Financial Planners: Reverse Mortgage Traditional Use is All Wrong

Two researchers proved through analysis published in February that a reverse mortgage credit line can lead to “substantially greater cash flow survival probabilities” for people who are planning for retirement.

Published in the Journal of Financial Planning, Barry Sacks, Ph.D. and Stephen Sacks, Ph.D. detail three strategies for using home equity in the form of a reverse mortgage credit line to increase the safe maximum initial rate of retirement income withdrawals.

Examining a last resort strategy; a credit line strategy used after other investments have shown negative returns; and drawing upon the reverse mortgage credit line first, before other forms of investment, Sacks and Sacks find that the retiree’s portfolio plus home equity net worth after 30 years is about twice as likely to be greater when one of the latter two strategies is used.


“The conventional wisdom holds that home equity, drawn upon in the form of a reverse mortgage (discussed below) or similar product, should be used as a last resort, only if and when the account is exhausted,” the authors write. “This is a rather passive approach. We show that the probability of cash flow survival is substantially enhanced by reversing the conventional wisdom.”

The reverse mortgage is not necessarily the best option for everyone, they write, but for those who do decide to take a reverse mortgage, the research shows how it can best benefit them in retirement. The use of a credit line planned in advance is far more beneficial than the “last resort” strategy, they find.

View the full reverse mortgage analysis.

Written by Elizabeth Ecker

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  • This was exactly the strategy I wished to employ when I first got interested in RMs years ago.  I had an investment/IRA portfolio that was about 50% of what it is today.  I was foiled because we live in a co-op.
    But it would have worked for this unusual period of time, I don’t know about other time periods.

  • There is nothing new or revolutionary about the Sackses’ conclusion on the HECM creditline. Average students of HECM have always known that the creditline is a better payout option for a variety of reasons. 

  • The article is a major breakthrough.

    Some will claim that the article shows how a reverse mortgage is not a loan of last resort. Others will say that they have thought this way for a long time. And still others will state that we already knew this.  To be clear it is a rather lackluster and stilted presentation on the potential of HECMs as a financial, cash management, estate planning, and tax planning tool.

    HOWEVER, it is a milestone because this is an article written by financial professionals for other financial professionals.  It does not try to market or hype the product or identify a particular originator, TPO, or lender.  Most importantly it gets the fundamentals substantially correct.

    It is a flawed presentation with several questionable assumption issues but it is also something which should mean a great deal to a significant segment of us in this industry.  It along with the work of Mr. Harold Evensky, CFP and Dr. John Salter, CFP provides a means to reach out to the financial community to further penetrate a greatly underserved referral base.

    What the article does is cause financial planners who read it (another major issue) to have to think about the product in pure financial terms which many members of our industry fail to comprehend or present.  Without that type of analysis, it is difficult to understand how the product fits into their clientele.

  • This article lays out something I’ve known for years, the day I entered this business 10 years ago it was intuitive to me.  The fact that all financial planners don’t include a RM, along with its effect on retirement cash flow and net assets, in their analysis continues to baffle me. 

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