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Category Archives: Financial Planning

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Retirement Planning Tool: Extend Your Retirement Funds with Standby Reverse Mortgage

shutterstock_Retirement Exit Only 64009777

Larry Benton, CSA
The Reverse Advisor
April 30, 2015


In the past, the main purpose of a Reverse Mortgage was to help seniors to fulfill cash needs by allowing them to pull the equity in their homes.  But today, many seniors are finding that even if they don’t particularly need to fulfill a cash need, they can take advantage of the benefits of a reverse mortgage as a tool to use strategically in retirement planning.  Here are 8 ways a reverse mortgage be used as a financial planning tool.

  1. You can delay Social Security and pension payouts

Some seniors may financially need to use payouts from Social Security and pensions as soon as they are available.  However, with the tax-free cash from your reverse mortgage, you will be financially sound enough to wait on receiving those payouts, thus increasing how much you receive.

  1. You can draw on tax-free funds to reduce tax liability

Income from a reverse mortgage is tax-free!  This cannot be said for many other types of income you may earn.  So it is a great advantage to be able to use your home’s equity as income, without losing a cent of it to taxes.

  1. You can postpone drawing down retirement assets, giving assets more time to grow

This idea follows the same formula as your Social Security and Pension payouts.  The longer you can delay in receiving your benefits, the longer they have to grow.  With a reverse mortgage, you can afford to wait.

  1. You can increase your cash flow by eliminating monthly mortgage payments

Every month, a monthly mortgage payment takes a chunk out from your income.  But with a reverse mortgage, your existing mortgage is paid off.  This leaves you with extra money in your pocket that would have normally gone to paying your existing mortgage.

  1. You have access to a low cost, non-cancelable, GROWING line of credit

With a reverse mortgage, you have an ever-growing line of credit available to you.  It grows with time.  This means that the line of credit available to you years from now will be much larger than the line of credit available to you now… and, unlike a bank HELOC, is non-cancelable.

  1. Standby Reverse Mortgage (SRM): You can protect your portfolio performance in a down market**

In a down market, your portfolio and cash flow may not be at its peak performance.  Many Retirement Planners recommend two buckets 1) Retirement Asset Funds and 2) Reserve Cash account to use when market conditions depress earnings; these planners are now recommending a SRM as a third bucket in the event of extended market lags (or a 2nd bucket where no cash reserves exist). With two (or three) retirement buckets, a reverse mortgage acts as the buffer, the incoming funds are able to protect you until the market picks back up again, and then the Standby Reverse Mortgage can be replenished… extending retirement funds longer.

  1. You can have annuity-style payments using your home’s equity

With a reverse mortgage, you are able to choose the option of receiving your funds in annuity-style payments.  These can supplement your existing income This is perfect for some types of people who would rather plan their income as a steady flow.

  1. You can replace cash reserves

Some people have less cash in reserve than they would like.  A reverse mortgage gives you the chance to catch up and replace your cash reserves, getting you up to speed financially, and these reserves grow over time..

These are just a few examples of how you can use a reverse mortgage as a strategic tool.  With the right plan in place, you will be well on your way to a solid retirement.

** Analytical witepapers by John Salter, PhD, CFP available by request:
1) “Tap into Potential Retirement Wealth Utilizing the HECM”    2014
2) “Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions”  2013

Contact:
Larry Benton, CSA
lbenton@ufaadvisors.com
877.805.2905

 

 
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Even State Legislatures Look to HECM as Recommendation…

shutterstock_Money under lock & key 49213123State Campaign Points to Importance of Reverse Mortgages in Long Term Care

 

March 17th, 2014  |  by Elizabeth Ecker Published in News, Retirement, Reverse Mortgage

A state and federal initiative launched in 2012 has resulted in a report to lawmakers on long term care financing including the use of reverse mortgages to help Americans fund longevity.

The Own Your Future initiative in Minnesota was launched in 2012 to make recommendations to state and federal lawmakers on paying for long term care. Between 2005 and 2009, 26 states each sponsored Own Your Future campaigns to educate their residents about long term care challenges and make them aware of options and planning methods.

In Minnesota, the campaign was expanded to include an ongoing public awareness campaign throughout the state; efforts to make more affordable and suitable long-term care products available to Minnesota’s middle-income households; and evaluation of possible changes to Medical Assistance (MA) to better align with and encourage private payment for long-term care.

Among the recommendations developed by the state initiative: the use of reverse mortgages. An advisory panel has accepted the recommendations of the subcommittee with a separate set of recommendations having been sent to Congress.

“The Lieutenant Governor [Prettner Solon] has assured us that now that the report is out, it’s not a report that sits on the shelf. Action will be taken,” says Beth Paterson, a Minnesota originator who was appointed by the state’s governor to serve as the reverse mortgage representative on the advisory panel.

The report covers 11 recommendations, narrowed down from 16 that were considered, toward solving long term care funding problems for older Americans.

“The current long-term care financing marketplace consists of insurance products, home equity options  such as reverse mortgages, and health and retirement savings plans,’ the report states. “None of these products has seen widespread use recently due to a number of factors, including the perception of their stability, their safety and their benefit levels.”

Specific to the reverse mortgage market, the report indicates, are public perception challenges that are making it even more difficult for reverse mortgages to gain a place in the long-term care conversation.

“The market for reverse mortgages (RMs) is likewise in a difficult position,” the report writes.”Recently, state and federal  agencies have changed regulations governing the program to address consumer issues with the program, but the perception persists that RMs, as currently constituted, do not have adequate consumer protections.”

Advocates have developed action items for helping the perception around and access to reverse mortgages among Minnesotans.

Written by Elizabeth Ecker

 

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Financial Times: Reverse Mortgages Can Be Lifesavers


March 5th, 2014  |  by Jason Oliva Published in News, Retirement, Reverse Mortgage

The financial planning community is warming up to reverse mortgages, with some advisors finding them to be “lifesavers” for some clients in tight circumstances, a Financial Times article suggests.

As reverse mortgages overcome historically negative perceptions with the help of recent program changes and new consumer protections, Home Equity Conversion Mortgages (HECMs) have also begun to gain more recognition from financial advisors in mainstream retirement planning.

Dana Anspach of Scottsdale, Arizona-based Sensible Money told Financial Times she recently recommended a reverse mortgage to a widow in her 80s whose home was paid off and was supplementing her Social Security with a home equity line of credit.

“Anspach used a reverse mortgage to pay off the HELOC, wiping out $400 a month in interest payments and providing additional monthly income of $200,” the article notes.

Other advisors are recognizing that the tax-free proceeds from reverse mortgages can allow clients to postpone Social Security usage as part of a “post-retirement tax saving strategy,” which can keep clients from withdrawing too much from IRA or 401(k) accounts.

“The bottom line is that reverse mortgages are not longer only for retirees in dire straits. Advisors ‘should be looking at every aspect of income, including home equity,’” said CEO of Blue Ocean Global Wealth Marguerita Cheng in the article.

Read the Financial Times article

Written by Jason Oliva

 

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