Mr. Beale,
Thank you for taking the time to provide that information, it is appreciated.
Unfortunately,for my particular case, an RV still appears to be the best option. However, I will have to wait for co-ops to become eligible; I still have about a 1/2 year window to operate with.
Bye!

dduck,

Unlike many of my peers, I absolutely agree with Mr. Russo, this is an expensive loan. However, it is also true when my peers say "Compared to what?"

One has to know your needs to advise you. A HECM reverse mortgage is very expensive if you will be keeping less than 3 years. You have all of the upfront costs plus interest and the 0.5% FHA MIP charged on the outstanding balance along with a monthly servicing fee. If you are only going to use very little of the available proceeds the percentage of costs to proceeds shoots way up.

However, if you expect to stay in the home for 7 or more years, will be taking out most of the proceeds in a short period of time, and look at what is called in the industry as the TALC (“Total Annual Loan Costs”) schedule you will find that the percentage of the loan costs to the outstanding balance is reasonable.

Here are some other options:

1. Real estate options on your home -- in the past Equity Key, the Rex Agreement, and NestWorth were all available. I believe the only one currently available is NestWorth and it is not available in all parts of the country. You will be giving up a significant portion of the growth in your home to participate in any of these programs. Depending on the value of your home now and the value of your home at the time that the option is exercised, this option can be reasonable or outrageously expensive.

2. If you can afford to make monthly payments, forward mortgages are still a good option. Costs will vary depending upon the program, your FICO score and credit history, your monthly income, and the loan to value ratio.

3. A sale leaseback in some cases is an effective way of obtaining money from family members, stay in your home, and keep your rent reasonably low -- if it can all be worked out. Many seniors dislike this option due to loss of ownership control issues.

4. Sale of your home is always an option and then either downsizing or obtaining a rental at reasonable rent. However, there are selling costs, initial lease or closing costs on a new home; usually these costs exceed the costs of a reverse mortgage. There could also be income tax liabilities to the extent that the exclusion on the gain on the sale of a principal residence does not cover the gain on the sale of the home.

5. There is the sale of other assets you may own. If they are sold at a tax gain, income taxes will no doubt have to be paid.

6. Other assets such as investment real estate can be borrowed against but there are costs with that also and money loan repayments will generally be required.

7. Life insurance policies can be sold if they have been held the requisite period; however, generally income tax will also be incurred.

8. Other strategies get pretty esoteric so I will stop here and since I have no idea what your situation is, this limits the ability to present reasonable options.

Costs incurred and income tax liabilities or benefits can come into play in any option you chose. I still believe you need to speak with someone who can help you with your overall financial strategy and plan.

For most seniors that need a no repayment mortgage option, few find anything better than a reverse mortgage despite its upfront costs. If you have not done so already, you really should meet with a reverse mortgage originator in your area who has the experience and knowledge to advise you.

Mr. Russo is an elder law attorney in NY. You can find him on the Internet if you would like to discuss your situation with him.

I wish you the best.

Mr. Veale,
I'm sorry this has come down to personal details and financial planning theories. I only wanted INFORMATION on what other "tools" could used, besides a RM, to forestall dipping into a retirement plan that one does not wish to dip into at the present. I'm sorry, this is probably not the correct forum for those options. Mr. Russo where are you.

dduck,

I have seen your RMD blog name over the last few months appearing as a commentator. I will not attempt to instruct you on the financial aspects of a reverse mortgage since I assume (and assumptions can prove to be quite erroneous) as a trained financial professional you have done that homework already. Instead I will focus on principles of conventional wisdom employed in refining retirment planning in the years of retirement.

My background is in income and estate tax matters along with retirement planning issues both on an individual retiree level and also in performing overall planning for participants and beneficiaries of employer retirement plans principally in Taft-Hartley Act related multiemployer and government retirement plans. Our CPA firm worked with some of the largest actuary and investment advisor firms in the country. You are the first trained financial professional who I have dealt with that structured an IRA to hold primarily stock in retirement years. I find this aspect of your comments intriguing.

I am not saying your structure is wrong for you but it is odd and at the least defies conventional wisdom. Normally as individuals near retirement, the retirement investment advisors I know recommend that the asset base in retirement plans (especially if the asset selection is self-directed) be allocated away from equity investments and more towards investments like taxable high grade corporate bonds. The primary reason is to avoid volatility and unnecessary exposure to loss even though one will also be unable to participate in significant rises in equities and other more volatile assets such as commodities.

