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INFORMATION FOR ADULT CHILDREN OF AGING PARENTS

Following is some helpful information when you are considering an FHA HECM for your parents:

House-safe• More Americans fear running out of money in retirement than fear death. With increasing life expectancy, it is easy to understand this fear. Increasingly, long-term retirement planning includes a reverse mortgage as a means to increase cash flow and address income shortfalls in retirement. Nearly one quarter of homeowners say long-term financial planning was their reason for originating their HECM.

• Nearly half of homeowners considering a reverse mortgage are under age 70.

• About two-thirds of HECM borrowers want to extinguish monthly mortgage payments to make more money available for daily needs. Another way of saying this is that most homeowners have a traditional mortgage – which is paid in full when they close on their reverse mortgage.

• The percentage of workers aged 55 or older who are still employed is up to 40%. However, staying in the workforce can become increasingly difficult as people get older.  Proceeds from the HECM may provide provide tax-free funds and may allow older homeowners to retire

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Navigating the Retirement Labyrinth

misconRetirement planning can be confusing. Here are some major milestones on the retirement timeline:

Age 55. If you leave your job after age 55, you can begin taking penalty-free 401(k) withdrawals. Withdrawals from traditional 401(k)s will be taxed as income.

Age 59 ½. IRA withdrawals are allowed without penalty and are taxed as income.

Age 62. Social Security eligibility begins, but your checks will be reduced 25 to 35 percent if you begin claiming at this age. If you are under full retirement age and you work and earn above the annual earnings limit of $15,120 in 2013, excess earnings are deducted from your benefits.  If you plan to continue to work, benefits are also reduced by 50 cents for each dollar you earn above $15,120 in 2013.

Age 65. Medicare eligibility kicks in. Beneficiaries may sign up for Medicare Part B during a 7 month window around their 65th birthday, beginning 3 months before the month you turn 65 and ending three months after. It’s a good idea to sign up right away because your Medicare Part B monthly premium increases 10 percent for each 12-month period you were eligible for Medicare Part B, but did not enroll. If you or a spouse are still employed and covered by a group health plan after age 65, you have 8 months to sign up after you leave the job before the penalty kicks in.

Age 66. Baby boomers born between 1943 and 1954 are eligible to receive full Social Security retirement benefits at age 66. For boomers born between 1955 and 1959 the full retirement age gradually increases from age 66 and 2 months to 66 and 10 months. The month you reach your full retirement age, your benefit checks are no longer reduced if you continue to earn income from work.

Age 67. For those born in 1960 and later, the age you can receive full Social Security retirement benefits is 67.

Age 70. Your Social Security benefits further increase by 7 to 8 percent each year you delay claiming up until age 70. After age 70 there is no additional incentive to put off collecting.

Age 70 ½. Those aged 70½ or older must take annual required minimum distributions from retirement accounts. The proceeds will be taxed as income. Seniors who fail to withdraw the correct amount must pay a 50 percent tax penalty and income tax on the amount that should have been withdrawn.

Contact your financial planner to discuss your specific situation.

 
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Posted by on October 9, 2013 in Retirement, Seniors

 

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Elder Wisdom: What A Tale Their Thoughts Could Tell

Amara Rose October 8, 2013 1

Gordon Lightfoot (whose signature lyrics from If You Could Read My Mind are reflected in the post title) turns 75 this November, and Bob Dylan has said that when he listens to a Lightfoot song, he “wishes it would never end.” That’s pretty high praise from a fellow septuagenarian maestro. Perhaps this is because seasoned songwriters instinctively weave life’s essence and lessons into a succinct truth that resonates to the marrow with those who listen, and thus appereverse mortgage newsals across the decades to both original fans as they age, and to a new audience.

The same might be said of elders. There’s so much wisdom to be gleaned from older team members. Consider this recent ad on CraigsList.com, headlined, “Looking for a 72-year-old writer”:

“I’m looking for a few good writers between the ages of 70 and 74. Seeking contributions from geographical locations all over the United States from persons who were in high school during 1959. For details about my project please go to http://www.classof59.net. It is okay if someone younger writes a contribution that was obtained orally from a member of the high school class of 1959.”

