Utilizing Home Equity Was Never Part of Retirement Planning, Starting to Change

NewImage.jpgUsing home equity as part of their retirement planning was never part of the equation for Older Generations according to Financial Planning.

Older generations considered the home something to be preserved, paid off free and clear before retirement and left to heirs as a legacy.  However, many in the industry feel it’s time to reconsider and a reverse mortgage as an integral part of a client’s long-term portfolio and to figure out strategies for leveraging clients’ homes that go beyond basic reverse mortgages

“Historically, the previous generation was dead set against ever using the house to fund retirement,” says Brad Davis, vice president of retirement income solutions for Nationwide Financial. And financial planners often view their job as asset preservation rather than the drawing down of assets. “When advisors talk to clients about assets for retirement, home equity really hasn’t been part of that discussion,” says Sandra Timmerman, director of the MetLife Mature Market Institute (MMI).

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In the past many advisors have viewed reverse mortgages as complicated and expensive, used primarily by seniors in lower income brackets as a last-ditch solution says FP.

Yet seniors have a sizable portion of their net worth tied up in their homes. In today’s economy, even affluent clients may need to reconsider utilizing their home equity as a resource. “A lot of affluent people have been hit hard by the stock market crash, lost their shirts investing in real estate or perhaps their golden parachute or retiree pension has evaporated,” says Barbara Stucki, PhD, director of the Reverse Mortgage Initiative for the National Council on Aging. “What may at one point have seemed like a secure future may seem less so now, and they may need to fall back on assets [such as the home] they once would not have considered using.”

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  • Ah, the sweet sounds of the Sirens of the financial planning world.
    It all makes logical sense until the greed on the part of the borrower meets up with the, ahem, artful plans of the “financial expert”. Big fish, like pensions and governments know all about seductive sounds of Wall street– NOW.
    Watch out little fish, the good planners out there have a hard time competing with the more crafty “planners” out there. Like Greek mythology's Odysseus, watch out for the rocks.
    All that being said, RVs are best suited as life preservers and for filling big gaps in a financial/estate plans.

  • Retirement planning obviously means using reverse mortgages as a tool to free up cash for financial planning and cross selling. Investments, Annuities, Life Insurance, Long-Term Care Insurance, etc., are all on the table. When will the politicians, regulators and the kiss-ups in the reverse mortgage industry come in out of the stone age.

    • lpassman,

      Why does cross selling have to be part of a financial plan? That makes no sense whatsoever. The prohibition under HERA is such a small window that it is hard to understand your reaction.

      HERA somewhat dealt with this matter but we have those who still do not see the inherent conflict of interest in creating a “plan” for a customer where the “planner” earns a commission for creating the cash for the customer to buy an investment while earning an additional commission for selling the investment; on its face, it looks very suspectible to “planning” which has less to do with customer benefits than with maximizing commission income to the “planner”.

      Such dedication to the absurd is exactly the reason why more and more states will see the advisability of adding prohibitions against cross selling into their statutory framework. I really wonder if you are not a “senior advocate” in disguise provoking state legislators to put more such laws on their books. It certainly looks that way.

  • Unless the senior is keeping his home for one of his or her needy kids they should look upon the home as a retirement plan. You pay while you are working and you are paid in retirement.

  • I hesitate to refer to this site because it is full of inaccuracies and errors. However, the point is some people will try to separate people from their money for no other reason than to sell a product/service/whatever.
    http://moneywatch.bnet.com/saving-money/blog/de

    Just substitute the Roth conversion argument and use Reverse Mortgage, and wallah, a pot of money for the greedy.

      • You sound like you think I was not always on the side of the consumer/client.
        I was, and still am. Concepts are fine, and Willy Loman thought banking and banks and savings were a neat idea also. He just liked to make unauthorized withdrawals. As I've said in the past properly used, RM funds can benefit a family financial plan. Tenure payments and LTC insurance premium payments are also great uses, but allowing folks to stay in their homes is paramount. However, too much temptation to double dip commissions is the fly in the ointment.

  • You sound like you think I was not always on the side of the consumer/client.nI was, and still am. Concepts are fine, and Willy Loman thought banking and banks and savings were a neat idea also. He just liked to make unauthorized withdrawals. As I’ve said in the past properly used, RM funds can benefit a family financial plan. Tenure payments and LTC insurance premium payments are also great uses, but allowing folks to stay in their homes is paramount. However, too much temptation to double dip commissions is the fly in the ointment.

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