It is also interesting that your strategy does not take advantage of tax opportunities. All IRA distributions are fully taxable as ordinary income unless your IRA is a Roth IRA (which you did not indicate in your comments) or some of your personal contributions were made on a nondeductible basis. Usually in later life one tries to keep equity investments outside of retirement plans so that qualified dividends and long-term capital gains can be taxed at lower tax rates and any losses can offset gains. Also on death, there is no adjustment (usually an increase) to the assets in an IRA or to the IRA itself but there is an adjustment to the adjusted tax basis of assets owned directly like stocks and real estate held in individual portfolios. Reducing IRA balances and retirement plans is commonly a strategy used in minimizing estate tax liabilities. It seems your IRA planning also defies conventional tax planning strategies.

In your comments you do not describe when you will be subject to (if you are not already) the required minimum distribution rules of ERISA. This will also have some impact on the strategy that will best meet your needs.

There is a lot that can be done with reverse mortgages even in the tax realm when it comes to minimizing income taxes from IRA distributions. Since I do not have sufficient information to work with, it is difficult to know how to advise you. Further I would not advise anyone on an Internet blog since it requires the individual seeking such advice to divulge too much personal and financial information. So I recommend that you seek the advice of a CPA or CFP who is technically proficient, competent, experienced, and knowledgeable in the areas of IRA distribution planning, tax planning, and reverse mortgages.

As a side point, like the Cynic I find Mr. Bachman’s statement somewhat troubling especially if his firm is actually assessing retirement strategies for seniors. As a CPA and a long-time retirement planner, anyone who claims to assess the retirement plans of seniors should be cautioning seniors as to trying to recover their portfolios in retirement. In particular during retirement seniors should not be leveraging other assets in order to recoup losses they might have suffered as a result of the economic downturn. They should be formulating defensives strategies with some growth elements within it but such strategies should include looking into reverse mortgages to reduce monthly mortgage payments or supplement monthly cash inflows.

I wish you the best in working out the details of your retirement planning.

I'm sorry, but the trees are too thick for me to see a clear solution to what I assume to be the "big concern", namely abusive lending in the RM arena. I'm sure we have all observed, over the years, abuses in all areas of financial sales/planning, over leveraging, under leveraging, securities, insurance, you name it.
I just thought some one could answer my original question: i.e. what's a better way to let me, at my own free will, delay dipping into my basically stock IRA.
I gave myself three caveats today and will not be leveraging or making my portfolio more aggressive. (I've been running it for over 40 years.)

Susan I guess you don't understand how a house can pay for a reverse mortgage.

Personal experence story. i had a 88 year old borrower.
Who lived in a condo.I will call Pearl.She paid 50,000 for the unit. She put down 10,000 and borrowed 40,000. using an intrest only loan. Inrest payments went from 245.00 per month to 415.00 per month. she could not afford the payments. The condo appraised for 130,000 but pearl loved her community and refused to give it up. she has been leased her cars and continued living while the her intrest payments went up. Finally she colud not afford the payments up even though her sons chipped in to help Pearl who was independent and wanted to do it her self. So we did a reverse and elimanated the paymnets.
realising at her age she was able to aquire a loan for 113,000. enought to pay the motgage off and recoup her apprasail money so she was not out of pocket one cent and fix the shutters and pay the car lease and even leased a newer car. Now Pearl has turned 91 and I felt she need help paying her bills and a realtive close buy to watch over her. The 3 sons got together and decided to move her close to one of the sons who was retiring.Peral is stuburn but decided we were all right and decided to list the property and move to atlanta. Okay now when the familly called in the reators much to thier amazinment the condo was now worth 72,000 good condition plus would have to pay a realtor commission about 6% title insurance for the new borrower plus 3 back months of maintaince, intangable taxes. sellers closing cost approxamate 6500.leasving her with 65,500 - mortgage expense 58,000
paying the 40,000 covering her draws and about 11,000 closing cost.she owed 58,000 which leaves her 7,500 to move with. Well lucky lucky. she had a better solution she still had a balce available to her in the credit line could borrow of 67,000.Rember her only cash expense was 10,000 up front and her mortgage paymenats.
has far as the reverse mortgage she never spent a dime and at 91 she has 63,000 tax free money t to spend as hshe sees fit. Of course she turned in the keys to hud who wil probly sell it as a forclosuer. Oh by the way Pearl's familly have told she dosen't drive and misses our conversations and is toloraing her Daughter In Law and if she dosen't out liver her money her sons will inherit the balance.
I have the documents to back up my story. Expensive comapred to what!!!!!!!!!!!!!!!!!!!!!!!!!

