As to the reverse mortgage loans, it really can be a surprise, what the heirs get. However, also the lives of the older people are very valuable and it is totally right that they use the reverse mortgage loans to be able to live a full life!

Juhani Tontti
htto://www.ReverseMortgageEarnings.com

dduck12,

Like some have previously observed, your views on immediate annuities and HECMs are much different than many in this industry.

Even if immediate annuities had higher earnings, when considering accrued interest, additional fees, income taxes, penalties, and other monetary factors, it is difficult even from a purely economic standpoint to justify the use of HECM proceeds to acquire any annuity, immediate or not. Of course, the real benefit of an annuity is portability especially if a HECM borrower no longer owns a home.

Since 2005, a few of us including an individual who is an annuity sales (a separate license beyond an insurance license is required in California) and securities licensee with related degrees including a certificate in financial planning from the University of California system, have been requesting those who advocate using HECM proceeds to buy annuities to show us why. To date, no one has responded to that call.

At some point it would be a great idea if you could put together a model of the ideal HECM candidate who should get an immediate annuity with the reasons why including any numerical justifications. That exercise would be very beneficial. As a retired financial advisor, you can appreciate why this is so important to us.

dduck12,

The problem with all immediate annuities purchased with reverse mortgage proceeds is if the annuitant passes away say three days after the purchase, nothing has been received but the mortgage must be paid (based on HECM nonrecourse rules) in full. In case of a shorter life expectancy why not take HECM term payments? In principle they are no different than an annuity for a time certain. The risk is if the borrower outlives the shorter life expectancy, there would be no more payouts.

I worked with several multiemployer retirement plans to determine if they should be annuitized or simply left in place to wind down due to withdrawal of the related employers from the plan. In one case a partner and I approved annuitization for one plan with over 20,000 participants and beneficiaries. That annuitization made the insurance licensee so wealthy he retired within weeks while only 42 years old. I may not be a financial planner but in some very small measure, I understand annuities.

What I am trying to understand from financial planners who advocate the use of annuities, when do they believe they are appropriate and why. In some cases my partners and I recommended annuitization and in others, winding down the plans seemed more beneficial to the participants and beneficiaries.

We're looking into a reverse mortgage for my mom (plus, with a sister with mental health issues, we already have planned a trust. It's very complicated). And it all has pointed out to my husband and me that we need to do some planning for down the road! We're so consumed with college costs (and those will continue quite a while) that it's hard to think past that, but we really need to. We're getting some help with estate planning from “Die$mart Guide to Death and Dying,” by Kathy Lane. It's pretty straightfoward and easy to understand. I had never realized before how complex the laws surrounding managing and transferring assets have become. There were several areas where we learned how vulnerable we are and how our wishes or assets might be treated differently than we originally thought.

(We also found some areas where my mother-in-law's estate needs tinkering — and we thought that plan was in great shape! That has been very beneficial as well.)