WSJ: Economy Forces Baby Boomers to Leave Less to Heirs

imageInteresting article from the Wall Street Journal about how many baby boomers are re-evaluating their retirement plans and find that they’re forced to leave less or god forbid nothing to their heirs.

Being in the reverse mortgage business, we often get pushback from borrowers heirs about how using a reverse mortgage will deplete any money that would be left to them when Mom and Dad pass away.  Now, as millions of families are struggling with new financial realities, including heavy losses in many retirement accounts, even the well are re-thinking how much to leave to their heirs. 

WSJ journalist Brett Arends writes that: 

Advertisement

Wiping out your wealth when you go — "filing Chapter Heaven," as it were — might sound like a scorched-earth plan. The cynical might even suggest it fits well with the locust-like financial behavior of the Baby Boomers, who consumed a golden legacy and have left their successors trillions in extra national debt.

Maybe it’s selfish, maybe it isn’t. Either way, unless financial markets recover soon, many may find they have few other options

Baby Boomers to Kids: Kiss Your Inheritance Goodbye

Join the Conversation (8)

see all

This is a professional community. Please use discretion when posting a comment.

  • 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

  • Admin

    Thanks for that article. It points out some of the pluses and minuses of immediate annuities, the only kind of annuity I would ever recommend to most seniors fitting the profile of a RM prospect. However, as the article mentions:
    ” Annuities aren't a great deal right now, he notes, because interest rates, which drive returns, are pretty low…”
    So what this means is, that tenure probably beats an IA payout right now. I would be emphasizing that lifetime income (for the RM prospect and his/her spouse) can be a wonderful financial planning tool and tenure has the advantage of a higher payout-right now. (There are caveats, as I have pointed out in prior posts, so be careful if trying to compare the two payout methods.)

  • 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.

  • Mr. Veale

    As I have posted several times now, I am currently in favor of tenure over an IA.
    I am just looking for what I consider to be the best tool for the job.
    An example where I would definitely say it would be prudent to consider a IA would be borrower(s) with a much lower expected life span(s). The so called “insurance” under the HECM is not medically underwritten, and a borrower could get a much higher monthly payout with a rated IA.
    A second example, as you have mentioned, is when the borrower no longer owns the home. For instance, he is forced into one of Sen. McCaskill's husband's nursing homes. Think how many seniors live in apartments/houses with narrow hallways and too small bathrooms for a wheel-chair bound person. By the way LTCI will hopefully be in place to pay for home renovations and nursing home costs.
    Right now the numbers for a IA are not favorable compared to tenure for persons in good health, so why beat a dead horse; I'm on your side as are many legitimate financial planners. People in ill health are a different situation,
    and one would need to submit medical records to an insurer for a individual rated annuity quote. So, sorry, no exercise this time.

  • 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.

  • Mr. Veale
    In practically every IA case, a 5, 10, 15 or 20 year minimum is guaranteed to the annuitant, even if death occurs in two days.
    I have had clients INSIST on life only because they want the highest payments (the guaranteed period ones provide lower payments- equivalent on an actuarial basis) and have no heirs to worry about; “you pays your money, you make your choice”.
    As far as taking a term payout goes, that might work, as you pointed out, but no more money would be paid even if Mr. and Mrs. borrower are still alive after the period. I think, a bad outcome if they are dependent on the income.
    Also, how would that work if the borrower has to go into Mrs. McCaskill's husband's nursing home for over a year?

    Your question as to why IAs, is simple for it's many fans and to me personally. I love the idea of getting a guaranteed payout each and every month for as long as I and my spouse are alive, regardless of where I am (in my present home, another home, or in a facility). It makes planning/budgeting easier when I can approximate money coming in and bills being paid. Unlike you, I am lousy at math and I like the certainty of an income for life stream. By the way, as I have said before, I wish there were a tenure only RM alternative product. I think it would simplify things and eliminate some of the greed factor motivating some relatives and those crooked insurance sales predators. (Willy Sutton only went to banks because that's where the money was.)

  • 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.)

  • Liz

    Get the best estate lawyer you can find in your area. Books are great, but there is no substitute for a good estate planner- in person- to access your family's particular circumstances and wishes. By all means read the book and prepare a list of questions for your initial interview. As an informed client, you may speed the planning process.

string(99) "https://reversemortgagedaily.com/2009/07/24/wsj-economy-forces-baby-boomers-to-leave-less-to-heirs/"

Share your opinion

[wpli_login_link redirect="https://reversemortgagedaily.com/2009/07/24/wsj-economy-forces-baby-boomers-to-leave-less-to-heirs/"]