Study Touts Reverse Mortgage Benefits to Financial Planners

A recent study aims to help financial planners realize the merits of using reverse mortgages to supplement their client’s portfolios.

The study, published by Jerry Wagner of Ibis software, a reverse mortgage software provider, was included in the Journal of Financial Planning, an industry publication for financial planners. 

Deviating from what financial planners have known as the 4% rule, which determines the spending success of an individual’s portfolio throughout the course of a 30-year retirement, Wagner introduces what is known as the 6% rule, outlining a portfolio’s spending success when it becomes supplemented by a reverse mortgage.


The study affirms that with a 30-year spending horizon and a first-year withdrawal of 6%, reverse mortgages can provide “spending success” levels of 88-92%, writes the study’s author Gerald Wagner, Ph.D., who is also president of Ibis Software.

“A financial planner’s goal is to be able to sit down with a couple (or person), review their portfolio and other income sources, and create a plan that is both logical and explainable,” Wagner says.

Wagner’s study shows that the 4% rule works well with portfolios that are at least 50% invested in equities, and then shows how the use of a reverse mortgage can be used to “easily create new rules, such as the 6% rule for a 30-year horizon.”

“Greater utilization of the reverse mortgage gives higher portfolio balances, but necessarily uses up home equity,” Wagner writes. “The six reverse mortgage options give higher overall results across all portfolio equity mixes than just relying on the portfolio as the source of retirement spending.”

The six options Wagner refers to include what he refers to as tenure advances; term loan advances over the spending horizon; term loan first; line of credit draws first; line of credit draws with a fixed threshold and Sacks’ coordinated strategy—all of which are outlined in the study.

Two reverse mortgage strategies dominate, according to Wagner, given the formula of a 63-year-old borrower living in a $450,000 home and having an $800,000 retirement portfolio.

The “term plan first” strategy, he says, would give an 89.4% chance of withdrawing 6% annually over 30 years if the client’s retirement portfolio is invested 70% in equities, compared to 42.8% chance of the client’s portfolio “going it alone” without a reverse mortgage. 

Additionally, under the “term plan first” method, a client’s net worth could be $429,500 higher at 15 years, Wagner says.

The second strategy is reverse mortgage “term advances over the spending horizon.” While expected net worth under this scenario is less than the first strategy, Wagner says, the loan balance at 15 years is smaller and the 30 years spending success rate is several points higher.

Under this strategy, if the client’s portfolio is invested 70% in equities, the “term advances over the spending horizon” plan would give a 83.2% chance of success of withdrawing 6% annually over 30 years, and at 15 years the client’s net worth could be $282,800 higher.

Reverse mortgages can benefit retirees by supplementing their retirement portfolios with additional funds, however, common misconceptions surrounding the loans continue to be a challenge—one that financial planners must acknowledge in their discussions with clients.

“Today, very few Americans in retirement or about to retire have entered into a reverse mortgage,” says Wagner. “Some clients will resist the use of these products because they consider their home as sacred. However, a reverse mortgage may be considered as another financial planning tool with no stigmas attached to its use.” 

Written by Jason Oliva

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  • If replicated by others unaffiliated with the reverse mortgage industry, Jerry Wagner’s study could give reverse mortgage originators another tool to persuade financial planners to use reverse mortgages (especially tenure and term payout options) to supplement portfolios of securities in retirement.
    (A) In retirement, a portfolio of securities aided by a reverse mortgage term or tenure payout plan is stronger than one without a reverse mortgage;
    (B) Financial planners should help their clients build their reverse capacity (defined here as ability-to-borrow via a reverse mortgage) as they are building their securities portfolios by making additional monthly payments to reduce forward-mortgage principal;
    (C) Translate this study into English for consumers, reverse-mortgage originators, and financial planners.

    • Well said, Atare. Unfortunately, as interest rates rise and principal limits contract with no corresponding reduction in cost, the various ‘HECM as portfolio enhancement’ strategies will be an even tougher sell to a resistant financial planning community.

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