What a lovely tribute to what has been labeled, “The Silent Generation.”

“It is not how old you are, but how you are old,” said Academy Award-winning actress Marie Dressler. We’re moving from a model that focuses on disease, disability and death to one of “passion, purpose, and participation,” which happens to be the tagline of COPA (Collaborative on Positive Aging), a new volunteer division of the Council on Aging in one California community.

At the initial COPA gathering, much of the guiding wisdom for how future meetings might be organized was provided by people in their 70s and 80s, such as: “To remain vital, we need a mix of social/learning/leisure/contribution.” How perfect a reminder to anyone who serves seniors — reverse mortgage professionals obviously included — that as people age they become not a group apart, but more of who they’ve been, with a blend of needs and desires to enrich and fulfill these later years.

Consider the Sun City Poms, Arizona cheerleaders whose minimum age requirement is 55, along with the requisite “dance skills of rhythm, agility, poise, energy, and showmanship for performing. Acrobatics and baton twirling are a plus.” Wow! These women are weaving their social, leisure, learning and contributing into a bountiful blessing for everyone.

In his brilliant essay on conscious aging, Rabon Delmore Saip, a presenter at the COPA meeting, quotes developmental psychologist Paul Baltes: “One of the great challenges of the 21st century will be to complete the architecture of the human life course.”

The seniors reverse mortgage professionals serve today are playing a vital role in constructing the future of humanity, as they (and we) reinvent what it means, and what it “looks like”, to be “old”.

 
 

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NY Times: Carrying Debt After Retirement

life-settlement-awareness-money
By LISA PREVOST

If College debt is a hindrance to young adults, mortgage debt is the drag on homeowners heading into retirement.

A much higher proportion of homeowners over 65 are carrying mortgage debt compared with past generations. And that debt could make it harder for them to stay in their homes.

The Consumer Financial Protection Bureau estimates that 30 percent of all homeowners 70 and older have mortgages to pay off. In 2001, just 8 percent of owners 75 or older carried mortgage debt, according to the Federal Reserve’s Survey of Consumer Finances, published in 2010.

The trend is noteworthy because the retiree population is about to get bigger. Speaking at a recent forum on the future of housing, sponsored by the National Association of Home Builders, Eric S. Belsky, the managing director of Harvard University’s Joint Center for Housing Studies, said the number of households with people over 65 would increase by nearly 11 million over the next decade.

One repercussion for older borrowers is that they will have to work longer, said Christopher J. Mayer, a professor of real estate at Columbia Business School, who also spoke at the forum. Another likely outcome is a spike in demand for reverse mortgages. This program enables homeowners 62 and older to borrow money using their home equity as collateral. The loan is repaid to the bank, along with interest and fees, after the borrower moves or dies. The funds must first be used to pay off the mortgage, which then frees the homeowner from monthly payments.

Few people take advantage of this option now — only about 70,000 new reverse mortgages are originated each year, according to the Consumer Financial Protection Bureau. Major lenders like Wells Fargo, meanwhile, have exited the business.

But as they struggle to cover mortgage costs along with health care bills, property taxes and home insurance, more older Americans may have to rely on reverse mortgages to remain in their homes.

The amount of mortgage debt they are carrying is not insignificant. As of 2010, the average amount of mortgage debt carried by new retirees was $70,000, according to Alicia H. Munnell, the director of the Center for Retirement Research at Boston College. “In the past,” she said, “people saved their home equity to leave it for their children or some other purpose. I think that’s a luxury many people are not going to be able to enjoy in the future.”

(Mr. Mayer and Ms. Munnell have interests in a new reverse mortgage company, Longbridge Financial; Mr. Mayer is a partner and Ms. Munnell is on the board.)

Buyers of reverse mortgages have not been immune to the unscrupulous practices that put many others into loans they couldn’t afford. Homeowners who don’t understand the complex loan terms, or who can’t maintain insurance and property tax payments, could lose their homes.