Maybe I'm the only one but I re-read the article and still don't interpret his quote as offering advice... just making a statement of what he is seeing.

Also, for all we know there could've been more said when he spoke to the WSJ but they chose not to publish all of it.

dduck,

I appreciate the fact that seniors comment on this website whether they are originators or not. Your ideas on issues affecting those over 62 are highly valued.

Here is my problem with the statement and statements of Mr. Bachman on this subject. Mr. Bachman is not your typical reverse mortgage originator. He is allegedly the founder and CEO of Golden Gateway Financial, Inc. That corporation is eligible to provide reverse mortgages in California under a California Department of Real Estate license. Its website states:


"Golden Gateway Financial, located in Oakland, California, is a comprehensive resource for seniors to assess their financial health at retirement.

Our recognized resources, online tools, and award winning calculator make Golden Gateway the clear choice for seniors and their families. We provide unbiased communication and comparison-shopping for reverse mortgages, life settlements, and related services to help seniors enjoy retirement.

We are here to answer the questions, to calculate the possibilities, and to help you privately and easily compare financial options. And, we are here to do much more, like pointing you to better ways to manage retirement income, payments and overall budgets."



If Mr. Bachman is not providing advice, then what is he doing? Per his company’s own website that is exactly what his firm does. Mr. Bachman may be the best financial advisor on earth but combining general financial investment advice with the marketing of RMs is an area of great concern for many state legislators particularly here in California. Reducing the decision making ability of seniors in the RM process is not one I advocate but is to be found in state proposed legislation regarding requirements on RM lenders to determine suitability of the product for the borrower.

“As a trained financial professional” I am sure when you give financial advice you do so with an appropriate caveat; at least you did so in your comment: “…and most of us think that the market will recover somewhat from here.” I take it by “most of us” you mean trained financial professionals like yourself. Of course I find it most illustrative and illuminating that you fall into the same trap as so many financial professionals in stating “the market.” Which market is that? I think you would agree there are many markets and not all of them will necessarily recover as quickly as the others. Even if they do recover, some will have risks that others do not making the riskier markets ones in which it would be ill advised for a retiree to have a significant portion of her/his portfolio assets allocated to unless that senior were a very, very sophisticated investor who is well versed in avoiding unnecessary risk in that particular market.

Now we will come to some quick points. How much risk would you advise a senior to take with reverse mortgage proceeds right now? Would you advise leveraging the portfolio or increasing debt to increase the size of the portfolio? What about allocating to growth stocks? What about an irrational but emotionally selected stock like GM by a GM retiree? Would you consider reinvesting in other perhaps better positioned investment vehicles if the portfolio was still experiencing losses?

I know too many retirees who have lost their shirts in the “market” including Enron retirees even in relatively good times. I am very familiar with retirees and employee plan participants at another firm who due to retirement plan restrictions could not react quickly enough to cash in company stock that they held in that company's self-directed defined contribution plan accounts to avoid substantial losses or they put off such action due to overreliance on the silence of management. By the time that plan rules allowed them to change investments, the losses incurred by most were immense and it is doubtful they will be recovered in their lifetime. Some stayed in the plan hoping that the company stock would turn around and recover but it continued going down in a “very good overall market.”.

Before writing any more on the advisability of the espoused strategy, I think it is appropriate for a retiree who has experienced significant losses in any market to review his/her strategy with a fee based knowledgeable and experienced investment advisor and to read, listen, and consider as the retire reevaluates on how to invest in this particular “market” climate.

Before I subscribe to a strategy that uses reverse mortgage proceeds to give portfolios “time to more fully recover” there is a lot more I would want to know about a particular retiree’s portfolio. I certainly have no problem with a senior making that decision but I do have a problem with someone advocating any particular strategy with the use of reverse mortgages if the recommender has no idea about the composition of the retiree's portfolio.

