Reverse mortgages were long thought of as a last-ditch effort allowing retirees to stay in their homes, but that all might be changing, writes investment advisor Scott Burns, chief investment strategist and founder of AssetBuilder, in an article this week.
“They were badges for people soon to be broke…” Burns writes. “I should confess that I shared that view. Based on reader mail, reverse mortgages were great examples of too-little-too-late. The vast majority of the people who wrote in asking about reverse mortgages really needed to rethink where they lived, not draw down what was usually their last asset.”
He has since changed his mind, he writes.
Rather than the “Rodney Dangerfield of financial planning tools,” today Burns sees merit in a recent study conducted by Barry Sacks and Stephen Sacks, a tax attorney and economist who recently penned an article in the Journal of Financial Planning to demonstrate an untapped market for reverse mortgages they found.
“If a recent Journal of Financial Planning paper gets traction, the use of reverse mortgages will move from people who are desperate to practical people who have both home equity and some financial assets. This will happen for a totally unexpected reason. Retirees can use a reverse mortgage as a tool for increasing the probability they won’t outlive their assets while increasing their retirement spending. In other words, if reverse mortgages are used early, rather than late, they can be as important in the retirement planning toolbox as life annuities.
Just as John Ameriks and others found a decade ago that converting a portion of your retirement assets into a life annuity could increase the probability of portfolio survival, using a reverse mortgage early in retirement works to reduce the impact of bad markets in the early years of retirement— what some call “the sequence of returns problem.” Just as the high cash flow from a life annuity can work to reduce portfolio withdrawals early in retirement, a reverse mortgage— taken early— does the same thing.
Read the original article.
Written by Elizabeth Ecker