Financial Planners Stress Critical Role of Reverse Mortgages in Retirement

Reverse mortgages will play a critical role for retirement planning in the coming years as many retirees look to recoup their savings that took a hit during the Great Recession, according to a recent study published in the Journal of Financial Planning

The recent economic downturn has weakened the traditional retirement assets for many retirees—Social Security benefits, pensions and personal savings—suggests the study “Retirement Trends, Current Monetary Policy, and the Reverse Mortgage Market.”

Because of this, “identifying and using alternative sources of retirement income has become critical for current and future retirees,” write the study’s authors David W. Johnson, Ph.D, and Zamira S. Simkins, Ph.D.


But where these three legs of the traditional retirement “stool” have been negatively impacted in recent years, reverse mortgages could help provide the added support retirees need to supplement their portfolios.

The study outlines reverse mortgage basics, including qualifications and recent program changes to the Home Equity Conversion Mortgage (HECM) program, as well as several cash flow scenarios.

The study also describes how current economic conditions and actions taken by the Federal Reserve have impacted the savings of many of the nation’s senior population, and how these circumstances have increased the potential of reverse mortgages in retirement planning.

“The recent housing market crash has had a negative impact on the reverse mortgage market, but the current expansionary monetary policy may create new opportunities,” write Johnson and Simkins. “In the long term, reverse mortgages likely will become a significantly more important part of retirement planning.”

While reverse mortgages may have caught a bad rap in years past, perceptions may start turning around as more people use them to supplement their retirement savings, rather than as tools for last resort.

“Current and future retirees need to re-examine their views and consider including a reverse mortgage as a part of their retirement plan,” the authors conclude.

Read the Journal of Financial Planning study 

Written by Jason Oliva

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  • Too bad most Boomers have such big mortgages. HUD should consider allowing secondary financing and unsecured borrowed funds in order to allow a greater number of retirees to get out from under hefty mortgages.

    • hecmvet,

      Please explain why those seniors cannot obtain such secondary financing.

      Knowing the rules, why can’t funds from unsecured debt be used sufficiently in advance to HECM application to pay down those mortgage balances so that they will be able to get a HECM? Certainly not all prospects can do that but some can.

  • Jason,

    Good article and the timing of it is right on target! Financial planners will be playing a greater roll than ever before for the reasons you mentioned.

    Getting out to meet them and putting on an educational work shop for the staff will be a very important step in creating a long term relationship and client for us in the reverse mortgage industry.

    We need to find new avenues of business out there in order to survive. The good news is that there are plenty of new resources to go after and the HECM product will be in more demand than before, especially in the new markets that are available to us.

    John A. Smaldone

  • The article is a rather interesting mixture of the recognition of more support from the financial community, older issues such as reduction of the Principal Limit by the Servicing Fee Set Aside, and incorrect and imprecise observations about the recent changes to PLFs.

    While it was positive, it also was significantly flawed. Of course I also recently received a recent email from a competitor which kept using the abbreviation SRP when in fact, the author meant YSP; it was odd how many times the author used SRP.

    There is no question that articles like this one are much easier to deal with then those with a negative slant. It will be nice when the vast majority of articles are like this. Let us hope that day is on the rise.

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