The Academy for Home Equity in Financial Planning took a deep dive into how financial planners work with and understand credit tools. This white paper is the result of a Spring 2020 survey of financial planners, insurance agents and registered representatives. The results shed light on how financial planners make credit recommendations, and how education enhances usage of credit products.
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.
Find the report here:
By Eileen Ambrose and Sandra Block on August 29, 2019
“These money-generating tactics will help retirement savers enjoy their Golden Years without stressing over cash.”
Check out this article with the Academy’s very own Shelley Giordano here!
by David Blanchett, CFP®, CFA
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.
- The 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 strategies.
Authors: Dr. Wade Pfau; Joe Tomlinson, FSA, CFP®; Steve Vernon, FSA
This project explores various design and implementation details for the Spend Safely in Retirement Strategy (SSiRS), a strategy identified by the authors’ 2017 research project titled Optimizing Retirement Income by Integrating Retirement Plans, IRAs, and Home Equity: A Framework for Evaluating Retirement Income Decisions.
The SSiRS is intended as a baseline retirement strategy, to be used by middle-income workers and retirees to generate retirement income from their IRAs or employer-sponsored defined contribution (DC) retirement plans, such as 401(k) plans. It uses investment options commonly found in IRA and DC administrative platforms, and does not require the ongoing assistance of a financial adviser.
To access the full article, please go to https://www.soa.org/globalassets/assets/files/resources/research-report/2019/viability-spend-safely.pdf
Written by Jamie Hopkins on July 2, 2019
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.
The article can be found here.
Tom Davison and Keith Turner
The Journal of Retirement Fall 2015, 3 (2) 61-79; DOI: https://doi.org/10.3905/jor.2015.3.2.061
There is little doubt that many older Americans are not well prepared financially. The reverse mortgage is a financial instrument that can brighten their financial prospects and reduce the chances of an old age in financial straits. This article explains how reverse mortgages work. Recent research shows that strategically combining reverse mortgages and investment portfolios can significantly boost sustainable retirement income. Moreover, in the last three years the regulatory framework has been revised to develop further the market for these instruments. Reverse mortgages are increasingly recognized as a valuable financial planning tool. They are now seen as well suited for retirees—not only underfunded homeowners who turn to a reverse mortgage as a last resort, but also those who enter retirement well-funded.
To view the full article, click here.
Research for this report was conducted by Amanda Lehning, PhD, Postdoctoral Fellow at the University of Michigan School of Social Work, and Annie Harmon, PhD Candidate, University of Michigan School of Public Health in collaboration with the Stanford Center on Longevity.
Aging in place is the ability to remain in one’s own home or community in spite of potential changes in health and functioning in later life. Aging in place has received an increasing amount of attention in recent years. This is due to a number of factors, including the aging of the population, a potential increase in chronic disease and disability in future cohorts of older adults, and an inadequate U.S. long-term care system. Furthermore, a survey by AARP in 20031 and another survey by the AdvantAge Initiative in 20042 demonstrated that an overwhelming majority of adults would like to remain in their own homes for as long as possible.
Down load full PDF here
by Peter Neuwirth, FSA, FCA; Barry H. Sacks, J.D., Ph.D.; and Stephen R. Sacks, Ph.D.
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.
Full paper here
by Barry H. Sacks, J.D., Ph.D., and Stephen R. Sacks, Ph.D.
This paper examines three strategies for using home equity, in the form of a reverse mortgage credit line, to increase the safe maximum initial rate of retirement income withdrawals.
These strategies are:
- the conventional, passive strategy of using the reverse mortgage as a last resort after exhausting the securities portfolio; and two active strategies
- a coordinated strategy under which the credit line is drawn upon according to an algorithm designed to maximize portfolio recovery after negative investment returns,
- drawing upon the reverse mortgage credit line first, until exhausted.
Full paper here.