TV campaigns may spark a consumer’s initial interest, the digital component is important because nowadays, consumers often go online to learn more. This is where a lender’s Internet presence counts.

Tom Evans, VP of marketing at Finance of America Reverse, says digital marketing is a great way to connect with consumers who want to research the loan independently.

“The Internet is a great mechanism for educating the consumer. If I think I know what a reverse mortgage is and I’m not interested in being on a phone call with someone pressuring me to buy something, the Internet is my playground,” he says. “I can find everything I need without talking to someone.”

Evans says one bonus about a digital campaign is that it can allow you to collect a consumer’s contact information so that you can stay in touch with them throughout the process.

“It allows you to nurture them in a variety of different ways over time. You can use social media to reach out to people you’ve already made contact with, you can use email drip, you can even use phone calls from non-sales-based personnel to say, ‘Hey, I want to make sure you got all the information you requested,’” he says.

“All of our advertising strategies are about making a lasting connection with a consumer. They are all good in doing that, but the digital strategy does give you a little more flexibility to guide them through the process.”

Still, Evans says FAR continues to utilize traditional marketing strategies in addition to its digital campaign. Online marketing, he says, has become just one more way to reach consumers, who are increasingly selective about how they want to get their information.

“Some folks absolutely do not want to talk to anyone, they just want to learn as much as they can before they make any decisions. On the flip side of that are people who don’t even want to talk to someone on the phone, they want to have that face- to-face engagement; they want to talk to someone they feel they can build trust with,” Evans says. “It’s so amazing how varied the rainbow of purchasers is, there are so many ways people look for information and for products, and as a marketer you have to figure out how to taste the rainbow—to steal a good marketing slogan.”

Written by Jessica Guerin

Those wishing to take your HECM discussion up a notch, review the nearly hundred articles on the HECM mortgage on this page, and then see contact information in the navigation bar. Visitors here sometimes take hours of time sorting out the facts. (Gofinancial by Warren Strycker).

 

Keeping tabs on HECM

Explore Your Reverse Mortgage Options

By Jack Gutentag, the “Mortgage Professor”.

February 3, 2017

Sheila P. took out a HECM reverse mortgage in 2010 when she desperately needed additional income, even though her home in Nevada had fallen sharply in value during the previous 4 years. Home prices in Nevada rebounded sharply, however, and in 2016, her home had almost doubled in value. Sheila responded by refinancing her HECM, which increased her monthly payment substantially.

Most HECM borrowers are aware of the refinance option because they had the same option on their standard mortgage. HECM borrowers have other options, however, which are unique to HECMs and may not be known or fully understood. If they took a monthly payment, as Sheila did and find later that their needs would be better served by a larger or smaller payment for a different period, or by a credit line on which they could draw as needed, they can modify the transaction without charge. If they had originally taken a credit line and decide later that they prefer a steady monthly payment, they can make that switch as well.

Mortgage Management Is a Challenge on Reverse Mortgages

For a consumer, getting a mortgage poses one set of challenges, managing the mortgage after they get it poses a completely different set. The firms that service mortgages work for the lender and their major objective is to make sure that borrowers meet their payment and other obligations to the lender. Issues important mainly to the borrower usually are left for the borrower to work out.

On standard mortgages, such managerial challenges are not that difficult. In dealing with the challenge of paying down the loan balance early, for example, borrowers have access to a variety of internet-based tools. On my site alone, there are 6 calculators and 4 spreadsheets directed toward this problem.

On HECM reverse mortgages, on the other hand, it is a very different story. Except for borrowers who have drawn the maximum cash permitted on a fixed-rate HECM, the managerial challenges are greater. This is because the reverse mortgage has no terminal date — it can go on as long as the borrower lives in the house – and the borrower always has an option to change the deal in ways indicated above.

The Servicer’s Role Is Limited

I recently decided to see how the firms that service HECM reverse mortgages keep their clients informed. I did not get to look at all the servicing statements out there, but those I saw were very similar and I am sure they are typical. They do a good job of informing borrowers about the status of their HECMs at month end, including the loan balance, unused credit line, and interest rate, but they don’t project the transaction into the future. In particular, they provide no indication of how much home equity borrowers may leave in their estates. In addition, they do not indicate the borrower’s options to change the monthly payment or the unused credit line, or whether a refinance might offer better options.

A New Tool

So my colleague Allan Redstone and I decided to fill this gap with a spreadsheet. To my knowledge, it is the only tool of its type out there. It  is on my web site for anyone to use at Spreadsheets.

The spreadsheet has three components. The first can be viewed as an extension of the servicing statement, projecting the loan balance, unused credit line and homeowner equity into the future. The user can also play “what if”, changing the future interest rate and property appreciation rate that are used in the calculations.

The second component shows the borrower’s options to modify the transaction, by changing the payment or the payment term, drawing cash or repaying previous draws, or a combination. As with component one, the spreadsheet shows the implications of such program modifications for future values of the loan balance, unused credit line and homeowner equity.

The third component of the spreadsheet deals with the question of whether the program modifications the borrower entered in the second component could be obtained more advantageously by refinancing into a new Kosher HECM. The borrower is a little older, which helps, and it is possible that the property appreciation rate during those years has exceeded the 4% rate that is used by the HECM program in calculating draw amounts; that would also work in favor of a refinance. Increases in interest rates, on the other hand, would work against a refinance.

The spreadsheet uses two live interest rates posted by the lenders who deliver rate data to my web site. One is the lowest rate ignoring the origination fee, the second is the rate corresponding to the lowest origination fee. This provides two independent measures of whether or not refinancing would be in the borrower’s interest.