Recent rule changes announced by the Federal Housing Administration, which insures most reverse mortgages, require that lenders verify an applicant’s ability to make tax and insurance payments over the life of the loan. And a restriction on the amount that can be taken out upfront may encourage borrowers to use their money more slowly, Ms. Munnell said.

A study of people seeking reverse mortgages could help the government further revise the program. Stephanie Moulton, an associate professor at the John Glenn School of Public Affairs at Ohio State University, is heading a study of 32,000 people who sought counseling for reverse mortgages from 2006 to 2011. Her initial findings will be released in November. But she says her subjects confirm the debt trend: about 60 percent got a reverse mortgage, and about half already had mortgage debt.

 
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Posted by on October 1, 2013 in Uncategorized

 

Bankrate: Will FHA Changes Spark Reverse Mortgage Revival?

Money in home 1September 24th, 2013  |  by Alyssa Gerace Published in HECM, News, Reverse Mortgage

The housing market bust correlated strongly with a sharp decline in reverse mortgage origination, but with the federally-insured program set to undergo substantial changes, the product could experience a rebirth, says a recent Bankrate article.

Reverse mortgage volume increased significantly during the height of the housing market bubble and were touted as a way for retirees to convert their home equity into cash. However, as home values dropped, so did home equity conversion mortgage (HECM) volume, indicates data from the Federal Housing Administration.

The FHA’s insurance fund suffered substantial losses on its reverse mortgage book from defaults of HECMs originated prior to the housing bust, prompting upcoming changes to the program, says Stephen Malpezzi, a professor at the Wisconsin School of Business’ Graaskamp Center for Real Estate in Madison, in an interview with Bankrate.

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The effectiveness of the upcoming FHA reforms in the event of another boom-and-bust cycle are unclear so far, says Malpezzi, but the reverse mortgage product has upside.

“[T]here is certainly room for this market to expand somewhat as market conditions improve, if FHA’s reforms take hold,” he tells Bankrate. “There are about half a million HECMs outstanding, but there are roughly 25 million homeowner households with a head 62 or older.”

Other topics addressed in the interview include changes in home equity and value, the consumer protections that have been put in place in the last few years for reverse mortgages, and how consumers can distinguish the difference between beneficial and non-beneficial usage of the loan.

Read the full article at Bankrate.

 
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Posted by on September 25, 2013 in Uncategorized

 

A great reverse mortgage idea: Take a credit line now

Money in home 1August 22nd, 2013  |  by Elizabeth Ecker Published in Reverse Mortgage

I’ve got a financial proposal that is probably going to surprise you. Take out a reverse mortgage at age 62, even though you don’t need the money. In fact, take it especially if you don’t need the money. There will never be a better time. Terms will change in October, but the light is still green for people who want to use the strategy described here.

Reverse mortgages are called Home Equity Conversion Loans (HECMs). They’re designed to provide you with cash at a later age, to help pay your bills if your other savings run out. Normally, the smart play is to wait until your mid-70s or early 80s to take the loan. For some readers, this remains the right choice, as I’ll explain below.

But there’s a valuable new opportunity at hand, for borrowers who don’t need extra money now. You borrow as early as age 62 and take the mortgage in the form of a credit line instead of all-cash. You can borrow against the credit line at any time, but you don’t have to take the money now. More important, this credit line grows every year – greatly increasing your borrowing power in the future.

Before I go any further, let me give you some HECM facts:

At present, the credit line comes with one of two adjustable-rate loans – the HECM Standard, which provides a larger loan, and the HECM Saver.

With HECMS, you don’t have to make monthly payments, as you do with a regular loan. The mortgage doesn’t come due until you leave your home permanently. When the house is finally sold, the proceeds go first to repay what you borrowed, plus the accumulated interest. If there’s money left over, it goes to you or your heirs. If the house sells for less than the loan amount, the Federal Housing Administration, which insures HECMs, covers the lender’s loss.

Why take a HECM now? Because mortgage interest rates are so remarkably low. The lower the rates, the more you can borrow against your home equity. If interest rates rise, five or 10 years from now, you won’t be able to borrow nearly as much.