I apologize if my strong and unwavering opinion on this matter offends you but that is why I said what I did.

CYNIC: I don't know who Mr. Bachman is, but I would like the opportunity to run my own investment accounts/IRAs and I will decide if I wish to delay dipping in to them without someone saying it is not wise. I am a trained financial professional and most of us think that the market will recover somewhat from here. Hence an RM or other strategy could be a potential planning tool for my personal use.
NO, I don't sell RMs.

For some time Mr. Bachman has been advocating: "We’re seeing more people use reverse mortgages to give their portfolios time to more fully recover." So is this investment strategy really working?

Stating a strategy over and over without any caveats is tantamount to advocating it. It seems Mr. Bachman believes that he is merely stating an observation without taking any position on the validity of that strategy. Yet Mr. Bachman is not just simply an observer, he is less than subtly marketing a specific use of reverse mortgages. His overuse of this “observation” with no caveats turned this alleged observation into an advocation of that strategy some time ago.

How does this strategy differ from advocating the use of reverse mortgage proceeds to acquire or increase a portfolio? Why doesn’t Mr. Bachman advocate: “We are seeing more people using their reverse mortgages to buy investments and increase their portfolios?” Imagine if one of those seniors who took out a reverse mortgage to give them more time for their portfolio to recover had and kept all of their money invested in GM stock.

It is no wonder that FINRA used its resources last summer to question investment strategies using reverse mortgages. People like Mr. Bachman are begging for someone who used that strategy and did not recover (or lost even more) -- to sue.

Currently state legislators are proposing suitability standards that lenders must employ before providing RMs. Who can blame them with RM leaders advocating positions similar to those that Mr. Bachman is actively marketing through his use of the press?

So after months of advocation how many of those people who are using this strategy have seen their economic net worth (net of all potential tax consequences) grow? While not accurate it can be reasonably estimated. Unlike better quality of life statements, the results of this use of reverse mortgages are measurable.

For the sake of the credibility of our industry, I hope that Mr. Bachman will stop making this claim (unlikely), caveats this statement, or is forced to stop making it by external forces (a potentially terrible consequence to us all).

To Mr. Russo or other expert: We are in exactly the same situation as the Riders. IRA/Retirement funds too beaten up to take distributions now. We will need extra income for retirement shortly.
What is the "LESS COSTLY" way to achieve extra income than a RM? (Not academic, since we live in a NYC coop apartment.) BTW, isn't there a NY tax on home equity loans that adds to the loan fees?

Susan,

Please explain how a house pays costs. Not only is the senior paying the costs, they are paying interest on those costs and FHA MIP monthly on those costs unless they are paying them upfront in cash which is self-defeating since a HECM automatically terminates when paid in full.

This nonsense talk about a house paying anything is just that. The lender is providing the cash and this is a loan....

Perhaps Mr. Vincent Russo ignores the fact that Frank & Carol Rider now enjoy life more as a benefit derived from the reverse mortgage because he cannot put a price tag on that decision or make a more logical statement like;"taking out a reverse mortgage is expensive compared to .......".

May I recommend that when you are educating a financial service professional on the benefits of a reverse mortgage, you start of with the words, "Of course you know that......" and normally the ego kicks in and the response is "Of course I know".

I always find it interesting that people in the media, law, etc, earning six figure plus incomes focus on perceived negatives of reverse mortgages. They have no idea how the majority of my clients struggle on 700-1200/mo incomes and how very relieved and happy they are with their reverse mortgage proceeds. The cost is not a big issue and eventually the house pays those costs.

Mr. Dobolina -
Keep in mind the difference between "actual" breakeven and "cash flow" breakeven. The former is a much trickier issue.

It's funny how Vincent Russo would say the RM is an expensive way to suspend withdrawals for their beaten down retirement accounts, I would ask the clients to see their retirement account and the beating it took.

Probably a little bit more than the 15-18K it will cost them. The clients break even is a little over 6 months (using their mortgage payment of 2700/mo and 18K in closing costs).

These so called "Financial Experts" need an education on the RM.

They have been writing about that over at www.reverse-mortgage-information.org for some time now, wonder why WSJ is now picking up on that.