When I first heard of Reverse Mortgages, probably via one of the many Infomercials’ on TV featuring Actor and former U.S. Senator Fred Thompson or Actor Robert Wagner, like many, I thought it might be a predatory loan product.
However, as I learned about the flexibility of the programs and subsequently developed an expertise in the space, I have become an ardent proponent of this amazing financial planning tool for qualified senior homeowners.
With the Baby Boomers reaching retirement age in swelling numbers, there has never been a greater need for a financial planning tool that enables income security for seniors. Most of today’s retirees experienced major setbacks to their Retirements Savings due to the Dot Com Crash of 2000 and the Financial Crisis of 2008. As a result, today’s retirees and those approaching retirement age are at risk of outliving their savings. This situation will be compounded by future turmoil in the markets and the inevitable reductions in Social Security Benefits growth.
You see, history always repeats itself and simple math does not lie. There will always be the next financial bubble that bursts and the cycle between Bull and Bear markets is shrinking due to the information age.
Further, the math to support the continued growth of Social Security Benefits to keep up with inflation just does not work. Simply put, there are many more people entering retirement and collecting Social Security Benefits than those entering the work force and paying the taxes that fund the decaying program. Not that anyone can live comfortably on Social Security alone these days, but I think you get the picture.
I originally felt as if a Reverse Mortgage was solely a product of last resort for Seniors whose only remaining asset was the equity in their home. There may always be those that find themselves in that unfortunate circumstance and a Reverse Mortgage can certainly help a qualified senior home owner in that situation, but what I want to share with you today is the ability for a Reverse Mortgage to protect Senior Home Owners from ever getting to that point.
From a Financial Planning perspective, what I have described in the previous paragraph is a Passive Strategy or Reverse Mortgage Last Strategy. This means the home owner has almost waited until it is too late. The Senior Homeowner is in Financial Crisis, their Retirement Funds are depleted, any remaining high-value assets have been sold off to make ends meet and leveraging the home equity is the last remaining option.
Now let’s consider some Active Strategies that reveal the true power of Reverse Mortgages as a critical component of a sound Retirement Plan.
A Reverse Mortgage First Strategy will pay off an existing mortgage balance and eliminate any future Mortgage Payments thereby immediately increasing the monthly disposable income of the Homeowner. Established at the outset of Retirement and drawn upon every year to fund living expense until exhausted allowing a retiree’s Retirement Savings more time to grow before subsequent withdrawals need to be made from that portfolio.
A Coordinated Strategy is also established at the outset of Retirement, but only drawn upon when the Retirement Savings Portfolio under performs. The need to use the Reverse Mortgage funds is determined based upon investment performance, which spares the portfolio any drain when it is down, giving it time to recover.
Using these active strategies cash reserves are made available up front and incorporated into a plan, allowing time for Retirement Savings to grow and survive one’s life expectancy. Qualified Seniors can still live in their home without making monthly mortgage payments, feel confident about being financially prepared for emergencies, and maintain their desired quality of life.