By Daniel Hunt, Lisa Shalett, Zi Ye, and Stephanie Wang on March 31, 2020
The answer to the question, “How prepared are you for retirement,” depends a lot on whether you look holistically at the balance sheet, including home equity, or just at the portfolio and income sources like Social Security. When home equity is ignored, that can cause households to make suboptimal decisions, such as forgoing longplanned spending it could afford or taking more investment risk than it’s comfortable with. When a questionable decision like that encounters the kind of market downturn we are currently experiencing, it can do serious damage to household ﬁnances and well-being.
Your expenses don’t end when your paychecks do, but creating a reliable income stream in retirement can be tricky. The right choices can result in sustainable income for the rest of your life. The wrong choices could leave you uncomfortably short of cash.
In fact, retirement includes so many important, potentially irreversible decisions that most people could benefit from a few sessions with a fee-only, fiduciary financial planner. (Fiduciary means the advisor is committed to putting your interests ahead of their own.) These ideally would start about 10 years before retirement. Understanding some key concepts could make those discussions easier — or keep you from making serious mistakes if you take a do-it-yourself approach.
Looking to free up $4 million to fund your retirement or pay off your mortgage?
If you’re a senior with serious digs in places like California or the New York City area or other markets where many homeowners are house-rich and cash-poor, you might be able to secure such funds with only your home. The market for jumbo reverse mortgages has come back to life.
Reverse mortgages, in which retirees tap the equity in their homes through mortgages that don’t have to be paid as long as they live there, were long regarded as a last resort. Then financial experts began publishing research several years ago showing that the strategic use of reverse mortgages could help retirement portfolios better survive down markets or delay the claiming of Social Security benefits.
Written by Richard Eisenberg on November 25, 2019.
This Forbes article highlights the most important things to know before getting a reverse mortgage; including knowing the obligation of the mortgage and be aware of the fees associated with HECM loans.
Wanting to learn more about consumer spending in retirement? This article discusses the following topics:
Empirical research on retiree
spending has noted a “retirement consumption puzzle,” where retiree
expenditures tend to decrease both upon and during retirement. This
decrease in spending is inconsistent with general economic theories on
consumption, which suggest individuals seek to maintain constant
consumption over their lifetimes.
Government data on consumption was analyzed in this study to understand how retiree consumption actually changes over time.
results of the analysis suggest that although the retiree consumption
basket is likely to increase at a rate that is faster than general
inflation, actual retiree spending tends to decline in retirement in
real terms. This decrease in real consumption averages approximately 1
percent per year during retirement.
A “retirement spending
smile” effect is noted. This finding has important implications when
estimating retirement withdrawal rates and determining optimal spending
The reverse mortgage market world heads in reverse away from the government created Home Equity Conversion Mortgage (HECM) and towards new propriety products. This is an encouraging sign because any healthy market needs competition, innovation, and variety. However, recently HECM program has been the driving force behind the reverse mortgage world, leaving many without an ideal solution to utilizing home equity as part of a sustainable retirement plan.
Webinar with NAIFA and Curtis Cloke on July 18, 2019.
Join Curtis Cloke, Academy of Home Equity member and award-winning international speaker, educator and author for this exciting event focusing on methods to secure income in retirement! This webinar is put on by NAIFA – Iowa.
Hear from Jamie Hopkins in this Forbes article regarding the public’s opinion on reverse mortgages: “A few years back, I conducted and published research in the Journal of Financial Planning that showed Americans don’t understand reverse mortgages. In fact, respondents scored below 50 percent on a 10-question true-false quiz.
One possible explanation for the poor performance is a lot of misinformation floating about. A recent USA Today article titled “Considering reverse mortgages? Better to reverse course on this risky course” confirms my belief. The article contains many half-truths and misunderstandings and projects a negative connotation of reverse mortgages onto the reader.””