As an example, take a mortgage-free house worth $300,000. At this writing, a 62-year-old could get a $152,658 credit line on a HECM Standard, at an interest rate of 4.07 percent (including the mortgage insurance premium). If rates rise by 3 percentage points, you could borrow only $77,659. With a Saver ARM, which charges lower fees, you could borrow $131,029 today but only $47,329 if rates rise go 3 points higher..

But – and this is a big but – borrowers should not take out the full amount in cash. You’d be leaving nothing to help pay your bills in your older age. If you’re a spender, don’t take a HECM until your mid-70s or 80s.

If you won’t spend all the money now, a HECM credit line gives you tremendous financial flexibility. You owe interest only on the amount you actually borrow. For example, if you use $10,000 to take a trip, interest is charged on that modest amount, not on the entire credit line.

The magic in a HECM credit line is that your borrowing power isn’t fixed, says Jack Guttentag, founder of Mtgprofessor.com, a comprehensive mortgage information site. Your available credit rises every year, by roughly the mortgage interest rate.

For example, take that Saver $131,029 credit line. If mortgage rates plus insurance stay at today’s 4.07 percent , your borrowing power will rise to $196,710 10 years from now (assuming you’ve taken no money out). On the Standard, you could get as much as $229,182. The higher rates go, the more you can borrow.

As for the HECM’s upfront fees, I consider them worth it. They let you nail down a large pool of future borrowing power, at a time when inflation will have driven your expenses up. Our sample HECM Saver would cost about $5,771 and the HECM Standard, about $11,741. The fees can be rolled into the loan.

For a quick look at how much you might be able to borrow with a HECM, check the calculator at reversemortgage.org.

So what’s happening in October? The government will merge the Standard and Saver into a single program, says Peter Bell, head of the National Reverse Mortgage Lenders Association. Limits will be placed on the amount of cash a borrower can take out in the first year. But you’ll still be able to take the maximum in a credit line. The fee might be a tad higher but all the benefits will still be there.

 

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Navigating The Retirement Labyrinth

Senior Couple 2

Retirement planning can be confusing. Here are some major milestones on the retirement timeline:

Age 55. If you leave your job after age 55, you can begin taking penalty-free 401(k) withdrawals. Withdrawals from traditional 401(k)s will be taxed as income.

Age 59 ½. IRA withdrawals are allowed without penalty and are taxed as income.

Age 62. Social Security eligibility begins, but your checks will be reduced 25 to 35 percent if you begin claiming at this age. If you are under full retirement age and you work and earn above the annual earnings limit of $15,120 in 2013, excess earnings are deducted from your benefits.  If you plan to continue to work, benefits are also reduced by 50 cents for each dollar you earn above $15,120 in 2013.

Age 65. Medicare eligibility kicks in. Beneficiaries may sign up for Medicare Part B during a 7 month window around their 65th birthday, beginning 3 months before the month you turn 65 and ending three months after. It’s a good idea to sign up right away because your Medicare Part B monthly premium increases 10 percent for each 12-month period you were eligible for Medicare Part B, but did not enroll. If you or a spouse are still employed and covered by a group health plan after age 65, you have 8 months to sign up after you leave the job before the penalty kicks in.

Age 66. Baby boomers born between 1943 and 1954 are eligible to receive full Social Security retirement benefits at age 66. For boomers born between 1955 and 1959 the full retirement age gradually increases from age 66 and 2 months to 66 and 10 months. The month you reach your full retirement age, your benefit checks are no longer reduced if you continue to earn income from work.

Age 67. For those born in 1960 and later, the age you can receive full Social Security retirement benefits is 67.

Age 70. Your Social Security benefits further increase by 7 to 8 percent each year you delay claiming up until age 70. After age 70 there is no additional incentive to put off collecting.

Age 70 ½. Those aged 70½ or older must take annual required minimum distributions from retirement accounts. The proceeds will be taxed as income. Seniors who fail to withdraw the correct amount must pay a 50 percent tax penalty and income tax on the amount that should have been withdrawn.

Contact your financial planner to discuss your specific situation.

 
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Posted by on August 22, 2013 in Uncategorized