The spreadsheet is a management tool for those who already have a HECM, which is not a large group – about a million. The spreadsheet, however, also aims at the potential market, which is enormous. Knowing that it will be easy to keep tabs on future options may encourage seniors who are on the fence to take the reverse mortgage plunge.

SNOWBIRD MENTALITY: How to buy a vacation home in the sunbelt with NO mortgage Payments!

SNOWBIRDS: So, it’s winter at home and there’s no place nearby to go and relax. SNOWBIRDS do it every year. They take a motorhome or get a vacation home in the sunbelt, leaving the ice and snow behind.

NOW you can buy the home away from home with a HECM on your primary home in the ice belt, get up, and get on in the winter months into sunshine, golf or 4 wheeling. Why not?

JUST WRITE A CHECK! No payments if that’s your choice.

A reverse mortgage is a loan that enables Homeowners who are at least 62 years old to convert some of their home equity into cash, a line of credit, or to finance a home purchase with the freedom from monthly mortgage payments. The borrowers continue to live in their home in the summer where it’s nice and warm and a real vacation home in the winter where it’s warm and nice

The road to a comfortable retirement is paved with unexpected twists, turns and rocky terrain that can derail your journey. In the event retirees find themselves strapped for cash, there are several ways they can increase their spendable income using a reverse mortgage, says one personal finance columnist.

Reverse mortgages have often been touted as financial solutions for homeowners who are “house rich,” but “cash poor.” They can also be viable tools to help homeowners free-up funds

They can also be particularly helpful for homeowners looking to increase their monthly cash flow, while also freeing-up funds paid on housing related expenses.

“Our homes can be costly beasts,” writes finance columnist Scott Burns in a recent article published by the Houston Chronicle. “Even if there is no mortgage, there are bills to pay. The real estate tax, insurance, utility, repair and other bills remain.”

In the article, Burns provides several examples of how a reverse mortgage can increase the spendable income for a retired couple, aged 66 and who own their $300,000 home free of mortgage debt.

Burns also assumes this couple lives in a high-cost area, so the operating costs on their home are 4% of its value, or $12,000 per year. As medium-income workers, the couple’s combined benefits total $37,000 per year. After paying their shelter bills, they have $25,000 to live on.

“Can they do it? Sure,” Burns writes. “Millions of lower-income retirees get by on far less. Will they be comfortable? That’s doubtful.”

One way this couple could increase their spendable income would be by getting a reverse mortgage line of credit, or a guaranteed lifetime monthly payment.

Using an online reverse mortgage calculator, Burns finds that the couple, which he has dubbed “The Shortcashes,” would be eligible for a net credit line of $164,700, or a monthly payment for life of $938 per month, $$11,256 per year.

“So cash advances will cover the annual cost of shelter, and their spendable income increases from $25,000 to $36,256,” Burns writes. “That’s an increase of nearly 50 percent—all tax-free and without moving.”

The Shortcashes could also choose to move into a lower-cost area, particularly where the annual cost of operating a house is about 3% of market value.

“In that move they can buy a house for about $300,000 with a purchase-money reverse mortgage, putting down less than 50 percent,” Burns writes. “With the purchase-money reverse mortgage, they will have no mortgage payment and will be able to stay in the house until they die or are no longer capable of living there.”

The lower operating expenses of $9,000 will also be nice, he adds.

See contact information in navigation bar for details.

 

 

What is Financial Exploitation?

Financial exploitation occurs when a person misuses or takes the assets of a vulnerable adult for his/her own personal benefit. This frequently occurs without the explicit knowledge or consent of a senior or disabled adult, depriving him/her of vital financial resources for his/her personal needs.

Assets are commonly taken via forms of deception, false pretenses, coercion, harassment, duress and threats. There is more detailed information about financial exploitation here.

These are commonly reported forms of financial exploitation* reported to Adult Protective Services agencies:

Theft: involves assets taken without knowledge, consent or authorization; may include taking of cash, valuables, medications other personal property.

Fraud: involves acts of dishonestly by persons entrusted to manage assets but appropriate assets for unintended uses; may include falsification of records, forgeries, unauthorized check-writing, and Ponzi-type financial schemes.

Real Estate: involves unauthorized sales, transfers or changes to property title(s); may include unauthorized or invalid changes to estate documents.

Contractor: includes building contractors or handymen who receive payment(s) for building repairs, but fail to initiate or complete project; may include invalid liens by contractors.

Lottery scams: involves payments (or transfer of funds) to collect unclaimed property or “prizes” from lotteries or sweepstakes.

Electronic: includes “phishing” e-mail messages to trick persons into unwittingly surrendering bank passwords; may include faxes, wire transfers, telephonic communications.

Mortgage: includes financial products which are unaffordable or out-of-compliance with regulatory requirements; may include loans issued against property by unauthorized parties.

Investment: includes investments made without knowledge or consent; may include high-fee funds (front or back-loaded) or excessive trading activity to generate commissions for financial advisors.

Insurance: involves sales of inappropriate products, such as a thirty-year annuity for a very elderly person; may include unauthorized trading of life insurance policies.

This piece is posted to explain what sometimes happens as seniors age and run out of money. The dangers of exploitation is sometimes the premise for abuse. We watch for those wishing to take over the elder household building a financial wall against intruders. “Let’s talk about it”, said Warren Strycker. A HECM loan leaves room for relatives but establishes continuing independence as elders can stay in their homes with the financial support they need. Call — let’s talk about it nationwide”,  928 345-1200.

HECM MORTGAGES are regulated by the U.S. Government where counseling is mandated for complete understanding in which family can listen in to protect and support their parents in retirement. Counselors are trained to watch for manipulation of family members in these important discussions.